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IN THE HIGH COURT OF KARNATAKA AT BENGALURU
DATED THIS THE 15TH DAY OF JANUARY 2021
PRESENT
THE HON'BLE MR. JUSTICE ALOK ARADHE
AND
THE HON'BLE MR. JUSTICE NATARAJ RANGASWAMY
C.E.A. NO.46 OF 2014
BETWEEN:
THE COMMISSIONER OF SERVICE TAX
SERVICE TAX COMMISSIONERATE
TTMC/BMTC BUILDING
DOMLUR, BANGALORE-560017.
.... APPELLANT
(BY MS. VANITA K.R. ADV.,)
AND:
M/S. SILVERLINE ESTATES
THE FALCON HOUSE
NO.1, MAIN GUARD CROSS ROAD
BANGALORE-560001.
... RESPONDENT
(BY MR. RAGHURAMAN, ADV.,)
---
THIS C.E.A. IS FILED UNDER SEC. 35G OF THE CENTRAL
EXCISE ACT, ARISING OUT OF ORDER DATED 18-02-2014 PASSED
IN FINAL ORDER NO.20224/2014 IN APPEAL NO.ST/2297/2012-
DB, PRAYING TO DECIDE THE SUBSTANTIAL QUESTIONS OF LAW
FORMULATED AT PARAGRAPH 6 OF THE APPEAL MEMO. SET
ASIDE THE FINAL ORDER NO.20244/2014 DATED 18-02-2014
PASSED IN APPEAL NO.ST/2297/2012-DB BY THE CUSTOMS,
EXCISE & SERVICE TAX APPELLATE TRIBUNAL, SOUTH ZONAL
BENCH AT BANGALORE VIDE ANNEXURE-A.
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THIS C.E.A. COMING ON FOR HEARING, THIS DAY,
ALOK ARADHE J., DELIVERED THE FOLLOWING:
JUDGMENT
This appeal under Section 35G of the Central Excise Act, 1944 (hereinafter referred to as 'the Act', for short) has been filed by the revenue which was admitted by a Bench of this Court vide order dated 10.06.2015 on the following substantial question of law:
"Whether the determination of service tax by the Central Excise Officer, is necessary .. making a demand under Section 73A(3) of the Finance Act, 1994?"
2. Facts leading to filing of this appeal briefly stated are that the assessee is engaged in the activity of development and construction of residential apartments. The assessee did not collect service tax on the activity of development and construction of apartments during the period from 2006 to 2009. The properties in dispute namely residential apartments, were constructed and completion certificate was obtained on 21.08.2009. Since there was no clarity on the liability of service tax, the assessee, while settling the accounts finally with the buyers of the apartments, collected 3 certain amounts which was in the interest of both the parties namely assessee and buyers and were kept in an escrow account. A proceeding was initiated under the provisions of the Act against the assessee on the ground that the collection of amount and deposit in bank account, amounts to collection of service tax as per provisions of Section 73A of the Finance Act, 1994. The Adjudicating Authority, by an order dated 25.05.2012, directed collection of Rs.2,44,17,471/- which was kept in the escrow account along with interest and penalty under Section 77 of the Finance Act, as service tax.
3. Being aggrieved, the assessee thereupon filed an appeal before the Customs, Excise and Service Tax Appellate Tribunal (hereinafter referred to as 'the Tribunal' for short). The Tribunal, by an order dated 18.02.2014, inter alia, after taking note of Section 73(2) of the Act, held that if the person has collected any amount as service tax, the amount has to be paid to the Government. It was further held that the amount collected by the assessee was kept in an escrow account and it had given an assurance to the buyer that if the amount is not liable to be paid, the same shall be paid 4 with interest. It was only a deposit which was not taken into account by the assessee and can be in a separate account namely escrow account, to ensure safety of money and to ensure disbursement to the ultimate customers. The assessee has not covered the amount as service tax. The Tribunal held that the Commissioner, in any case, should have determined and thereafter, should have raised a demand under Section 73A(3) of the Act. In the aforesaid factual background, the revenue has preferred this appeal.
4. Learned counsel for the revenue, while inviting the attention of this Court to paragraph 2 of the agreement executed between the assessee and the buyer, a copy of which was produced before us, submitted that in view of clause 2 of the agreement, the assessee was liable to pay service tax to the revenue. It is also submitted that the assessee did not intimate about the collection of amount from the buyers of the home and about creation of escrow account. It is also submitted that the amount in question was recovered as service tax and therefore, the same ought to have been remitted to the account of the State Government.
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5. On the other hand, learned counsel for the assessee submitted that the Central Board of Excise and Customs has issued a clarification dated 01.08.2006 which provides that if no other person is engaged for construction work and the builder / promoter / developer undertakes construction work on his own without engaging the services of any other person, then in such cases in the absence of service provider and service recipient relationship, the question of providing taxable service to any person by any other person does not arise. It is also urged that the developers of residential complex were not liable to pay service tax prior to 01.07.2010. In this connection, our attention has been invited to clarification dated 10.02.2012 issued by the Central Board of Excise and Customs. It is also submitted that the completion certificate was obtained on 21.08.2009 and while inviting the attention of this Court to Section 73A(5), it is submitted that the assessment ought to have been made before raising the demand on the assessee. It is also pointed out that the aforesaid issue is no longer res integra as the same has already been answered by the learned Single Judge in 'PRASHANTHI Vs. UNION OF 6 INDIA' (2016) 41 STR 392 (KAR). The aforesaid decision has been affirmed by the Division Bench of this Court in 'UNION OF INDIA Vs. PRASHANTHI' (2016) 43 STR 350 (KAR). Therefore, the substantial question of law framed in this appeal is required to be answered in favour of the assessee.
6. We have considered the submissions made on both sides. We propose to confine ourselves only to the substantial question of law on which this appeal has been admitted namely, whether determination of service tax by the Central Excise Officer, is necessary before making a demand under Section 73A(3) of the Finance Act, 1994. From perusal of Section 73A(5) of the Act, it is evident that the amount paid to the credit of the Central Government under sub-section (1) or sub-section (2) or sub-section (4) shall be adjusted against the service tax payable by the person on finalization of assessment or any other proceedings for determination of service tax relating to the taxable service deferred to in sub-section (1). Thus, from perusal of Section 73A(5) of the Act, it is evident that the assessment must precede the demand. After taking note of 7 the provisions of Section 73 of the Act, the learned Single Judge of this Court has held that the power to create a demand under Section 87 of the Act can be exercised only after adjudication namely on assessment of the amount. The aforesaid view has been upheld by the Division bench of this Court in the case of 'UNION OF INDIA Vs. PRASHANTHI', supra.
7. In view of preceding analysis, the substantial question of law framed by this Court is answered in favour of the assessee and against the revenue.
In the result, we do not find any merit in the appeal. The same fails and is hereby dismissed.
Sd/-
JUDGE Sd/-
JUDGE RV