The Commissioner Of Service Tax vs M/S Silverline Estates
2021 Latest Caselaw 889 Kant

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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

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

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.

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

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

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