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PJ/Case Laws/2012-13/1443

Whether amount received as deposit for maintenance chargeable to service tax?

Case:-  ROHAN BUILDERS Vs COMMISSIONER OF SERVICE TAX, BANGALORE
 
Citation:-  2013-TIOL-300-CESTAT-BANG

Brief Facts:- The appellant is a flat promoter and the dispute relates to the amount collected by the appellant from the individual flat owners as deposit for the purpose of “maintenance” which responsibility has to be ultimately undertaken by the association of flat owners. The appellant has undertaken the maintenance work even when only some of the flats were sold and the rest were yet to be sold. After all the flats were sold, they could continue this service at the request of the flat owners, as stated by the appellant. The department has treated the entire amount so received as advances from the flat owners as service charges towards rendering the 'maintenance and repair service' and accordingly confirmed service tax along with interest and imposed penalties under Sections 76, 77 and 78.
 
Appellant’s Contention:-The Appellant submit the relevant agreements and the statutory provisions including the provisions under the Karnataka Ownership of Flat Act submits that the promoter is required to maintain the building and the common facilities till the association is formed by the flat owners and takes over the responsibilities. He submits that the maintenance work is undertaken normally out of interest amount which is likely to accrue on the deposits. If the maintenance expenses exceeds the projected interest, the excess amount is recovered from the flat owners proportionately and in case the expenses towards maintenance is less than the interest, the balance amount of interest is added to the principal amount. He further submits that finally the deposit is liable to be handed over to the association as and when the association is formed by the owners of the flats. It is his submission that they as promoters are not rendering any maintenance services to the flat owners. In case, it is treated as service provided by them, they should be treated as rendering the said services only as a trustee on behalf of the owners of the flats. They may also be considered as pure agent for the purpose of rendering services and for the purpose of valuation of service in terms of Rule 5 of the Valuation Rules. On these grounds, he also submits that extended period of limitation should not be invoked and there is no justification for invocation of the penalty. Demand amount relates to amounts collected as interest for delayed payment on installments by some of the flat owners. This cannot be treated as towards rendering of Construction Services but only as a compensation for delayed payments by the concerned flat owners

Respondent’s Contentions:-The Respondent reiterates the findings and reasoning of the Commissioner.           
 
Reasoning Of Judgment:-Tribunal has carefully considered the submissions from both sides and perused the records. Prima facie, the appellants are undertaking necessary maintenance work of common facilities. However, the entire amount of deposit taken cannot be treated as consideration towards such services, and only the amount utilized out of interest earned on the deposits may qualify to be considered as consideration for the services. The demand may not exceed Rs.7 lakhs as per the submissions of the appellant. Taking entire facts and circumstances of the case into account, it was directed to deposit within six weeks from today and report compliance to the Assistant Registrar and Assistant Registrar to report to the Bench. Subject to deposit of the above amount, there will be waiver of pre-deposit of the balance of dues as per the impugned order.
 
Decision:- Pre-deposit Ordered partly.
 
Comment:-The analogy drawn from this case is that normally amount collected as deposit and as ‘trustee’ is not chargeable to service tax as there is no consideration involved but in the present case, as the matter was of stay application, pre-deposit of interest amount on the deposit was directed to be made. 

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