Whether service tax collected from the customers and kept in escrow account attracts provisions of section 73A?

PJ/Case Law/2014-15/2123

Case:-SILVERLINE ESTATES Vs COMMISSIONER OF SERVICE TAX, BANGALORE

Citation:- 2014-TIOL-458-CESTAT-BANG

Brief facts:- The appellant is engaged in the activity of development and construction of residential apartments. They did not charge and collect serviced tax on the activity of development and construction of apartments during the period 2006 to 2009. The properties in dispute (residential apartments) were constructed and completion certificate was obtained in 21.8.2009. Since the appellant had no clarity on liability of service tax while settling the accounts finally with the buyers of the apartments, they collected certain amount which was in the interest of protecting both the buyers and the appellant from any future exposure to service tax liability if their service falls under the category of ‘works contract'; and the amounts collected were kept in a separate escrow account. Taking a view that the collection of amount and deposit in bank account amount to collection of service tax and this amount should have been paid to the Government as per the provisions of Section 73A of the Finance Act, 1994, proceedings were initiated. In the impugned order, the amount of service tax of Rs. 2, 44,17,471/-, collected from the apartment owners and kept in the escrow account, has been demanded with interest. Penalty of Rs. 5000/- under the provisions of Section 77 of the Finance Act, 1994 has been imposed.

Appellant’s contentions:- The appellant had produced a simple letter issued to their customers. In paragraph 2 of the agreement under the heading ‘Final statement of account', it has been stated as follows:

"We are enclosing here with your final statement of account which includes, besides the Unit Value, the extra payable to us towards infrastructure, taxes, maintenance, etc. This statement is being sent to you at this juncture so that you can plan suitable for these costs which are payable by you. As regards the applicability of service tax there are conflicting opinions to the effect that there is a liability to pay service tax under the head works contract. As of now there is no clarity on the subject. Therefore, we had devised a methodology in the interest of both parties wherein a separate escrow account will be opened and all customers cheques pertaining to service tax will be deposited in this account. In case customers are not liable to pay service tax then this amount paid along with accrued interest will be returned to the apartment owners. Therefore, we will be collecting a separate cheque favouring this escrow account for the service tax amount."

The claim made by the counsel for the appellant is that the appellant has not collected service tax but they had collected only a ‘caution deposit' which was kept in separate account to be paid to the Government if held to be liable to pay or otherwise, to be returned to the party has not been considered by the Commissioner in the impugned order. The issue whether the appellant is liable to pay service tax or not has also not been considered.

Respondent’s contentions:- The counsel for the respondent reiterated the findings of the lower authorities.

Reasoning of judgment:-It was held by the Tribunal that in the absence of determination of liability of service tax, the only question remains to be answered is whether provisions of Section 73A is attracted or not. Section 73A is reproduced as under:

“SECTION 73A. Service tax collected from any person to be deposited with Central Government.- (1) Any person who is liable to pay service tax under the provisions of this Chapter or the rules made there under, and has collected any amount in excess of the service tax assessed or determined and paid on any taxable service under the provisions of this Chapter or the rules made there under from the recipient of taxable service in any manner as representing service tax, shall forthwith pay the amount so collected to the credit of the Central Government.

(2) Where any person who has collected any amount, which is not required to be collected, from any other person, in any manner as representing service tax, such person shall forthwith pay the amount so collected to the credit of the Central Government.

(3) Where any amount is required to be paid to the credit of the Central Government under sub-section (1) or sub-section (2) and the same has not been so paid, the Central Excise Officer shall serve, on the person liable to pay such amount, a notice requiring him to show cause why the said amount, as specified in the notice, should not be paid by him to the credit of the Central Government.

(4) The Central Excise Officer shall, after considering the representation, if any, made by the person on whom the notice is served under sub-section (3), determine the amount due from such person, not being in excess of the amount specified in the notice, and thereupon such person shall pay the amount so determined.

(5) The amount paid to the credit of the Central Government under sub-section (1) or sub-section (2) or sub-sections (4), shall be adjusted against the service tax payable by the person on finalisation of assessment or any other proceeding for determination of service tax relating to the taxable service referred to in subsection (1).

(6) Where any surplus amount is left after the adjustment under sub-section (5), such amount shall either be credited to the Consumer Welfare Fund referred to in section12C of the Central Excise Act, 1944 (1 of 1944) or, as the case may be, refunded to the person who has borne the incidence of such amount, in accordance with the provisions of section 11B of the said Act and such person may make an application under that section in such cases within six months from the date of the public notice to be issued by the Central Excise Officer for the refund of such surplus amount.”

Clause (2) of Section 73A is relevant in the present case. It can be seen that if a person has collected any amount as service tax, that amount has to be paid to the Government. In this case, question is whether that amount can be said to have been collected. Admittedly, the meaning of ‘escrow account' is that amount is kept with a third party and has to be disbursed to a person who is eligible to get the same as and when the issue attains finality. It is stated that the amount collected by the appellant was kept in escrow account and he has given an assurance to the buyer that if the amount is not liable to be paid, the same shall be paid with interest. It is only a deposit which is not taken into account of the appellant and kept in a separate account to ensure safety of money and to ensure disbursement to the ultimate customer. Needless to say that if the liability exists and if it is held that the appellant is liable to pay, the amount will have to be paid to the Government since it is in escrow account. Therefore Commissioner should have determined the liability and if there was liability, the amount in escrow account would have been paid to the Government. Therefore, at this stage, we cannot say that the amount has been collected as service tax and therefore, the clause (2) of Section 73A is attracted and the amount should have been paid to the Government by the appellant. It is not the case of the department that the appellant is liable to pay service tax on the service rendered. In view of above discussion, the impugned order is set aside and the appeal is allowed.

Decision:-Appeal allowed.

Comment:- The essence of this case is that if a person has collected the service tax amount and deposited into escrow account, the provisions of section 73A (2) of the Finance Act is not applicable. The reason for the same being that the deposit of amount into escrow account with a condition that if there is no service tax liability, the amount collected as service tax would be refunded to the service recipient itself indicates that the amount is in the nature of deposit. Moreover, the service tax liability has also not been determined in the present case, thereby meaning that the provisions of section 73A (2) are not attracted because there is ambiguity as regards existence of service tax liability. Accordingly, it cannot be contended that the amount collected from the service recipients is to be deposited to the government.

Comments

PJ/Case Law/2014-15/2123

Post a Comment

Query