No Service Tax on Advances Received Before 1 July 2010: CESTAT

The Kolkata Bench of Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has set aside a Service Tax demand holding that advances received prior to 1 July 2010 are not liable to Service Tax even if a subsequent nomination agreement was executed after that date. The bench of Ashok Jindal (Judicial Member) and K. Anpazhakan (Technical Member) has observed that there is no liability of service tax on the advances paid prior to 01.07.2010. This issue has been clarified by the Board vide Letter D.O.F. No. 334/3/2010-TRU dated 01.07.2010, wherein it has been clarified that payments made prior to the effective date do not fall within the purview of Service Tax. The bench found that some of the buyers who entered into Agreement for Sale with the appellant during 2008-09 and 2009-10 and made advance payment before 01.07.2010, have transferred their rights, title of the flats/commercial space/office/shop by execution of “Nomination Agreement”. As per the above clarification issued by the Board, there is no Service Tax liability on the advances paid prior to 01.07.2010 and Service Tax is liable to be paid only on the amount, if any, paid after 01.07.2010. The appellant/assessee, Forum Riviera Constructions Pvt. Ltd., engaged in providing construction services and registered under the Finance Act, 1994, was subjected to audit proceedings by the Service Tax department. A Show Cause Notice dated 15 May 2015 demanded Service Tax of ₹2.43 crore (inclusive of cess) for the period July 2010 to March 2014 and proposed penalty under Section 78 of the Act. Upon adjudication, the Commissioner dropped ₹1.28 crore but confirmed ₹1.14 crore along with interest and imposed an equivalent penalty under Section 78. Out of the confirmed demand, the company had already paid ₹36.24 lakh and contested the balance, primarily relating to “Advances (Others)” amounting to ₹79.91 lakh. The dispute centered on amounts received under “Nomination Agreements” executed after 1 July 2010. The department treated the entire consideration mentioned in such agreements as taxable, contending that the final transferee became the buyer after the taxable date and hence the full value was liable to Service Tax. The appellant argued that substantial advances had been received from original buyers prior to 1 July 2010, i.e., before the relevant amendment that brought such construction activities within the Service Tax net. These buyers later transferred their rights to third parties through nomination agreements. According to the appellant, only the balance amount received after 1 July 2010 could be taxed. The Tribunal examined a representative tripartite nomination agreement dated 18 November 2010. Under that arrangement ₹6 crore had already been paid by the original buyer (transferor) before 1 July 2010; ₹76.41 lakh was the balance amount payable to the developer; and ₹1.57 crore represented “nomination cost” payable by the transferee to the transferor. CESTAT held that the ₹6 crore paid before 1 July 2010 was not liable to Service Tax. Only the balance ₹76.41 lakh received by the developer after that date could attract tax. The “nomination cost” was a transaction between transferor and transferee and had no nexus with the developer’s taxable value. The Bench found fault with the department’s approach of treating the entire consideration under the nomination agreement as having been received after 1 July 2010. Importantly, the Tribunal relied on the CBEC clarification issued via D.O.F. No. 334/3/2010-TRU dated 1 July 2010, which specifically exempted amounts received prior to the effective date from Service Tax, even if the service was provided subsequently. Applying its reasoning across similar nomination agreements in the case, CESTAT concluded that the method adopted by the department for computing the taxable value was legally unsustainable. Accordingly, it set aside the Service Tax demand of ₹79,91,642. With respect to the remaining portion of the confirmed demand (₹36.24 lakh), the Tribunal noted that the assessee had already discharged the tax liability along with interest. It upheld this portion of the demand to the extent already paid. The adjudicating authority had earlier refused to appropriate the payments on the ground that they were not reflected in ST-3 returns. However, CESTAT recognized that the amounts had indeed been paid and accepted. On the question of penalty, the Tribunal held that suppression of facts with intent to evade tax had not been established through substantive evidence. The mere detection during audit was insufficient to invoke the extended period or justify penalty. Consequently, the penalty imposed under Section 78 of the Finance Act, 1994 was set aside in entirety. CESTAT disposed of the appeal by quashing the demand of ₹79.91 lakh was quashed. The balance demand already paid (₹36.24 lakh) was upheld along with interest. The penalty under Section 78 was set aside. Case Details Case Title: M/s. Forum Riviera Constructions Private Limited Versus Principal Commissioner, Service Tax-I Citation: JURISHOUR-180-CESTAT-2026(Kol) Case No.: Service Tax Appeal No. 75301 of 2017 Date: 27.02.2026 Counsel For Appellant: Tarun Chatterjee, Advocate Counsel For Respondent: R.K. Agarwal, Authorized Representative Click Here To Read Order Read More: Ayurvedic Products Can’t Be Classified As Cosmetics Without Evidence; CESTAT Quashes 5.31 Crore Excise Demand

No Service Tax on Advances Received Before 1 July 2010: CESTAT

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