2013 (2) TMI 52 - HC - Service Tax

Applicability of the rate of service tax on Works Contract Service defined u/s 65(105)(zzzza) - service tax employing the higher rate of tax of 4% and education cess on the said service tax element - assessee challenged the impugned instruction dated 28.04.2008 as per which the rate of service tax is to be determined based on the date of receipt of payment and not on the date of rendition of service - case of the petitioner is that the said services were rendered prior to 01.03.2008 - Held that - The instruction dated 28.04.2008 clarified that the rate of 4% is applicable for the Works Contract Service where the payment for the service is received on or after 1.3.2008. The taxable event, in so far as service tax is concerned, is the rendition of the service. That being the position, the taxable events in the present writ petition had admittedly occurred prior to 01.03.2008. At that point of time the rate of service tax applicable in respect of the services in question was 2% and not 4%, which came into effect only on or after 01.03.2008. Thus it is not receipt of payment which is the taxable event but the rendition of service. It should also be mentioned that at that point of time neither was Rule 5B of the Service Tax Rules, 1994 in effect nor was Section 67A of the Finance Act, 1994 inasmuch as the latter provision was inserted in 2012 which came in effect from 28.02.2012. Furthermore, even Rule 4(a)(i) of the Point of Taxation Rules, 2011 was not applicable to the facts of the present case in as much as those rules also came into effect much later in 2011. As decided in Commissioner of Service Tax Vs. Consulting Engineering Services (I) Pvt. Ltd. 2013 (1) TMI 434 - DELHI HIGH COURT wherein held that in the absence of any rules, we would have to examine as to what is the taxable event. In that context we had held that the taxable event as per the Finance Act, 1994 was the providing or rendition of the taxable services. This is exactly what the Supreme Court had held in Association of Leasing & Financial Service Companies (2010 (10) TMI 4 - SUPREME COURT OF INDIA). Therefore, the rate of tax applicable on the date on which the services were rendered would be the one that would be relevant and not the rate of tax on the date on which payments were received. The instruction dated 28.04.2008 which is contrary to the law declared by the Supreme Court in Commissioner of Central Central Excise, Bolpur Vs. Ratan Melting & Wire Industries 2008 (10) TMI 5 - SUPREME COURT OF INDIA is clearly invalid - writ petitions allowed in favour of assessee.

Summary

Issues involved:
1. Challenge against the instruction dated 28.04.2008 issued by the Tax Research Unit, Department of Revenue, Ministry of Finance, Government of India.
2. Applicability of the rate of service tax in respect of Works Contract Service defined in Section 65(105)(zzzza) of the Finance Act, 1994.
3. Validity of the instruction dated 28.04.2008 in determining the rate of service tax based on the date of receipt of payment rather than the date of rendition of service.
4. Challenge to show cause notices and demands raised against the petitioner based on the invalid instruction.

Detailed Analysis:
1. The writ petitions challenged the instruction dated 28.04.2008, contending it was contrary to the law as declared by the Supreme Court. The main issue revolved around the applicability of the rate of service tax for Works Contract Service rendered before the rate increase from 2% to 4% on 01.03.2008. The respondents argued that the rate should be determined based on the date of payment receipt, not the service rendition date.

2. The court highlighted that the taxable event for service tax is the rendition of service, not the receipt of payment. Citing the Supreme Court's ruling in a previous case, it emphasized that the date of service agreement is irrelevant for determining the applicable tax rate. The court noted that the relevant periods for the two writ petitions were before the rate increase, making the 4% rate inapplicable.

3. The court analyzed the legal provisions applicable at the time, noting the absence of specific rules like Rule 5B of the Service Tax Rules, 1994 or Section 67A of the Finance Act, 1994. Referring to a previous case, it reiterated that the taxable event is the provision of taxable services, aligning with the Supreme Court's interpretation.

4. Ultimately, the court declared the instruction dated 28.04.2008 invalid as it contradicted the law established by the Supreme Court. Consequently, the show cause notices and demands based on this instruction were also deemed invalid. The court rejected the argument of alternative remedies, stating that as long as the instruction remained valid, statutory authorities would continue to apply it, leaving the petitioner without recourse.

5. The court set aside the adjudication order dated 28.03.2012 to the extent indicated, emphasizing that the instruction's invalidity rendered the related proceedings null and void. The decision underscored the supremacy of court rulings over conflicting instructions, ensuring adherence to established legal principles in tax matters.