2014 (7) TMI 1165 - AT - Service Tax

Disallowance of 67% abatement under Notification No. 1/2006-S.T - re-classification of the services - waiver of impugned demand, interest and penalties and stay recovery thereof - Held that - On perusal of Notification No. 1/2006 it is evident that for the purposes of 67% abatement, the condition of non-availment of Cenvat credit is prescribed only in respect of inputs and not in respect of input services. Thus Commissioner has completely mis read the provisions of said notification to disallow abatement of 67% under the said notification. As regards re-classification of the services rendered by the appellants after introduction of Works Contract Service, it is trite to say that the service rendered has to be classified as per the provisions applicable on the date of delivery of service. It is not disputed that from 1-6-2007 the service rendered by the appellants categorically fell under the category of Works Contract Service and therefore the re-classification on their part prima facie was as per law. The appellants would be entitled to 67% abatement under Notification No. 1/2006-S.T. The service tax payable after allowing 67% abatement will reduce to 33% of the amount of demand confirmed. Service Tax @ 4% under the Composition Scheme also works out to approximately in the same range. Further in such a scenario, the sustainability of the allegation of suppression/wilful mis-statement can also, prima facie, be in serious jeopardy. Thus the appellants have made out a good case for waiver of pre-deposit

Issues involved:
1. Classification of services under Works Contract Service
2. Denial of benefit under Composition Scheme
3. Denial of abatement under Notification No. 1/2006-S.T.
4. Imposition of penalties for fraudulent intention
5. Invocation of extended period for demand confirmation

Classification of services under Works Contract Service:
The appellant switched to the classification under Works Contract Service after its introduction, but the adjudicating authority denied the benefit of the Composition Scheme for continuing contracts. The Tribunal noted that services should be classified as per the provisions applicable at the time of service delivery. As the appellant's services fell under Works Contract Service from 1-6-2007, the re-classification was considered prima facie lawful. The eligibility for the Composition Scheme for ongoing projects needed further analysis, but it was deemed unnecessary for deciding the stay application.

Denial of benefit under Composition Scheme:
The appellant contended that they correctly paid service tax under the Composition Scheme, which was approximately equal to the tax payable under Notification No. 1/2006 after abatement. The Tribunal observed that the denial of re-classification of ongoing contracts under Works Contract Service entitled the appellant to 67% abatement under Notification No. 1/2006-S.T., reducing the service tax payable to 33% of the confirmed demand. This raised doubts on the sustainability of allegations of suppression or willful misstatement.

Denial of abatement under Notification No. 1/2006-S.T.:
The Tribunal found that the condition of non-availment of Cenvat credit for abatement under Notification No. 1/2006 applied only to inputs and not to input services. The Commissioner's misinterpretation led to the disallowance of abatement. Consequently, the appellant was entitled to the abatement, significantly reducing the service tax liability.

Imposition of penalties for fraudulent intention:
The adjudicating authority imposed penalties, including mandatory penalty, alleging fraudulent intention to evade service tax due to re-classification and Composition Scheme availed by the appellant. However, the Tribunal's findings on the legality of the re-classification and entitlement to abatement raised doubts on the validity of the penalties imposed, indicating a potential lack of merit in the allegations.

Invocation of extended period for demand confirmation:
The adjudicating authority invoked the extended period for confirming the service tax demand, alleging fraudulent intent. However, the Tribunal's analysis of the issues raised by the appellant regarding classification, Composition Scheme, and abatement cast doubt on the justification for invoking the extended period. Consequently, the Tribunal waived the pre-deposit of the demand, interest, and penalties, staying the recovery during the appeal's pendency.

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