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2010 (12) TMI 229 - AT - Service TaxWorks Contract Service Amendment w.e.f. 1.6.2007 Composition scheme stay - . The Board s Circular clarified a point which is squarely applicable to the facts of the present case. The question was whether a service provider was entitled to avail the benefit of payment of Service Tax at compounded rate in terms of Rule 3(3) where he had paid Service Tax prior to 01.06.2007 under any of three heads including commercial or industrial construction service. It was clarified that the service provider in such factual situation was not entitled to the benefit. This Circular was upheld by the Hon ble High Court in the case of Nagarjuna Construction Company Ltd. (2010 - TMI - 77165 - ANDHRA PRADESH HIGH COURT) - the appellant directed to pre-deposit an amount of Rs. 2.66 crores.
Issues: Waiver of pre-deposit and stay of recovery in respect of Service Tax and penalty, applicability of Rule 3(3) of Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007, entitlement to compounded rate payment of Service Tax, limitation on demand of Service Tax, abatement from taxable value under Notification No. 01/2006-ST.
Analysis: 1. Applicability of Rule 3(3) of Works Contract Rules: The appellant opted for paying Service Tax under Works Contract Service at a compounded rate of 2% from June 2007 to March 2008. The show-cause notice contended that the appellant was not entitled to the compounded rate payment under Rule 3(3) as payments were made before 01.06.2007. The Board's Circular clarified that changing the classification for payment of Service Tax post-01.06.2007 was not permissible. The appellant argued that they validly opted for the compounded rate under Rule 3(3) and cited relevant case laws. The Tribunal found that the Circular upheld by the High Court applied to the case, but considered the appellant's plea for abatement under Notification No. 01/2006-ST, directing a pre-deposit of Rs. 2.66 crores. 2. Entitlement to Compounded Rate Payment: The appellant contended that they were entitled to pay Service Tax at the compounded rate of 2% based on their valid exercise of option under Rule 3(3) in June 2007. The Tribunal acknowledged the appellant's argument but emphasized the applicability of the Circular and High Court judgment. However, the Tribunal considered the appellant's plea for abatement, reducing the pre-deposit amount to Rs. 2.66 crores. 3. Limitation on Demand of Service Tax: The adjudicating authority had held against the appellant on the demand of Service Tax both on merits and limitation grounds. The appellant's counsel pointed out the disclosure of all material facts to the Department through various communications. The Tribunal did not find a prima facie case against the demand of Service Tax, except for the abatement claimed by the appellant, which was granted, reducing the pre-deposit amount. 4. Abatement from Taxable Value under Notification No. 01/2006-ST: The appellant argued that an abatement of 67% from the taxable value should have been allowed, resulting in a reduced quantum of Service Tax. The Tribunal considered this argument in the appellant's favor, granting the benefit of abatement and revising the pre-deposit amount to Rs. 2.66 crores. The appellant was directed to make the deposit within eight weeks, failing which the waiver of pre-deposit and stay of recovery would not be applicable. In conclusion, the Tribunal upheld the demand of Service Tax based on the Circular and High Court judgment but granted the appellant the benefit of abatement under Notification No. 01/2006-ST, reducing the pre-deposit amount to Rs. 2.66 crores. Compliance was required within eight weeks to avail of the waiver of pre-deposit and stay of recovery for penalties and the remaining Service Tax amount.
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