2010 (4) TMI 730 - AT - Service Tax

Waiver of pre-deposit - works contract service - Held that it appears from the instruments of contracts available on record that each of these contracts is prima facie indivisible-vast- contract. Separate value of the goods or of any service involved in the execution of the contracts was shown in the relevant invoices. These contracts prima facie covered turnkey projects. Such indivisible works contracts are not exigible to Service Tax prior to 1-6-2007 (the period of dispute in this case is prior to the said date)- Pre deposit waived in respect of works contract service.

Summary

Issues:
- Waiver of pre-deposit and stay of recovery in respect of Service Tax demand and penalty imposed.
- Contesting demand of Service Tax on works contracts prior to 1-6-2007.
- Applicability of penalty provisions under the Finance Act, 1994.
- Benefit of first proviso to section 78 of the Finance Act, 1994 on penalty amount.

Analysis:
1. The appellant sought waiver of pre-deposit and stay of recovery for a Service Tax demand of over Rs. 46 lakhs and equivalent penalty. The dispute arose from works contracts undertaken by the appellant between 1-7-2003 to 31-3-2006, where Sales Tax in the form of 'works contract tax' was paid to the State Government. The department issued a show-cause notice demanding Service Tax under different categories, which was contested on the grounds of indivisibility of works contracts prior to 1-6-2007.

2. The ld. Commissioner dropped a portion of the demand but confirmed the rest after granting abatement under a relevant Notification. The appellant relied on precedents establishing that no Service Tax could be levied on indivisible works contracts before 1-6-2007. The Tribunal found a prima facie case in favor of the appellant, noting that the works contracts appeared indivisible and covered turnkey projects, exempt from Service Tax pre-1-6-2007.

3. The ld. SDR supported the Commissioner's order, arguing for penalty payment related to Service Tax on an Annual Maintenance Contract (AMC). The appellant, invoking the first proviso to section 78 of the Finance Act, 1994, contended that only 25% of the penalty amount should be payable since the Service Tax on AMC was paid before adjudication.

4. Considering the submissions, the Tribunal ruled in favor of the appellant regarding the demand of Service Tax on all contracts except AMC. The Tribunal found the contracts prima facie indivisible and exempt from Service Tax pre-1-6-2007. The appellant was granted waiver of pre-deposit and stay of recovery for the Service Tax demanded by the Commissioner.

5. Regarding the penalty on the AMC, the Tribunal directed the appellant to pre-deposit Rs. 1.5 lakhs under section 35F of the Central Excise Act within four weeks. If compliance occurred, there would be a waiver of pre-deposit and stay of recovery for the remaining amount. The Tribunal applied the first proviso to section 78, limiting the penalty payable to 25% due to the early payment of Service Tax on the AMC.