2012 (12) TMI 232 - AT - Service Tax

Waiver of pre-deposit of Duty - Held that - Works Contract in question are divisible into two components for supply of materials and providing services. Issue whether the activity can be taxed as service is not examined and the provisions of Article 366 (29A) of Constitution not considered because that was not relevant to the issue before the court. Claim that the activity that is sought to be taxed was done before 16-05-2005 was not substantiated by documents before the lower authority though they stated that they would produce such evidence within 15 days from 31-08-2010, the date of hearing before adjudicating authority. It appears that the applicant is raising arguments in piecemeal before different authorities for delaying the process of early conclusion of the proceedings and delaying payment of tax involved. The appellants have submitted some documents after hearing of the stay petition but before the issue of this order - Considering the various aspects held that this is not a case for complete waiver of pre-deposit of tax arising from the impugned order applicant directed to make a pre-deposit of 50% of the tax demanded within six weeks from the date of receipt of this order for admission of the appeal.

Issues Involved:
1. Nature of the contract and applicability of service tax.
2. Jurisdiction of the Directorate General of Central Excise Intelligence (DGCEI) and Commissioner of Service Tax.
3. Eligibility for exemption under Notification 12/2003-ST.
4. Division of contracts into service and material components.
5. Requirement of pre-deposit for admission of appeal.

Issue-wise Detailed Analysis:

1. Nature of the Contract and Applicability of Service Tax:
The applicants, a partnership firm, constructed residential complexes under contracts awarded by the Delhi Development Authority (DDA) during 16-06-2005 to 31-12-2007. They were not registered with Service Tax authorities and did not pay service tax on the consideration received from DDA. The Revenue issued a show-cause notice demanding service tax under the category of Construction of Complexes as defined under section 65(30a) and taxable under entry 65(105)(zzzh) of the Finance Act, 1994, effective from 16-06-2005. The applicants argued that they were executing works contracts as defined under entry 65(105)(zzzza) of the Finance Act, 1994, which was inserted only from 01-06-2007. They contended that works contracts executed prior to 16-05-2005 were not covered under entry 65(30a) and could not be divided into components for materials and services. The Tribunal noted the amendment to the Constitution by the 46th Amendment, introducing the definition of deemed sale in Article 366(29A), which allows for the division of works contracts into sale of goods and services for taxation purposes.

2. Jurisdiction of DGCEI and Commissioner of Service Tax:
The applicants contested the jurisdiction of the DGCEI, Bangalore, to enquire into the work carried out in Delhi and issue the demand notice. They also argued that the Commissioner of Service Tax, Delhi, could not adjudicate the show-cause notice as the firm's registered office was in Kolkata. The Revenue countered that the DGCEI officers have all-India jurisdiction and the applicants were not registered with the Service Tax Department at any location. Therefore, jurisdiction was determined based on the place where the activity was carried out. The Tribunal agreed with the Revenue's position on jurisdiction.

3. Eligibility for Exemption under Notification 12/2003-ST:
The applicants raised a new plea at the appeal stage, claiming eligibility for exemption under Notification 12/2003-ST, which, if granted, would reduce their tax liability to Rs. 5,51,808/-. They provided a worksheet to support their claim. However, the Tribunal noted that this ground involved both legal and factual questions and was not verified by lower authorities. The Tribunal found inconsistencies in the figures provided by the applicants and did not find the claim prima facie believable. Therefore, the Tribunal did not admit this new ground at the prima facie stage.

4. Division of Contracts into Service and Material Components:
The applicants argued that the contract could not be divided into components for materials and services, relying on several judicial decisions. The Revenue pointed out that the 46th Amendment to the Constitution introduced a legal fiction allowing for the division of indivisible contracts into sale of goods and services. The Tribunal agreed with the Revenue, citing the Supreme Court's decision in Bharat Sanchar Nigam Ltd. v. Union of India, which held that works contracts are divisible for taxation purposes. The Tribunal noted that the Commissioner had already provided a 67% abatement from the gross value towards the value of materials sold, which is the percentage fixed for assessees unable to provide proof of the value of materials sold.

5. Requirement of Pre-deposit for Admission of Appeal:
The Tribunal considered the various arguments and concluded that this was not a case for complete waiver of pre-deposit. The Tribunal directed the applicants to make a pre-deposit of 50% of the tax demanded within six weeks from the date of receipt of the order for admission of the appeal. Subject to such pre-deposit, the pre-deposit of the balance dues was waived, and there would be a stay on the collection of such amounts during the pendency of the appeal.

Conclusion:
The Tribunal addressed the issues concerning the nature of the contract, jurisdiction, eligibility for exemption, division of contracts, and the requirement of pre-deposit. The Tribunal upheld the Revenue's position on jurisdiction and the divisibility of works contracts for taxation purposes. The claim for exemption under Notification 12/2003-ST was not admitted due to inconsistencies and lack of verification. The Tribunal directed a 50% pre-deposit for the admission of the appeal, with a stay on the collection of the remaining dues during the appeal's pendency.

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