2013 (2) TMI 184 - AT - Service Tax

Penalty u/s 78 Work contract service - taxability prior to 1-7-2007 - Abatement of 67% - Waiver of pre-deposit - the main plank of argument advanced on behalf of the applicant that since there is a cross-fall-breach clause specifying that breach of one contract would also constitute breach of other contract, hence, both these contracts should be read together and accordingly the entire project being a turnkey project, the same is taxable as works contract only w.e.f. 1-7-2007 and not prior to that. - held that - Prima facie we do not find merit in the argument of the applicant saying that due to the said cross-fall-breach clause stipulated in each of the said contract and the project being a turnkey project, therefore, no Service tax is applicable as the said service rendered by them is nothing but works contract service. Benefit ofabatement of 67% of the value Notification No. 19/2003-S.T. Notification No. 1/2006-S.T. from 1-4-2006 Department argued that there were no supply of goods involved, therefore, the conditions of the said Notification are not satisfied Held that - A person who claims exemption or concession must establish clearly that he is covered by the provision(s) concerned and, in case of doubt or ambiguity, the benefit of it must go to the state. CCE versus Hari Chand Shri Gopal & Ors., (2010 (11) TMI 13 - SUPREME COURT OF INDIA) Prima facie case against the assessee - directed to make a pre-deposit of 25% of service tax.

Issues Involved:
1. Waiver of pre-deposit of duty and penalty.
2. Splitting of contracts into supply and services.
3. Applicability of service tax on works contract.
4. Entitlement to abatement under Notification Nos. 19/2003-S.T. and 1/2006-S.T.
5. Invocation of extended period of limitation.
6. Financial hardship and pre-deposit requirement.

Issue-wise Detailed Analysis:

1. Waiver of Pre-deposit of Duty and Penalty:
The application sought waiver of pre-deposit of duty amounting to Rs. 7,21,52,207/- and an equivalent amount of penalty imposed under Section 78 of the Finance Act, 1994. The tribunal directed the applicant to make a pre-deposit of 25% of the service tax confirmed within eight weeks, failing which the appeal would be dismissed.

2. Splitting of Contracts into Supply and Services:
The applicant entered into two separate agreements with clients: one for the supply of plant, machinery, and equipment, and another for works and services such as erection, installation, and commissioning. The applicant argued that these were turnkey projects and should be treated as works contracts. However, the tribunal noted that the applicant consciously divided the projects into two separate agreements and registered for service tax under the category of erection and commissioning services from 1-4-2006.

3. Applicability of Service Tax on Works Contract:
The applicant contended that the projects should be classified as works contracts and thus taxable only from 1-7-2007. The tribunal rejected this argument, stating that the applicant had treated the contracts as separate for supply and services and had paid service tax accordingly. The tribunal found no merit in the argument that the projects should be considered turnkey projects due to the cross-fall-breach clause.

4. Entitlement to Abatement under Notification Nos. 19/2003-S.T. and 1/2006-S.T.:
The applicant claimed abatement of 67% under the said notifications, arguing that the works and services contracts involved the supply of structural steel. The tribunal noted that this claim was not raised before the lower authority and could not be verified. The tribunal held that the contracts appeared to be pure works and services contracts, separate from the supply contracts, and thus did not satisfy the conditions for abatement under the notifications.

5. Invocation of Extended Period of Limitation:
The tribunal found that the adjudicating authority had recorded a reasoned finding on the issue of limitation. It was noted that this issue involved mixed questions of fact and law, which would be considered in detail during the disposal of the appeal.

6. Financial Hardship and Pre-deposit Requirement:
The applicant did not plead financial hardship. The tribunal, considering the interest of revenue and the principles governing the waiver of pre-deposit, directed the applicant to deposit 25% of the confirmed service tax amount.

Conclusion:
The tribunal ordered the applicant to pre-deposit 25% of the service tax confirmed and report compliance. The balance amount of service tax and penalty would be waived, and recovery stayed during the pendency of the appeal. Failure to comply would result in the dismissal of the appeal.

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