2013 (5) TMI 450 - HC - Service Tax

Appropriate rate of tax - Works Contract Service - whether the applicable rate of service tax would be rate in force at the time of realisation of the consideration or would it be the rate of tax which was in force at the time of the rendition of the taxable service - 4% v/s 2% - assessee submitted that Rule 3(3) of the Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007 had not been examined by this court in the case of Vistar Construction (2013 (2) TMI 52 - DELHI HIGH COURT) therefore the decision was distinguishable - Held that - The rendition of the service had been completed prior to 01.03.2008 and, therefore, the taxable event had occurred prior to 01.03.2008. Consequently, the applicable rate of tax would be the rate which was prevalent prior to 01.03.2008. Since the entire foundation of the argument of the revenue is based on the instruction dated 28.04.2008 which has been found to be invalid by virtue of decision in the case of Vistar Construction (supra), the present appeal is also liable to be dismissed Unable to agree with the appellant inasmuch as the instruction dated 28.04.2008 had been dealt with in detail in Vistar Construction case (supra) and the paragraph 2 thereof, specifically refers to the said Composition Rules of 2007. Secondly, and more importantly, the show cause notice does not contain any such allegation with regard to the respondent having made an option under the said Rule 3. Since, there is no foundational basis for making the submission and no such submission was made before the appellate authority, the appellant cannot be permitted to take up this plea before this court for the first time. Thus following the decision in the case of Vistar Construction (supra,) the present appeal does not raise any substantial questions of law and is therefore dismissed.

Summary

Issues:
1. Applicability of service tax rate: Whether the rate of service tax should be based on the time of realization of consideration or the time of rendition of the taxable service.

Detailed Analysis:
1. The appeal challenged an order by the Customs, Excise & Service Tax Appellate Tribunal regarding the applicable rate of service tax. The Tribunal concluded that the rate in force at the time of service rendition, not payment realization, should apply. The Revenue appealed this decision.

2. The dispute stemmed from a show cause notice alleging incorrect payment of service tax on Works Contract Service. The notice claimed that the service tax rate should be based on the time of payment receipt, citing a Ministry of Finance instruction. The appellant argued that since payments were received after a rate increase, the higher rate should apply.

3. A previous case, Vistar Construction Pvt. Ltd. v. Union of India, addressed a similar issue where service was rendered before a rate change but payment was received after. The court ruled that service tax is levied on the service itself, not the payment, and the taxable event is service rendition. Thus, the rate applicable is the one in force at the time of service provision, not payment receipt.

4. The appellant contended that Rule 3(3) of the Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007 was not considered in Vistar Construction. However, the court found no merit in this argument as the instruction in question specifically referenced these rules. Moreover, since the appellant did not raise this point earlier, it could not be introduced at this stage.

5. Following the precedent set in Vistar Construction, where the court invalidated the Ministry of Finance instruction, the present appeal was dismissed. The court held that no substantial legal questions were raised, and no costs were awarded in this matter.