2013 (9) TMI 391 - AT - Service Tax

Construction Activities Duty Liability - The appellants were engaged in construction activities and they construct both residential complexes as well as commercial and industrial complexes held that - Prima facie the legal question of divisibility of the contract into sale of materials and for providing construction service seems to be supported by Article 366 (29-A) (b) of the Constitution of India and Bharat Sanchar Nigam Ltd. Vs. UOI 2006 (3) TMI 1 - Supreme court . Even if the question was answered in favor of the appellants the question arises as to whether such division had been done in an arbitrary manner or based on evidences and if so what type of evidence - An assessee cannot choose to pay either VAT or Service Tax as he pleases (obviously who will choose to pay that tax for which the rate is lower) and discharge of VAT on a particular value cannot be conclusive proof that the value of material involved corresponded to the value on which VAT was paid - In some cases Courts and Tribunal have taken such payment as sufficient proof. Prima facie the service tax authorities have every right to look into the issue whether the value had been correctly split - This issue had not been looked into at any stage by lower authority apparently because adequate documents other than payment of VAT have not been placed before the lower authority - The issue had been argued more on questions of law rather than questions of fact before lower authority and in the hearing before the Tribunal for stay too. The matter needs to be looked into closely during final hearing of the appeal. Stay granted partly.

Summary

Issues:
1. Service tax liability on construction projects.
2. Interpretation of notifications for exemption and abatement.
3. Divisibility of contract into material sale and service provision.
4. Consideration of evidence for valuation of services.
5. Requirement of pre-deposit for appeal admission.

Analysis:
1. The appellants, engaged in construction activities, were alleged to have not paid appropriate service tax on certain projects. The dispute focused on two projects - Meadows Residential and Pacifica Commercial. The service tax demand was contested, with the appellant willing to deposit the demand for Meadows Residential for stay purposes, while disputing the demand for Pacifica Commercial.

2. The main contention regarding the Pacifica Tech Park project revolved around the applicability of Notification 12/2003-ST for exemption, as opposed to Notifications 18/2005-ST and 01/2006-ST for abatement. The appellant had paid a significant amount of service tax, claiming a lower value of services provided. The Revenue argued against artificially splitting the contract value into material and service costs, emphasizing the duty paid on materials used.

3. The legal question of divisibility of the contract was analyzed, citing constitutional provisions and relevant judgments. The Tribunal noted the lack of clear evidence to support the valuation of services and emphasized the need for a closer examination during the final hearing. The issue of correct valuation and division of the contract remained unresolved at the lower authority levels.

4. Considering the analysis, the Tribunal directed a pre-deposit of Rs. 67 lakhs for Meadows project and Rs. 183 lakhs for Pacifica project as a condition for appeal admission. The pre-deposit was set to ensure compliance and admission of the appeal, with a waiver of the requirement for pre-deposit of the balance dues during the appeal's pendency.

In conclusion, the judgment addressed the service tax liability on construction projects, the interpretation of notifications for exemption and abatement, the divisibility of contracts, the consideration of evidence for valuation, and the requirement of pre-deposit for appeal admission, providing detailed analysis and directives for compliance.