2014 (1) TMI 40 - AT - Service Tax

Waiver of pre-deposit - Stay of recovery - Works Contract Service - whether the activities undertaken by the appellant during the aforesaid period should be classified as Erection, Commissioning and Installation Service under Section 65(105)(zzd) of the Finance Act, 1994 as claimed by the assessee or as Works Contract Service under Section 65(105) (zzzza) of the Act - Held that - appellant should not be directed to make any pre-deposit inasmuch as the substantive issue is one of valuation of the service and, if the service is supposed to be works contract service , the provisions of Rule 2A of the Service Tax (Determination of Value) Rules, 2006 cannot be overlooked. As per this rule, the value of works contract service shall be equivalent to the gross amount charged for the works contract less the value of transfer of property in goods involved in the execution of the said works contract. As per Explanation to the rule, the gross amount charged for the works contract shall not include VAT or sales tax, as the case may be, paid, if any, on transfer of property in goods involved in the execution of the said works contract - considering the provisions of Rule 2A ibid applicable to valuation of works contract service , we are inclined to grant waiver of pre-deposit and stay of recovery inasmuch as the appellant has admittedly paid service tax on 15% of the gross value after deducting the cost of goods and materials involved in the execution of works - Stay granted.

Summary

Issues:
1. Waiver of pre-deposit and stay of recovery sought by the appellant.
2. Classification of services as 'Erection, Commissioning and Installation Service' or 'Works Contract Service'.
3. Application of Rule 2A of the Service Tax (Determination of Value) Rules, 2006.
4. Applicability of Notification No. 12/2003-ST.
5. Relevance of Tribunal's Larger Bench decision in Aggarwal Colour Advance Photo System case.

Analysis:
1. The appellant filed an application seeking waiver of pre-deposit and stay of recovery of a demand amounting to Rs. 1.22 crores for the period from July 2007 to September 2010, raised under 'Works Contract Service'. The appellant was previously paying service tax under 'Erection, Commissioning and Installation Service' but a dispute arose after 'works contract service' was included in taxable services. The Commissioner classified the activities under works contract service for service tax levy. The Tribunal, after considering Rule 2A, granted waiver of pre-deposit as the substantive issue was the valuation of service under works contract service.

2. The dispute revolved around the classification of services as 'Erection, Commissioning and Installation Service' or 'Works Contract Service'. The Commissioner opined that the activities could be classified under both heads but, as per Section 65A of the Act, they were classifiable under works contract service for service tax purposes. The Tribunal agreed with this classification, emphasizing the importance of Rule 2A in determining the value of works contract service.

3. Rule 2A of the Service Tax (Determination of Value) Rules, 2006 was crucial in this case. It states that the value of works contract service shall be the gross amount charged less the value of transfer of property in goods involved. The rule specifies that VAT or sales tax paid on goods transferred shall not be included in the gross amount charged. The Tribunal considered this rule while granting the waiver of pre-deposit and stay of recovery to the appellant.

4. The applicability of Notification No. 12/2003-ST was discussed, particularly in relation to the classification of services under 'erection, commissioning or installation service'. The Tribunal focused on the Revenue's classification under works contract service and the application of Rule 2A, thereby deeming the Notification's debate as relevant only in specific scenarios.

5. The Tribunal noted the Tribunal's Larger Bench decision in the case of Aggarwal Colour Advance Photo System but found it of academic interest at that stage. The fundamental question of whether a 'deemed sale' of goods is sufficient for claiming the benefit of notification was considered irrelevant in the current context, given the focus on Rule 2A for the valuation of works contract service. The Tribunal, therefore, did not place significant emphasis on the Larger Bench decision in this judgment.