2014 (7) TMI 787 - AT - Service Tax

Waiver of pre deposit - Benefit of concessional rate of service tax @ 2% available under the Works Contract Rules - Availment of option required under sub-rule (3) of Rule 3 - Held that - though the Applicant claimed to have exercised their option on 12-7-2007, but on a prima facie view, the option would be considered to have been exercised from the date of receipt of the said option by the Department. Thus, prima facie, the Applicant are required to pay service tax without the benefit of Works Contract Rules, till the said option was exercised i.e., on 10-9-2007, when it was received by the Department relating to the ongoing projects. Gross amount received in the month of August, was ₹1,93,77,870 and the amount of service tax payable on the same worked out to be ₹20,51,672 - for the month of September, 2007, there are no details in the Notice of the amount received as on 10-9-2007 and the corresponding service tax short paid. No financial hardship was pleaded - Conditional stay granted.

Summary

Issues:
Application for waiver of pre-deposit of Service Tax, penalty under Section 78, and penalty under Section 77.

Analysis:
The case involved an Application for waiver of pre-deposit of Service Tax amounting to Rs. 7,13,00,523/- along with penalties imposed under Section 78 and Section 77 of the Finance Act, 1994. The Applicant had entered into agreements with the West Bengal State Government for projects before 1-6-2007 and was registered under "commercial or industrial construction service" and "GTA service". The projects were categorized as 'works contract', and the Applicant opted to pay service tax @2% under the Works Contract Rules. The dispute arose when a demand-cum-show cause notice was issued for recovering service tax on the gross taxable value of projects executed from 1-4-2007 to 30-9-2008, denying the benefit of the Works Contract Rules. The learned Commissioner confirmed this demand, leading to the appeal.

The Applicant contended that they had opted for the Works Contract Rules by exercising their option on ongoing projects before the payment of service tax, as required by sub-rule (3) of Rule 3 of the said Rules. The Applicant argued that they were eligible for the Scheme as they met all conditions and cited a CBEC Circular supporting their claim. They also highlighted that the demand was based on grounds beyond the scope of the show cause notice, contrary to legal principles. The Applicant referred to relevant case laws to support their position that contracts entered into before the levy of service tax could not be subjected to the tax.

The Adjudicating Authority, however, denied the benefit of the concessional rate of service tax @2% under the Works Contract Rules, stating that the Applicant had not exercised their option as required. Upon review, the Tribunal found that the Applicant had indeed communicated their intention to pay service tax @2% on payments received from ongoing projects post-1-6-2007. The Tribunal noted that the Applicant's letter acknowledging the option had been received by the Department on 10-9-2007, and as per the Circular, the Applicant was entitled to the benefit of the Scheme. The Tribunal directed the Applicant to deposit a specific amount within a stipulated time, failing which the appeal would be dismissed.

In conclusion, the Tribunal upheld the Applicant's entitlement to the benefit of the Works Contract Rules, provided the required deposit was made within the specified timeframe. The decision was based on a thorough analysis of the facts, legal provisions, and precedents cited by both parties, ensuring a fair and reasoned judgment.