2014 (9) TMI 216 - AT - Service Tax

Works contract services - valuation - composition scheme - applicability of Rule 2A of the Service Tax (Determination of Value) Rules, 2006 - Held that - In the contracts there was a specific mention as to the value of the goods supplied. The quantum of consideration in respect of service is also mentioned. The case of the Revenue is that the applicants are paying service tax on the estimate value mentioned in the contracts. We find that before the adjudicating authority the applicants produced the actual data regarding the value of goods transferred in execution of the contract and the VAT paid in respect of all the contracts. The actual value of property of goods transferred in execution of the contract is the value adopted for purposes of payment of VAT and shall be taken as value of property in goods transferred in execution of the said work contracts for determination of value of service portion in the execution of the contract. In the present case, data in respect of actual value of property in goods transferred in execution of the work is available and produced before the adjudicating authority and the same has not been taken into consideration while confirming the demand. - matter requires reconsideration - matter remitted back - decided in favor of assessee.

Summary

Issues:
Application for waiver of pre-deposit of service tax, interest, and penalties based on misdeclaration of taxable value in works contracts.

Analysis:
The applicant sought waiver of pre-deposit concerning a substantial service tax amount, interest, and penalties. The case revolved around contracts for lift supply, erection, and commissioning, where the value of materials and service portions was specified. The issue arose from a Show Cause Notice alleging misdeclaration of taxable value by paying VAT and Service Tax on a notional basis. The adjudicating authority determined a significant service tax liability, primarily based on estimated values rather than actual data provided by the applicant for goods transferred under the contracts.

The applicant contended that the actual value of goods transferred, as evidenced by data on 14800 contracts, was not considered in the adjudication. They argued that Rule 2A of the Service Tax (Determination of Value) Rules, 2006 should apply, linking the value of goods for VAT payment to the determination of the service portion's value. Despite presenting comprehensive data, the adjudicating authority upheld the demand solely on an estimated basis, disregarding the actual values provided by the applicant.

In response, the Revenue consultant argued that the applicants paid service tax based on contract values, implying an estimation method. They contended that Rule 2A did not apply due to the applicant's estimation practices. However, the Tribunal found that Rule 2A was indeed applicable to the work contracts in question, where specific values for goods supplied and services were mentioned. The Tribunal highlighted that the actual data on goods transferred and VAT payments, crucial for determining the service portion value, was ignored by the adjudicating authority.

Consequently, the Tribunal set aside the impugned order, waived the pre-deposit requirement, and remanded the matter for fresh adjudication. The adjudicating authority was instructed to reconsider the case, taking into account the actual data provided by the applicant and Rule 2A provisions. The decision emphasized the importance of accurately determining the value of goods transferred in works contracts to calculate the service portion value correctly, ensuring a fair assessment of service tax liability.