2014 (9) TMI 343 - HC - Service Tax

Waiver of pre-deposit - tribunal directed the petitioner to make the total pre-deposit of ₹ 2.5 crores (Rs. 67 lakhs ₹ 183 lakhs) - Valuation - construction services - CESTAT took note of the fact if abatement as provided under Notification 18/2005-S.T., dated 7-6-2005 and Notification 1/2006-S.T., dated 1-3-2006, is allowed, the taxable value of service net of value of input services works out to ₹ 61.38 crores (33% of ₹ 186 crores), as against which, the petitioner claims that the value of service (inclusive of value of input service) is only ₹ 35 crores and the genesis of the dispute is the difference of ₹ 26.38 crores. Held that - CESTAT, while passing the impugned order of pre-deposit, considered all the facts and figures in proper perspective and also took into account, the prima facie case, undue hardship, balance of convenience and the financial burden of the petitioner and observed that the case of the petitioner is a matter of expediency and it was of the prima facie view that the Service Tax authorities have every right to look into the issue as to whether the value has been correctly split and also observed that the lower authority has not looked into the same at any stage, because adequate documents other than payment of VAT have not been placed before the lower authority, as the issue had been argued more on question of law, rather than question of fact before the lower authority and it has also been highlighted before the CESTAT for stay and ultimately, the CESTAT passed the impugned order of pre-deposit. As far as the amount of pre-deposit ordered by the first respondent-CESTAT at ₹ 67 lakhs in respect, of Meadows Project is concerned, the same is accepted by the petitioner - As far as the pre-deposit of ₹ 183 lakhs in respect of Pacifica Project is concerned, the same is interfered with by this Court to the extent of depositing only 75% of ₹ 183 lakhs. - Partial relief granted to assessee regarding pre-deposit.

Summary

Issues:
Challenge to CESTAT order requiring pre-deposit of Rs. 2.5 crores, Service Tax demand on construction projects, splitting contract value, abatement notifications, VAT vs. Service Tax payment, CESTAT's consideration of pre-deposit waiver, financial burden, and undue hardship.

Service Tax Demand on Construction Projects:
The petitioner, a construction company, faced Service Tax demands for projects executed between August 2005 and March 2009. The demands for "Meadows Residential" and "Pacifica Commercial" projects totaled Rs. 18,92,79,888. The second respondent confirmed this demand along with penalties, leading to appeals before the CESTAT.

Splitting Contract Value and Abatement Notifications:
The Revenue argued against artificially splitting the contract value into material and service costs, citing Article 366(29-A)(b) of the Constitution and a Supreme Court decision. The CESTAT accepted this argument, emphasizing that the demanded differential duty was lawful. It noted the impact of abatement notifications on the taxable value of services.

VAT vs. Service Tax Payment and CESTAT's Consideration:
The CESTAT discussed the petitioner's claim regarding the value of services and the dispute over Rs. 26.38 crores. It highlighted the need for a closer examination during final hearings. The CESTAT also addressed the issue of VAT and Service Tax payments, emphasizing that the authorities have the right to scrutinize value splits.

CESTAT's Pre-Deposit Order and Judicial Review:
The CESTAT ordered a pre-deposit of Rs. 2.5 crores for appeal admission, considering the petitioner's financial burden and the disputed amount. The petitioner challenged this order, arguing for a total waiver. The High Court analyzed the factors of undue hardship, prima facie case, and financial burden before modifying the pre-deposit amounts.

Judicial Decision and Directions:
The High Court upheld the pre-deposit of Rs. 67 lakhs for the Meadows Project but reduced the pre-deposit for the Pacifica Project to 75% of Rs. 183 lakhs. It directed the petitioner to make the deposits within three weeks for the appeals' expedited hearing and disposal by the CESTAT. The writ petitions were disposed of with no costs.