2015 (2) TMI 273 - AT - Service Tax

Valuation - Commercial or Industrial Construction Service (CICS) and Construction of Complex Service (CCS) - inclusion of value of free servcies - benefit of Notification No.1/2006-ST claiming abatement of 67% and while availing of the Composition Scheme to pay service tax under Works Contract Service - Held that - As regards disallowance of abatement of 67% under Notification Nos.15/2004-ST 18/2005-ST and 1/2006-ST on the ground that the value of free supplies was not included in the gross amount charged the Larger Bench of the Tribunal in the case of Bhayana Builders 2013 (9) TMI 294 - CESTAT NEW DELHI (LB) has held that the value of free supplies by the service recipient to service provider is not required to be included in the gross amount charged for the purpose of availing the benefit of the aforesaid Notifications. For 67% abatement under the aforesaid Notifications (except Notification No.1/2006-ST) only credit of input and capital goods is not permissible. Thus there is variance between the Show Cause Notice and the adjudication order with regard to whether the appellants took CENVAT credit of only input services or both inputs and input services (and also capital goods) which needs to be reconciled. But even with the classification of the impugned service under works contract service w.e.f. 01.06.2007 the appellants will not be eligible for the compositional scheme to pay service tax under works contract service in respect of on-going projects for which service tax had been paid during the period prior to 01.06.2007. It has been so held upto the level of the Supreme Court in the case of Nagarjuna Construction Co. Ltd. Vs. GoI 2012 (11) TMI 404 - SUPREME COURT . - However that would not disqualify the appellants from claiming the benefit under Rule 2A of Service Tax (Determination of Value) Rules 2006 or any other exemption Notification provided they satisfy the conditions and establish their eligibility. Levy of service tax on construction of flats made for Delhi Development Authority (DDA) buildings constructed for BSNL Reliance or Municipal Corporation - Held the activities are taxable. Levy of service tax on construction for Hospital - A claim has been made that the buildings made for the said hospitals is outside the purview of CICS on the ground that they were made for the charitable organisations - Held that - There is no ambiguity that charitable organisation is not prevented from carrying out commercial activity; the only condition is that the profit so generated has to flow back into the organisation towards fulfilment of its charitable purposes. Thus merely because the hospitals were constructed for the charitable organisations do not make the hospitals per se non-commercial. Indeed these hospitals are not non-commercial and charge the patients for the medical services. Suo moto adjustment of tax - Held that - It is evident that adjudicating authority has simply declared the impugned credit to be inadmissible without analysing as to how that is so. - there is no elucidation as to how the said suo moto adjustment is in violation of the said Service Tax Rules. - Matter remanded back - Opportunity of being heard is to be given to assessee before de novo adjudication.

Summary

Issues:
1. Disallowance of abatement under Notifications No. 15/2004-ST, 18/2005-ST, and 1/2006-ST.
2. Disallowance of Cenvat credit and composition scheme benefit.
3. Tax liability on construction services provided.
4. Disallowance of Cenvat credit of inputs and input services.
5. Disallowance of suo moto adjustment of service tax.

Analysis:
1. The appellants contested the denial of 67% abatement under certain notifications, citing a precedent from Bhayana Builders case. The Tribunal held that the value of free supplies need not be included in the gross amount charged for availing abatement.

2. Regarding the disallowance of Cenvat credit and composition scheme benefit, discrepancies were noted in the Show Cause Notice and adjudication order. The Tribunal emphasized that re-classification of services is permissible based on their nature and definitions under the law. The appellants were advised to claim benefits under relevant rules if eligible.

3. The tax liability on construction services provided to various entities was debated. The Tribunal clarified that constructions for commercial or industrial purposes, including those for charitable organizations, are taxable under relevant services. The argument that constructions for charitable organizations are non-commercial was dismissed.

4. The disallowance of Cenvat credit of inputs and input services was challenged by the appellants. The Tribunal highlighted the lack of analysis by the adjudicating authority in declaring the credit inadmissible, emphasizing the need for clear reasoning.

5. The disallowance of suo moto adjustment of service tax was also contested. The Tribunal noted the absence of explanation on how the adjustment violated the Service Tax Rules, urging a clear finding on the matter. The impugned order was set aside for a fresh adjudication, with specific terms outlined for reconsideration and clarity on various issues. The appellants were granted an opportunity to be heard before the new adjudication.