2015 (2) TMI 350 - AT - Service Tax

Commercial or industrial construction services - change of classification to works contract service - Entitlement to benefit of Notification No.1/2006-ST - Held that - Services were being rendered under ongoing projects on a continuous basis. It was not that the entire service was rendered on the date of entering into the contract. Thus, the classification of the services has to be done in accordance with the provisions of section 65 (105) ibid and with the introduction of the new service w.e.f. 01.06.2007, if the service got more appropriately covered under the scope of works contract service, it will have to be classified there-under in terms of Section 65 A of the Finance Act 1994. To that extent the Board's Circular is devoid of correct appreciation of the legal provisions. It is claimed in the orders of the lower authorities that the said Board Circular has been upheld by the judgment of Andhra Pradesh High Court in the case of Nagarjuna Construction Company vs. Govt. of India - 2010 (6) TMI 91 - ANDHRA PRADESH HIGH COURT . We have perused the said judgment of Andhra Pradesh High Court and find that nowhere the High Court has said that the classification of ongoing services cannot be changed to works contract service, if the service was more appropriately classified there-under; what the High Court has, however, upheld is the Board s clarification that in respect of the ongoing projects where service tax had been paid earlier (prior to 01.06.2007), the benefit of the Composition Scheme is not available. Thus, the lower authorities are correct in holding that for such ongoing project the appellants were not eligible to avail of the Composition Scheme. The appellants have contended that they have all the required evidence to be eligible for the benefit of Notification No.12/2003 or the Provisions of Rule 2A of the Service Tax (Determination of Value) Rules, 2006. Needless to say, however, that the onus remains on the appellants to demonstrate that they satisfy the conditions/requirements for the purpose of claiming the said benefit. - Matter remanded back with directions - Decided partly in favour of assessee.

Summary

Issues:
Classification of services for service tax payment, eligibility for Composition Scheme, benefit of notifications and rules, reliance on CBEC Circular, change in classification for ongoing projects, burden of proof on appellants.

Classification of Services for Service Tax Payment:
The appellants had been providing construction services and paid service tax under commercial or industrial construction services before changing the classification to works contract service. Lower authorities held their services were completion and finishing services, denying them benefits. The appellants argued their services involved transfer of property in goods and were eligible for the Composition Scheme post the introduction of works contract service. The Tribunal found the CBEC Circular relied upon by lower authorities lacked correct legal interpretation as ongoing project services could be reclassified under works contract service if appropriate, irrespective of prior classification.

Eligibility for Composition Scheme and Benefit of Notifications:
The Tribunal allowed the appeals by remanding them to the original adjudicating authority. The appellants were permitted to classify their services as works contract service even for ongoing projects from 01.06.2007 if more suitable, and to claim benefits of applicable notifications and rules. The burden of proof to demonstrate eligibility for such benefits rested on the appellants, who were directed to submit evidence within four weeks for a fresh decision by the adjudicating authority.

Reliance on CBEC Circular and Change in Classification for Ongoing Projects:
The lower authorities had relied on a CBEC Circular that restricted changing the classification of ongoing projects for service tax payment post 01.06.2007. However, the Tribunal clarified that ongoing services could be reclassified under works contract service if more appropriate, rejecting the interpretation in the Circular. The judgment of the Andhra Pradesh High Court cited in support upheld the non-availability of the Composition Scheme for ongoing projects but did not bar reclassification under works contract service.

Burden of Proof on Appellants:
The Tribunal emphasized that the appellants had to prove their eligibility for benefits like Notification No.12/2003 or Rule 2A of the Service Tax (Determination of Value) Rules, 2006. While the appellants claimed to possess the necessary evidence, the onus remained on them to satisfy the conditions for claiming such benefits. The Tribunal's decision to remand the case allowed the appellants an opportunity to present their evidence for a fresh adjudication.