2015 (5) TMI 36 - AT - Service Tax

Works contract service - Denial of benefit of Notification No. 12/2003-ST - Denial on the ground that merely because some goods and material were purchased and then used in the course of providing taxable services cannot be said to have been sold, even if VAT or sales tax is paid on deemed basis in terms of works contract - Held that - Prima facie, the reasoning of the Commissioner denying the benefit of Notification No. 12/2003-ST suffers from infirmity inasmuch as, apart from the provisions of Notification No. 12/2003-ST, even in terms of Section 67 of Finance Act, the assessable value of the service rendered does not include value of the deemed sale of goods involved in the composite contract. It also seems that in Annexure 5 and Annexure 6 of the appeal, the details of goods supplied in the execution of works contract are given. Therefore and specially having regard to the claim that if the value of goods is abated in terms of Notification No. 12/2003-ST, then as per details in Annexure 5 and Annexure 6 of their appeal, their service tax liability would be in the range of the amount already paid, we are of the view that the appellants have made out a good case for waiver of the pre-deposit of the remaining adjudicated liabilities and we order accordingly staying recovery of the same during pendency of appeal. - Stay granted.

Summary

Issues:
1. Service tax demand confirmation for works contract service.
2. Applicability of Notification No. 41/2009-ST, Notification No. 12/2003-ST, and Rule 2A of the Service Tax (Determination of Value) Rules, 2006.
3. Denial of benefit of Notification No. 12/2003-ST and Rule 2A.
4. Claim of demand being time-barred.

Analysis:
1. The appeal was filed against a service tax demand confirmation of Rs. 3,16,48,319 for the period March 2008 to December 2010 under the category of works contract service. The appellants had already paid a portion of the amount towards service tax and interest.

2. The appellants contended that they were paying VAT on the material value, which constituted a significant portion of the total value, even though the service might be taxable. They argued for exemption under Notification No. 41/2009-ST for works contract service related to canals. Additionally, they claimed benefits under Notification No. 12/2003-ST, Works Contract Composition Scheme, and Rule 2A of the Service Tax (Determination of Value) Rules, 2006.

3. The adjudicating authority had denied the benefit of Notification No. 12/2003-ST, stating that payment of VAT on materials used in providing taxable services does not equate to a sale. Similarly, the benefit of Rule 2A was denied due to insufficient details regarding the amount charged on the transfer of goods in works contracts.

4. The Tribunal found flaws in the Commissioner's reasoning for denying the benefit of Notification No. 12/2003-ST. It noted that the assessable value of services, as per Section 67 of the Finance Act, does not include the value of deemed sale of goods in composite contracts. The appellants provided details of goods supplied in the works contract execution, supporting their claim that if goods' value is abated under Notification No. 12/2003-ST, their service tax liability would align with the amount already paid. Thus, the Tribunal ordered a waiver of the remaining adjudicated liabilities' pre-deposit, staying the recovery during the appeal's pendency.