2015 (11) TMI 329 - AT - Service Tax

Works contract service - composition scheme once opted, can be changed or not - Held that - Appellant had opted for discharge of service tax liability on the services rendered by them under the category of works contract by opting to pay the service tax under Composition Scheme. The provisions of Rule 3 (1) of the said Composition Scheme would be applicable in this kind of option to discharge the said service tax liability on works contract - Rule 3(1) starts with an non-obstante clause which indicates that the provision of Section 67 may not be applicable in this case. It is very clear that the said scheme is an optional one and once an assessee opts to discharge the service tax liability under the Composition Scheme, he has to follow the provisions in the said Composition Scheme which will not be bound by the provisions to Section 67 of the Finance Act, 1994. Composition Scheme being optional, having opted for it, appellant has no locus standi to revert back to workout the gross value charged for the services rendered. Factually also we find that the appellant had charged an amount to the service recipient as per the contract entered by them, which would be that the service tax liability under works contract services needs to be discharged on the gross amount charged i.e. entire gross amount charged for the works contract and there cannot be any deduction that can be claimed. - on merits appellant has no case and the differential tax liability as worked out by the adjudicating authority along with interest is correct and needs to be upheld - However, imposed penalty is set aside - Decided partly in favour of assessee.

Summary

Issues:
Differential service tax liability on works contract services during 2008-09 under the Composition Scheme.

Analysis:
The appellant opted to discharge the service tax liability on works contract services under the Composition Scheme, paying tax at 4.12% after deducting it from the entire contract value based on Section 67(2) of the Finance Act, 1994. The appellant argued that the lower authorities erred in confirming the demands raised. However, the Tribunal found that the appellant had no case on merits for multiple reasons.

Firstly, the Composition Scheme under Rule 3(1) allows the person liable to pay service tax on works contract services to opt for paying an amount equivalent to 4% of the gross amount charged for the works contract. This scheme is optional and not bound by the provisions of Section 67 of the Finance Act, 1994. Therefore, once the appellant opted for the Composition Scheme, they had to follow its provisions without claiming deductions.

Secondly, as the Composition Scheme is optional, the appellant cannot revert back to calculate the gross value charged for the services rendered. The service tax liability under works contract services must be discharged on the entire gross amount charged without any deductions. The Tribunal concluded that the differential tax liability calculated by the adjudicating authority, along with interest, was correct and upheld it.

Regarding the penalties imposed, the Tribunal considered that the appellant might have genuinely believed that the gross amount charged should be less than the tax payable under the Composition Scheme. Since this issue was of an interpretational nature, the penalties were deemed unwarranted. Additionally, as the appellant had already discharged the service tax liability and interest, invoking Section 80 of the Finance Act, 1994, the penalties were set aside.

In conclusion, the Tribunal disposed of the appeals, upholding the differential tax liability and interest while setting aside the penalties imposed on the appellant.