2019 (3) TMI 1679 - AT - Service Tax

Works Contract Services - Composition Scheme - Department interpreted that since no option under Rule 3 of the rules had been exercised by the appellant it should be liable to pay the service tax @ 10.30% - HELD THAT - The appellant had exercised the option for availing the Composition Scheme inasmuch as it had declared the tax payable at 4% - Since the appellant has specifically mentioned about the rate prescribed under the Composition Scheme the same should be considered as compliance in terms of Rules 2007 regarding availment of the option for the Composition Scheme - Thus nonfiling of specific declaration before opting for the scheme is to be considered as a mere procedural lapse for which the substantive right provided under the statute for payment of composition tax cannot be whittled down. The adjudged demands confirmed on the appellant cannot be sustained - Appeal allowed - decided in favor of appellant.

Summary

Issues:
Interpretation of Works Contract (Composition Scheme for payment of service tax) Rules, 2007 regarding the payment of service tax at a specific rate without filing an option.

Analysis:
The appellant, engaged in providing works contract service, was registered with the Service Tax authorities. The Service Tax Department observed that the appellant had paid service tax at 4% of the taxable value without filing an option for payment under the Composition Scheme. Show cause proceedings were initiated, leading to a demand of &8377; 27,07,015/- under Section 73 of the Finance Act, 1994, along with interest and penalties. The adjudication order confirmed the demand, imposing penalties under Section 76 of the Act. The Commissioner (Appeals) upheld the demand, stating that no option had been exercised for the Composition Scheme and that availing cenvat credit for composition amount payment was impermissible.

Upon review, it was found that the appellant had declared tax payable at 4% in the relevant ST-3 return, indicating an exercise of the option for the Composition Scheme. The absence of a specific format for exercising the option was considered a procedural lapse, not affecting the substantive right for composition tax payment. Additionally, although cenvat credit was initially availed, it was duly reversed and reflected in the returns. Consequently, the confirmed demands were deemed unsustainable.

The Tribunal concluded that the impugned order lacked merit and set it aside, allowing the appeal in favor of the appellant.