2019 (2) TMI 1868 - HC - Service Tax

Benefit of Abatement in terms of N/N. 24/2012-ST dated 06.06.2012 - Works contract - Contract for Changing Old AC Sheet/CGI Sheet Roofing by Profile Sheet in Valley Guttered Godown - scope of work awarded to the petitioner - Repair Work or Original Work. Whether under the contract terms of the contract between the parties, the contract work in question was a original works contract or a contract work for repair and maintenance as provided under Clause (A) and (B) of Sub-Rule (ii) of Rule 2-A and Sub- clause (ii) of Clause (a) of Explanation-1 of the Service Tax (Determination of Value) Rules, 2006? - HELD THAT - The present contract was not a contract that had been bifurcated in two parts, first part being an independent contract for removing existing roofing materials and the second part, being an independent contract for installing fresh roof. Therefore, as the work constituted a consolidated contract for replacing the existing CI/CGI sheet roof with Profile Sheet roof, in the considered opinion of this Court, the present contract work awarded to the petitioner was rightly not treated by the respondents to be a contract for doing original work - Thus, the present contract in question was not an original works contract and therefore, it could only have been treated as a contract work for maintenance, repairs, and renewal, entailing service tax on 70% of the component of the gross value of the contract. It is clarified herein that this finding is limited to the interpretation of contract between the parties herein, and this finding is not intended to be a conclusive determination for interpretation of taxable entry under Service Tax as the Revenue has not been heard on the point. Whether as per the Contract Agreement between the parties, the share of service tax payable by the respondents could have been passed on to the petitioner, thereby giving right to the respondents to make the necessary deduction of service tax from the bills, including running account bills, payable to the petitioner? - HELD THAT - Under clause-36A of the Conditions of Contract, there appears to be a departure from the language used in Clause 36(i)(a) of the said Conditions of Contract on the ground that it envisages that the entire sales tax or any other tax levied on materials was to be borne by the petitioner, which is conspicuously absent in Clause 36A, inter-alia, providing that the tendered rates would be inclusive of all taxes payable under respective statutes. Thus, tax as envisaged under Clause 36A excludes those taxes, levies, etc. which are described in Clause 36 of the Conditions of Contract. On a competitive reading of the ratio laid down by the Hon ble Apex Court in the case of Hindustan Lever Limited 2016 (7) TMI 76 - SUPREME COURT and Dewan Chand Ram Saran 2012 (4) TMI 457 - SUPREME COURT , it is seen that in the later case, the issue related to shifting of the burden service tax liability from statutory assessee to the service recipients and in that context, while interpreting the contract agreement between the parties, Clause 9.3 of the terms and conditions of the said contract was referred to and it was held that the said Clause 9.3 was the contractor s acceptance of the tax liability arising out of his obligations under the contract. As the tax liabilities in respect of the job mentioned in the contract was the entire responsibility of the contractor, it was held in the said case that all taxes and levies was to be borne by the contractor - The Hon ble Apex Court further held that there was nothing in law to prevent the appellant therein from entering into an agreement with the respondent therein, being the handing contractor, that the burden of tax arising out of obligations of the respondent under the contract would be borne by the respondent therein. However, in the present case in hand, on reading Clause 36A leaves no room for doubt that the parties had contracted that all tendered rates shall be inclusive of all taxes and levies payable under the respective statutes . Therefore, when as per statute, i.e. Notification dated 20.06.2012, the liability of the respondent, as prescribed as 50% in respect of services provided or agreed to be provided in service portion in execution of works contract, being the liability the person receiving the service, there was no clause in the contract agreement by a virtue of which it can be said that there was a binding contract between the parties by virtue of which the burden of the tax liability falling upon the respondents would be borne by the petitioner, this Court is of the considered opinion that there was no contractual agreement between the parties so as to saddle the petitioner with the service tax liability which was statutory levied on the respondent. Thus, as per the contract agreement between the parties, the share of service tax payable by the respondents could not have been passed on to the petitioner and therefore, the respondents did not get any right to make deduction of service tax (liability of the respondents 50% share of service tax) from the bills payable to the petitioner. Thus, the respondents are restrained from deducting service tax (liability of the respondents 50% share of service tax) from the bills of the petitioner - the respondents are directed to refund the amount of service tax (liability of the respondents 50% share of service tax) already deducted from the running account bills of the petitioner within a period of 3 (three) months from the date of receipt of certified copy of this order - petition allowed in part.

Summary

Issues Involved:
1. Whether the contract work was an "original works contract" or a "contract work for repair and maintenance".
2. Whether the share of service tax payable by the respondents could be passed on to the petitioner as per the contract agreement.

Issue-wise Analysis:

1. Original Works Contract vs. Repair and Maintenance:
The primary issue was to determine if the contract for "Changing Old AC Sheet/CGI Sheet Roofing by Profile Sheet in Valley Guttered Godown No. A and B, 6 Nos. Mini Godown at FSD Cinnamara (Assam)" constituted an "original works contract" or a "contract work for repair and maintenance" under Clause (A) and (B) of Sub-Rule (ii) of Rule 2-A and Sub-clause (ii) of Clause (a) of Explanation-1 of the Service Tax (Determination of Value) Rules, 2006.

The court examined the nomenclature and scope of the contract, concluding that the work involved replacing existing roofing materials, which did not constitute "original work" but rather fell under maintenance, repair, and renewal. Thus, the service tax was rightly imposed on 70% of the gross value of the contract. The court clarified that this interpretation was limited to the contract between the parties and not a conclusive determination for the interpretation of taxable entry under Service Tax.

2. Service Tax Liability:
The second issue was whether the respondents could pass their share of service tax liability to the petitioner under the contract agreement. The court analyzed Clause 36 and 36A of the Conditions of Contract, which stated that "All tendered rates shall be inclusive of all taxes and levies payable under respective statutes." It was noted that the notification No. 30/2012- Service Tax dated 20.06.2012 required the service tax to be shared equally (50:50) between the service provider and the service recipient.

The court held that there was no clause in the contract that allowed the respondents to pass their statutory service tax liability to the petitioner. Therefore, the respondents could not deduct their 50% share of service tax from the bills payable to the petitioner.

Conclusion:
The court partially allowed the writ petition by:
1. Restraining the respondents from deducting their 50% share of service tax from the petitioner's bills.
2. Directing the respondents to refund the amount of service tax already deducted within three months from the receipt of the certified copy of the order.

The remaining prayers in the writ petition were declined, and no costs were awarded.