2017 (9) TMI 710 - AT - Service Tax

Works Contract Service - purely sales contract where no element of service was involved - levy of VAT and/or service tax? - Held that - since VAT / sales tax stand paid on the entire value of the contracts, no service tax can be charged since service tax as well as sales tax are mutually exclusive. Classification of service - whether composite contracts to be classified under WCS or under erection, commissioning or installation service? - Held that - CBEC Circular No.62/11/2003-ST dated 21.8.2003 has clarified that the goods portion of work contract is to be ascertained from the payment of VAT and after deducting such value attributable to goods, the balance is to be determined as value of service. In cases where VAT has been paid on the full value of the contract, there is no value attributable to service and consequentially no service tax is payable. Management, maintenance or repair service - Held that - The adjudicating authority has reduced such demand after considering the reconciliation statement of the department itself. He has excluded the value of goods in the contracts in which VAT or WCS tax as applicable was paid by the applicant - Since the finding of the adjudicating authority is based on scrutiny of all the contracts and reconciliation statement of the department, we find no reason to interfere with such finding. Appeal dismissed - decided against Revenue.

Summary

Issues Involved:
1. Dropping of service tax demand for erection, commissioning, or installation services.
2. Reduction of service tax demand for management, maintenance, and repair services.

Analysis:
1. The appeal was filed by Revenue against an order-in-original regarding the demand of service tax on various services provided by the respondent, including erection, commissioning, installation services, and management, maintenance, repair services, among others. The adjudicating authority dropped a significant portion of the service tax demand but confirmed certain amounts under specific service categories. Revenue contested the dropping of demands for erection, commissioning, or installation services, arguing that service tax should be levied on the value of taxable services provided, even if VAT was paid on the full contract value. The authority's decision was based on differentiating between purely sales contracts and composite contracts involving goods and services. The Tribunal upheld the authority's findings, stating that service tax and sales tax are mutually exclusive, and in the case of composite contracts, the value of service is determined by deducting the value of goods sold. The adjudicating authority's decision was supported by a CBEC Circular, and the Tribunal found no reason to interfere with this clear finding.

2. Regarding the demand for management, maintenance, and repair services, the adjudicating authority reduced the initial demand after considering a reconciliation statement and excluding the value of goods in contracts where VAT or other applicable taxes were paid. The authority also factored in service tax already paid under different categories. Revenue argued that wrong payment of VAT should not exempt the service tax liability on the service component of a works contract. However, the Tribunal noted that the Finance Act aims to levy service tax only on the value of service in works contracts, and the CBEC Circular clarifies that the value of service is determined by deducting the value of goods as evidenced by VAT payment. Since VAT was paid on the full contract value in composite contracts, no discernible value of service existed, leading to no service tax liability. Therefore, the Tribunal upheld the authority's decision to reduce the service tax demand for management, maintenance, and repair services based on a thorough scrutiny of contracts and reconciliation statements.

In conclusion, the Tribunal rejected the appeal filed by Revenue, upholding the adjudicating authority's order regarding the service tax demands for erection, commissioning, installation services, and management, maintenance, repair services. The judgment emphasized the distinction between purely sales contracts and composite contracts, as well as the application of VAT payments in determining the value of service for tax purposes in works contracts.