2018 (6) TMI 663 - AT - Service Tax

Transmission and distribution of electricity - it was alleged that appellant were not paying service tax, but were claiming ineligible abatement under N/N. 1/2006-ST dated 01.03.2006 - Supply contract which includes supply of various items such as transformers - Erection, Commissioning and Installation contract - Balance of plan contract which mostly involve civil works using cement, steel etc. - combination of three services - Held that - It is seen that the Revenue has made no attempt to combine the three contracts into one mega turnkey project. No attempt has been made to assess such a composite contract as a single works contract. Hence the supply contract, erection contract as well as civil works contract are required to be assessed independently since the same have been executed separately by the two parties. Considering the civil works contract, the adjudicating authority has blindly gone by the classification declared in the ST-3 returns under 65 (105) (zzd). The execution of civil works no doubt involves supply of materials in the form of steel, cement etc. Consequently, such contracts merit classification under 65 (105) (zzq) under commercial or industrial construction service which also enjoys abatement in terms of Sl.No. 7 of the Notification No. 1/2006-ST. Benefit of concessional rate of duty under Works Contract (Composition Scheme) - Held that - Since the civil construction contract definitely involves supply of materials such as cement and steel, such contracts are rightly classifiable under the works contract service. But the adjudicating authority has denied the benefit of composition scheme for the reason that the appellant has failed to exercise the option for payment of service tax under the scheme prior to the payment of service tax under the respective works contract. Even though such a stand adopted cannot be faulted, the appellant will be entitled to assessment under Works contract service for such contracts and entitled to payment of service tax only on the value of service portion. Order denying abatement under Notification No. 1/2006-ST dated 01.03.2006 is set aside and abatement allowed - Regarding assessment under Works Contract service, matter remanded to the adjudicating authority.

Summary

Issues involved:
Challenge to order-in-original regarding service tax demand, denial of abatement under Notification No. 1/2006, denial of benefit under Works Contract (Composition Scheme).

Analysis:
1. Challenge to order-in-original regarding service tax demand:
The appellant, a manufacturer of transformers and electrical switchgear, faced allegations of not paying service tax while claiming ineligible abatement under Notification No. 1/2006. After investigation and issuance of show cause notice, the impugned order confirmed a service tax demand of &8377; 4,69,31,742 along with penalties. The appellant challenged this order, leading to the present appeal.

2. Denial of abatement under Notification No. 1/2006:
The appellant had contracts involving supply, erection, commissioning, and civil works. The Revenue disallowed abatement under Notification No. 1/2006 on the grounds that the gross amounts of certain contracts did not include the entire cost of plant, equipment, and materials used. However, the Tribunal found that the appellant was entitled to abatement under Sl. No. 7 of the Notification for contracts involving commercial or industrial construction services, which include supply of materials like cement and steel.

3. Denial of benefit under Works Contract (Composition Scheme):
Regarding the benefit under the Works Contract (Composition Scheme), the Revenue denied it because the appellant did not exercise the option for payment of service tax under the scheme before payment. The Tribunal acknowledged this but directed the adjudicating authority to allow assessment under Works Contract service for relevant contracts, with payment of service tax only on the value of the service portion, subject to satisfactory proof of the value of service.

In conclusion, the Tribunal set aside the order denying abatement under Notification No. 1/2006 and allowed abatement. The matter of assessment under Works Contract service was remanded to the adjudicating authority for further action.