2018 (7) TMI 25 - AT - Service Tax

Works Contract - Benefit of abatement towards providing the materials used in carrying out the contracted activities - management, maintenance and repair of traffic signals poles/lights - installation/commissioning of surveillance cameras at various road inter-sections - Held that - From the nature of activity carried out by the assessees for the Rajasthan Government, it is seen that contracts were in the form of turnkey contracts which involved supply of the materials necessary for carrying out the work of installation and maintenance of surveillance cameras, street lights etc. Consequently, such contracts are to be considered as works contracts defined under Section 65 (105) (zzzza) - reliance placed in the case of COMMISSIONER, CENTRAL EXCISE & CUSTOMS VERSUS M/S LARSEN & TOUBRO LTD. AND OTHERS 2015 (8) TMI 749 - SUPREME COURT , where it was held that such composite contracts cannot be charged to service tax under any other category prior to the introduction of WCS. - the demand for service tax for the period prior to 01/06/2007 set aside. Payment of service tax w.e.f. 01/06/2007 under the category of WCS - Composition Scheme - denial on the ground that the assessees have failed to satisfy to Rule 3 (3) of the relevant Composition Rules which require the assessees to exercise the option for payment of service tax under these composition rules for each contract - Held that - Such requirement is only procedural and cannot come in the way of extending the benefit of composition scheme since the assessees have exercised such option, although belatedly. Penalties - Held that - The levy of service tax under the category of works contract service was the subject matter of substantial litigation which got settled only with the decision of Hon ble Supreme Court in the case of Larsen & Toubro Ltd. 2015 (8) TMI 749 - SUPREME COURT - the appellants, who have discharged the service tax liability in full even though part of the same was discharged after issue of show cause notice, will be entitled to the benefit of waiver of penalty under Section 80 - penalty set aside. Appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Classification of turnkey contracts for Rajasthan Government in connection with provision of traffic signals under service tax categories.
2. Application of Works Contract Service (WCS) Composition Scheme, 2007.
3. Compliance with Rule 3(3) of Works Contract (Composition Scheme) Rules, 2007.
4. Imposition of penalties under Section 80 of the Finance Act, 1994.

Analysis:
1. The appeals were filed against the order-in-Appeal dated 07/04/2015 and 31/03/2015 regarding turnkey contracts executed for the Rajasthan Government. The contracts involved management, maintenance, repair of traffic signals, and installation of surveillance cameras. The Department raised demands for service tax for the period October 2005 to September 2010. The Original Authority ordered payment of service tax without allowing abatement for materials used. The Commissioner (Appeals) demanded service tax under erection, commissioning, or installation service and later under works contract services from 01/06/2007. Appeals were filed challenging these orders (para 2).

2. The arguments presented by the assessees included the classification of contracts as works contracts under WCS from 01/06/2007 based on the Supreme Court's decision in Larsen & Toubro Ltd. v. State. The assessees provided details of materials used and argued for non-levy of service tax before 01/06/2007. They also mentioned prior payment of service tax and requested penalty waiver under Section 80 of the Finance Act, 1994 (para 4).

3. The Revenue challenged the extension of WCS Composition Scheme benefits to the assessees, citing non-compliance with Rule 3(3) of the WCS Composition Scheme. The Revenue argued that the option for the scheme should be exercised before payment of service tax for each contract, which was not done by the assessees. The assessees rebutted, stating that the procedural requirement was fulfilled before payment of service tax under the scheme (para 5).

4. The Tribunal analyzed the nature of the contracts and the applicability of WCS. It noted that contracts involving supply of materials for installation and maintenance should be considered as works contracts under WCS from 01/06/2007, as per the Supreme Court's decision. The Tribunal set aside the demand for service tax before 01/06/2007. Regarding the extension of WCS benefits, the Tribunal found the procedural requirement of exercising the option to be fulfilled by the assessees, even if belatedly, and rejected the Revenue's appeal. The Tribunal also granted penalty waiver under Section 80 due to the substantial litigation surrounding the service tax classification (para 8-10).