2018 (10) TMI 403 - AT - Service Tax

Valuation - completion and finishing services/construction services - inclusion of materials consumed in the course of providing the service in assessable value - benefit of abatement under N/N. 1/2006-ST dated 1.3.2006 denied - it is alleged that the appellants bifurcated the value of purchase order into charges for materials and labour charges and they paid service tax only on the labour charges - demand of service tax on the value of materials under the category of commercial or industrial construction service (finished services) - demand under the head Works contract services - Scope of SCN. Demand for the period prior to 1.6.2007 - Held that - The works contract has come into effect only after 1.6.2007 - The decision in the case of Larsen Toubro Ltd. 2015 (8) TMI 749 - SUPREME COURT would apply to the period prior to 1.6.2007 wherein it was held that levy under works contract service prior to 1.6.2007 cannot sustain - demand do not sustain. Demand for the period after 1.6.2007 - Held that - It is seen that though the show cause notice raises the demand under commercial or industrial construction service, the Commissioner has confirmed the demand under works contract service. The Commissioner has thus travelled beyond the show cause notice and the demand after 1.6.2007, for this reason alone, cannot sustain - the confirmation of service tax being beyond the demand and allegations raised in the show cause notice, the same cannot sustain. The Tribunal in the case of Real Value Promoters and Ors. 2018 (9) TMI 1149 - CESTAT CHENNAI had occasion to analyse the issue and has held that the demand under commercial or industrial construction service cannot sustain after 1.6.2007. Appeal allowed - decided in favor of appellant.

Issues:
1. Applicability of service tax on construction activities.
2. Bifurcation of value of services into material cost and labour charges.
3. Denial of abatement under Notification No.1/2006-ST.
4. Classification of activities under Works Contract Service.
5. Scope of Notification No.12/2003-ST.
6. Departmental audit and suppression of facts.
7. Relevance of materials used in service provision.
8. Exemption under Notification No.12/2003-ST.
9. Applicability of abatement value in ST3 returns.
10. Consistency in demand classification under commercial or industrial construction service and works contract service.

Detailed Analysis:
1. The issue revolves around the initiation of an investigation by the Service Tax Commissionerate regarding the non-payment of appropriate service tax on construction activities by the appellants. The department alleged that the appellants bifurcated the value of services into material and labour charges, paying service tax only on the latter. The dispute arose regarding the exclusion of material cost for service tax calculation.

2. The appellant argued that the department's demand for service tax on materials under commercial or industrial construction service was incorrect. They contended that they were availing exemption under a different notification and not the one cited by the department. The Commissioner's classification of activities under Works Contract Service was challenged as beyond the scope of the show cause notice.

3. The denial of abatement under Notification No.1/2006-ST was a crucial point of contention. The appellant asserted that the materials used were not sold but consumed in providing services, thus not liable for service tax. The argument focused on the transfer of property in goods during service provision and the applicability of abatement rules.

4. The issue of Works Contract Service classification was central to the case. The Commissioner's decision to classify the activities as works contract service from a specific period was challenged based on the introduction date of works contract service. The Tribunal's precedent in similar cases was cited to support the appellant's position.

5. The scope and applicability of Notification No.12/2003-ST were extensively discussed. The appellant argued for the availability of exemption under this notification and highlighted the Commissioner's misinterpretation of the relevant provisions. The appellant's compliance with the notification's requirements was a key aspect of the argument.

6. The appellant raised concerns regarding the departmental audit and alleged suppression of facts. They contended that the department was aware of all relevant details during the audit, negating any claims of suppression. The absence of specific provisions for material value in the prescribed returns was emphasized.

7. The relevance of materials used in service provision was a critical aspect of the case. The appellant argued that the materials were not sold but consumed in providing services, thus not forming part of the taxable service value. The distinction between consumables and goods involved in service provision was crucial in determining the tax liability.

8. The appellant's reliance on the exemption under Notification No.12/2003-ST was a key defense strategy. They highlighted the availability of this exemption to all services and the inapplicability of abatement rules in such cases. The interpretation of circulars and notifications played a significant role in the argument.

9. The appellant's position on the abatement value in ST3 returns was a critical point of contention. They emphasized the absence of abatement or exemption claims in their returns, indicating compliance with the relevant regulations. Precedents and legal provisions were cited to support this argument.

10. The consistency in demand classification under commercial or industrial construction service and works contract service was a significant issue. The Tribunal's decision in similar cases was cited to challenge the Commissioner's classification and demand for service tax. The lack of alignment between the show cause notice and the final demand was a key factor in the appeal's success.

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