2019 (2) TMI 1037 - AT - Service Tax

Valuation - works contract - whether the value of onshore and offshore supplies by the appellants need to be included in the value of services rendered by them under the works contract scheme? - Held that - It is not in dispute that the material in question was supplied by the appellant with respect to this particular contract and after the supply was completed, the goods which were supplied were given by APPDCL back to appellant for execution of the contract. A plain reading of CBEC circular D.O.F. No. 334/13/2009-TRU, dated 06.07.2009 explains that such values became includible in the value of the works contract as per the amendment made vide notification NO. 23/2009-ST, dt. 07.07.2009. By inserting an explanation, it was also clarified by CBEC themselves that the inclusion of the values would not apply to such contracts where either the execution of works contract has already started or any payment (whether in part or in full) has been made on or before 07.07.2009. In this particular case, the payments in respect of all the three contracts were made prior to 07.07.2009. Needless to say that there is no separate payment under the umbrella contract because it was only a combination of the other three contracts - There are indeed three different contracts and for which three different payments were to be made and were made. The umbrella agreement only combines all these three agreements so as to give a complete perspective of the scope of the contract. In fact, there is no payment whatsoever under the umbrella agreement. Further, the advances in respect of the three contracts were received prior to 07.07.2009 and hence the amended provisions do not apply. In view of the above, the value of the material supplied under off-shore and on-shore contracts cannot be included in the value of the works contract service as the advance payment in respect of all the three contracts are received prior to 07.07.2009. Appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
1. Whether the value of onshore and offshore supplies should be included in the value of services rendered under the works contract.
2. Applicability of the Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007 amendments dated 07.07.2009.
3. Validity of the demand for differential service tax, interest, and penalties.

Issue-wise Detailed Analysis:

1. Inclusion of Onshore and Offshore Supplies in Service Value:
The appellant was awarded a contract by APPDCL for setting up a thermal power plant, which included various components such as offshore supply, onshore supply, and services. The appellant discharged service tax on the services contract under the works contract. The Revenue argued that the offshore and onshore agreements should also be included in the value of services rendered, asserting that the umbrella agreement integrates all contracts into a single agreement. The appellant contended that the contracts were separate as per the Letter of Intent from APPDCL, and VAT/CST was paid on supply contracts. The Tribunal concluded that the three contracts were distinct, and the value of materials supplied under offshore and onshore contracts should not be included in the service value since advances were received before the critical date of 07.07.2009.

2. Applicability of Amendments to Works Contract Rules:
The appellant argued that the amendments to the Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007, effective from 07.07.2009, should not apply to their contracts as advances were received prior to this date. The Tribunal referred to the CBEC circular which clarified that the amended rules would not apply to contracts where execution or payment had commenced before 07.07.2009. The Tribunal agreed with the appellant, noting that advances for all contracts were received before the specified date, thus exempting them from the amended rules.

3. Validity of Demand for Differential Service Tax, Interest, and Penalties:
The Revenue issued a show cause notice demanding differential service tax, interest, and penalties, arguing that the contracts should be treated as one. The Tribunal found that the contracts were indeed separate, and the umbrella agreement merely combined them without any additional payment. Consequently, the Tribunal ruled that the demand for service tax, interest, and penalties was not sustainable. The Tribunal set aside the impugned order, allowing the appeal in favor of the appellant.

Conclusion:
The Tribunal concluded that the value of onshore and offshore supplies should not be included in the service value under the works contract, given that advances were received before the amendment date. The demand for differential service tax, interest, and penalties was deemed unsustainable, and the appeal was allowed, setting aside the impugned order.