2019 (4) TMI 937 - AT - Service Tax

Works Contract - Four SCN issued under Commercial or Industrial Construction Services and Construction of Complex Services by invoking Section 73 of the Finance Act, 1994 with interest under Section 75 and penalty under Sections 76, 77 and 78 of the Finance Act. First two SCN - benefit of Works Contract (Composition Scheme for payment of Service Tax) Rules, 2007 - benefit of abatement denied for the reason that the appellant did not include the cost of free material supplied to the appellant in the gross amount charged for the purpose of computation of abatement - Held that - Supreme Court in the case of Bhayana Builders (P) Limited. 2018 (2) TMI 1325 - SUPREME COURT OF INDIA observed that the value of taxable services cannot be dependent on the value of goods supplied free of cost by the service recipient and such a value has no bearing on the value of services provided by the service recipient - The Commissioner, therefore, could not have denied the benefit of abatement merely for the reason that the appellant had not included the cost of free material supplied to the appellant in the gross value of services. The second finding recorded by the Commissioner is that the appellant should have discharged service tax @ 4.12% since this was the rate of tax when the payment was received and not 2.06% - This finding cannot also be sustained. The taxable event in relation to service tax is rendering of service and thus tax has to be levied at the rate prevailing during the period such service was provided and not the rate of tax that was prevailing at the time of the payment - thus, the demand confirmed by the Commissioner in the first two show cause notices deserves to be set aside. Third SCN - Demand of service tax proposed on the differential value calculated on comparing the gross amount as per the balance sheet and the gross amount as per ST-3 Returns - Held that - The demand could not have been confirmed under Commercial or Industrial Construction Service for the reason that it was a composite contract and in the nature of Works Contract Services - The demand could not have been confirmed under Commercial or Industrial Construction Service in view of the decision of the Supreme Court in Larsen & Toubro Ltd 2015 (8) TMI 749 - SUPREME COURT . Fourth SCN - Denial of cenvat credit to the appellant because the appellant had struck off column No. 5B of the ST-3 Return for the period 2010 to 2011 relating to cenvat credit taken and utilised - Held that - This is a factual aspect inasmuch as it has to be seen whether the enclosure was enclosed with the ST-3 returns and in any case the Commissioner has not examined the same because Column 5B had been struck off. This aspect, therefore, needs to be examined by the Commissioner. It is, therefore, considered appropriate to remand the matter to the Commissioner to re-examine this Fourth Issue. Appeal allowed in part and part matter on remand.

Summary

Issues Involved:
1. Denial of abatement benefits due to non-inclusion of free material costs.
2. Incorrect service tax rate applied under the Composition Scheme.
3. Demand based on differential value between balance sheet and ST-3 returns.
4. Denial of CENVAT credit due to procedural errors in ST-3 returns.

Issue-Wise Detailed Analysis:

1. Denial of Abatement Benefits:
The appellant was denied abatement benefits on the grounds that they did not include the cost of free material supplied in the gross value of services. The appellant argued that the activities were composite, involving both supply of goods and provision of services, and thus should not be classified under "Commercial or Industrial Construction Services" or "Construction of Complex Services" for the period from 1 September 2004 to 31 May 2007, citing the Supreme Court's decision in *Commissioner of Central Excise & Custom, Kerala Vs. Larsen & Toubro Ltd.* The Commissioner’s finding was contrary to the Supreme Court’s decision in *Commissioner of Service Tax vs. Bhayana Builders (P) Ltd.*, which stated that the value of free materials supplied by the service recipient should not be included in the gross value of services. The Tribunal concluded that the Commissioner could not deny the benefit of abatement on this basis.

2. Incorrect Service Tax Rate:
The appellant was accused of paying service tax at a lower rate of 2.06% instead of the applicable 4.12% under the Composition Scheme for the month of March 2008. The appellant contended that the taxable event is the rendering of services, not the receipt of payment, supported by the Delhi High Court’s rulings in *Commissioner of Service Tax vs. Ratan Singh Builders Pvt. Limited* and *Vistar Construction (P) Ltd., vs. Union of India*. The Tribunal agreed with the appellant, stating that service tax should be levied based on the rate prevailing during the service period, not the payment receipt date.

3. Differential Value Between Balance Sheet and ST-3 Returns:
The third show cause notice demanded service tax based on the differential value between the balance sheet and ST-3 returns. The Commissioner confirmed this demand under "Commercial or Industrial Construction Service." The appellant argued that the contract was composite and should be classified under "Works Contract Services," referencing the Supreme Court’s decision in *Larsen & Toubro Ltd.* The Tribunal found merit in this argument and ruled that the demand could not be confirmed under "Commercial or Industrial Construction Service."

4. Denial of CENVAT Credit:
The fourth show cause notice denied CENVAT credit because the appellant struck off column 5B in their ST-3 return for the period 2010-2011, which should detail CENVAT credit taken and utilized. The appellant claimed this was a procedural mistake and provided details of service tax, including "less CENVAT," in the ST return. The Tribunal noted that this factual aspect needed re-examination by the Commissioner to verify the enclosures with the ST-3 returns.

Conclusion:
The Tribunal set aside the Commissioner’s order regarding the show cause notices dated 21 April 2009, 20 January 2010, and 20 October 2010. However, the show cause notice dated 19 June 2012 was remanded to the Commissioner for re-examination in light of the Tribunal’s observations. The appeal was allowed to the extent indicated.