2019 (7) TMI 654 - AT - Service Tax

Works Contract Services - Composition rules - non-discharge of service tax - period October 2007 to November 2010 - time limitation - HELD THAT - Undisputedly the SCN was issued on 25 June 2014. In terms of the provisions of section 73 of the Finance Act 1994 Revenue can raise the demand for the maximum period of five years from the date of issuance of show cause notice - the period prior to five years from the date of the show cause notice cannot be re-opened by the Revenue and the demand for the said period is liable to be set aside on this ground. Admittedly the composition rules are applicable on an option exercised by the assessee. Such an option was exercised by the appellant only w.e.f. December 2010 onwards. In the absence of any option having been exercised for the period in question the applicability of the composition rules cannot be upheld. As such the demand has to be quantified in terms of the provisions of Rule 2A of Service Tax Valuation Rules by taking into account the VAT assessment orders. Matter remanded to the adjudicating authority for fresh quantification of the demand against the appellant for the period falling within five years from the date of show cause notice.

Issues:
1. Calculation of Service Tax liability for the period prior to registration and under the VCES Scheme.
2. Jurisdiction of Service Tax authorities to raise demands beyond five years.
3. Applicability of composition rules and Rule 2A of Service Tax Valuation Rules.
4. Adjustment of deposits made under VCES scheme against liability.

Analysis:
1. The appellant, a proprietor firm, was engaged in fixing aluminium and glass structures and got registered under the Service Tax department in December 2010. They filed a declaration under the VCES Scheme for duty liability from October 2007 to November 2010. However, subsequent investigations revealed a higher evasion amount, leading to a show cause notice proposing a demand of around ?31.32 Lakhs. The Commissioner confirmed the demand and imposed a penalty under section 78 of the Finance Act. The appellant challenged the order, arguing that the demand for the period prior to five years from the show cause notice is beyond the jurisdiction of the Revenue. They contended that the tax liability should be calculated based on Rule 2A of Service Tax Valuation Rules, considering the bifurcation of goods and services in their contracts.

2. The Tribunal held that the Revenue cannot reopen the period prior to five years from the show cause notice issuance, as per section 73 of the Finance Act. Therefore, the demand for the period beyond five years was set aside. For the period within five years, the appellant's declaration under the VCES Scheme was considered. The demand quantification based on composition rules was challenged by the appellant, arguing that the composition rules did not apply for the period in question as they had not exercised the option before December 2010. The Tribunal agreed and directed the quantification of demand under Rule 2A of Service Tax Valuation Rules, taking into account VAT assessment orders.

3. The Tribunal remanded the matter to the adjudicating authority for fresh quantification of the demand within five years from the show cause notice. Regarding the Revenue's appeal against the adjustment of deposits under the VCES scheme, the Tribunal noted that the deposits were subject to finalization in the impugned order and should be adjusted against the appellant's liability. The Revenue's appeal was rejected, and both appeals were disposed of accordingly.

Conclusion:
The Tribunal upheld the jurisdictional limitation on raising demands beyond five years, directed the quantification of demand under Rule 2A for the relevant period, and affirmed the adjustment of VCES scheme deposits against the appellant's liability.

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