2019 (9) TMI 648 - AT - Service Tax

Re-opening of assessment made under VCES - wrong declaration of service under the scheme - Department was of the view that services are to be classified under Works Contract Service and not Construction of Residential Complex Service - HELD THAT - The facts of the case reveal that there is no dispute as to the value of services declared by the respondents. The allegation of mis-declaration is only with respect to classification of the services. The respondent classified the services as Construction of Residential Complex Services whereas department classifies it as Works Contract Service. This is only an issue of interpretation. Construction of residential complex services provides a more specific classification than works contract service and accordingly will prevail over the other classification. Also, the issue covered by the decision in the case of FRONTLINE BUILDERS AND DEVELOPERS VERSUS COMMISSIONER OF CENTRAL EXCISE, CUSTOMS AND SERVICE TAX, CALICUT 2017 (12) TMI 1440 - CESTAT BANGALORE where it was held that merely classifying the services under a different head does not tantamount to mis-declaration and therefore it is not open for the department to reopen the assessment in case of VCES unless there is a substantial mis-declaration otherwise. Appeal dismissed - decided against Revenue.

Summary

Issues: Classification of services under VCES scheme - Construction of Residential Complex Services vs. Works Contract Services

Analysis:
The judgment by the Appellate Tribunal CESTAT Hyderabad revolved around the issue of classification of services under the Voluntary Compliance Encouragement Scheme (VCES). The respondents had opted for the VCES scheme, declaring their services under Construction of Residential Complex Services and paying service tax accordingly. However, the department contended that the services should be classified under Works Contract Services instead. This disagreement led to the issuance of show-cause notices demanding service tax under Works Contract Services. The central question was whether the classification of services under VCES could be challenged based on a different interpretation by the department.

The Tribunal analyzed the case in light of a similar precedent set by the Hon'ble Tribunal Bangalore in the case of Frontline Builders and Developers. The Bangalore Tribunal had emphasized that unless there is a substantial misdeclaration, mere differences in the classification of services do not warrant reopening of assessments under VCES. The key point was that as long as the value of services declared remained consistent, a different interpretation of classification does not constitute misdeclaration. The Tribunal upheld the decision of the Bangalore Tribunal, highlighting that the power to reopen declarations under VCES is limited to cases of substantial misdeclaration.

Furthermore, the Tribunal referred to a clarification by the Tax Research Unit regarding the broad scope of works contract services, which includes construction services involving the transfer of goods and immovable property. The clarification emphasized that construction of a complex falls under works contract services and provides a higher abatement for such services. This clarification supported the view that Construction of Residential Complex Services is a specific classification that prevails over general works contract services.

In conclusion, the Tribunal rejected the department's appeal, upholding the respondents' classification of services under Construction of Residential Complex Services. The judgment emphasized that differences in interpretation do not amount to misdeclaration under VCES unless there is substantial evidence to the contrary. The decision was based on established legal principles and precedents, ensuring consistency in the application of tax laws and classifications.