2019 (11) TMI 124 - AT - Service Tax

Valuation - completion and finishing services - inclusion of value of materials consumed while providing the finishing services - Department was of the view that the appellants failed to include the value of materials consumed by them while providing the finishing services - allegation in the SCN is that the appellants have only consumed materials in execution of completion and finishing works and that there is no transfer of property in goods - method adopted by the assessee for determining the value for payment of Service Tax under Works Contract Service. HELD THAT - Rule 2A continues after 2012 also and the Composition Scheme has been replaced and inbuilt in the Rules itself in a different form whereby the service portion in Works Contract is specified at a percentage of gross value based on the nature of activities on which normal Service Tax rate applies instead of a lower composition rate on the gross value under the erstwhile composition scheme. Thus, the principle of valuation of taxable service under the amended provisions also remains the same. The appellant has arrived at the value of service portion of Works Contract Service as per Rule 2A (i) whereas the Department has proceeded to arrive at the value as per Rule 2A (ii) for the period after 01.07.2012 and under the Composition Scheme for the period prior to 01.07.2012. Rule 2A (ii) would apply only if the value is not determined under clause (i). The appellant in the present case has arrived at the value and also paid VAT as per the VAT Law. The value of transfer of property in goods has to be arrived at on the basis of purchase price of various goods, apportionment of overheads and profit margin. The appellant, being an assessee under the VAT Law, has to abide by the state law for payment of VAT. Thus, he can only arrive at the value of goods used in the Works Contract by applying the VAT Law after deducting the value arrived for payment of VAT; the remaining portion has been subjected to payment of Service Tax. When VAT has already been paid on the value of goods, the same cannot be subjected to levy of Service Tax again. The Hon ble Apex Court in the case of SAFETY RETREADING COMPANY (P) LTD. VERSUS COMMISSIONER OF CENTRAL EXCISE, SALEM, M/S TYRESOLES INDIA PRIVATE LMITED VERSUS THE COMMISSIONER OF CENTRAL EXCISE, GOA AND M/S LAXMI TYRES VERSUS COMMISSIONER OF CENTRAL EXCISE, PUNE 2017 (1) TMI 1110 - SUPREME COURT has held that the assessee is liable to pay Service Tax only on the service component, which under the State Act was quantified at 30%. It was held that the assessee is not liable to pay Service Tax on the total amount for retreading including the value of materials/goods that have been used and sold in execution of the contract. The appellant has correctly discharged Service Tax on the service portion. The demands therefore cannot sustain - Appeal allowed - decided in favor of appellant.

Summary

Issues involved:

1. Alleged failure to discharge Service Tax on gross amounts received for completion and finishing services.
2. Allegation that there was no transfer of property in goods, only consumption of materials.
3. Method of determining the value for payment of Service Tax under Works Contract Service.
4. Invocation of the extended period of limitation for raising the demand.

Detailed Analysis:

1. Alleged failure to discharge Service Tax on gross amounts received for completion and finishing services:
The Department observed that the appellants did not discharge Service Tax on the gross amount received for completion and finishing services, arguing that the value of materials consumed should have been included. The appellants contended that they correctly paid VAT on 79.85% and Service Tax on 20.15% of the invoice value, as per the relevant provisions of law. They argued that their method of valuation was in line with the Tamil Nadu Value Added Tax Act and the Service Tax Rules, 2006.

2. Allegation that there was no transfer of property in goods, only consumption of materials:
The Department alleged that the works did not involve the transfer of property in goods but merely consumed materials for providing services. The Tribunal noted that the demand was made under Works Contract Service, which inherently involves the transfer of property in goods. Therefore, the Department's allegation that there was no transfer of property in goods was not sustainable.

3. Method of determining the value for payment of Service Tax under Works Contract Service:
The Tribunal examined the method adopted by the appellants for determining the taxable value. The appellants followed Rule 2A (1) of the Service Tax (Determination of Value) Rules, 2006, for the period up to 01.07.2012, and Rule 2A (i) thereafter. The Department, however, sought to apply the Composition Scheme prior to 01.07.2012 and Rule 2A (ii) post-01.07.2012. The Tribunal found that Rule 2A (ii) applies only if the value is not determined under clause (i). Since the appellants had determined the value and paid VAT accordingly, their method was deemed correct. The Tribunal emphasized that once VAT is paid on the value of goods, the same cannot be subjected to Service Tax again.

4. Invocation of the extended period of limitation for raising the demand:
The appellants argued that the demand raised for the period from October 2008 to March 2013, invoking the extended period of limitation, was unjustified. They contended that the issue was purely interpretative, with no intention to evade tax. The Tribunal agreed, noting that the appellants had followed the provisions of the Service Tax Rules, 2006, and VAT Laws, and thus, the extended period of limitation could not be invoked.

Conclusion:
The Tribunal concluded that the appellants had correctly discharged Service Tax on the service portion and that the demands raised by the Department were unsustainable. The impugned order was set aside, and the appeal was allowed with consequential reliefs.