2020 (4) TMI 105 - AT - Service Tax

Works Contract - contracts entered into with customers for manufacture of elevators that are then erected, commissioned and installed at the site - Denial of benefit of abatement - Jurisdiction - authority vested in officers designated under Finance Act, 1994 to alter the taxing entry for discharge of liability with intent to compel a particular mode of assessment peculiar to that entry - HELD THAT - The law pertaining to taxability of service component of composite works contracts took a long time to attain finality. The decision of the Hon ble Supreme Court in COMMISSIONER, CENTRAL EXCISE CUSTOMS VERSUS M/S LARSEN TOUBRO LTD. AND OTHERS 2015 (8) TMI 749 - SUPREME COURT makes it abundantly clear that the authority vested in the Union to levy tax is limited to the service component and only in accordance with the machinery provisions in Finance Act, 1994. Appellant has not, and still does not, for the composition scheme. To the extent that this continues to be option exercised by the appellant, the adjudicating authority is required to satisfy itself about the scope, and extent, of eligibility for notification no. 12/2003-ST dated 20 June 2003 and, in the event of recourse to the composite scheme by the appellant, for the duty to be computed accordingly. Adjuring the original authority to limit the adjudication, now ordered, to the normal period from the relevant date in relation to the first show cause notice and for the first three months of 2012-13 in the second notice and to comply strictly with the framework for taxation of works contract service expounded by the Hon ble Supreme Court in re Larsen Toubro Ltd, the demand for these two periods set aside with the direction that the same be subject to fresh adjudication in which the appellants herein shall be entitled to make all their submissions - appeal disposed off.

Issues:
1. Authority of officers under Finance Act, 1994 to alter taxing entry.
2. Recovery of tax liability for 2007-2014.
3. Applicability of abatement on supply of materials in service contracts.
4. Discrepancy in tax assessment between service and works contract.
5. Compliance with VAT liability examination.
6. Legal authority for tax liability determination.
7. Interpretation of composition scheme for payment of service tax.
8. Exclusion of value of goods and materials in tax computation.
9. Finality of judicial decisions on taxability of works contract services.
10. Plea of limitation in tax assessment.
11. Authority to levy tax limited to service component.
12. Eligibility for composition scheme under notification no. 12/2003-ST.
13. Compliance with taxation framework for works contract services.
14. Disposal of appeals.

Analysis:
1. The judgment concerns the authority of officers designated under the Finance Act, 1994 to modify taxing entries, specifically in the case of M/s Otis Elevator Co (India) Ltd. The issue revolves around altering the assessment mode to compel a particular type of assessment unique to the entry.

2. The judgment addresses the recovery of tax liabilities totaling over Rs. 150 crores for the periods 2007-2014. The appellant's liability arose from providing 'erection, commissioning, or installation service' under the Finance Act, 1994, with abatement benefits. The disputes involved reclassification of services and denial of abatement, leading to significant recovery demands.

3. The dispute involves the applicability of abatement on material costs in service contracts. The appellant argued for exclusion of material costs from assessable value based on notification no. 12/2003-ST, emphasizing compliance with the composition scheme for works contract services.

4. The judgment delves into the discrepancy between tax assessments for service contracts and works contracts. The appellant's contention focused on the distinct tax treatment for 'erection, commissioning, or installation service' under section 65(105)(zzd) and 'works contract service' under section 65(105)(zzzza) of the Finance Act, 1994.

5. The issue of compliance with VAT liability examination is highlighted, emphasizing the need for the original authority to address this aspect to bring finality to the dispute. The judgment notes discrepancies in demands for 2012-2014 without proper show cause notices.

6. The judgment scrutinizes the legal authority for tax liability determination, emphasizing the need for proper interpretation of taxing entries and adherence to legislative provisions. The relevance of seminal judgments from the Hon'ble Supreme Court is cited to guide the assessment process.

7. The interpretation of the composition scheme for payment of service tax is analyzed, focusing on the applicability and limitations of the scheme to the factual matrix of the dispute. The judgment questions the imposition of the scheme without considering the appellant's compliance history.

8. The exclusion of the value of goods and materials in tax computation is a key issue. The appellant's claim for exclusion based on notification no. 12/2003-ST is discussed, highlighting the importance of considering the spirit of the composition scheme for works contract services.

9. The judgment emphasizes the finality of judicial decisions on the taxability of works contract services, citing precedents to guide the assessment process. The necessity of determining the service component in works contracts is underscored.

10. The plea of limitation in tax assessment is addressed, limiting the demands to the prescribed period under the Finance Act, 1994. The absence of show cause notices for certain periods invalidates the demands in the impugned orders.

11. The judgment clarifies that the authority to levy tax is limited to the service component, emphasizing compliance with the machinery provisions in the Finance Act, 1994. The need for proper assessment of the composition scheme is highlighted.

12. The eligibility for the composition scheme under notification no. 12/2003-ST is discussed, stressing the importance of assessing the appellant's compliance with the scheme. The adjudicating authority is directed to ensure proper computation based on the scheme's provisions.

13. The judgment mandates compliance with the taxation framework for works contract services as per the Hon'ble Supreme Court's directives. The demands for specific periods are set aside for fresh adjudication, allowing the appellants to present their submissions.

14. The appeals are disposed of, concluding the judgment with directions for compliance with taxation laws and frameworks for works contract services.

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