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2021 (12) TMI 77 - AT - Service TaxLevy of service tax - works contract service - contract between the supplier of RMC i.e. appellant and buyer of RMC - manufacture of Ready Mix Concrete (RMC) - activity of laying of RMC using of concrete pumping at the site of the buyer of RMC - case of the department is that it is a composite contract for supply and laying of RMC to the laying of RMC falls under works contract and liable to service tax - calculation of service tax - time limitation - HELD THAT - As per the contract, the entire transaction is of Works Contract. However, the appellant is mainly engaged in the manufacture of Ready Mix Concrete and selling the same to various buyers. As per the nature of product, it is necessary to supply RMC in a specialized container and after reaching at the customer s site RMC is delivered by carrying out the process of pouring, pumping and laying of concrete at the customer s place. The RMC cannot be unloaded at a particular place and thereafter shifted the same to the particular place at site. Due to peculiar nature of RMC, it is unavoidable to deliver at particular place where the RMC is required to be laid-down. It is also the fact that appellant being manufacturer of RMC, paying excise duty not only on the value of the goods but also on the value of service of pumping, laying of concrete and the same is included in the sale value. Therefore, no value is escaped from payment of excise duty. Accordingly, the entire activity right from the manufacturing of RMC and delivery at the site of the customer is excisable activity. Merely because the contract says that it is works contract, the actual nature of transaction cannot be over looked. The appellant is treating the transaction of Works Contract in terms of VAT Act only - it is clear that manufacturing activity of RMC cannot be covered under Works Contract by any stretch of imagination. Therefore, even though there is contract of Works Contract basically for the purpose of VAT Act, cannot be applied in the present transaction of manufacture and sale of goods in terms of Section 2(f) of Central Excise Act, 1944. The department has very much accepted the activity of the appellant as manufacturing and collected the excise duty on the entire value of RMC which includes the pumping and laying of RMC at site. Therefore, the department cannot take two stands, in one hand manufacturer for demanding excise duty and on the same activity, on the other hand demanding service tax under Works Contract. The activity of the appellant is pre-dominantly of manufacture and sale of goods. Accordingly, the same cannot be charged with service tax under Works Contract service. Calculation of service tax - HELD THAT - The value should be in terms of Rule 2A(i). Therefore even by any stretch of imagination Rule 2A(ii) is applicable, in such cases the value should be determined as per clause (A) of rule 2A(ii). Accordingly, the value at the most should have been arrived at by allowing 60% abatement and only 40% of the gross value should be chargeable to service tax. Therefore, the calculation of service tax is incorrect. T ime Limitation - HELD THAT - The appellant admittedly paid the excise duty on the entire transaction and this excise duty paid by the appellant was charged and collected by the Revenue. Therefore, the entire activity of manufacture, supply and manner of delivery of goods is very much on record. Accordingly, no suppression or mis-declaration can be attributed to the appellant for invoking extended period of demand. Accordingly, the demand for longer period in the show cause notice dated 03.05.2016 is not sustainable on the ground of limitation also. The activity of the appellant is entirely of excisable activity. Therefore, the same will not fall under Works Contract service in terms of Finance Act, 1994. Accordingly, the demand of service tax raised under Works Contract service is clearly not sustainable - appeal allowed - decided in favor of appellant.
Issues Involved:
1. Classification of the appellant's activity as manufacturing or works contract service. 2. Applicability of service tax on the activity. 3. Validity of the demand for service tax. 4. Calculation of the service tax value. 5. Time-bar and limitation on the demand. Detailed Analysis: 1. Classification of the Appellant's Activity: The appellant, engaged in the manufacture of Ready Mix Concrete (RMC), also performs the activity of laying RMC using concrete pumping at the buyer’s site. The appellant contends that their activity is purely manufacturing as per the Central Excise Act, 1944, and not a works contract. They argue that the entire value, including the cost of pumping and laying, is included in the assessable value for excise duty purposes. The department, however, classified the activity as a composite works contract, liable to service tax. 2. Applicability of Service Tax: The department issued a show cause notice, treating the appellant's activity as a works contract service and demanded service tax. The appellant argued that the dominant activity is the manufacture and sale of RMC, and the ancillary activities of pumping and laying are integral to the delivery process due to the product's nature. They cited various judgments, including the Supreme Court's ruling in Larsen & Toubro vs. CCE, which supports their stance that manufacturing activities cannot be classified under works contract for service tax purposes. 3. Validity of the Demand for Service Tax: The Tribunal observed that the appellant's activity is predominantly manufacturing and selling RMC. The contract terms, which include pumping and laying, are necessary due to the product's characteristics and do not transform the transaction into a works contract. The Tribunal referenced several judgments, including GMK Concrete Mixing Pvt. Ltd. vs. CST and Vikram Ready Mix Concrete (P) Ltd. vs. CST, where similar activities were not considered taxable services. Consequently, the demand for service tax was deemed unsustainable. 4. Calculation of the Service Tax Value: The appellant argued that if the activity were to be considered a works contract, the value of the service portion should be calculated per Section 67 read with Rule 2A(i) of the Service Tax (Determination of Value) Rules, 2006. The Tribunal agreed, noting that the value of goods should be deducted from the gross amount charged. The appellant also highlighted a fundamental error in the department's calculation, which demanded service tax on 60% of the total amount instead of the correct 40%. The Tribunal found merit in this argument, indicating that the service tax calculation was incorrect. 5. Time-bar and Limitation on the Demand: The appellant contended that the demand for the period from 01.04.2011 to 31.03.2015 was partly time-barred, as the issue was interpretational and they had paid excise duty on the entire value, including delivery costs. The Tribunal concurred, stating that no suppression or mis-declaration could be attributed to the appellant, making the extended period demand unsustainable. Conclusion: The Tribunal concluded that the appellant's activity is entirely excisable and does not fall under works contract service as per the Finance Act, 1994. The demand for service tax was set aside, and the appeal was allowed with consequential relief. The Tribunal emphasized that the manufacturing and delivery process, including pumping and laying, is integral to the sale of RMC and cannot be separately taxed as a service. The decision was pronounced in open court on 01.12.2021.
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