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2022 (5) TMI 479 - AT - Service TaxLevy of Service Tax - Works Contract Service - composite contract of Construction of Residential Complex - composition scheme under Rule 3(3) of the Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007 - Circular No.98/1/2008-ST dated 04.01.2008 - whether the appellants having been paying service tax on Construction of Complex Services, facility of composition can be denied to them from 01.06.2007 in view of the judgment of Apex Court in the case of LARSEN TOUBRO LTD. VERSUS COMMISSIONER OF C. EX, PUNE II 2007 (5) TMI 1 - SUPREME COURT ? HELD THAT - Various disputes were raised regarding the taxability of Works Contract prior to 01.06.2007 all the disputes got settled in view of the judgment of the Apex Court in the case of L T - It is evident from the case that the Composite Contracts involving goods and services are liable to service tax only from 01.06.2007 as submitted by the appellants. It is found from the facts of the case that it is not disputed that the services rendered by the appellants are not in the nature of Composite Services. The Department also does not deny the fact that the services rendered by the appellants are Works Contract Services. Department mainly relies upon the Circular No. 98/1/2008-ST dated 04.01.2008 wherein it was clarified that a service provider who paid service tax prior to 01.06.2007 for the taxable services like Erection, Commissioning and Installation Service, Commercial or Industrial Construction Service or Construction of Complex Service is not entitled to change the classification of the Single Composite Service for the purposes of payment of service tax on or after 01.06.2007 and therefore, the appellants are not entitled to avail the Composition Scheme. The adjudicating authority relies on the same and concludes that the appellants have no option to switch over to the Works Contract Service and the Composition Scheme thereof. In the instant case, the appellants have been paying service tax under Construction of Complex Services etc. before 01.06.2007. On introduction of service tax on Works Contract‟, the appellants had written to the Department for clarification. They have submitted a letter on 14.06.2007 that they will be opting for Composition Scheme. The Department has demanded the duty denying the opportunity - It is clear from the Rule that the person providing Works Contract can pay service tax under Composition Scheme if he opts for the same before payment of service tax. The appellants have exercised the option to go under Compensation Scheme vide letter dated 14.06.2007, the same is not disputed by the Department who sought to deny the benefit in view of the Circular 98/1/2008-ST dated 04.01.2008 - the benefit cannot be denied to the appellants. The Tribunal and Courts have been setting aside the demands raised in respect of Composite Works Contracts after the judgment in the case of L T. The appellants have been paying duty albeit under a different Head before 01.06.2007. It would be miscarriage of justice if the appellants are denied the compounded scheme of payment of duty under Works Contract after 01.06.2007 which could have been easily exercised by those who were not paying duty before 01.06.2007. Demand of duty on advances - HELD THAT - The demand on service rendered as a sub-contractor is prior to 01.06.2007. Liability to duty on other two counts after 01.06.2007 requires to be verified as the appellants claimed that they have paid duty at the compounded rates as per the option exercised by them. Extended period of limitation - HELD THAT - It is found that the show cause notice has been issued invoking the extended period. Looking into the fact that the appellant had been a regular service tax payer and have informed the Department vide letter dated 14.06.2007 and as the issue involves interpretation of statute, no mala fides can be imputed to the appellants - the demand for the extended period needs to be set aside. The appellants claimed that after 01.06.2007, they have paid duty at the compounded rate of 2.06% or 4.08% as the case may be. It is not forthcoming from the calculation sheets attached to the show cause notice, whether the appellant has paid the same as the Department has not given any deduction from the duty payable by the appellants. This is required to be verified by the lower authorities along with the verification of the fact of payment of duty on other counts though at the compounded rate. Appeal allowed in part and part matter on remand.
Issues Involved:
1. Classification of composite contracts under Works Contract Service. 2. Eligibility to opt for Composition Scheme under Works Contract Rules. 3. Demand of service tax on client’s disputed amounts and mobilization advances. 4. Service tax liability as a sub-contractor. 5. Invocation of extended period for demand. Issue-Wise Detailed Analysis: 1. Classification of Composite Contracts under Works Contract Service: The appellants, engaged in the construction of residential complexes, sought to classify their composite contracts under the Works Contract Service with effect from 01.06.2007, as per Section 65 (105) (zzzza) of the Finance Act, 1994. They argued that the construction of residential complexes being a works contract was liable to service tax only from 01.06.2007, as held by the Supreme Court in the Larsen & Toubro Limited case. The Department contended that the appellants could not reclassify their services from Commercial or Industrial Construction Service to Works Contract Service. However, the Tribunal found that the services rendered by the appellants were indeed composite services and thus liable to service tax only from 01.06.2007, in line with the Supreme Court's judgment. 2. Eligibility to Opt for Composition Scheme under Works Contract Rules: The appellants opted for the Composition Scheme under Rule 3(3) of the Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007, before paying service tax. The Department denied this option, citing Circular No. 98/1/2008-ST, which stated that service providers who paid service tax before 01.06.2007 could not change the classification of their services. The Tribunal, referencing the Supreme Court's judgment in L&T, held that the appellants were eligible to opt for the Composition Scheme since composite contracts were not taxable before 01.06.2007. The Tribunal also noted that the appellants had informed the Department of their intention to opt for the Composition Scheme on 14.06.2007. 3. Demand of Service Tax on Client’s Disputed Amounts and Mobilization Advances: The Department demanded service tax on client’s disputed amounts and mobilization advances received before and after 01.06.2007. The Tribunal held that advances received before 01.06.2007 were not liable to service tax, and those received after were taxable under the Works Contract Service. The appellants had paid a significant portion of the tax on advances, and the remaining amount was confirmed due to the denial of the Composition Scheme. The Tribunal directed the lower authorities to verify the appellants' claim of having paid the tax at the compounded rate. 4. Service Tax Liability as a Sub-Contractor: The Department demanded service tax for services provided by the appellants as a sub-contractor during April 2006 to March 2007. The Tribunal held that since the services were rendered before 01.06.2007, they were not liable to service tax as per the L&T judgment. The Tribunal also noted that the principal contractor had clarified that they had paid the entire service tax for the period in question. 5. Invocation of Extended Period for Demand: The show cause notice issued on 20.04.2010 invoked the extended period for recovery of service tax. The Tribunal found that the appellants had been regular service tax payers and had informed the Department of their option to switch to the Composition Scheme. Given that the issue involved interpretation of law and no mala fides could be imputed to the appellants, the Tribunal held that the extended period could not be invoked. The demand for the extended period was thus set aside. Conclusion: The Tribunal set aside the impugned order and allowed the appeal by way of remand with specific directions. The appellants were allowed to pay service tax under the Composition Scheme, and the demand was limited to the normal period. The service tax already paid by the appellants was to be adjusted towards their liability under the Composition Scheme, with any difference to be paid by the appellants. The Tribunal directed the lower authority to verify the appellants' claims regarding the payment of duty at the compounded rate.
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