2022 (5) TMI 1305 - AT - Service Tax

Excess utilisation of cenvat credit - Whether the appellant is liable to pay interest and penalty on account of alleged excess utilisation of cenvat credit accrued at a later date on which appropriate interest has been paid by the appellant? - non-inclusion of value of free supplies made by their customers for provision of services by the appellant - HELD THAT - The demand of interest on alleged excess utilisation of cenvat credit amounts to double demand of interest as the appellant has already deposited interest on the delayed payment of tax at the applicable rate under Section 75 of the Act. Thus the second demand of interest is in the nature of double jeopardy which is not tenable - the demand of both tax and interest is set aside - decided in favor of appellant. Whether the appellant is liable to pay service tax with interest and penalty for not including the value of free supplies received from the customer/ principal in provision of the services? - HELD THAT - The issue is no longer res integra and it has been clarified by the Hon ble Supreme Court in the case of COMMISSIONER OF SERVICE TAX ETC. VERSUS M/S. BHAYANA BUILDERS (P) LTD. ETC. 2018 (2) TMI 1325 - SUPREME COURT that the free issue or supply of material to the contractor or service provider are not be clubbed in the gross value for determination of service tax liability. The ruling of Hon ble Supreme Court is applicable in the facts of the case and thus the demand is fit to be set aside - the issue is decided in favour of the appellant-assessee. Appeal allowed - decided in favor of appellant.

Issues Involved:
1. Classification of services provided by the appellant-assessee.
2. Appropriateness of service tax exemption claims.
3. Liability for service tax under Reverse Charge Mechanism (RCM).
4. Inclusion of free supplies in the taxable value.
5. Liability for interest on delayed payment of service tax.
6. Utilization of Cenvat credit prior to payment of service tax.

Issue-wise Detailed Analysis:

1. Classification of Services Provided by the Appellant-Assessee:
The appellant-assessee classified their services under various categories such as 'Commercial or Industrial Construction Services' (CICS), 'Consulting Engineer’s Service', 'Erection Commissioning or Installation Services' (ECIS), and 'Works Contracts Services'. The Revenue contended that the classification for the installation of the Single Point Mooring (SPM) system for RPTL under CICS was inappropriate and should fall under ECIS. The Tribunal held that the SPM system is part of the port or an extension of the port and thus, the classification under 'Works Contract Service' or 'CICS' was appropriate.

2. Appropriateness of Service Tax Exemption Claims:
The appellant claimed exemption under Notification No. 25/2007-ST for services related to the construction of a port. The Revenue argued that the SPM system was not notified as part of the port under the Indian Ports Act, 1908 or Major Ports Act, 1963. The Tribunal found that the SPM system is recognized as part of the port by the Ministry of Shipping and Ports and the Gujarat Maritime Board, thus upholding the exemption claim.

3. Liability for Service Tax under Reverse Charge Mechanism (RCM):
The Revenue contended that the appellant did not discharge their service tax liability under RCM for services received from foreign-based sub-contractors. The Tribunal held that since the main activity of construction of the port is exempt, services received from sub-contractors for the construction of the port are also exempt under Notification No. 16 or 17/2005-ST read with Notification No. 25/2007-ST.

4. Inclusion of Free Supplies in the Taxable Value:
The Revenue demanded service tax on free supplies received from M/s Cairn Energy India Pvt. Limited. The appellant argued that free supplies should not be included in the taxable value for 'Works Contract Service'. The Tribunal cited the Supreme Court ruling in Bhayana Builders, which clarified that free supplies are not to be included in the gross value for service tax purposes, and set aside the demand.

5. Liability for Interest on Delayed Payment of Service Tax:
The appellant deposited service tax along with applicable interest for delayed payment. The Revenue demanded additional interest for alleged excess utilization of Cenvat credit. The Tribunal held that interest is compensatory in nature, and once paid, the credit gets regularized, making the second demand for interest untenable.

6. Utilization of Cenvat Credit Prior to Payment of Service Tax:
The Revenue argued that the appellant utilized Cenvat credit before the actual payment of service tax under RCM, resulting in excess utilization. The Tribunal found that since the appellant had already paid interest on delayed deposit of tax, demanding additional interest for excess utilization amounts to double jeopardy, which is not permissible.

Conclusion:
The Tribunal dismissed the Revenue's appeal and allowed the appellant's appeal, setting aside the demands for service tax, interest, and penalties. The appellant was found entitled to exemptions and not liable for additional interest or penalties on the grounds of excess utilization of Cenvat credit and inclusion of free supplies in the taxable value.

← Previous Next →