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2022 (7) TMI 1182 - AT - Service TaxClassification of services - construction services - composite supply - appellant had paid service tax on its activities under head CICS both before and after 01.06.2007 - requirement of taxability after 01.06.2007 under Works Contract services - HELD THAT - Considering that the appellant in this case has used material for rendering service and has paid an exemption fee under the Rajasthan VAT Act in order to exemption from payment of the Act there cannot be any doubt that the contracts involved deemed sale of materials. There are no basis for the appellant s contention that its contracts were for services simpliciter classifiable under CICS. Clearly, the contracts of the appellant were not services simpliciter but involved supply/use of materials in the course of rendering such services as well. They clearly fall under the category of WCS. Therefore, the appellant s contention that they were not rendering WCS, has no legs to stand on. Another interesting proposition by the learned Counsel for the appellant is that the service provider has an option to pay service tax either under CICS or under WCS. This submission is completely misplaced and is contrary to any canons of taxation. When any tax is levied, the taxable event is defined in the Act. In case of Customs, the taxable event is the import or export, in case of excise, it is the manufacture, in case of VAT, it is the sale or deemed sale of goods and in case of income tax, it is the earning of income. If no taxable event takes place, no tax can be levied. The taxable event under Finance Act, 1994 in case of services simpliciter is rendering of a taxable service and in the case of works contract it is rendering of a service along with supply or deemed supply of goods. To determine tax liability, it must first be established as to whether the service rendered falls in one of the taxable services. This classification is not a matter of choice or discretion either of the officers or of the assessee. A service cannot, at the same time be classified under more than one head - For instance a salary can only be classified as an income from salary and not as income from profession or business to claim deductions. Therefore, the submission of the learned Counsel for the appellant that it is open for the appellant to classify its services under any head it pleases is not correct. Extended period of limitation - penalties - intent to evade or not - HELD THAT - There are no proof of intent to evade either from the show cause notice or from the impugned order. Mere omission or merely classifying its services under an incorrect head does not amount to fraud or collusion or willful misstatement or suppression of facts. The intention has to be proved to invoke extended period of limitation - Once the returns are filed, if Revenue was of the opinion that the self-assessment of service tax and the classification was not correct, it could have scrutinized the returns and issued notices within time. The show cause notice was issued on 30 September 2015 for the period covered October 2010 to June 2012, which is clearly beyond the normal period of limitation. Therefore, although Revenue is correct on merits, the demand is time barred and, therefore, cannot sustain. For the same reason, the penalties imposed upon the appellant under Sections 77 and 78 also cannot be upheld. Appeal allowed - decided in favor of appellant.
Issues Involved:
1. Classification of services under Commercial or Industrial Construction Services (CICS) or Works Contract Services (WCS). 2. Correct computation of service tax demand. 3. Applicability of extended period of limitation. 4. Imposition of penalties under Sections 77 and 78 of the Finance Act, 1994. Issue-wise Detailed Analysis: 1. Classification of Services: The appellant, engaged in construction services, classified its services under CICS. However, the Department argued that post-01.06.2007, these services should be classified under WCS due to the composite nature of the contracts involving both services and materials. The Tribunal referenced the Supreme Court's judgment in Commissioner of Central Excise & Customs, Kerala v. Larsen & Toubro Ltd., which established that works contracts involving both services and goods are distinct and taxable under WCS. The Tribunal concluded that the appellant's contracts, involving material usage and payment of an exemption fee under the Rajasthan VAT Act, clearly fell under WCS, not CICS. 2. Computation of Service Tax Demand: The appellant contended that the service tax demand was incorrectly computed by not considering clause (ii) of Rule 2A of the Service Tax Valuation Rules. Additionally, the appellant argued for the applicability of the Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007. The Tribunal noted that the appellant had not opted for the composition scheme as required. The Tribunal found that the appellant's services were correctly classifiable under WCS, and the computation of service tax should align with this classification. 3. Applicability of Extended Period of Limitation: The appellant argued that the demand was time-barred as it had been filing returns periodically. The Tribunal examined whether there was any intent to evade tax, which would justify invoking the extended period of limitation under Section 73(1) of the Finance Act, 1994. The Tribunal found no evidence of fraud, collusion, or willful misstatement by the appellant. The classification under CICS, although incorrect, was not objected to by the Revenue earlier, leading the appellant to reasonably believe it was correct. The Tribunal concluded that the show cause notice issued on 30 September 2015 for the period October 2010 to June 2012 was beyond the normal period of limitation and, therefore, time-barred. 4. Imposition of Penalties: Given the finding that the demand was time-barred, the Tribunal also addressed the penalties imposed under Sections 77 and 78. The Tribunal ruled that without evidence of intent to evade tax, the penalties could not be upheld. The penalties were based on the same grounds as the extended period of limitation, which were not substantiated. Conclusion: The Tribunal allowed the appeal, setting aside the impugned order with consequential relief to the appellant. The Tribunal emphasized that the correct classification of services was under WCS, but the demand was time-barred, and penalties were not justified due to the lack of intent to evade tax. (Order pronounced in open court on 26/07/2022.)
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