2023 (4) TMI 763 - AT - Central Excise

Reversal of CENVAT Credit - works contract service under Composition Scheme - non-availment of cenvat credit in respect of any inputs used in relation to the said works contract service - payment of VAT to the state government on a deemed sale value of the goods - HELD THAT - The show cause notice proposing demand of cenvat credit attributed to the value of deemed sale of goods involved in composite Works Contract service provided by the respondent on the pretext that the said portion of sale of goods is deemed exempted service therefore, the common input service used in service portion as well as sale of the goods would disentitle the cenvat credit of input service to deny proportionate cenvat credit attributed to the sale of goods. The respondent are not involved in two separate activity of providing Works Contract Service and sale of goods. Respondent have provided a composite Works Contract Service, in the provision for taxation of Works Contract Service under the Finance Act, 1994 a special mechanism was provided by the legislator under Works Contract (composition scheme for payment of service tax) Rules, 2007 and the valuation of the same was provided under Rule 2A of Service Tax (Determination of Value) Rules, 2006. Valuation for the purpose of payment of VAT - HELD THAT - It is a deemed fiction which does not represent the exact value of the goods moreover, when there is a composite contract between service provider and service recipient, the service recipient is not concerned with the proportion of the material used in the works contract whereas, he is only concerned with the overall project to be executed as per the terms and conditions of the contract between the service provider and the recipient. There is no separate activity of sale of goods involved, it is only for the purpose of VAT portion of the total value of the project under Works Contract as determined as deemed sale of goods. In fact, no separate sale of goods is involved, no separate invoice of goods is made therefore, infact no sale of goods is involved in the execution of the overall project under Works Contract Service. This is simpliciter case of a particular service on which there is a concessional rate of service tax is prescribed subject to certain conditions - Rule 6(3A) is applicable only in such cases where one particular activity either service as a whole or sale of goods as whole is involved apart from independent taxable service/dutiable goods. Here, there are no two activities i.e. exemption service as well as taxable service which involve therefore, in the present case Rule 6(3A) cannot be made applicable. The order does not suffer from any infirmity - Appeal of Revenue dismissed.

Summary

Issues Involved:
1. Applicability of Rule 6(3A) of Cenvat Credit Rules, 2004.
2. Jurisdiction and authority to issue show cause notice.
3. Evidence of suppression or mis-statement of facts.

Summary:

1. Applicability of Rule 6(3A) of Cenvat Credit Rules, 2004:
The department contended that the respondent's works contract service included a portion of deemed sale of goods, which is an exempted service. Therefore, Rule 6(3A) of Cenvat Credit Rules, 2004, necessitates the reversal of proportionate cenvat credit attributed to the exempted service. The adjudicating authority, however, concluded that the respondent provided a composite Works Contract Service, and there was no separate activity of sale of goods. The valuation of the service portion under Rule 2A of Service Tax (Determination of Value) Rules, 2006, is a special mechanism that does not necessitate the application of Rule 6(3A). The tribunal upheld this view, stating that the Works Contract Service cannot be divided between service and goods portions for the purpose of applying Rule 6(3A).

2. Jurisdiction and authority to issue show cause notice:
The respondent argued that the show cause notice was issued by Commissioner (Audit) Surat, who lacked jurisdiction and legal authority to assign the adjudication to the jurisdictional Commissioner Surat. The tribunal did not find substantial evidence to counter this claim, implying that the notice might have been issued without proper jurisdiction.

3. Evidence of suppression or mis-statement of facts:
The respondent maintained that there was no evidence of suppression or mis-statement of facts with an intent to evade payment of service tax, which would warrant the invocation of the proviso to Section 73(1) of the Finance Act, 1994, and the imposition of penalties. The tribunal agreed, noting that the legal position was clear, and the department failed to establish that the respondent rendered exempted services or non-service activities during the relevant period. Consequently, the denial of cenvat credit was deemed not maintainable.

Conclusion:
The tribunal upheld the adjudicating authority's order, concluding that the order did not suffer from any infirmity. The revenue's appeal was dismissed, and the proceedings initiated by the show cause notice were dropped and vacated.

(Pronounced in the open court on 10.04.2023)