2023 (9) TMI 1625 - AT - Service Tax

Exemption towards materials used in the construction service - benefit of N/N. 12/2003-ST dated 20.06.2003 - deemed sale - inclusion of the value of the goods and material in the total value for the purpose of charging of service tax on the service rendered by the appellant. Exemption towards materials used in the construction service - benefit of N/N. 12/2003-ST dated 20.06.2003 - deemed sale - HELD THAT - Board s Circular No. 233/2/03- CX-4 dated 07.04.2004 has been withdrawn vide its Circular No. 233/2/03-CX-4 dated 03.03.2006 clarifying that The intention of Notification No. 12/2003-S.T. is to provide exemption only to the value of goods and material sold subject to documentary evidence of such sale being available. Therefore in case the goods are consumed during the provision of service and are not available for sale the provisions of the said notification would not be applicable. Inclusion of the value of the goods and material in the total value for the purpose of charging of service tax on the service rendered by the appellant - HELD THAT - In the case of Safety Retreading Private Limited Vs. Commissioner of C.Ex. Salem 2017 (1) TMI 1110 - SUPREME COURT the Hon ble apex court has held that the benefit of Notification No.12/2003-ST is available under Maintenance and Repair service In this case the Hon ble Apex Court has held that the value of the materials used in the retreading of the tyres has to be excluded from the value of the service provided and only service tax can be levied on the service portion of the total activity of re-treading. The period involved in this case is 2006-07 to 2010-11. However the invoices were raised between 16.12.2008 to 25.01.2011. Service tax on works contract was introduced w.e.f. 01.06.2007. The demand has been raised under the category of Commercial or Industrial Construction Service after the introduction of Works Contract as a service under clause (zzzza) of section 65(105) of Finance Act 1994. The appellant has also taken the plea that classification of the service under Commercial or Industrial Construction Service is not correct in their grounds of appeal. However they have classified their activity as Commercial or Industrial Construction Service . In the appeal they have only claimed relief with regard to grant of benefit of Notification No. 12/2003-ST dated 20.06.2003 and to set aside the demand thereof and consequential penalties levied and to grant the refund of excess interest paid. It is found appropriate to remand the matter to the adjudicating authority to verify as to whether the appellant has availed cenvat credit on the inputs which are utilised for the provision of the construction services involved in this case. Further as regards the payment of VAT on the goods and materials involved in the construction activity undertaken by them the adjudicating authority has to verify the relevant returns submitted by the appellant. Conclusion - The term sale appearing in exemption Notification No. 12/2003-S.T. dated 20-6-2003 would also include deemed sale as defined by Article 366(29A)(b) of the Constitution - case remanded to the adjudicating authority for verification of Cenvat credit claims VAT returns and interest payments while setting aside findings related to deemed sale. Appeal allowed by way of remand.

1. ISSUES PRESENTED and CONSIDERED

The core legal questions addressed in the judgment are:

Whether the appellant is entitled to the benefit of Notification No. 12/2003-ST concerning the exemption of the value of goods and materials sold during the provision of construction services.
Whether the appellant's classification of services under "Commercial or Industrial Construction Service" instead of "Works Contract" affects their tax liability.
Whether the appellant's alleged availing of Cenvat credit disqualifies them from the benefits of Notification No. 12/2003-ST.
Whether the demand for interest and penalties imposed on the appellant is justified.
Whether the extended period for demand is applicable in this case.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Entitlement to Notification No. 12/2003-ST

Legal Framework and Precedents: Notification No. 12/2003-ST exempts the value of goods and materials sold by the service provider from service tax, provided there is documentary proof of such sale. The appellant argued that the notification covers both "sale" and "deemed sale" as defined by Article 366(29A)(b) of the Constitution.
Court's Interpretation and Reasoning: The Tribunal referred to precedents, including the Madhya Pradesh High Court's decision in M/s. Agarwal Color Advance Photo Systems, which held that the term "sale" in the notification includes "deemed sale."
Key Evidence and Findings: The appellant provided invoices showing separate values for materials and services, along with VAT returns as evidence of sales.
Application of Law to Facts: The Tribunal found that the appellant's interpretation aligns with judicial precedents, supporting their claim for exemption under Notification No. 12/2003-ST.
Treatment of Competing Arguments: The Tribunal dismissed the respondent's argument that the notification does not cover deemed sales, citing judicial precedents that contradict this view.
Conclusions: The Tribunal concluded that the appellant is entitled to the benefit of Notification No. 12/2003-ST for the value of materials involved in deemed sales.

Issue 2: Classification of Services

Legal Framework and Precedents: The classification of services affects the applicability of service tax. The appellant argued that their services fall under "Works Contract" rather than "Commercial or Industrial Construction Service."
Court's Interpretation and Reasoning: The Tribunal acknowledged that service tax on works contracts was introduced on 01.06.2007, and the appellant's services should be classified accordingly.
Key Evidence and Findings: The appellant continued to pay service tax under the earlier classification, but the Tribunal noted the need for proper classification.
Application of Law to Facts: The Tribunal recognized the appellant's argument but focused on the exemption issue rather than reclassification.
Treatment of Competing Arguments: The Tribunal did not delve deeply into the classification issue, as the primary focus was on the exemption under Notification No. 12/2003-ST.
Conclusions: The Tribunal did not make a definitive ruling on classification, leaving it to be addressed by the adjudicating authority upon remand.

Issue 3: Availment of Cenvat Credit

Legal Framework and Precedents: Notification No. 12/2003-ST requires non-availment of Cenvat credit on goods and materials sold to qualify for exemption.
Court's Interpretation and Reasoning: The Tribunal noted the appellant's claim that any Cenvat credit shown was due to inadvertent errors in returns.
Key Evidence and Findings: The appellant provided evidence of non-availment of Cenvat credit, but the Tribunal found the need for further verification.
Application of Law to Facts: The Tribunal emphasized the importance of verifying the appellant's claim regarding Cenvat credit to determine eligibility for exemption.
Treatment of Competing Arguments: The Tribunal acknowledged the appellant's contention and directed verification by the adjudicating authority.
Conclusions: The Tribunal remanded the matter for verification of Cenvat credit claims to ascertain the appellant's eligibility for exemption.

Issue 4: Interest and Penalties

Legal Framework and Precedents: The imposition of interest and penalties depends on the accuracy and timeliness of tax payments and declarations.
Court's Interpretation and Reasoning: The Tribunal considered the appellant's claim of having paid excess interest and the lack of suppression of facts.
Key Evidence and Findings: The appellant argued that they had already paid the interest amount in question.
Application of Law to Facts: The Tribunal directed the adjudicating authority to verify the appellant's claims regarding interest payments.
Treatment of Competing Arguments: The Tribunal acknowledged the appellant's position and ordered verification of interest payments.
Conclusions: The Tribunal remanded the issue of interest payments for verification by the adjudicating authority.

Issue 5: Extended Period for Demand

Legal Framework and Precedents: The extended period for demand applies in cases of willful suppression or misstatement of facts.
Court's Interpretation and Reasoning: The Tribunal considered the appellant's argument that the issue involved interpretation, not suppression.
Key Evidence and Findings: The appellant cited judicial precedents supporting their claim of no suppression.
Application of Law to Facts: The Tribunal found merit in the appellant's argument, given the interpretative nature of the issue.
Treatment of Competing Arguments: The Tribunal sided with the appellant, noting the absence of suppression.
Conclusions: The Tribunal found the invocation of the extended period unjustified and remanded the matter for reconsideration.

3. SIGNIFICANT HOLDINGS

Core Principles Established: The judgment reinforces the interpretation of "sale" in Notification No. 12/2003-ST to include "deemed sale," aligning with judicial precedents.
Final Determinations on Each Issue: The Tribunal remanded the case to the adjudicating authority for verification of Cenvat credit claims, VAT returns, and interest payments, while setting aside findings related to deemed sale.
Verbatim Quotes of Crucial Legal Reasoning: "The term 'sale' appearing in exemption Notification No. 12/2003-S.T., dated 20-6-2003 would also include 'deemed sale' as defined by Article 366(29A)(b) of the Constitution."

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