2024 (6) TMI 844 - AT - Service Tax

Demand of differential service tax - change in rate of tax unless and until the work order is complete - appellant had assessed their Service Tax liability at the rate of 2% of the cost value as against 4% in view of the revised rate of duty vide N/N. 07/2008-S.T. dated 01.03.2008 - HELD THAT - The appellant has opted in advance for payment of Service Tax under Rule 3 of the Works Contract (Composition Scheme for Payment of Service Tax) Rules 2007 and as per the said Rules if an assessee opts to pay Service Tax under the Composition Scheme then the assessee has to intimate the Department in advance for opting the same and the said option cannot be withdrawn before completion of the said works contract. The same position also applies to the Revenue. During the impugned period unless and until the works contract is completed the rate of tax cannot be changed as held by the Hon ble High Court of Calcutta in the case of LARSEN TOUBRO LTD. VERSUS ASSISTANT COMMISSIONER OF SERVICE TAX ORS. 2016 (7) TMI 1271 - CALCUTTA HIGH COURT wherein the Hon ble High Court observed This Court finds substance in the submission of the petitioner that the change in a rate of tax subsequent to exercising an option under the said composite scheme cannot operate retrospectively as the rule of the game cannot be changed once it is played. As the issue has been settled by the Hon ble Calcutta High Court by holding that unless and until the work order is complete the rate of Service Tax cannot be changed the appellant has correctly opted to pay Service Tax at the rate of 2% during the impugned period. There are no merit in the impugned orders passed by the authorities below and hence the same is set aside - appeal allowed.

Summary

Issues Involved:
Appeal against impugned order demanding differential Service Tax under Rule 3 of Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007.

The appellant provided 'works contract service' from October 2008 to September 2009, opting to pay Service Tax at 2% under the Composition Scheme. The rate was later revised to 4% from 01.03.2008. Two Show Cause Notices were issued proposing differential Service Tax, which was confirmed along with penalties under Section 76 of the Finance Act, 1994. Appellant challenged the order before the Ld. Commissioner (Appeals) and then before the Tribunal.

The main contention was whether the appellant could withdraw the option to pay Service Tax at 2% during the pendency of the works contract, despite the rate being revised to 4% under Notification No. 07/2008-S.T. dated 01.03.2008.

The Revenue argued that the appellant was liable to pay Service Tax at the revised rate of 4% as per the notification.

The Tribunal considered the appellant's advance option for payment under the Composition Scheme, citing Rule 3(3) of Notification No. 32/2007-S.T. dated 22nd May, 2007. The Tribunal referred to the High Court's decision in M/s. Larsen & Toubro Ltd. v. Assistant Commissioner of Service Tax [2017 (7) G.S.T.L. 41 (Cal.)], which held that the rate of tax cannot be changed until the completion of the works contract once the option is exercised.

The Tribunal held that the appellant correctly opted to pay Service Tax at 2% during the impugned period, as per the High Court's decision. The impugned orders demanding differential Service Tax were set aside, and the appeals were allowed with consequential relief.

The Tribunal found that the appellant's option to pay Service Tax at 2% under the Composition Scheme could not be withdrawn during the pendency of the works contract, as per Rule 3(3) of the Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007 and the High Court's decision in M/s. Larsen & Toubro Ltd. v. Assistant Commissioner of Service Tax [2017 (7) G.S.T.L. 41 (Cal.)].