2024 (8) TMI 608 - AT - Service Tax

Non-payment of tax - activity of laying of cables/wires - Erection, Commissioning and Installation Services - Invocation of extended period alleging suppression and fraud along with interest and penalty under section 78 of the Finance Act, 1994. Non-payment of service tax - HELD THAT - There is considerable merit in the contention of the Appellant that composite contracts involving supply of both goods and services could not have been taxed under the category, Erection, Commissioning and Installation Services in view of the law laid down by the Hon ble Supreme Court in the COMMISSIONER, CENTRAL EXCISE CUSTOMS VERSUS M/S LARSEN TOUBRO LTD. AND OTHERS 2015 (8) TMI 749 - SUPREME COURT where it was held that ' It will also be noticed that no attempt to remove the non-service elements from the composite works contracts has been made by any of the aforesaid Sections by deducting from the gross value of the works contract the value of properly in goods transferred in the execution of a works contract.' Thus, the taxable category Erection, Commissioning and Installation Services could only cover pure service contracts within its fold. In the present case, it is noted that the work order in respect of Chhatrasal Stadium involved supply of material and installation commissioning of the EPABX system. Consequently, with effect from 01.06.2007 only, such composite contracts would be eligible to tax under Works Contract Service. The demand will have to be calculated based on the actual turnover figures. In view of the above, it is held that it would be appropriate to remand the case for recalculation of the demand by giving the benefit of abatement to the appellant. Invocation of extended period alleging suppression and fraud along with interest and penalty under section 78 of the Finance Act, 1994 - HELD THAT - There is evidence that the appellant had tampered with four of his VAT returns, in order to substantiate his claim that as VAT had been paid on the transactions, hence no service tax is leviable. This act of the appellant cannot be overlooked. This clearly indicates his intent to evade payment of duty, and satisfies the requirement for invocation of the extended period. Consequently, the penalty under Section 78 is also leviable - The interest liability is upheld as it is a statutory. Appeal allowed in part and part matter on remand.

Issues Involved:
1. Classification of services provided by the appellant.
2. Applicability of service tax on the appellant's activities.
3. Eligibility for abatement and small-scale service provider exemption.
4. Invocation of extended period of limitation.
5. Allegations of fraud and tampering with VAT returns.
6. Imposition of interest and penalties.

Detailed Analysis:

1. Classification of Services Provided by the Appellant:
The appellant argued that their activities, primarily involving the laying of cables and pipelines for government departments, should not be classified under 'Erection, Commissioning, or Installation Services.' They contended that these activities do not involve the installation of electrical or electronic devices but are more aligned with the laying of cables or pipelines, which is exempt under Circular No. 123/5/2010-TRU. The Tribunal found merit in this argument, noting that composite contracts involving both goods and services could not be taxed under 'Erection, Commissioning, or Installation Services' as per the Supreme Court's judgment in the L&T case.

2. Applicability of Service Tax on the Appellant's Activities:
The appellant believed their activities were chargeable to VAT, not service tax, and had been paying VAT accordingly. The Department, however, argued that the appellant was liable to pay service tax under 'Erection, Commissioning, or Installation Services.' The Tribunal noted that the appellant's work orders involved supply and installation, making them eligible for taxation under Works Contract Service from 01.06.2007 onwards.

3. Eligibility for Abatement and Small-Scale Service Provider Exemption:
The appellant claimed eligibility for a 67% abatement under Notification No. 1/2006 and exemption as a small-scale service provider. The Tribunal found force in the appellant's arguments and held that the demand should be recalculated, giving the benefit of abatement and considering the actual turnover figures now available.

4. Invocation of Extended Period of Limitation:
The Department invoked the extended period of limitation under Section 73(1) of the Finance Act, 1994, alleging suppression and fraud by the appellant. The Tribunal upheld the invocation of the extended period, citing evidence of tampering with VAT returns, which indicated the appellant's intent to evade payment of duty.

5. Allegations of Fraud and Tampering with VAT Returns:
Investigations revealed that the appellant had tampered with VAT return acknowledgments for 2006-07 and 2007-08, forging figures to show higher turnover without proportionate VAT payment. The Tribunal noted that the appellant did not address these allegations during adjudication or in the present appeal. Citing various judgments, the Tribunal emphasized that fraud vitiates everything and declined to examine the appellant's submissions for the tampered periods.

6. Imposition of Interest and Penalties:
The Tribunal upheld the interest liability as statutory. Given the evidence of tampering and intent to evade duty, the Tribunal also upheld the penalty under Section 78 of the Finance Act, 1994, based on the reworked quantum of duty after recalculating the demand under Works Contract Service.

Conclusion:
The appeal was partially allowed by remanding the case for recalculating the demand under Works Contract Service, extending the benefit of abatement. The Tribunal upheld the invocation of the extended period and the penalty under Section 78, with the interest liability maintained as statutory. The appeal was disposed of accordingly.

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