2024 (11) TMI 205 - AT - Service Tax

Calculation of value of service portion in the execution of a works contract - in works contract service , the value of land should be included or otherwise - demand for service tax, interest, and penalty - whether demand being time barred? - HELD THAT - From the Rule 2A(i), it is clear that for the purpose of value of service in the execution of works contract the gross value shall not include the value of land or undivided share of land. In view of this provision the value of land is not includible and service tax demand on this ground is not sustainable on merit. Submission of the learned Chartered Accountant that the demand is hit by limitation - We find that the show cause notice was issued invoking the extended period. As regard the facts of the case the appellant was registered with Service Tax Department and in respect of the same works contract service , they have been paying the service tax on declaring all the details in their ST-3 return. Even the value of land was also disclosed in the return. Therefore, there is no suppression of fact on the part of the assessee, all the transactions were recorded in the records. All the books were regularly audited by the statutory auditors. The appellant have not charged or recovered any service tax on land value based on their bona fide belief that no service tax is payable thereon, considering, the provisions of law. The issue also involved the interpretation of valuation for works contract service. Therefore, the demand and corresponding interest and penalty is not sustainable, on the ground of limitation also. Accordingly, the demand is set aside.

Summary

Issues:
1. Whether the value of land should be included in the calculation of service tax for a works contract.
2. Whether the demand for service tax, interest, and penalty is sustainable.
3. Whether the demand is time-barred.

Analysis:
1. The Respondent filed a cross-objection challenging the demand upheld by the Commissioner regarding the inclusion of the value of land in a works contract service. The Chartered Accountant for the Respondent argued that as per Rule 2A(i) of Service Tax (Determination of Value) Rules, 2006, the value of land should not be included in the calculation of the service portion in a works contract. Therefore, the demand is not sustainable on merit.

2. The Chartered Accountant further argued that the demand is also not sustainable due to limitation, as the show cause notice was issued beyond the 18-month period from the relevant date. It was emphasized that there was no suppression of facts by the assessee, as all transactions were duly recorded and disclosed in the returns. The demand, interest, and penalty were deemed not sustainable on the ground of limitation.

3. The Revenue, represented by the Superintendent, reiterated the findings upholding the demand. However, the Tribunal examined the provisions of Rule 2A(i) and concluded that the value of land should not be included in the calculation of service tax for a works contract. Therefore, the demand was set aside, and the cross-objection was allowed. The Tribunal dismissed the Revenue's appeal based on the Government's litigation policy due to the amount involved being below the threshold limit.

This detailed analysis of the judgment highlights the key arguments presented by both parties, the legal provisions governing the calculation of service tax for works contracts, and the Tribunal's decision on the issues of inclusion of land value and the sustainability of the demand and limitation period.