2014 (3) TMI 454 - AT - Service Tax

Payment of full rate of service tax on works contract and availing CENVAT Credit on inputs and input services - Valuation under Service Tax (determination of value) Rules 2006 - Whether the appellant are correct in paying full rate of Service tax @ 12.36% or 10.30% (including education cess and SHE cess) and avail cenvat credit on the inputs and inputs services utilised for rendering of Works Contract Services. - Held that - Service Tax liability is to be discharged on the gross amount charged by the service provider. In the case in hand there is no dispute as to the value or gross amount which needs to be considered for discharge of service tax liability. It is admitted by both sides that the value of the works contract executed by the appellant is the value on which the appellant has discharged full rate of service tax. While applying provisions of 67(4) necessary implication is that the value for discharge of service tax liability needs to be determined by referring to service tax valuation rules. In the case in hand since there is no dispute as to the gross value charged by the appellant there is no necessity to take recourse for determining the value under Service Tax (determination of value) Rules 2006. Appellant is discharging full Service Tax under the category of Works Contract Service using Inputs and Input Service are used for rendering of output services ; on reading of provisions of Rule 2(l) of the cenvat credit rules 2004 it would indicate that assessee is eligible avail to cenvat credit of Inputs and input services which are used to provide output service which would include setting up of a factory premises. In the case in hand, it is undisputed that the appellant had provided output services which covered by works contract for setting up of plant, it has to be held that cenvat credit availed by the appellant is in consonance with the provisions of the Cenvat Credit Rules 2004. We also hold that the discharge of Service Tax liability at full rate by the appellant by applying provisions of section 67 of the Finance Act 1994 cannot be called in question by the Revenue - Decided in favour of assessee.

Issues Involved:
1. Whether the appellant is correct in paying full rate of Service Tax and availing Cenvat credit on inputs and input services for rendering 'Works Contract Services'.
2. Applicability of Rule 2A of the Service Tax (Determination of Value) Rules, 2006.
3. Applicability of Rule 3 of the Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007.
4. Eligibility of Cenvat credit on inputs and input services used for providing output services.

Issue-wise Detailed Analysis:

1. Payment of Full Rate of Service Tax and Availing Cenvat Credit:
The appellant, engaged in providing taxable services under 'Works Contract Services', paid full service tax on the gross value of the contract and availed Cenvat credit on inputs and input services. The adjudicating authority contested this, arguing that the appellant should have paid reduced service tax under Rule 2A of the Service Tax (Determination of Value) Rules, 2006, or under the Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007. The appellant argued that Section 67 of the Finance Act, 1994, allows for the discharge of service tax on the gross amount charged, without any prohibition on paying the full applicable rate.

2. Applicability of Rule 2A of the Service Tax (Determination of Value) Rules, 2006:
The tribunal noted that Rule 2A starts with the expression 'subject to the provisions of section 67', indicating that it applies only when the value of the service cannot be determined under Section 67. Since there was no dispute about the gross value charged by the appellant, Rule 2A was deemed inapplicable. The tribunal emphasized that Section 67 prevails, and the service tax liability should be discharged based on the gross amount charged by the service provider.

3. Applicability of Rule 3 of the Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007:
The tribunal examined Rule 3, which provides an option to discharge service tax liability at a reduced rate. However, this option is not mandatory. The tribunal concluded that the appellant's choice not to opt for the composition scheme and instead pay the full rate of service tax was valid. The non-obstante clause in Rule 3(1) was interpreted not to override Section 67 and Rule 2A but to provide an alternative option for service providers.

4. Eligibility of Cenvat Credit:
The tribunal found that the appellant had correctly availed Cenvat credit on inputs and input services used for providing output services. The Cenvat Credit Rules, 2004, allow for such credit when inputs and input services are used to provide output services, including setting up a factory. The tribunal held that the appellant's discharge of service tax at the full rate and availing of Cenvat credit was in accordance with the law.

Conclusion:
The tribunal set aside the impugned order, allowing the appeal with consequential relief. The appellant was found to have correctly discharged service tax at the full rate and availed Cenvat credit on inputs and input services used for rendering 'Works Contract Services'. The provisions of Section 67 of the Finance Act, 1994, were upheld as the basis for determining the value for service tax liability, rendering the application of Rule 2A and Rule 3 of the composition scheme optional and not mandatory.

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