2014 (4) TMI 174 - AT - Service Tax

Classification of Works Contract Services - Revision of classification - Commercial or Industrial Construction Services to Works Contract Services - Held that - The first show cause notice dated 22.10.2008 and its corrigendum dated 29.09.2009, were mainly targeted to deny the benefit of Composition Scheme to the appellant and to determine the taxable value as per Rule 2A of the Service Tax (Determination of Value) Rules, 2006 read with section 67 of the Finance Act, 1994. The provisions of Rule 2A and Composition Scheme deal only with the Works Contract Service under Section 65 (105) (zzzza). There was thus no doubt in the authority issuing show cause notice dated 22.10.2008 and its corrigendum dated 29.09.2009 that the classification of the services being dealt was Works Contract Services with effect from 01.7.2006. Admissibility of composition scheme for ongoing Works Contracts as on 01.6.2007 has since been decided by Hon ble Apex Court in the case of Nagarjuna Construction Company Limited vs. GOI 2012 (11) TMI 404 - SUPREME COURT which was not available before the Adjudicating authority at the time of passing the adjudication order in 2010. Secondly Adjudicating authority has not considered Para 2 of the CBEC Circular No. 128/10/2010-ST dated 24.08.2010 which is binding on the filed formations. Further the issue of free supply of goods/ sale of goods in a works contract and its inclusion in the assessable value, is required to be examined in the light of judicial pronouncement of Delhi High Court in the case of G.D. Builders vs. UOI 2013 (11) TMI 1004 - DELHI HIGH COURT , read with Rule -2A of the Service Tax (Determination of Value) Rules, 2006. In the light of these observations and in the interest of justice, therefore, the matter is required to be remanded back to the Adjudicating authority to decide the cases afresh in de-novo proceedings - Decided in favour of assessee.

Issues Involved:
1. Classification of 34 ongoing contracts as on 01.06.2007.
2. Eligibility for the Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007.
3. Inclusion of free supply materials in the gross amount for service tax liability.
4. Validity and timeliness of the addendum to the original show cause notice.
5. Applicability of the composition scheme to ongoing contracts.
6. Remand for de-novo adjudication.

Detailed Analysis:

1. Classification of 34 Ongoing Contracts:
The primary dispute is whether the services for the 34 ongoing contracts as of 01.06.2007 should be classified under 'Works Contract Services' or under the service heads applicable before 01.06.2007. The appellant initially classified these services under 'Commercial or Industrial Construction Services' and 'Construction of Complex Services' before reclassifying them under 'Works Contract Services' with the introduction of the composition scheme.

2. Eligibility for the Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007:
The appellant argued that the show cause notice dated 22.10.2008 only proposed to deny the benefit of the composition scheme but did not dispute the classification under 'Works Contract Services'. The Revenue contended that the appellant was not eligible for the composition scheme as they had already paid service tax under the respective taxable services before 01.06.2007, violating Rule 3(3) of the Works Contract Rules, 2007.

3. Inclusion of Free Supply Materials in the Gross Amount for Service Tax Liability:
The appellant argued that service tax should only be levied on the value of services and not on the value of goods sold during the execution of contracts. They cited the Delhi High Court's judgment in G.D. Builders vs. UOI, which held that only the service portion of composite contracts could be taxed.

4. Validity and Timeliness of the Addendum to the Original Show Cause Notice:
The appellant contended that the addendum dated 14.12.2009, which proposed to change the classification to 'Commercial or Industrial Construction Services' or 'Construction of Complex Services', constituted a new show cause notice and was time-barred. The Revenue argued that the addendum did not change the framework of the original show cause notice and was not a new ground.

5. Applicability of the Composition Scheme to Ongoing Contracts:
The Tribunal referred to CBEC Circular No. 128/10/2010-ST dated 24.08.2010, which clarified that the classification of services would change to 'Works Contract Services' for long-term contracts continuing beyond 01.06.2007. The Tribunal concluded that the appellant was entitled to reclassify their services under 'Works Contract Services'.

6. Remand for De-novo Adjudication:
The Tribunal noted that the adjudicating authority had not considered the CBEC Circular No. 128/10/2010-ST dated 24.08.2010 and the Supreme Court's judgment in Nagarjuna Construction Company Limited vs. GOI. The Tribunal remanded the matter back to the adjudicating authority for de-novo proceedings, allowing the appellant an opportunity for a personal hearing to explain their stand.

Conclusion:
The appeals filed by the appellants were allowed to the extent indicated and remanded back to the adjudicating authority for fresh adjudication in light of the above observations. The Tribunal emphasized the need for the adjudicating authority to consider the relevant judicial pronouncements and CBEC circulars during the de-novo proceedings.

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