2014 (6) TMI 831 - AT - Service Tax

Works Contract Composition Scheme - whether the appellant is eligible for Composition Scheme under the Works Contract (Composition Scheme for Payment of Service Tax) Rules 2007 for a works contract entered with M/s. Essar Oil Limited when some advance payments were received by the appellant prior to 01.6.2007 i.e. before introduction of Works Contract Service. - Extended period of limitation - Held that - in respect of the services provided after 01.06.2007 which alone are regarded as Works Contract Service the appellant had opted to pay tax at the Composition rate and not at the standard rate and was thus eligible for the composition benefit in respect of services provided after 01.06.2007. - Decision in the case of Nagarjuna Construction Company Limited vs. GOI 2012 (11) TMI 404 - SUPREME COURT followed - Appellant has correctly availed the Composition Scheme for the Works Contracts for which the option and payment of service tax was exercised after 01.6.2007 and no service tax was paid before 01.6.2007 - Decided in favor of assessee. The classification of services rendered prior to 01.06.2007 cannot affect the assessee s entitlement to the Composition Scheme in respect of services rendered after 01.06.2007. However in respect of advance received prior to 01.06.2007 which tantamounts to provisions of service prior to 01.06.2007 the benefit of composition rate could not have been claimed on the said advance and in view of our findings recorded herein above Service Tax on the same was payable under the head of Commercial or Industrial Construction Services as has been held by the respondent. As such the appellants contention that they were entitled to pay tax at the composition rate on advances received prior to 01.06.2007 cannot be accepted. Extended period of limitation - held that - The alternative question whether the appellant would have been eligible for abatement computing the tax liability only advance payments is not being analyzed by us as we find that the entire demand on this count is hopelessly barred by limitation as the factum of the advance having been received prior to 01.06.2007 and in respect of the same tax having been discharged under the composition scheme was specifically stated in the Service Tax return. It is settled law that when there is no deliberate suppression of facts the extended period of limitation cannot be invoked. The appellant had in fact clearly stated in the ST-3 return that Service Tax was not discharged in view of the fact that the service in the contract was an indivisible Works Contract . - demand set aside - Decided in favour of assessee.

Issues Involved:
1. Eligibility for Composition Scheme under the Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007.
2. Interpretation of Rule 3(3) of the Composition Scheme.
3. Clubbing of Construction Contract and Supply Contract values.
4. Applicability of Revenue neutrality.
5. Invocation of extended period of limitation.

Issue-wise Detailed Analysis:

1. Eligibility for Composition Scheme:
The primary issue in this appeal is whether the appellant is eligible for the Composition Scheme under the Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007 for a contract entered before June 1, 2007, with advance payments received prior to this date. The appellant argued that they fulfilled the conditions of Rule 3(3) of the Composition Scheme as explained by the CBEC Circular dated August 24, 2010, and correctly paid service tax under the Works Contract Services.

2. Interpretation of Rule 3(3):
The appellant contended that the adjudicating authority's findings were contradictory, as it initially suggested eligibility for the Composition Scheme but later implied that defaulters should not benefit from it. The appellant emphasized that fiscal statutes should be interpreted based on their plain language, without inferring legislative intent. The relevant provision, Rule 3(3), requires the service provider to opt for the Composition Scheme before paying service tax for the works contract, and this option must be maintained until the contract's completion. The appellant argued that no service tax was paid before June 1, 2007, and thus, they correctly availed the Composition Scheme.

3. Clubbing of Construction Contract and Supply Contract Values:
The appellant challenged the adjudicating authority's attempt to club the values of the Construction Contract and the Supply Contract. They cited a previous judgment by the same bench in the case of Essar Projects (India) Limited, which held that such clubbing is not permissible.

4. Applicability of Revenue Neutrality:
The appellant argued that the demand was unsustainable due to revenue neutrality, as Essar Oil Limited was contractually obligated to reimburse any tax liability and could avail cenvat credit for such payments. This would result in a 'No gain - No loss' situation for both the Revenue and the assessee.

5. Invocation of Extended Period of Limitation:
The appellant contended that the demand was barred by limitation, as the relevant facts were disclosed in the ST-3 return filed on May 2, 2008, for the period April-September 2007. They argued that there was no intention to evade duty, given the revenue-neutral situation.

Judgment Analysis:
The tribunal analyzed the provisions of Rule 3(3) and the CBEC Circular dated August 24, 2010, alongside the Supreme Court's judgment in Nagarjuna Construction Company Limited vs. GOI. It concluded that the crucial element for eligibility under the Composition Scheme is the timing of the service tax payment and the exercising of the option, whether done before or after June 1, 2007. The tribunal held that the appellant correctly availed the Composition Scheme for works contracts where the option and payment of service tax were exercised after June 1, 2007, and no service tax was paid before this date.

Regarding the clubbing of contract values, the tribunal reaffirmed its previous decision that such clubbing is not permissible. On the issue of revenue neutrality, the tribunal found the appellant's argument valid, noting that any excess payment of service tax would result in a simultaneous reduction in PLA payments by Essar Oil Limited, leading to no net loss for the Revenue.

Finally, the tribunal addressed the extended period of limitation, ruling that it could not be invoked due to the absence of deliberate suppression of facts. The appellant's disclosure in the ST-3 return and the prevailing judicial interpretation at the time supported this conclusion.

Conclusion:
The appeal filed by the appellant was allowed, and the cross-objection filed by the Revenue was rejected. The tribunal's decision was based on the correct interpretation of Rule 3(3), the inapplicability of contract value clubbing, the principle of revenue neutrality, and the non-invocation of the extended period of limitation.

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