2014 (7) TMI 1020 - AT - Service Tax

Classification of service - Works Contract service or erection, commissioning or installation service - nature of contract is pure labor contract or not - Held that - The appellants have from their records show that almost 31% of the contract value is represented by material value. - The assumption appears to be that in the said Service contract entered into by appellants with Power Grid Corporation of India Ltd., there is no transfer of property in goods. This assumption is based on incorrect appreciation of facts. The records shown by appellants indicate that a significant percentage of the total contract work under the Service Contract involves material component. Therefore we hold that there is transfer of property in goods involved in the execution of the Service Contract. - Decided in favor of assessee. The appellants pay Sales Tax/Vat on the transfer of property in the goods involved in execution of the Service contract. Copies of VAT returns have also been placed on record. Therefore, the second aspect that goods in the Service Contract are leviable to tax as sale of goods, is also fulfilled. Benefit of composition scheme - Held that - it is quite clear that from 7.7.2009, the Composition Scheme was restricted to such Works Contracts where the value of goods used whether supplied under any other contract, is to be included. The change in Rules is not a mere clarification of the earlier Rules. There has been a clear amendment in law from 7.7.2009. The period of dispute in the case of appellant is from April 2008 to March 2012, and Revenue does not dispute that the contract had commenced before 7.7.2009. Therefore, the amended Rules would not apply in the case of appellant in accordance with the proviso to the Explanation in the amended Rules - appellants have correctly availed the Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007. - Decided in favor of assessee.

Summary

Issues Involved:
1. Classification of the Service Contract.
2. Eligibility for the Composition Scheme under the Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007.

Issue-wise Detailed Analysis:

1. Classification of the Service Contract:
The primary issue was whether the service provided under the Service Contract should be classified under "Works Contract Service" as defined in Section 65(105)(zzzza) of the Finance Act, 1994, or under "Erection, Commissioning or Installation Service" as defined in Section 65(105)(zzd) read with Section 65(39a) of the Finance Act. The appellant argued that the Service Contract should be classified as a Works Contract because it involved both the delivery of service and the transfer of property in materials used in the execution of the contract. The materials involved, such as cement, steel, and paint, were not consumables but became part of the immovable property. The appellants provided evidence of paying Sales Tax/VAT on these materials and relied on a CBEC Circular clarifying that contracts treated as works contracts for VAT/Sales Tax purposes should also be treated as works contracts for service tax purposes. The Tribunal agreed with the appellant, noting that there was substantial use of materials in the Service Contract, and these materials remained part of the structure even after completion. Therefore, the Service Contract was classified under Works Contract Service.

2. Eligibility for the Composition Scheme:
The second issue was whether the appellants were eligible to pay tax under the Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007. The Tribunal examined the three main conditions for eligibility: transfer of property in goods involved in the execution of the contract, non-availment of Cenvat Credit on inputs, and exercising the option to avail the Composition Scheme. The Tribunal found that the appellant fulfilled all these conditions. The Tribunal also noted that the Rules were amended on 7.7.2009, but the amended Rules would not apply to the appellant since the contract had commenced before that date. Therefore, the Tribunal held that the appellants had correctly availed the Composition Scheme.

Conclusion:
The Tribunal concluded that the Service Contract should be classified under Works Contract Service and that the appellants were eligible for the Composition Scheme. The orders of the Commissioner were set aside, and the appeals were allowed.