2015 (8) TMI 639 - AT - Service Tax

Classification of service - Erection, Commissioning or Installation Service (ECIS) or works contract service - Benefit of 67% Abatement - Penalty u/s 76, 77 & 78 - Invocation of extended period of limitation - Held that - Works contract service was carved out of Services of CICS, COCS and ECIS which were subject to service tax even prior to 01/6/2007. Works contract service was specifically born w.e.f. 01/6/2007. As per the provisions contained in Section 66F (2) of the Finance Act, 1994 a specific heading has to be the appropriate classification of a service. The activities of works contract undertaken by the appellant is therefore classifiable under works contract service w.e.f. 01/6/2007. The same service even if provided under a works contract before 01/6/2007, will be classifiable under Erection, Commissioning or Installation Service (ECIS). Free supplies made by service recipient to the service provider for providing construction service are not includable in gross amount charged as per Section 67 of the Finance Act, 1994. It is observed from case records that appellants are using materials like cement, sand, bricks etc. in providing Erection, Commissioning or Installation Service, therefore, benefit of 67% abatement under Notification No. 1/2006-ST dated 01/3/2006 will be admissible for demand for the normal period of limitation. Further benefit of cum-duty has to be allowed to the appellant under Section 67 (2) of the Finance Act, 1994. For quantification of the duty demand, for the normal period of limitation on the basis of above observations, the matter is remanded to the Adjudicating Authority. Extended period was not invokable. Further appellant has claimed the benefit of Section 80 benefit as per their grounds of appeal. As appellants had a bonafide belief that no service tax was payable by them before 01/6/2007, as works contract service , there is a reasonable cause for non-payment of tax and benefit of Section 80 of the Finance Act, 1994 is admissible. Accordingly, it is held that no penalites under Section 76, 77 and 78 are imposable upon the appellants in these proceedings. - Decided partly in favour of Revenue.

Summary

Issues: Classification of services provided, applicability of abatement, imposition of penalties, demand of service tax pre and post 01/6/2007, benefit of Section 80 of the Finance Act, 1994, and issuance of show cause notice.

The main issue in the appeals was the classification of activities undertaken by the appellants as either Erection, Commissioning or Installation Service (ECIS) or works contract service. The period of dispute was from 1/5/2006 to 17/3/2008. The argument was made that no service tax was payable before 01/6/2007 as works contract service was introduced only from that date. However, it was held that works contract service was carved out of earlier services that were subject to service tax even before 01/6/2007. The activities of works contract undertaken by the appellants were classified as works contract service w.e.f. 01/6/2007.

Regarding the demand period from April 2001 to 31/06/2007, the extended period was deemed not applicable due to the appellants' bonafide belief that no service tax was payable on works contract activities before 01/6/2007. The value of free supplies made by the service recipient was not required to be added while discharging service tax, as per a precedent by the CESTAT Larger Bench. The matter was remanded to the Adjudicating Authority for quantification of the duty demand based on these observations.

Imposition of penalties was considered, and it was concluded that as the extended period was not applicable and the appellants had a bonafide belief regarding the non-payment of tax before 01/6/2007, no penalties under Section 76, 77, and 78 were imposable.

For the demand of service tax post 01/6/2007, it was noted that no show cause notice was issued to the appellants for demanding duty under works contract service. Therefore, the appeals filed by the appellants for this period were required to be allowed.

In conclusion, the appeals filed by the appellants were allowed to the extent indicated, while the appeals filed by the Revenue were dismissed. The Cross Objection filed by another party was also disposed of accordingly.