2015 (12) TMI 218 - AT - Service Tax

Demand of service tax - Composition scheme - Works Contract Service - Held that - There is no violation of the Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007. Rule 3 of the Rules require that the option to pay tax under composition scheme should be exercised before payment of Service Tax. It is seen that the registration under Works Contract Service was taken on 29.06.2007 and the Service Tax was paid on 5th/6th July, 2007. In view of this fact as well as the fact that under Rule 4 of Service Tax Rules the registration may be applied for within 30 days of commencement of business, the show-cause notice has no basis. The adjudicating authority proceeded to pass the Order on a completely fresh ground and therefore the order is liable to be set aside on this ground alone. The Commissioner correctly placed reliance on various judgements such as Godrej Industries Ltd. Vs. CCE, Mumbai 2008 (7) TMI 83 - SUPREME COURT and Tribunal decision in the case of Dhampur Sugarmills Ltd. Vs. CCE, Meerut 2010 (8) TMI 365 - CESTAT, NEW DELHI . On the other hand the reliance placed by Revenue in case of CCE, Jaipur Vs. Ashoka Industries 2011 (1) TMI 414 - CESTAT, NEW DELHI is out of context. In the case of Ashoka Industries the dispute was regarding production of a certificate to avail the benefit of Notification No. 108/95 CE. In that context it was held that as the basic issue is discussed in the show-cause notice, the order cannot be caused on some minor point. But in the present case the issue in the show-cause notice and the Order are different. Revenue has not even cited the details of the old contract and the new contract and compared the two to come to the conclusion that they were same and the change of contract was not a bonafide act. - Decided in favour of assessee.

Issues involved:
Violation of Works Contract Scheme rules
Interpretation of Service Tax Rules
Validity of show-cause notice
Applicability of composition scheme
Comparison of old and new contracts

Violation of Works Contract Scheme rules:
The case involved a dispute regarding the payment of Service Tax under the composition scheme for Works Contract Service. The respondent had paid the tax under the composition scheme but had not obtained registration under the Works Contract Scheme category until a specific date. The adjudicating authority confirmed the demand for Service Tax at the normal rate, alleging that the respondent had canceled an old contract and entered into a new one to benefit from the composition scheme. However, the Commissioner (Appeals) set aside this decision, citing that the Order-in-Original exceeded the grounds of the show-cause notice and that the respondent had complied with the rules by exercising the option to avail the composition scheme before paying the tax.

Interpretation of Service Tax Rules:
The Tribunal analyzed Rule 3 of the Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007, which requires the option for the composition scheme to be exercised before the payment of Service Tax. It was observed that the respondent obtained registration under Works Contract Service and paid the Service Tax after exercising the option, which aligned with the rule's requirements. Additionally, Rule 4 of the Service Tax Rules allows for registration within 30 days of commencing business, further supporting the respondent's compliance with the regulations.

Validity of show-cause notice:
The Tribunal found that the show-cause notice lacked a basis for demanding Service Tax at the normal rate since the respondent had followed the necessary procedures under the composition scheme rules. The adjudicating authority's decision to pass the order on a new ground not mentioned in the notice rendered the order invalid, as highlighted by the Commissioner's reliance on relevant legal precedents.

Applicability of composition scheme:
The Tribunal emphasized that the respondent's actions, including canceling the old contract and entering into a new one, were in line with the requirements of the composition scheme. The Commissioner's findings indicated a lack of evidence to support the claim that the contract changes were merely to exploit the composition scheme without a legitimate basis, further strengthening the respondent's position.

Comparison of old and new contracts:
The Tribunal noted the absence of documentary evidence proving that the changes in contracts were solely for the purpose of availing the composition scheme benefits. The appellant's explanation regarding the termination of the old contract due to delays was considered valid, especially since the Revenue failed to provide substantial details or comparisons between the old and new contracts to establish any wrongdoing.

In conclusion, the Tribunal dismissed the appeal and cross objections, affirming that the demand for Service Tax was not sustainable due to the respondent's compliance with the Works Contract Scheme rules and the lack of evidence supporting the Revenue's claims against the legitimacy of the contract changes.

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