2016 (2) TMI 846 - HC - Service Tax

Waiver of pre-deposit - Demand of service tax on works contract - electrical contractor engaged in executing contracts for various Government Departments/Corporations such as CPWD, PWD, Government hospitals, etc. - The service tax demand of around ₹ 58 lakhs has been calculated by the Adjudicating Authority by taking a notional turnover of ₹ 5.38 crores which included the cost of the goods and materials apart from the service component. - Held that - prima facie, the Court finds justification in the grievance of the Appellant that the computation of the service tax ought to have been confined to the service component and not the entire turnover and that notional turnover determined was at least twice the actual turnover and therefore excessive. - interim order of the tribunal modified - Decided partly in favor of assessee.

Summary

Issues Involved:
1. Justification of requiring the Appellant to deposit 50% of the adjudicated service tax along with proportionate interest for considering the appeal before CESTAT.
2. Computation of service tax based on turnover for an electrical contractor.

Analysis:

1. The main issue in this judgment revolves around the requirement imposed by CESTAT on the Appellant to deposit 50% of the adjudicated service tax along with proportionate interest for considering their appeal. The Court examined whether CESTAT was justified in this requirement under Section 35F of the Central Excise Act, 1944, and Section 83 of the Finance Act, 1994. The Appellant, an electrical contractor, argued that the service tax demand was calculated incorrectly by the Adjudicating Authority. The Court found merit in the Appellant's grievance, noting that the computation of service tax should have been limited to the service component of the turnover, not the entire turnover. The Court observed that the notional turnover used in the calculation was significantly higher than the actual turnover, leading to an excessive demand. Consequently, the Court modified the CESTAT's order and directed the Appellant to deposit a reduced sum of Rs. 5 lakhs before CESTAT for their appeal to be considered, thereby resolving this issue in favor of the Appellant.

2. The second issue addressed in the judgment pertains to the computation of service tax for the electrical contractor Appellant. The Appellant, engaged in executing contracts for various Government Departments, argued that the service tax demand was inaccurately determined by the Adjudicating Authority. The Court acknowledged the Appellant's submission that the service component of their turnover was around 42%, amounting to approximately Rs. 89 lakhs. However, the Adjudicating Authority had calculated a service tax demand of around Rs. 58 lakhs based on a notional turnover of Rs. 5.38 crores, which included the cost of goods and materials in addition to the service component. The Court agreed with the Appellant that the service tax computation should have been based solely on the service component of the turnover and not the entire turnover. This discrepancy in calculation led the Court to conclude that the notional turnover used was excessive, being at least twice the actual turnover. Consequently, the Court's decision to modify the CESTAT's order and reduce the deposit amount to Rs. 5 lakhs effectively addressed this issue, providing relief to the Appellant and clarifying the correct approach to computing service tax for contractors.