2017 (4) TMI 38 - AT - Service Tax

Liability of tax in terms of the composition scheme of 2007 - Imposition of penalties u/s 77 and 78 - short payment of service tax - works contract - Held that - the activities carried out by the appellants are taxable only w.e.f. 01/06/2007. In such situation, it is clear that their payment of tax in terms of composition scheme should be examined for correctness based on the said provisions only. It is seen that there is no format or prescribed specific procedure for exercising separate option under the scheme. After the introduction of new tax entry when the appellants discharged service tax in terms of the applicable provisions, it is clear their entitlement cannot be denied. The denial of composition scheme by the Original Authority is mainly on the ground that the appellant cannot exercise option under the scheme as the contracts were taxable under commercial or industrial construction service / construction of complex service prior to 01/06/2007 and accordingly after 01/06/2007 they cannot opt for payment of service tax under works contract service under composition scheme - The reason for denial of the benefit recorded in the impugned order is not sustainable - also the imposition of penalties on the appellant is not justified. Appeal allowed - decided in favor of appellant.

Summary

Issues:
Contesting short payment of service tax, imposition of penalties under Sections 77 and 78, differential service tax demand, entitlement to pay tax under the composition scheme of 2007, switching over from 'construction service' to 'works contract service' without intimation, denial of composition scheme, imposition of penalties unjustified.

Analysis:
The appellant contested the order of the Commissioner of Service Tax, New Delhi, regarding short payment of service tax and imposition of penalties under Sections 77 and 78. The dispute centered around the demand for differential service tax of ?37,06,404 and penalties. The Adjudicating Authority held that the appellant should have paid duty on the full rate on gross value instead of availing the composition scheme for works contract services entered into before 01/06/2007. However, the Hon'ble Supreme Court's decision clarified that there was no liability to service tax for composite works contracts before 01/06/2007. The appellant argued that they fulfilled all requirements for payment under the composition scheme during the relevant period.

The Original Authority contended that the appellant switched from 'construction service' to 'works contract service' without informing the service tax department, violating the scheme's provisions. However, since the activities were taxable only from 01/06/2007, the correctness of the tax payment under the composition scheme should be assessed based on the relevant provisions. The denial of the composition scheme was mainly due to the belief that the appellant couldn't opt for it post-01/06/2007. The Tribunal noted that the appellant was not liable for service tax on composite works contracts pre-01/06/2007 and, subject to conditions, could pay tax under the composition scheme post-01/06/2007.

The Tribunal found the denial of the composition scheme unjustified, especially given the legal clarity post the Hon'ble Supreme Court's decision. Considering the circumstances and the appellant's compliance with provisions during the relevant time, the imposition of penalties was deemed unjustified. The appeal was allowed concerning the differential service tax and penalties, leading to the disposal of the appeal.