2017 (6) TMI 164 - AT - Service Tax

Imposition of penalty u/s 78 - Valuation - The point of dispute is that during the material time, they were discharging service tax under the category of commercial or industrial construction service claiming abatement in terms of notification no.1/06 dated 1.3.2006. The Original Authority reclassified the services under works contract service . He also denied the abatement claimed by the appellant as not applicable to the works contract service. Held that - Provisions of work contract composition scheme as well as Rule 2 A of Service Tax Valuation Rules are specifically made applicable to the works contract service, subject to fulfillment of various conditions so that the tax liability can be restricted only to the service portion of the contract. Admittedly, no service tax can be levied on sale of goods or transfer of goods in property. The eligibility of the appellant/assessee either for the composition or for valuation under Rule 2 A of the Valuation Rules are to be examined afresh for a decision by the Original Authority - appeal allowed by way of remand.

Issues Involved:
1. Service tax liability on retention money.
2. Classification of services and applicability of abatement under notification no.1/06-ST.
3. Service tax liability on construction of yard in railway terminal.
4. Non-inclusion of value of free supply materials.
5. Demand of service tax for the period 1.4.2011 to 31.03.2012.
6. Applicability of penalties under Section 76, 77, and 78 of the Finance Act, 1994.
7. Limitation period for issuing show cause notice.

Detailed Analysis:

1. Service Tax Liability on Retention Money:
The appellants contested the service tax liability on retention money, arguing that it is retained by the service recipient as a performance guarantee and is released later. The tribunal noted that the Original Authority confirmed the service tax liability solely based on ledger entries without appreciating the accounting procedure. The tribunal found that the service tax is payable when the retention money is released, not when it is transferred to a security deposit account. This requires verification by the jurisdictional officer.

2. Classification of Services and Applicability of Abatement:
The appellants argued that they were discharging service tax under "commercial or industrial construction service" with abatement under notification no.1/06-ST, but the Original Authority reclassified the services under "works contract service" and denied the abatement. The tribunal held that service tax cannot be levied on the whole gross value of works contract service and must be limited to the service portion. The tribunal directed that the appellant should be allowed to submit evidence to claim either the composition scheme or valuation under Rule 2A of the Valuation Rules.

3. Service Tax Liability on Construction of Yard in Railway Terminal:
The appellants contested the service tax liability for constructing a yard in a railway terminal, arguing that it should be considered as work relating to railways. The tribunal agreed, stating that the development of a container yard linked to railways falls under the category of "transport terminals" and is excluded from works contract service. The tribunal found the Original Authority's reasoning unsustainable and set aside the service tax liability for this work.

4. Non-Inclusion of Value of Free Supply Materials:
The Revenue appealed against the non-inclusion of the value of free supply materials in the gross value for service tax calculation. The tribunal noted the relevance of the decision in Bhayana Builders (P) Ltd. and decided to remand this issue to the Original Authority for fresh examination.

5. Demand of Service Tax for the Period 1.4.2011 to 31.03.2012:
The appellants were paying service tax under "commercial or industrial construction service" with abatement, but the Original Authority reclassified the services under "works contract service" and denied the abatement. The tribunal held that service tax cannot be levied on the gross value of works contract service and must be limited to the service portion. The tribunal remanded the matter to the Original Authority to examine the eligibility for composition or valuation under Rule 2A of the Valuation Rules.

6. Applicability of Penalties:
The appellants contested the imposition of penalties under Sections 76, 77, and 78 of the Finance Act, 1994 for non-payment of service tax. The tribunal did not specifically address the penalties but focused on the main issues of service tax liability and classification of services.

7. Limitation Period for Issuing Show Cause Notice:
The appellants argued that the show cause notice issued on 25.02.2011 for the period 1.10.2005 to 31.03.2010 was time-barred. The tribunal did not explicitly address the limitation period but focused on the substantive issues of service tax liability and classification.

Conclusion:
The tribunal set aside the impugned orders and remanded the matters to the Original Authority for fresh decisions, directing verification of retention money, examination of eligibility for composition or valuation under Rule 2A, and reconsideration of the inclusion of free supply materials. The appeals by the assessee and Revenue were allowed to the extent discussed.

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