2018 (2) TMI 844 - AT - Service Tax

Classification of taxable service - works contract service - effective date of tax liability - Held that - the services rendered by the appellant, are of composite in nature involving transfer of goods as well as provision of service. As such, the tax liability on such contracts will arise only w.e.f. 1.6.2007 - the works contract service shall be liable to tax only w.e.f. 1.6.2007. Whether or not the appellant discharged service tax correctly by availing the composition scheme as per 2007 Rules? - Held that - the appellants discharged service tax at the composition rates w.e.f. 1.6.2007 and claimed to have filed regular returns indicating the availment of such scheme by them - there is no tax liability on such work contract prior to 1.6.2007 - the tax liability fixed on an ongoing contract can arise only w.e.f. 1.6.2007 and the appellant can avail the composition scheme when such tax liability arises. Penalties imposed on the demands raised for the period 1.10.2009 to 30.09.2010 - interest - Held that - Considering the question of interpretation and judicial pronouncements, which came much after the impugned order, we are inclined to set aside the penalties imposed on the appellant - Interest wherever applicable on delayed payment of service tax is statutorily requirement and has to be complied by the appellant. Appeal allowed in part.

Summary

Issues:
Service tax liability on construction services, denial of cenvat credit, imposition of interest and penalties.

Analysis:
The three appeals before the Appellate Tribunal involved the common issue of service tax liability of the appellant, a civil contractor providing construction services. The investigations conducted by service tax officers led to the initiation of proceedings against the appellant to demand and recover service tax, resulting in three show cause notices covering the period from 1.10.2004 to 30.09.2010. The Original Authority confirmed a substantial service tax liability of &8377;8,49,40,642/-, with penalties imposed under various sections of the Finance Act, 1994. The demand primarily arose due to the denial of Works Contract Scheme and cenvat credit.

The appellant contended that the tax liability for the construction contract with M/s.Swami Build Tech. Pvt. Ltd. should only apply from 1.6.2007 onwards, citing relevant legal precedents. They argued that they correctly paid service tax under the Composition Scheme for Construction Contract Service post-1.6.2007. Additionally, they disputed the denial of cenvat credit and tax liability on materials supplied before 1.6.2007, emphasizing the applicability of legal decisions like Larsen & Toubro Ltd.

The Appellate Tribunal considered the correct classification of taxable services and the effective date of tax liability. Relying on the Supreme Court's ruling in Larsen & Toubro Ltd., it held that the tax liability for composite services arises only from 1.6.2007. The Tribunal also assessed whether the appellant correctly discharged service tax by availing the composition scheme under the 2007 Rules, noting that payment as reflected in ST-3 returns post-1.6.2007 was sufficient to indicate scheme availing. The Tribunal emphasized that tax liability on ongoing contracts could arise only from 1.6.2007, aligning with legal precedents.

Regarding penalties imposed for the period 1.10.2009 to 30.09.2010, the Tribunal set them aside due to the appellant discharging service tax liability under works contract service without dispute. It emphasized the statutory requirement of interest on delayed payments. The Tribunal directed the jurisdictional authorities to verify the actual payment of service tax in accordance with the legal principles established. The appeals were disposed of accordingly on 12.02.2018.