2019 (1) TMI 1111 - AT - Service Tax

Construction services - works contract service - appellant was not rendering any service to their clients but they had collected the amount representing as service tax - Section 73A of the Finance Act, 1994 - demand of interest on short deposit of amounts under Sec.73A in terms of Section 73B of the Act - penalty u/s 77 of FA. Whether or not the appellant is liable to pay service tax on works contract service as per the Construction Agreement which they entered into to complete the incomplete houses of their clients? - Held that - The appellant has undertaken to complete semi-built houses as per the copies of Construction Agreement produced by them before us. They are neither residential complexes nor new buildings or civil structures for commerce or industry. Therefore, they are clearly, not covered under the definition of Works Contract Service - since construction/ completion of incomplete houses is not squarely covered by the Works Contract Service , the appellant is not liable to pay service tax. Therefore, the appellant was not liable to pay service tax. An argument of the learned counsel for the appellant is that if it is held that they are not liable to pay service tax and the amount which they have collected is held to be liable to be deposited under Sec.73A, the amount which they debited in their CENVAT account should be considered as deposit under Sec.73A - Held that - There is also nothing in the CCR, 2004 which entitle such a person to use the CENVAT credit so wrongly availed to discharge their liability to make a deposit u/s 73A - the appellant has to deposit the amount collected from its clients under Sec.73A(2) and cannot use CENVAT credit for the purpose. The amount already collected in cash gets adjusted against this amount and the appellant is liable to deposit the rest. As the appellant is not entitled to take CENVAT credit, the same needs to be recovered from them. Demand of interest u/s 73B of FA - Held that - Section 73B applies to cases where an amount has been collected in excess of tax assessed or determined referred to Sec.73A(1). There does not appear to be a corresponding provision for collection of interest under Sec.73B where any amount has been collected as tax which is not required to be collected Sec.73A(2) . In the absence of any statutory provision, the demand of interest is not sustainable. Penalties - Held that - As appellant have disclosed their operations to the department and also expressed their doubts if they were liable to pay service tax at all, penalty is set aside by invoking section 80. Appeal disposed off.

Issues Involved:
1. Liability to pay service tax under works contract service.
2. Entitlement to avail and utilize CENVAT credit.
3. Demand of interest under Sec.73B.
4. Imposition of penalties under Sec.77 of the Finance Act, 1994.

Detailed Analysis:

1. Liability to Pay Service Tax:
The appellant argued that they were liable to pay service tax based on CBEC circulars dated 01.08.2006 and 23.08.2007. The tribunal examined the definition of works contract service under Sec.65(105)(zzzza) and concluded that the appellant's activities did not fall under this definition. The appellant had undertaken to complete semi-built houses, which did not constitute residential complexes or new buildings or civil structures for commerce or industry. Therefore, the tribunal held that the appellant was not liable to pay service tax. The tribunal referenced the Supreme Court's ruling in Civil Appeal No.3327 of 2017 (CC, Mumbai Vs M/s Dilip Kumar & Co and others), emphasizing that tax liability must be clearly imposed by statute without room for implied concepts.

2. Entitlement to Avail and Utilize CENVAT Credit:
The tribunal found that since the appellant was not liable to pay service tax, they were not entitled to avail CENVAT credit. The appellant had wrongly taken CENVAT credit and used it to pay service tax. The tribunal ruled that there was nothing in the CENVAT Credit Rules, 2004 that allowed a person not liable to pay service tax to claim and utilize CENVAT credit for deposits under Sec.73A. The tribunal cited the Gujarat High Court's decision in CCE, Ahmedabad-II Vs Inductotherm India Pvt Ltd [2012 (283) ELT 359 (Guj.)], which held that CENVAT credit could not be used for deposits under Sec.11D of the Central Excise Act, a provision similar to Sec.73A of the Finance Act, 1994.

3. Demand of Interest under Sec.73B:
The tribunal set aside the demand for interest under Sec.73B, noting that this section applies to cases where an amount has been collected in excess of tax assessed or determined under Sec.73A(1). There was no corresponding provision for collecting interest under Sec.73B for amounts collected as tax under Sec.73A(2). Therefore, the demand for interest was not sustainable.

4. Imposition of Penalties:
The tribunal found that the appellant had disclosed their operations to the department and expressed doubts about their liability to pay service tax. Invoking Sec.80 of the Finance Act, 1994, the tribunal set aside all penalties imposed on the appellant.

Conclusion:
a) The demand under Sec.73A(3) read with Sec.73A(2) for amounts collected as representing service tax was confirmed, with amounts already deposited in cash set off against this demand.
b) The demand for interest under Sec.73B was set aside.
c) The demand for reversal of ineligible CENVAT credit was confirmed, treating the amount reversed as payment of service tax as reversal.
d) Interest under Rule 14 of CCR was confirmed for the period between taking the credit and its reversal.
e) All penalties were set aside under Sec.80 of the Finance Act, 1994.

The appeal was disposed of accordingly, with the judgment pronounced in the Open Court on 16.01.2019.

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