2019 (11) TMI 676 - AT - Service Tax

Valuation - Commercial and Industrial Construction Service - benefit of N/N. 1/2006-ST (Abatement) - It appeared to Revenue that appellant have wrongly availed benefit of Notification No. 1/2006-ST (Abatement) and that they have undervalued the gross value of service. Revenue was of the view that appellant should pay service tax on the gross value (including the material components) - extended period of limitation. HELD THAT - The admitted fact is that the contracts executed by the appellant, the copies of which were scrutinised by the Department, are composite, or to be performed alongwith supply of material. No separate cost of material to be supplied was shown. The invoices raised, also contained classification of the material as sales-tax free , sales against D-Form etc. Further in para 9 of the SCN, it is recorded that on scrutiny of the balance- sheet and profit and loss Account of the appellant for the period under dispute, it is revealed that Shri Raman Raina is the Proprietor of Cosmos Collection, is also Proprietor of M/s. Dream home during the Financial year 2005-06. Hon ble Supreme Court have held in the case of Larsen Toubro vs. Union of India 2015 (8) TMI 749 - SUPREME COURT that prior to 1st June, 2007, in any contract which is composite in nature, wherein both supply of material and labour is involved, such contract cannot be chargeable to service tax prior to 1st June, 2007, when work contract was introduced, as a taxable head providing for segregation of the material and labour component, so as to tax the labour component under Service Tax - Accordingly, for the period 1st October, 2004 to 30th May, 2007, no service tax can be demanded from the appellant. Period 1st June, 2007 to 31st March, 2009 - Change of opinion - extended period of limitation - HELD THAT - Under the fact and circumstances, there is no case made out of any fraud , suppression, or falsification of account or the returns on the part of the appellant. The show cause notice is primafacie, based on change of opinion on the part of the Revenue. For such change of opinion, extended period of limitation is not available. SCN is bad and not tenable - appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Appellant's liability to pay service tax on the gross value of services provided.
2. Alleged wrongful availing of abatement benefit.
3. Validity of show cause notice issued by the Revenue.
4. Appellant's compliance with tax regulations and segregation of material and labor components in contracts.

Analysis:

Issue 1: Appellant's liability to pay service tax on the gross value of services provided
The appellant, engaged in interior décor work, was charged with undervaluing the gross value of services provided. The Revenue contended that service tax should be levied on the entire gross receipt, including material components, for specific periods. However, the Tribunal found that prior to June 1, 2007, in composite contracts involving both material and labor supply, service tax was not applicable. For the subsequent period, the Tribunal concluded that there was no evidence of fraud, suppression, or falsification by the appellant, and the Revenue's claim was based on a change of opinion, not warranting the extended period of limitation.

Issue 2: Alleged wrongful availing of abatement benefit
The appellant disputed the Revenue's claim of wrongly availing abatement benefits under Notification No. 1/2006-ST. The appellant clarified that they had actually availed exemption under Notification No. 12/2003-ST, segregating material and service values for tax purposes. They denied availing Cenvat Credit on inputs during the relevant period, emphasizing their compliance with tax regulations.

Issue 3: Validity of show cause notice issued by the Revenue
The show cause notice issued by the Revenue was challenged by the appellant on various grounds, including the lack of complete details in bills raised against services provided. The Tribunal observed that the appellant maintained proper transaction records, filed returns regularly, and underwent annual audits by Chartered Accountants. The Tribunal found the show cause notice untenable, citing the absence of fraud, suppression, or falsification in the appellant's accounts.

Issue 4: Appellant's compliance with tax regulations and segregation of material and labor components
The Tribunal noted that the appellant diligently maintained transaction records, filed returns with relevant tax departments, and segregated material and labor components in contracts for tax purposes. Referring to the Supreme Court's ruling in Larsen & Toubro vs. Union of India, the Tribunal held that prior to June 1, 2007, composite contracts were not subject to service tax. The Tribunal ruled in favor of the appellant, setting aside the impugned order and granting them consequential benefits in accordance with the law.

In conclusion, the Tribunal found in favor of the appellant, ruling that the show cause notice was invalid and allowing the appeal while emphasizing the appellant's compliance with tax regulations and the absence of fraudulent practices.