2021 (3) TMI 823 - AT - Service Tax

Valuation - inclusion of value of materials supplied by the respondent under a separate material supply contract with EDAs in the gross value of Works Contract Service - Rule 3 of Works Contract (Composition Scheme for payment of Service tax) Rules, 2007 - HELD THAT - From the perusal of explanation to Rule 3 of Works Contract (Composition Scheme for payment of service tax) Rules, 2007 it is clear that the amendment in Rule 3 (explanation to rule 3) would not be applied to any works contract where the execution under the said contract has commenced or where any payment has been made in relation to the said contract on or before 07.07.2009. As per the clear provision under the amended Rule 3 reads with amended explanation and two circular clarifying provision of the said amendment, it is clear that any contract which is executed or payment their against (except the way of credit/ debit) made prior to 07.07.2009, the value of goods supplied under the separate contract cannot be included in the gross value of Works Contract Service - As regard the contention of the revenue that the respondent have executed one composite works contract irrespective of having two separate contract one for supply of goods and other for supply of services, it should be treated as one contract and value of both the contract should be taken together for arriving at gross value of the works contract. To counter the situation like in the present case the amendment was brought with effect from 07.07.2009. If the contention of the revenue is accepted it will amount to give retrospective effect to the amendment of 07.07.2009 which is not permissible under law as per the settled position by Hon ble Supreme Court in various cases that any amendment cannot be made applicable. Retrospectively unless it is specifically mentioned therein, therefore even considering the undisputed fact of two contracts the value of goods supplied under separate contract cannot be added in the value Works Contract Service. Extended period of limitation - wilful suppression of facts or not - HELD THAT - There is no suppression or wilful misstatement on the part of the respondent. The Learned Commissioner in the impugned order also observed that the respondent has filed periodical ST-3 return regularly and disclosed all the necessary details as may be required. The respondent also provided contract wise/ invoices wise details along with ST-3 return filed before the Jurisdictional Authority. In this circumstances charge of suppression or wilful misstatement do not survive against the respondent - extended period of limitation is not invokable. Appeal dismissed - decided against Revenue.

Issues Involved:
1. Classification of Services
2. Inclusion of Material Value in Service Tax Calculation
3. Applicability of Amended Rules
4. Composite vs. Divisible Contracts
5. Extended Period of Limitation
6. Suppression and Wilful Misstatement

Issue-wise Detailed Analysis:

1. Classification of Services:
The respondents were engaged in manufacturing transmission towers and providing taxable services, including the erection of high-tension transmission line towers. Initially, they classified these services under "Commercial or Industrial Construction Service" and later under "Works Contract Service" from 01.06.2007.

2. Inclusion of Material Value in Service Tax Calculation:
The department observed that the respondents were not including the value of supplied goods in the gross value for service tax under the Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007. The revenue contended that the value of materials used should be included in the gross value of services, leading to a shortfall in service tax payment.

3. Applicability of Amended Rules:
The Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007 were amended effective from 07.07.2009. The amendment required the inclusion of the value of all goods used in the execution of the works contract. However, the explanation to Rule 3 clarified that this amendment would not apply to contracts where execution commenced or any payment was made before 07.07.2009.

4. Composite vs. Divisible Contracts:
The revenue argued that despite having two separate contracts (one for supply and one for services), they should be treated as a single composite contract emanating from a single bid. The respondents contended that the contracts were legally and factually separate, as mandated by the bid documents and contractual terms. The tribunal upheld that the contracts were indeed separate and could not be clubbed together for service tax purposes.

5. Extended Period of Limitation:
The show cause notice alleged suppression and wilful misstatement by the respondents, invoking the extended period of limitation. The tribunal found that the respondents had disclosed all necessary details in their ST-3 returns and had communicated with the jurisdictional authorities about their service tax classification and payment under the composition scheme. Therefore, the charge of suppression or wilful misstatement was not sustainable.

6. Suppression and Wilful Misstatement:
The tribunal noted that the issue was of legal interpretation and there was no evidence of mala fide intention or suppression of facts by the respondents. The respondents had regularly filed their returns and provided all required details to the authorities. The tribunal concluded that the extended period of limitation could not be invoked, and the demand was time-barred.

Conclusion:
The tribunal upheld the adjudicating authority's order, which vacated the proceedings initiated against the respondents. The appeal by the revenue was dismissed, confirming that the value of materials supplied under separate contracts could not be included in the gross value of works contract services for service tax purposes. The tribunal also ruled that the extended period of limitation was not applicable due to the absence of suppression or wilful misstatement by the respondents.

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