2024 (2) TMI 1254 - AT - Service Tax

Eligibility for works contract composition scheme - ongoing works contract as on 01.06.2007 - HELD THAT - The contracts executed by the appellants is composite in nature as the Appellant is engaged in both supply of goods as well as service and have been rightly classified under the tax entry works contract service. It can be understood from the interpretation by the Hon ble Supreme Court in the case of Larsen Toubro Ltd 2015 (8) TMI 749 - SUPREME COURT that there is no liability to service tax in respect of indivisible composite works contract prior to 01.06.2007. In the present case the Appellant is not contesting their service tax liability under works contract service after 01.06.2007 but their entitlement to pay the said tax in terms of composition scheme of 2007. The original authority held that the appellants switched over from construction service to works contract service only to avail the benefit of the scheme and thus are in contravention of the provisions of the said scheme. It has been observed that the denial of the composition scheme by the Adjudicating Authority is only based on the change of head from Commercial or Industrial construction service to works contract service that because of which the Appellant cannot opt for payment of service tax under works contract service under the composition scheme. The activities carried out by the appellants become liable for taxation only with effect from 01.06.2007 as such activities prior to 01.06.2007 were not categorised as taxable services therefore it is inconsequential to the issue. Post introduction of the new tax entry the appellant discharged service tax in tune to the provisions applicable to them therefore their entitlement cannot be denied. The absolute identical issue that whether in case of ongoing project running from the period prior to 01.06.2007 and after 01.06.2007 whether the assessee is eligible to avail the composition scheme under works contract service form 01.06.2007 has been elaborately considered by relying upon Hon ble Gujarat High Court, in the case of JMC Project India Ltd 2022 (6) TMI 303 - CESTAT AHMEDABAD where it was held that prior to 01.06.2007, the activity int nature of work contract were not taxable. Thus, it is no longer res-integra that the assessee can opt for composition scheme under works contract service even in respect of ongoing projects with effect from 01.06.2007. The Appellant is eligible for Composition Scheme under Works Contract. The impugned order is set aside - appeal allowed.

Summary

Issues Involved:
Whether the works contract composition scheme can be opted by the Appellants in respect of ongoing works contract as on 01.06.2007.

Summary:

Issue: Eligibility for Works Contract Composition Scheme for Ongoing Projects
The appellant, M/s. Kalpataru Power Transmission Ltd., engaged in the manufacture and erection of high-tension power transmission line towers, reclassified their services from construction services to works contract services after the introduction of the taxable service category 'works contract' under section 65(105)(zzzza) of the Finance Act 1994, effective from 01.06.2007. They paid the service tax at the prescribed rate of 2% on the total value of the works contract. The department issued a show cause notice demanding differential service tax, arguing that the appellant wrongly availed the benefit of the composition scheme for ongoing projects, contrary to CBEC Circular No. 98/01/2008-ST dated 04.01.2008. Both lower authorities confirmed the demand along with the penalty.

Appellant's Argument:
The appellant argued that their activity fell under the 'works contract' service at the time of opting for the Composition Scheme and fulfilled all required conditions. They contended that prior to 01.06.2007, their activity was not taxable, and upon the introduction of the new tax entry, they classified their service under the appropriate statutory classification. They cited several cases, including CCE vs Larsen & Toubro Ltd. and Jija Builders vs CCE, to support their claim that the benefit of the composition scheme cannot be denied merely because they previously discharged service tax under a different head.

Revenue's Argument:
The Revenue reiterated the findings of the impugned order, emphasizing that the appellant switched from construction service to works contract service solely to avail the benefit of the composition scheme, contrary to the provisions of the scheme.

Tribunal's Findings:
The Tribunal noted that the contracts executed by the appellant were composite in nature, involving both supply of goods and services, and were rightly classified under the 'works contract service' tax entry. Citing the Supreme Court's interpretation in Larsen & Toubro Ltd., the Tribunal observed that there was no liability to service tax for indivisible composite works contracts prior to 01.06.2007. The Tribunal found that the denial of the composition scheme by the Adjudicating Authority was based solely on the change of service classification, which was not sustainable. The Tribunal referenced several cases, including B.R Kohli Construction Pvt. Ltd. and Jija Builders, which supported the appellant's eligibility to exercise the composition scheme option for ongoing projects.

Conclusion:
The Tribunal held that the appellant was eligible for the Composition Scheme under Works Contract for ongoing projects as on 01.06.2007. The impugned order was set aside, and the appeal was allowed with consequential relief, if any, in accordance with the law. The Tribunal also set aside the simultaneous penalty imposed under section 76, upholding the demand of service tax and penalties under section 78, along with interest under section 75. The judgment emphasized that the legal position regarding the eligibility for the composition scheme for ongoing projects is well-settled.