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TMI Blog2014 (7) TMI 1020X X X X Extracts X X X X X X X X Extracts X X X X ..... ds in the Service Contract are leviable to tax as sale of goods, is also fulfilled. Benefit of composition scheme - Held that:- it is quite clear that from 7.7.2009, the Composition Scheme was restricted to such Works Contracts where the value of goods used whether supplied under any other contract, is to be included. The change in Rules is not a mere clarification of the earlier Rules. There has been a clear amendment in law from 7.7.2009. The period of dispute in the case of appellant is from April 2008 to March 2012, and Revenue does not dispute that the contract had commenced before 7.7.2009. Therefore, the amended Rules would not apply in the case of appellant in accordance with the proviso to the Explanation in the amended Rules - appellants have correctly availed the Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007. - Decided in favor of assessee. - ST/437/2010-Mum, ST/374/2011-Mum, ST/529 & 759/2012-Mum and ST/87982/2013-Mum - Final Order Nos. A/1142-1146/2014-WZB/C-I(CSTB) - Dated:- 27-6-2014 - S S Kang And P S Pruthi, JJ. For the Appellant : Shri V. Sridhanan, Sp. Counsel For the Respondent : Shri K.M. Mondal, Consultant PER ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or supply of transmission towers i.e. Supply contract and the other is the Service contract. It was held that, as per Rule 2A of Service Tax (Determination of Value) Rules, 2006, the value of Works contract service shall be equivalent to the gross amount charged in the works contract less the value of property in goods transferred, involved in the execution of the works contract. As the appellant had not included the value of goods (i.e. the value of goods involved in the supply contract), which is a condition for eligibility to avail the Composition Scheme, the appellant was not eligible to avail Composition Scheme under which service tax is leviable at 4% of gross value charged in the works contract and hence they were liable to pay service tax at the normal rate of 12.36%. Revenue's view further is that since the Service contract is of the nature of erection, commissioning or installation, it being a service contract only, the appellant had wrongly classified the service under the category of Works Contract service, only to avail the beneficial rate of service tax of 4% under the Works Contract (Composition Scheme for payment of Service Tax) Rules 2007 issued under Notificat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e reasoning to arrive at their findings. The cases were adjudicated, duties of service tax confirmed as mentioned in table above along with interest and penalties imposed under Sections 76, 77 (2) 78 of the Finance Act, 1994. As the issue in all the cases is the same, all the 5 appeals are decided in common order. 2. Heard both sides. Written submissions placed on record by the appellant and Revenue are also considered. 3. The case of the appellant is that in all such large contracts concerning electricity transmission towers, separate tenders are invited for supply of towers (Supply contracts) and for erection/installation thereof (Service contracts). It is not necessary that the appellant may be awarded both contracts; Sometimes they may be awarded only a Supply contract and at other times they may be awarded only the Service contract. In the present case they have been awarded both the Supply contract as well as the Service contract. Appellants Sp. Counsel stressed that the practice of awarding separate contracts existed even prior to the introduction of service tax under the Erection, Commissioning and Installation' service in 2003. According to them, the Service c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Consultant, under Section 67 (1)(i), service tax is to be levied on the gross amount charged by the service provider. Under Rule 2A of the Service Tax (Determination of Value) Rules, 2006, the method is prescribed for determining Value in a Works contract service. It states that the value of the service component of a works contract which is chargeable to tax would be equivalent to the gross amount charged for the works contract less the value of transfer of property in goods involved in the execution of the said contract. An alternative method of payment can be resorted to by adopting the Works Contract (Composition Scheme for Payment of Service Tax) Rules 2007, under which the tax can be paid at the composition rate of 4% on the gross amount charged. Consultant for Revenue states that that for pure labour services, where there is no transfer of property, the classification under Works Contract service is not correct. Further, because the material such as cement and steel used in executing the service contact gets consumed in the process of erection, therefore it cannot be said that there has been transfer of property in goods involved in the execution of the contract. It was stat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ein- (i) transfer of property in goods involved in the execution of such contract is leviable to tax as sale of goods, and (ii) such contract is for the purposes of carrying out, - (a) erection, commissioning or installation of plant, machinery, equipment or structures, whether prefabricated or otherwise, installation of electrical and electronic devices, plumbing, drain laying or other installations for transport of fluids, heating, ventilation or air-conditioning including related pipe work, duct work and sheet metal work, thermal insulation, sound insulation, fire proofing or water proofing, lift and escalator, fire escape staircases or elevators; or (b) construction of a new building or a civil structure or a part thereof, or of a pipeline or conduit, primarily for the purposes of commerce or industry; or (c) construction of a new residential complex or a part thereof; or (d) completion and finishing services, repair, alteration, renovation or restoration of, or similar services, in relation to (b) and (c); or (e) turnkey projects including engineering, procurement and construction or (f) commission ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... value is represented by material value. 7.2 The Commissioner in his order has highlighted the fact that the materials get consumed in the process of erection and installation and therefore there is no sale of goods. In our view, this is not correct presentation of facts regarding use of material. We find that, in most case of Works contract involving structures, important component materials such as Cement and Steel can only be used in the manner depicted in the photographs. That is to say, these materials such as steel also remain present in the structure although they may remain embedded and not visible after the structure is completed. This does not mean that there is no sale of goods/materials. Going by the Revenue's reasoning, no such structure can be said to have arisen as a result of execution of a Works contract. Such reasoning goes against the very definition of Works contract. Thus the use of the word consumed , by Revenue, in the present context, is inappropriate and misconceived and we do not agree with Revenue. It is also observed in para 40 of the adjudication order No. 04/ST/2010/C dt. 30.03.2010 (Appeal No. ST/437/2010) that pure labour services, where there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Composition Scheme under which service tax was payable at 4% of the gross value of the Service contract. 8.1 Rule (3) of the Works Contract (Composition Scheme for Payment of Service Tax) Rules 2007 reads as : As per Rule-3 (1) of Works Contract (Composition Scheme for Payment of Service Tax) Rule, 2007 (1) Notwithstanding anything contained in section 67 of the Act and rule 2A of the Service (Determination of Value) Rules, 2006, the person liable to pay service tax in relation to works contract service shall have the option to discharge his service tax liability on the works contract service provided or to be provided, instead of paying service tax at the rate specified in section 66 of the Act, by paying an amount equivalent to 4.8 per cent. of the gross amount charged for the works contract. Explanation.-For the purposes of this rule, gross amount charged for the works contract shall be not include Value Added Tax (VAT) or sales tax, as the case may be, paid on transfer of property in goods involved in the execution of the said works contract.. (2) The provider of taxable service shall not take CENVAT credit of duties or cess paid on any inputs, used i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in law from 7.7.2009. The period of dispute in the case of appellant is from April 2008 to March 2012, and Revenue does not dispute that the contract had commenced before 7.7.2009. Therefore, the amended Rules would not apply in the case of appellant in accordance with the proviso to the Explanation in the amended Rules. 8.4 We accordingly hold that the appellants have correctly availed the Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007. 9. In the adjudication order, Revenue placed reliance in the case of Modi Xerox Ltd. Vs. State of Karnataka (supra). In the said case the issue was whether there was transfer of property in the use of toners and developers which are supplied and consumed in a printing machine. The Court held that the said inputs will not be in existence in any tangible from when the print copies are taken out from the machine. We are not in agreement with the reliance on this judgement. In the present case, as noted earlier, there is a clear transfer of property in the goods involved based on payment of VAT/Sales Tax by the appellants. Reliance on the case of Vanguard Rolling Shutters Vs. CST -(1977) 39 (STC) 732 (SC)- AIR 1977 SC ..... X X X X Extracts X X X X X X X X Extracts X X X X
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