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TMI Blog2016 (7) TMI 1271X X X X Extracts X X X X X X X X Extracts X X X X ..... exercising an option would continue until the expiration of the work’s contract and any variation and/or changes in the rate of tax by subsequent notification the department would not be within its authority to charge more as such changes would not be applicable to the existing work’s contract. Petition allowed - decided in favor of petitioner. - W. P. No. 23547 (W) of 2014 - - - Dated:- 1-7-2016 - Mr. Harish Tandon, J. Mohammad Shaffique, P. Purushotham, Avra Majumder and Mrs. Sudeshna Mazumder for the petitioner R. Bharadwaj and K. K. Maiti for respondent Nos. 1-3 Kaushik Chandra, Additional Solicitor General and Prithu Dudhoria for the Union of India JUDGMENT Assailing the order dated 9th May, 2014 passed by the Commissioner of Service Tax, Kolkata confirming the demand of the service tax amounting to ₹ 7,33,25,754/- under proviso to sub-section 2 of Section 73 of the Finance Act, 1994 and an equal amount of penalty together with the interest, the petitioner has filed the instant writ petition. The petitioner has further sought for declaration that the Notification No. 7 of 2008 dated 1st March, 2008 enhancing the rate of service tax from 2% ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the composite scheme which came into effect from 1st June, 2007 gives an option to the service tax provider under the works contract to pay service tax in relation thereto by paying an amount equivalent to 2% of the gross amount charged for the works contract. The said composite scheme puts an embargo on the provider to resile from the said scheme until the completion of the said works contract. It is thus stated that once the service provider exercised an option under the said composite scheme, the rate of service tax at the time of option would continue for entire works contract period and, therefore, any change in the rate of tax on the basis of the subsequent notifications is impermissible, illegal and hit by doctrine of promissory estoppel. The Commissioner of Service Tax, Kolkata rejects the contention of the petitioner as the petitioner exercised the option on 26th March, 2008 when the rate of service tax was altered from 2 % to 4% and having continued to pay the service tax at the unamended rate confirmed the demand and imposed penalty of like amount with further direction to calculate the interest under Section 75 of the Finance Act, 1994. It further came out from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contracts i.e. one for transfer of materials on consideration and other for rendering services and the work done on payment of money, it would amount to a distinct and separate contract and the power of the State to impose tax is beyond any doubt. The Constitution Bench in the above report made certain suggestions and/or recommendations which led to 46th Amendment having brought in the Constitution. By the said 46th Amendment, Clause 29A was inserted under Article 366 and simultaneously Clause 3 of Article 286 was substituted by a new clause. The 46th Amendment was challenged before the Supreme Court under Article 32 of the Constitution of India basically on two fold grounds namely- (i) the said amendment was unconstitutional for the reason that it had not been ratified by the legislatures of not less than one half of the States by resolutions passed to that effect before the Bill was presented to President for assent and; (ii) it was not open to the States to ignore the provisions contained in Article 286 of the Constitution and the provisions of the Central Sales Tax Act, 1956 while making assessment under the sales tax laws passed by the legislatures of the States. So ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1994), the Central Government hereby makes the following rules, namely:- 1. Short title and commencement- (1) These rules may be called the Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007. (2)They shall come into force with effect from the 1st day of June, 2007. 2. Definitions- In these rules, unless the context otherwise requires- (a) Act means the Finance Act, 1994 (32 of 1994); (b) section means the section of the Act; (c) works contract service means services provided in relation to the execution of a works contract referred to in sub-clauses (zzzza) of clause (105) of section 65 of the Act; (d) words and expressions used in these rules and not defined but defined in the Act shall have the meanings respectively assigned to them in the Act. 3. (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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated 26th March, 2008, the said option shall be deemed to have been exercised on the said date and, therefore, the rate of service tax prevalent on the said date is required to be paid by the petitioner. In other words, the Respondent says that the option was exercised for the first time by issuing a letter dated 26th March, 2008 and not prior thereto and therefore the rate of tax applicable under the said composite scheme on the date of exercise of option shall apply and not the rate of tax when the return was filed. According to the Respondent, once the parties exercised an option under the said composite scheme the embargo becomes immediately active and shall operate through out the works contract which cannot be construed that the rate of tax should remain static through out the period of works contract. The challenge to the aforesaid notifications by which the rate of taxes were changed are basically founded on the premise that the amendments cannot operate retrospectively. There is no argument advanced at the Bar that the authority lacks competence to vary or amend the rate of tax at any point of time. What is sought to be contended before the Court is that once the compos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come into force from the date of its publication in the official gazette and in the subsequent notification dated 17th March, 2012, it is expressed that it would come into force on and from 1st April, 2012. Being an alternative method of achieving the same goal it is definitely not controlled by Section 67 of the Act or Rule 2A of the Service Tax (Determination of Value) Rules, 2006. This Court, therefore, does not find any lack of competence to vary and /or amend the rate of tax by the competent authority but such rate would be applicable prospectively and shall not affect the pending works contract. The question is still begging an answer when the Petitioner exercised an option under the said scheme as both the Petitioner and the Respondent are at variance on the date of exercise of such option. Sub Rule 3 of Rule 3 of the composite scheme clearly provides that the option should be exercised in respect of works contract prior to the payment of the service tax in respect of the said works contract and such option shall remain applicable for the entire works contract and shall not be permitted to be withdrawn until the completion thereof. It is, therefore, explicit that there is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tract, the same would be paid to the Petitioner. The said clause, in my opinion cannot help the department for the purpose of construction of the composite scheme. There is a freedom of contract between two individuals unless it is against the public policy. The contract remain binding between the contracting parties which cannot be necessarily borrow an independent and distinct contract by necessary implication. In this regard the reference can be safely placed upon a judgment of the Supreme Court in case of Rashtriya Ispat Nigam Ltd. Vs- Dewan Chand Ram Saran reported in (2012)26 STR 28 wherein it is held:- 26 . As far as the submission of shifting of tax liability is concerned, as observed in paragraph 9 of Laghu Udyog Bharati (supra), service tax is an indirect tax, and it is possible that it may be passed on. Therefore, an assessee can certainly enter into a contract to shift its liability of service tax. Though the appellant became the assessee due to amendment of 2000, his position is exactly the same as in respect of Sales Tax, where the seller is the assessee, and is liable to pay Sales Tax to the tax authorities, but it is open to the seller, under his contract ..... X X X X Extracts X X X X X X X X Extracts X X X X
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