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TMI Blog2021 (11) TMI 695X X X X Extracts X X X X X X X X Extracts X X X X ..... ks in this case were not original works, it falls under category B of clause (ii) of this Rule and service tax should be paid on 70% of the value of the works contract. In other words, if the Revenue s argument is accepted, the appellant will have to pay service tax on 70% of the gross amount charged for the works contract and the appellant has already paid VAT on 70% of the gross amount charged as per the Tamil Nadu VAT Act. This will lead to an anomalous situation where the appellant has to pay VAT as well as service tax on 40% of the total value of the works contract. Where the value has already been split as per the state law and VAT has been paid on the goods component of the composite works contract, no service tax can be levied on such component again taking recourse to Rule 2A(ii) of Service Tax (Determination of Value) Rules, 2006. The demand for the period post 01.07.2012 also needs to be set aside on this ground. Since the demand of service tax does not sustain, the demand of interest under Section 75 and imposition of penalty under Section 76, 77 and 78 do not also survive. The impugned order is set aside - Appeal allowed - decided in favor of appellant. - SERVI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1.07.2012 to 31.03.2016 269 385523736 251792634 12.36/ 14/14.5 32814774 17921421 14893353 TOTAL 414752076 34037068 18854410 15182658 3. It was also proposed in the show cause notice to charge interest under Section 75 and impose penalties under Section 76, 77 and 78 of the Finance Act, 1994. The Original Authority confirmed the demand and imposed penalties as follows: (i) I confirm the demand of ₹ 1,51,82,658/- (Rupees One Crore Fifty One Lakhs Eighty Two Thousand Six Hundred Fifty Eight only) against M/s Touchstone Infrastructure and Solutions Pvt. Ltd. towards service tax including Education Cess, Secondary Education Cess and Swachha Bharat Cess under Section 73 (1) of Finance Act, 1994. (ii) I demand the interest on the aforesaid amount of service tax under Section 75 of Finance Act, 1994. (iii) I impose a penalty ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ption 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 two per cent (4% vide Notification No. 7/2008-ST dated 01.03.2008 and 4.8% vide Notification No. 10/2012-ST dated 17.03.2012) of the gross amount charged for the works contract. It is noteworthy to mention here that the word shall is imperative in nature, for the reasons that wherever Appellant is not in a position to demarcate between the goods and service part in the value of the contract and is also not able to arrive at the value of the goods as provided for under the statue . 6. The case of the appellant is that the composition scheme is an option given to the appellant and it cannot be forced upon it. Revenue also cannot choose any option for the appellant who is free to choose to pay as per Composition Scheme or otherwise in case of works contracts. It has paid service tax on the service component of the works contract and paid VAT on the goods component of it. To bifurcate the amount charged for works contract between goods and services, it is bound to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of value of service portion in the execution of a works contract . - Subject to the provisions of section 67, the value of service portion in the execution of a works contract, referred to in clause (h) of section 66E of the Act, shall be determined in the following manner, namely :- (i) Value of service portion in the execution of a works contract shall be equivalent to the gross amount charged for the works contract less the value of property in goods or in goods and land or undivided share of land, as the case may be transferred in the execution of the said works contract. Explanation. - For the purposes of this clause,- (a) gross amount charged for the works contract shall not include value added tax or sales tax, as the case may be, paid or payable, if any, on transfer of property in goods involved in the execution of the said works contract; (b) value of works contract service shall include, - (i) labour charges for execution of the works; (ii) amount paid to a sub-contractor for labour and services; (iii) charges for planning, designing and architect s fees; (iv) charges for obtaining on hire or otherwise, machinery and tools used for the exec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... total amount means the sum total of the gross amount charged for the works contract and the fair market value of all goods and services supplied in or in relation to the execution of the works contract, whether or not supplied under the same contract or any other contract, after deducting- (i) the amount charged for such goods or services, if any; and (ii) the value added tax or sales tax, if any, levied thereon: Provided that the fair market value of goods and services so supplied may be determined in accordance with the generally accepted accounting principles. Explanation 2 . - For the removal of doubts, it is clarified that the provider of taxable service shall not take CENVAT credit of duties or cess paid on any inputs, used in or in relation to the said works contract, under the provisions of CENVAT Credit Rules, 2004. (2) Where the value has not been determined under sub-rule (1) and the gross amount charged includes the value of goods as well as land or undivided share of land, the service tax shall be payable on twenty-five per cent. of the gross amount charged for the works contract, subject to the following conditions, namely :- (i) the CENVAT Cr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of works, of which B applies to the present case: A : works contract for execution of original work whether the service tax shall be payable on 40% of the total amount charged; B : works contract for maintenance or repair or reconditioning or restoration or servicing of any goods where the service tax shall be payable on 70% of the total amount charged ; C : in cases not covered by A or B, the tax shall be payable on 60% of the total amount charged for the works contract. The demand has been made accordingly. 11. Learned Counsel for the appellant submits that it has been held by Supreme Court in Safety Retreading Co. (P) Ltd. versus Commissioner of Central Excise, Salem [ 2017 (48) S.T.R. 97 (S.C.) ] that in a contract involving transfer of property and service, the value attributable transfer of property in goods cannot be subjected to service tax. In this case the value attributable was 70% as per the Tamil Nadu VAT Act. He also submits that this judgment was followed by the Tribunal in Johnson Lifts Pvt. Ltd. versus Commissioner of Service Tax, Chennai [ 2018 TIOL 1142 - CHE ] He further relies upon the judgment of Bright Marketing Company versus Commissioner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the works contract. On identical situation the Supreme Court in Safety Retreading Co. (P) Ltd. (supra) held as follows: 10. The exigibility of the component of the gross turnover of the assessee to service tax in respect of which the assessee had paid taxes under the local Act whereunder it was registered as a Works Contractor, would no longer be in doubt in view of the clear provisions of Section 67 of the Finance Act, 1994, as amended, which deals with the valuation of taxable services for charging service tax and specifically excludes the costs of parts or other material, if any, sold (deemed sale) to the customer while providing maintenance or repair service . This, in fact, is what is provided by the Notification dated 20th June, 2003 and CBEC Circular dated 7th April, 2004, extracted above, subject, however, to the condition that adequate and satisfactory proof in this regard is forthcoming from the assessee. On the very face of the language used in Section 67 of the Finance Act, 1994 we cannot subscribe to the view held by the Majority in the Appellate Tribunal that in a contract of the kind under consideration there is no sale or deemed sale of the parts or other m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rvice tax on the remaining seventy per cent (70%) towards material costs in addition to the 30% of the retreading charges. This is clear from the following averments made in the said affidavit of the learned Commissioner : The relevant bills showed that the Appellant had paid service tax only on the labour component after deducting 70% towards material cost on the gross tyre Retreading charges billed and received for the period from 16-6-2005. In short, they have paid service tax only on the 30% of the tyre Retreading charges received from the customers, by conveniently omitting 70% of the consideration received towards Retreading charges to avoid tax burden. The verification of invoices of the Appellant for the period from Jan.-2007 to March-2007, the officers noticed that the Appellant have shown material cost, patch cost and misc. charges i.e. Labour charges separately in their invoices. However, on the follow-up action the customers of the Appellant revealed that they have neither purchased nor received raw materials intended for Retreading and they had paid only the Retreading charges for carrying out the Retreading activity. The invoices which the appellant assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X
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