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TMI Blog2023 (5) TMI 138X X X X Extracts X X X X X X X X Extracts X X X X ..... the business of manufacture, supply and erection at the site of prefabricated/preengineered steel buildings and parts thereof classifiable under the relevant Headings/subheadings of the First Schedule to the Central Excise Tariff Act, 1985. The respondent was having centralized registration for Service Tax with the Service Tax Department for services under "Commercial or Industrial Construction Service" and "Construction Services" right from the commencement of production. The goods manufactured were cleared from the place of manufacture on payment of central excise duty on which CENVAT Credit was made by the respondent. The unit at Greater Noida registered as a Centralized Service Provider, availed CENVAT Credit (i) Excise duty paid by the units at the time of removal (ii) duty paid on capital goods (iii) service tax paid on input services. They paid service tax on the gross amount of contract for engineering, procurements supply, construction, erection etc. under the category "commercial or industrial constructions services" as referred under Section 65(105)(zzq) of the Finance Act, 1994 (hereinafter referred to as 'the Act, 1994'). 2.2 Based on specific intelligence tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tions 77 & 75 of the Act, 1994 read with Rule 15(3) of CENVAT Credit Rules, 2004. By Order dated 28.03.2004 the Adjudicating Authority who disallowed the CENVAT Credit amounting to Rs.1,12,60,92,760/confirmed the amounts of Rs.22,37,01,811/being short paid, confirmed the claim in the show cause notice. 2.5 The department had issued further Show Cause Notices/statement of demands for the subsequent period also. 2.6 By order dated 18.11.2015, the learned Tribunal set aside the adjudication order and remanded the matter back to the adjudicating authority with the direction that the tax liability be redetermined after hearing the respondent. On remand the adjudicating authority passed a fresh order dated 31.03.2017 and confirmed the demands. The Commissioner held that the services rendered by the respondent was classifiable as 'Works Contract Service' and rejected the availability of CENVAT Credit amount and directed recovery under Section 73A of the Act, 1994. The Order-in-Original passed by the adjudicating authority was the subject matter of the present appeal before the Tribunal. 2.7 Before the Tribunal the Order-in-Original passed by the Adjudicating Authority was challenged on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are subject to provisions of Section 67 of the Act, 1994. The learned Tribunal has also observed that it is clear from the provisions of subsection 4 of Section 67 of the Act, that where value cannot be determined as provided under subrule (1) to (3) of Section 67 of the Act, then only the value is to be determined as provided under the Rules. Therefore, the Tribunal held that there is no question on applicability of Rule 2A nor there was any question of forcibly applying the option of Composition Scheme. The learned Tribunal held that in both these circumstances, the respondent was entitled to CENVAT Credit on inputs. 2.9 Feeling aggrieved and dissatisfied with the impugned judgment and order passed by the learned Tribunal setting aside the Order-in-Original, the Revenue has preferred the present appeal. 3. Shri N. Venkataraman, learned ASG has appeared on behalf of the Revenue and Shri V. Raghuraman, learned Senior Counsel has appeared on behalf of the respondent - assessee. 4. Shri N. Venkataraman, learned ASG appearing on behalf of the Revenue has made the following submissions challenging the correctness and legality of the impugned order passed by the CESTAT: (i) That th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the execution of the said works contract. Explanation. For the purposes of this rule,( a) gross amount charged for the works contract shall not include Value Added Tax (VAT) or sales tax, as the case may be, paid, 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 subcontractor 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 execution of the works contract; (v) cost of consumables such as water, electricity, fuel, used in the execution of the works contract; (vi) cost of establishment of the contractor relatable to supply of labour and services; (vii) other similar expenses relatable to supply of labour and services; and (viii) profit earned by the service provider relatable to supply of labour and services; (ix) Where Value Added Tax or sales tax, as the case may be, has been paid on the actual value of transfer of property in goods involved in the execution of the wo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... scribed manner. (2) Where the gross amount charged by a service provider, for the service provided or to be provided is inclusive of service tax payable, the value of such taxable service shall be such amount as, with the addition of tax payable, is equal to the gross amount charged. (3) The gross amount charged for the taxable service shall include any amount received towards the taxable service before, during or after provision of such service. (4) Subject to the provisions of subsections (1), (2) and (3), the value shall be determined in such manner as may be prescribed. Explanation -For the purposes of this section, (a) "consideration" includes (i) any amount that is payable for the taxable services provided or to be provided; (ii) any reimbursable expenditure or cost incurred by the service provider and charged, in the course of providing or agreeing to provide a taxable service, except in such circumstances, and subject to such conditions, as may be prescribed. (iii) Any amount retained by the lottery distributor or selling agent from gross sale amount of lottery tickets in addition to the fee or commission, if any, or, as the case may be, the discount ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also been explained that value of works contract service shall include: (i) labour charges for execution of the works; (ii) amount paid to a subcontractor for labour and services; (iii) charges for planning, designing and architect's fees; (iv) charges for obtaining on hir or otherwise, machinery and tools uses for the execution of the works contract; (v) cost of consumables such as water, electricity, fuel, used in the execution of the works contract, the property in which is not transferred in the course of execution of works contract; (vi) cost of establishment of the contract relatable to supply of labour and services; (vii) other similar expenses relatable to supply of labour and services; and (viii) profit earned by the service provider relatable to supply of labour and service; 9.4 If the gross amount charged for the works contract is inclusive of VAT or sales tax, the value for the purposes of service tax shall be computed as follows: [Gross amount charged - (value of transfer of property in goods involved in the execution of works contract and VAT or sales tax paid, if any, on the said transfer of property in goods involved in the execution of said works contract)]. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s from the cost of valuation of goods and as to what would constitute the service elements. He has heavily relied upon para 47 of the said decision. It is submitted that this Court observed in para 47 in the case of Gannon Dunkerly and Co. (supra) as under: "47. ..... The value of the goods involved in the execution of a works contract will, therefore, have to be determined by taking into account the value of the entire works contract and deducting therefrom the charges towards labour and services which would cover- (a) Labour charges for execution of the works; (b) amount paid to a subcontractor for labour and services; (c) charges for planning, designing and architect's fees; (d) charges for obtaining on hire or otherwise machinery and tools used for the execution of the works contract; (e) cost of consumables such as water, electricity, fuel, etc. used in the execution of the works contract the property in which is not transferred in the course of execution of a works contract; and (f) cost of establishment of the contractor to the extent it is relatable to supply of labour and services; (g) other similar expenses relatable to supply of labour and serv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case of Larsen and Toubro Limited (supra) has been followed and considered by this Court in the case of Commissioner of Service Tax and Ors. Bhayana Builders Pvt. Ld. And Ors, (2018) 3 SCC 782,; (v) That after the decision of this Court in the case of Larsen and Toubro Limited (supra) rendered in the year 2015, the said decision has been consistently followed by various High Courts and the Tribunals; (vi) The decisions of the various High Courts and the Tribunals, which were passed after following the decision of this Court in the case of Larsen and Toubro Limited (supra) have attained finality and in many cases, the Revenue has not challenged the said decisions; (vii) No efforts were made by the Revenue to file any review application to review and/or recall the judgment and order passed by this Court in the case of Larsen and Toubro Limited (supra). If the Revenue was so serious in their view that decision of this Court in the case of Larsen and Toubro Limited (supra) requires reconsideration, Revenue ought to have filed the review application at that stage and/or even thereafter. No such review application has been filed even as on today. (viii) Merely because in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ods should enter in the computation of service tax. It is, therefore, the entire contention of the respondent assessee that they have a legal right to pay tax even on the goods portion as service tax and also take input credit on the duty paid on the goods is clearly contrary to para 25 of the Larsen and Toubro (supra) judgment and Rule 2A of the Valuation Rules, 2006. 4.18 Now so far as the composition scheme is concerned, it is submitted that the assessee falling under the definition of 'works contract service' from 01.06.2007 has to discharge service tax liability either under Rule 2A of the valuation rules only on the service components without taking any CENVAT Credit on the input goods or go for the option of a composition scheme in which case the rates of tax specified at various points of time should have been complied with on the total contract value. It is submitted that the invented method of the respondent - assessee by seeking to pay service tax on entire contract value after taking the CENVAT Credit on the input goods is clearly unsustainable in law. The contention that Rule 2A is subject to Section 67 which according to the respondent - assessee permits payment of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en complied with, neither the question of applicability of Rule 2A of the Valuation Rules arise nor was there any question of forcibly applying option of Composition Scheme on the assessee; (iv) Even if the services of the respondent are considered as classifiable under 'works contract service' after 1st June, 2007, as claimed by the Revenue, the further claims of the Revenue that there were only two options as above for valuation of the works contract service namely the composition rules and the Rule 2A of the Valuation Rules available to the assessee and consequential non-admissibility of CENVAT Credit has no merit. (v) It is submitted that in case of 'works contract service' also, the assessment can be done under the provisions of Section 67 of the Finance Act, 1994 and that valuation methods prescribed under Rule 2A or composition scheme are merely options provided to the assessee; (vi) Therefore, the benefit of CENVAT Credit on inputs cannot be denied to the respondents in absence of any specific bar or prohibition in the CENVAT Credit Rules, 2004 or the Finance Act, 1994. 6.2 It is further submitted by learned counsel appearing on behalf of the respondent that while pass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ication under 15/2004 - HT, as amended from time to time or replaced with new notification; OR to pay service tax under the head 'works contract services' either in terms of Rule 2A of the Valuation Rules or in terms of the Composition Rules. 6.8 It is further submitted that the words used in Rule 2A 'subject to Section 67' conveys the clear idea that the valuation done under Section 67 is supreme and the rules are subject to the Act. 6.9 It is submitted that therefore the composition rules are completely optional for the assessee to exercise the assessee can opt for Section 67. 6.10 It is submitted that taking CENVAT duty on inputs is barred only if one opts for Composition Rules and not if tax is paid at normal prevailing rates on full gross value of contract under Section 67. 6.11 It is further prayed on behalf of the respondent that in case the appeal be allowed on merits, the Tribunal has not rendered any finding on extended period of limitation and/or other issues and therefore the matters may be remanded back to the Tribunal. 7 Heard learned counsel for the respective parties at length. 8 The short question which is posed for consideration before this Court is as to wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xpenses relatable to supply of labour and services; (h) profit earned by the contractor to the extent it is relatable to supply of labour and services. The amounts deductible under these heads will have to be determined in the light of the facts of a particular case on the basis of the material produced by the contractor." 8.4 It is required to be noted that thereafter the above service elements have found a statutory recognition as part of Rule 2A of the Service Tax (Determination of Value) Rules, 2006 w.e.f. 01.06.2007 which has been referred to hereinabove. The applicability of Rule 2A has been dealt with and considered by this Court in extenso in the case of Larsen and Toubro (supra). Therefore, as per the law laid down by this Court in the case of 'works contract service' an assessee is liable to pay the service tax on the service element/value of the service rendered and the sales tax/tax on the element of goods transferred pursuant to the contract. 8.5 In light of the above now the next main question posed for consideration before this Court is required to be considered namely whether despite Rule 2A of the Service Tax (Determination of Value) Rules, 2006 and the Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t is required to be noted that post 01.07.2012 Rule 2A specifically provides that the taxable service shall not take CENVAT Credit of duty or cess paid on inputs used in or in relation to said works contract, under the provisions of CENVAT Credit Rules, 2004. 8.8 It is the case on behalf of the respondent - assessee that as in Rule 2A and even in the Composition Scheme the word used are subject to the provisions of Section 67 the assessee had an option to pay the service tax on the entire contract value i.e. on gross amount charged by the service provider and that Rule 2A is not compulsory and the Composition Scheme is optional. However, the aforesaid has no substance. If the submission on behalf of the assessee is accepted in that case Rule 2A and the Composition Scheme shall become otiose. 8.9 With respect to the 'works contract service' and/or the Composition Works Contract the valuation has to be made as per Rule 2A of the Valuation Rules, 2006. Even as per the Composition Scheme vide Notification 32/2007 dated 22.04.2007 an assessee has an option to discharge the service tax liability on the works contract service provided or to be provided, instead of paying service tax at ..... X X X X Extracts X X X X X X X X Extracts X X X X
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