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TMI Blog2023 (12) TMI 783X X X X Extracts X X X X X X X X Extracts X X X X ..... ory of Works Contract Service'. It was further alleged that construction of hotel was purely a commercial activity and it would fall under "Commercial or Industrial construction Service". It was also alleged that the appellant had not paid service tax correctly on the value of services as shown in the debit notes issued by the appellant debiting service recipient's account. 7. Under Section 65 (105) (zzzza) of the Finance Act 1994 defined the 'Works Contract Service'. The relevant part of the Explanation to the said Section reads as- Explanation- For the purpose of this sub-clause, "works contract" means a contract wherein, (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. ... b. construction of a new building, or a civil structure or a part thereof, or of a pipeline or primarily for the purposes of commerce or industry; or In the instant case, the appellant had executed a project development agreement with the service recipient on 01/09/2010 for the construction of a hotel which falls under clause (b) above as construction of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e provided by him and paid the service tax accordingly. The demand of the service tax due to alleged wrong classification of the taxable service is therefore not sustainable. As the demand is not sustainable on merits, any further discussion on the limitation of time for raising the demand is not warranted 9. Regarding alleged differences between the value of services as shown in three debit notes dated 31.3.2011, 31.3.2012, and 31.3.2013 and the value as declared in ST-3s submitted during the relevant period, I find that the issuance of debit note or credit note is an established accounting procedure wherein some transactions are accounted for in books of account of buyers and sellers. The appellant has contended that he had not received any payment from the recipient of service against those debit notes till date. In support of his contention he has produced copies of ledger accounts relating to the service receiver maintained for the period from 01/04/2010 to 31/01/2017 wherein the entries relating to such debit notes were still showing as cost of construction hotel project-recoverable'. He has also produced copies of bank statements of the relevant period wherein no recei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .2011 39098423 10.30 4027138 - 4027138 2 31.03.2012 122333791 10.30 12600380 5011603 (Cenvat Credit) 7588777 3 31.03.2013 971543 12.36 120083 - 120083 TOTAL . 162403757 16747601 - 11735998 2.5 On examination of the ST-3 submitted by the respondents for the period October 2010 to March 2011& October 2012 to March 2013 vis-à-vis the debit notes dated 31.03.2011 & 31.03.2013, it was noticed that the respondent has filed a NIL return in both cases in respect of Work Contract Services' and not reflected the taxable value as reflected in these debit notes and failed to discharge the service tax liability. October 2011 to March 2012, the respondent had shown taxable value as Rs. 12,16,40,863/- which does not match with the taxable value of Rs. 12,23,33,791/- as per debit not dated 31.03.2012. The respondent had paid service tax of Rs 50,11,603/- through Cenvat credit as per their ST-3 return and hence short paid an amount of Rs. 75,88,777/- against total Service Tax liability of Rs. 1,26,00,380/- for the F/year 2011-12. 2.6 As per revenue the respondent had failed to determine the correct taxable value in the ST-3 return by misclass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed revenue has filed this appeal against the impugned order urging following grounds: Period involved in this case is Dec 2010 to June 2012 i.e. prior to the negative list regime. During the relevant period the Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007 was applicable. Rule 3(3) and 3(4) of the Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007 provides that :- (3) The provider of taxable service who opts to pay service tax under these rules shall exercise such option in respect of a works contract prior to payment of service tax in respect of the said works contract and the option so exercised shall be applicable for the entire works contract and shall not be withdrawn until the completion of the said works contract. (4) The option under sub-rule (3) shall be permissible only where the declared value of the works contract is not less than the gross amount charged for such works contract. The respondent had short paid the amount of Service Tax payable by them under the category of "Commercial or Industrial Construction Services", as the respondent were developer of a hotel building by misclassifying the services re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the same has been taken up for consideration after hearing Shri S T Khairnar, Authorized Representative for the revenue in terms of Rule 21 of CESTAT Procedure Rules, 1982, reproduced below: "RULE 21. Hearing of appeals ex parte. - Where on the day fixed for the hearing of the appeal or on any other day to which the hearing is adjourned the appellant appears and the respondent does not appear when the appeal is called on for hearing, the Tribunal may hear and decide the appeal ex parte." 3.2 Learned authorized representative reiterated the arguments advanced in the appeal filed by the revenue. 4.1 We have considered the impugned order along with the submissions made in the appeal and during the course of arguments. 4.2 The issue involved in the present case can be summarized as follows: a. Whether the respondent was correct in classifying his services under the category of Work Contract Service" b. Whether the benefit of Work Contract (Composition scheme for payment of Service Tax) Rules 2007 could have been extended to the appellant for determination of the taxable value of services provided. 4.3 The relevant terms of the "Project Development Agreement" between the resp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Developer. The entire cost of development/construction of the Buildings, including fees or other payments (including statutory dues to workmen, employees etc) payable to the Architect, engineers, contractors, staff and workmen shall be borne by and paid for by the Developer. 3.2 Any/all mobilization advance and or material advance paid to a contractor/sub contractor or supplier etc for execution of contract or purchase of materials the Developer shall be reimbursed by the Owner on a demand. 3.3 All costs and expenses as detailed in article 3.1 above and paid for by the Developer shall be reimbursed by the Owner to the Developer on a quarterly basis The Developer shall raise quarterly bills of all the costs and expenses incurred on the development of the Project during every quarter by the 15th day of the succeeding quarter and the Owner shall reimburse the same within 15 days from the date of the bill to the Developer apart from any statutory taxes and levies as applicable under the law. 3.4 The Owner shall reimburse the Developer quarterly against the bills and or against the receipts, for Service Tax, Welfare Cess as per the requirement of The Building and Other Constructio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ween the respondent and their client is a contract for supply of material along with the provision of services. It is settled law that "work contract service" is different from a plain service as there is transfer of property as well as service simultaneously, as has been held in the following cases. i. Larsen and Turbo [2015(39) S.T.R 913 (SC)] ii. Sobha Developer Limited [2017-VIL-09-SC] iii. M/s Bagai Construction [2014 TIOL 3094 CESTAT DEL] iv. Nagarjuna Construction Co. Ltd. [2012 (28) S.T.R. 561 (S.C.)] v. Alstom Projects India Ltd., [2011 (23) S.T.R. 489 (Tribunal)] 4.6 In the case of Larsen and Turbo, supra Hon'ble Supreme Court while making the distinction between the "work contract services" and other similar services has clearly held as follows: "15. A reading of this judgment, on which counsel for the assessees heavily relied, would go to show that the separation of the value of goods contained in the execution of a works contract will have to be determined by working from the value of the entire works contract and deducting therefrom charges towards labour and services. Such deductions are stated by the Constitution Bench to be eight in number. What is imp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his is for the reason that in our Constitutional scheme, taxation powers of the Centre and the States are mutually exclusive. There is no concurrent power of taxation. This being the case, the moment the levy contained in a taxing statute transgresses into a prohibited exclusive field, it is liable to be struck down. In the present case, the dichotomy is between sales tax leviable by the States and service tax leviable by the Centre. When it comes to composite indivisible works contracts, such contracts can be taxed by Parliament as well as State legislatures. Parliament can only tax the service element contained in these contracts, and the States can only tax the transfer of property in goods element contained in these contracts. Thus, it becomes very important to segregate the two elements completely for if some element of transfer of property in goods remains when a service tax is levied, the said levy would be found to be constitutionally infirm. This position is well reflected in Bharat Sanchar Nigam Limited v. Union of India, (2006) 3 SCC 1 as follows :- "No one denies the legislative competence of the States to levy sales tax on sales provided that the necessary concomitan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntracts can assume are set out in Hudson on Building Contracts, at p. 165. It is possible that the parties might enter into distinct and separate contracts, one for the transfer of materials for money consideration, and the other for payment of remuneration for services and for work done. In such a case, there are really two agreements, though there is a single instrument embodying them, and the power of the State to separate the agreement to sell, from the agreement to do work and render service and to impose a tax thereon cannot be questioned, and will stand untouched by the present judgment." (at page 427) 24. A close look at the Finance Act, 1994 would show that the five taxable services referred to in the charging Section 65(105) would refer only to service contracts simpliciter and not to composite works contracts. This is clear from the very language of Section 65(105) which defines "taxable service" as "any service provided". All the services referred to in the said sub-clauses are service contracts simpliciter without any other element in them, such as for example, a service contract which is a commissioning and installation, or erection, commissioning and installation c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contract agreement And the services provided by them would fall under the category of 'Work Contract Service." 4.8 Having held that the services provided by the appellant fall in the category of work contract service and they are well within their right to determine the value of taxable service provided as per "Work Contract(Composition Scheme for Payment of service Tax rules, 2007". Revenue has in their appeal stated that the benefit of composition scheme is not available to the respondent as he has not opted for the scheme by making requisite declaration under the Rule 3 (3) of the said rules, declaring the value of the contract before payment of service tax by availing this scheme. However impugned order relies upon the decision of Delhi Bench in case of Mehta Plast Corporation [2016 (44) STR 651 (T-Del)], holding as follows: "The benefit of payment of service tax under the Works Contract Scheme for erection and commissioning or installation services stand denied to the appellant on the ground that they have not filed any written option to avail said works contract scheme composition scheme benefit. The period involved in the present appeal is 2009-2010. 2.I find that ident ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tract and the option so exercised shall be applicable for the entire works contract and shall not be withdrawn until the completion of the said works contract." The above Rule requires that the provider who opts to pay tax under the Rule shall exercise such option prior to payment of Service Tax. We find force in the appellant's contention that the fact that they had started paying tax under the Works Contract Composition Scheme is quite evident from the rate of tax reflected in the ST-3 returns. In any case, they had exercised option on 26-9-2007, the substantial benefit cannot be denied for procedural deficiency of delay in opting for Works Contract Service by a specific declaration under Rule 3. More so, when no format has been prescribed for making/exercising an option nor has it been specified as to whom the option must be addressed. We agree that the fact of paying Service Tax at the composition rate in the returns filed by them, is enough indication to show that they have opted for payment under the Works Contract Composition Scheme. Reliance is placed on the case of Bridge and Roof Company (supra), wherein it was held as under: - "After hearing both sides, duly represen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the rule in its entirety to ascertain the true meaning and intention of the legislation. If that be so sub rule (3) of Rule 3 of the scheme cannot be read in isolation. It is required to be read in conjunction with sub rule (1) of Rule 3. 11. Sub-rule (1) of Rule 3 is substantive portion of the rule which provides for an option to be exercised by the person liable to pay service tax. By virtue of the said rule, the person liable to pay service tax has an option to discharge the liability by paying the amount equivalent to 2% of the gross amount charged for the works contract instead of paying service tax at the rate specified in Section 66 of the Act. On a reading of sub rule (1) of Rule 3 shows that the option exercisable by this person liable to pay service tax is exercised by paying service tax at the 2% instead of rates specified in Section 66. Sub rule (3) of Rule 3 states that the provider of the taxable service who opts to pay service tax under the composition scheme shall exercise such option prior to the payment of service tax. If rule 3(1) and (3) and read in conjunction and harmoniously, the intention of the scheme is to give an option to the provider of taxable servic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble service, service tax payable and gross amount charged. Under the said column, the appellant has given the service tax rate wise breakup details and indicated in respect of services the tax had been paid at 2% under composition scheme. The proof of payment of tax along with the challan numbers. have also been given in the return. Admittedly, the assessing officer has accepted the return submitted by the assessee and has not raised any objection of any short payment of service tax in respect of such contracts were the appellant availed the option to discharge the service tax liability under the composition scheme. Thus, it can never be the case of the respondent department that the appellant failed to disclose their availment of the benefit under the composition scheme. Having steered clear of this factual issue, we will consider as to in what manner similar provisions has been dealt with by other High Courts in statutes which are pari materia. 13. In T. Azhakesan v. State Tax Officer and Others 2021 SCC Online Mad 10505, the Division Bench of the High Court of Madras considered a similar issue, but, arising under the provision of the Tamil Nadu Value Added Tax Act, 2006. The s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n as to whether the dealer was required to exercise an option to pay tax under section 7-C of the TNGST Act by means of a separate letter or a petition. It also noted that under the provisions of the TNGST Act and the rules framed thereunder, there is no prescribed format or procedure as to how the option should be exercised. After taking note of the decision of the Hon'ble Division Bench in the case of Kikani Exports RIM [supra], wherein it was held that in the absence of any separate form provided for under the Rules or a separate method provided for exercising option to pay tax under section 7-C of the TNGST Act, it can be safely concluded that the assessee by filing a return and paying tax at compounded rate has exercised the option under the said provision and therefore the Assessing Authority committed error in holding that the dealer did not exercised his option and accordingly, the said question was answered in favour of the dealer. The operative portion of the order reads as follows: In this regard, useful reference can be made to the decision of the Hon'ble Division Bench of this Court in the case of Commissioner of Income-tax v. Kikani Exports Private Limited, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e has to exercise the option before the due date for furnishing the return of income. In other words, if the option is exercised after furnishing of the return of income under sub-section (1) of Section 139, it is of no avail. This assumes importance, as no procedure is prescribed for exercising the option. Form ITR-6 gives the methodology on which deprecation can be claimed and therefore, the statue did not provide for any other method to exercise the option except through filing of that an option should be exercised separately would make the returns filed meaningless." The above referred decision can very well be applied to the facts of the present case, as under the TNGST Act or the Rules framed thereunder, there is no separate form provided or any separate method provided for exercising the option to pay tax under section 7-C of the TNGST Act. Therefore, it can be safely concluded that the assessee by filing a return and paying tax under Section 7-C of the TNGST Act amounts to exercising option under the said provision. Thus, the respondents committed an error in holding that the petitioner did not exercise his option. Therefore, the first question is answered in favour of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tatute has been followed sufficiently so as to carry out the intent of the statute and accomplish the reasonable objective for which it was passed. We are informed that there are several decisions of the tribunal which have held on the above lines and those decisions have attained finality and one such decision being in the case of ABL Infrastructure Private Limited v. Commissioner of Central Excise, Nashik 2015 (2) TMI 801 CESTAT Mumbai. Thus, it can be safely held that the payment of tax under the composition scheme upon notification of the scheme vide a notification no. 32 of 2007 dated 26-5-2007 by filing the return and paying tax at the compounded rate of 2% is sufficient compliance of exercise of option under the scheme and therefore the subject contracts for which tax had been remitted by the appellant at the rate of 2% is permissible and acceptable under law. 16. The next aspect is whether the extended period of limitation could have been invoked. The disputed period can be divided into two the first of which being from March 2008 to March 2012. For this period, the show cause notice for the periods from March 2008 to March 2011 have all been issued after a long delay as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se all contentions both on law and facts in the event there is proposal to levy penalty for the aforementioned period. 17. Mr. Maiti, learned senior standing counsel appearing for the revenue referred to the decision of the Hon'ble Supreme Court in Nagarjuna Constructions Company Limited v. Government of India 2012 (28) S.T.R. 561 (SC) for the proposition that the appellant having failed to exercise the option prior to the payment of tax is not entitled to the benefit of the composition scheme at 2%. On this aspect, we have already interpreted Rule 3(1) and (3) of the composition scheme and given our reasons as to how there has been compliance of the rule and in the absence of any statutory form for exercise of option, the filing of the return, mentioning the relevant notification number and payment of tax at the compounded rate is sufficient compliance of exercise of option under the scheme. That apart, we note the facts in Nagarjuna Constructions to be entirely different. Since the appellant therein had already paid the taxes and did not opt to pay the service tax under the composition scheme but later sought for such a benefit which was negatived. Therefore, the said decis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n exercised by the appellant, it should be liable to pay the service tax @ 10.30%. Accordingly, show cause proceedings were initiated against the appellant, seeking for recovery of the short paid service tax amount along with interest and for imposition of penalties. The matter was adjudicated against the appellant vide order dated 5-11-2012, wherein service tax demand of Rs. 27,07,015/- was confirmed under Section 73 of the Finance Act, 1994 alongwith interest under Section 75 of the Act. Besides, the adjudication order also imposed penalty under Section 76 of the Act. On appeal, the Learned Commissioner (Appeals) vide the impugned order dated 29-4-2013, has upheld confirmation of the adjudged demand on the ground that no option had been exercised by the appellant for payment of the amount provided under the Composition Scheme. He has also considered additional ground that the appellant availed and utilized Cenvat credit for the purpose of payment of the composition amount, which is not permissible under the statute. 3. On perusal of the relevant ST-3 returns available in the case file, we find that the appellant had exercised the option for availing the Composition Scheme inasm ..... X X X X Extracts X X X X X X X X Extracts X X X X
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