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TMI Blog2024 (12) TMI 599X X X X Extracts X X X X X X X X Extracts X X X X ..... f ST-3 returns are set aside 1.2 By Order in Original No 23/ST/Adj/AC/D-I/2021 dated 17.11.2021 following was held: "ORDER (i) I order that the amount of Rs.2,17,66,168/- (Rupees Two Crore Seventeen Lakhs Sixty Six Thousand One Hundred and Sixty Eight only) charged and received by the party from their customers during the Financial Year 2014-15 to 2017-18 [01.10.2014 to 30.06.2017] in lieu of providing the taxable services, to be treated as the taxable value of taxable services provided by them for the purpose of charging the service tax. Accordingly, I confirm the demand of Service Tax amounting to Rs.21,75,673/- (Inclusive of Service Tax, Education Cess and Higher & Secondary Education Cess/ Swachh Bharat/ Krishi Kalyan Cess) under the provisions of Section 73(2) of the Finance Act. 1994 invoking provisions of an extended period of demand against M/s New Tech Electricals, G-34,Road No.16, Udyog Kunj, Site-V, Panki, Industrial Area, Kanpur; (ii) I order that the amount of Rs.15,74,922/- was paid as freight by the party during the Financial Year 2014-15 to 2017-18 [01.10.2014 to 30.06.2017] in lieu of receiving the taxable services, to be treated as the taxable value of taxa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt to evade service tax; (vii) I impose a penalty of Rs. 10,000.00 (Rupees Ten Thousand only) M/s New Tech Electricais,G-34,Road No.16, Udyog Kunj, Site-V, Panki, Industrial Area, Kanpur, under Section 77(1)(d) of the Act ibid upon the party for their alleged failure to pay the Service Tax electronically against the services provided by them; (viii) I impose a penalty of Rs. 20,000.00 (Rupees Twenty Thousand only) upon M/s New Tech Electrlcals,G-34,Road No.16, Udyog Kun), Site-V, Panki, industrial Area, Kanpur under Section 70 of the Finance Act, 1994 read with Rule 7C of Service Tax Rules 1994 for not filing ST-3 returns for the period from April 2017 to June 2017." 2.1 The appellant is registered with the department under Service Tax registration No.AAFFN1594FST001 for providing services taxable under Finance Act,1944. 2.2 On the basis of information received from the Income Tax Department, an enquiry has been initiated against the appellant and record has been called for. The appellant has produced copy of balance sheet/profit & loss account, FORM 26As, ITR for the F.Y 2014-15 to 2017-18 and sample copy of work order/agreement entered into with Dakshinanchal Vidyut Vitran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... overed from the party against the Audit Fee paid by them during the period covered in the Show Cause Notice under the provisions of Section 73(1) of the Finance Act. 1994 invoking provisions of extended period of demand; (iv) interest-at the appropriate rate for the relevant period till the payment of the Service Tax should not be demanded and recovered from them under the provisions of Section 75 of the Act; (v) Penalty should not be imposed upon them under Section 78 of the Finance Act, 1994 for the reasons as discussed above (vi) a penalty under Section 77(1)(c) of the Act ibid should not be imposed upon the party as the party failed to furnish information and documents called for by the Central Excise officer (vii) a penalty under Section 77(1)(d) of the Act ibid should not be imposed upon the party as they failed to pay the Service Tax electronically against the services provided by them; (viii) a penalty under Section 77(2) of the Act ibid should not be imposed upon the party as they failed to file Service Tax Return for the period April '2017 to June' 2017. 2.6 Show Cause Notice was adjudicated as per order in original referred in para 1.2 above. In appeal fil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... written letter dated 14,10.2019, 25.10.2019 and summons dated 24.01.2020, 11.02.2020 and 09.02.2020 to the appellant for furnishing relevant information/documents but no compliance has been made on the part of the appellant. Last letter dated 29.05.2020 was issued by the department to furnish information/documents within three days but again the appellant has not responded, therefore, department has no option but issue SCN on the basis of documents submitted by the appellant vide letter dated 04.10.2019. Thus, I find no force in the contention of the appellant. 4.3 The appellant has contested that .the works Contract Services provided to M/s EWD Jhansi are covered under Rule 2A(ii) of the Service Tax (Determination of Value) Rules,2006 and appellant is cligible for abatement of 30% on the gross value and also eligible for partial reverse charge benefit as provided under notification No. 30/2012- ST dated 20.06.2012. I observe that the appellant has entered into agreement with M/s DVVNL, Agra for repairing of damaged/burnt transformers at their Workshops As per terms and conditions of the agreement all the stock materials required for the work shall be arranged by the Electricity ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ause (a) of the entry No.25 of the said notification exempts the services provided to Government, a local authority or a governmental authority by way of (a) water supply, public health, sanitation conservancy, solid waste management or slum improvement and up-gradation. From the above legal provisions, it can be seen that clause (e) of entry 12 and clause (a) of the entry No.25 of the said notification exempts the services provided to Government, a local authority or a governmental authority only. In the instant case the appellant has provided services to M/s Ramky Infrastructure, therefore, said clauses are not applicable in the instant case. Further, the appellant has not provided any work order/contract awarded by M/s Ramky Infrastructure neither during the filing the instant appeal nor at the time of personal hearing. A letter dated 21.02.2022 was also send to the appellant for providing work order/contract awarded by M/s Ramky Infrastructure but the appellant has not provided any documents. Thus, I find no force in the submission of the appellant 4.5 In view of the above discussion, I am of the considered view that the appellant is liable to pay service tax amounting to Rs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (u) "Sale" with all its grammatical variations and cognate expressions means any transfer of property in goods for cash or deferred payment or for other valuable consideration and includes - *** *** *** (ii) a transfer of property in goods whether as goods or in some other form, involved in the execution of works contract; Section 2(h) of the Central Excise Act, 1944 defines "sale" and "purchase" as any transfer of possession for consideration by one person to another. Section 2(h) of the Act is reproduced as under :- "2(h) "sale" and "purchase", with their grammatical variations and cognate expressions, mean any transfer of the possession of goods by one person to another in the ordinary course of trade or business for cash or deferred payment or other valuable consideration;" 14. According to the Learned Counsel for the appellants, the material and consumables are embedded in the photograph when it is transferred to the customers. The Larger Bench of the Tribunal erroneously held that the consumables and chemicals used for providing such service disappear when the photograph emerges and concluded that value of photography service includes all elements which bring tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es Bench judgment in Rainbow Colour Lab and Another v. State of Madhya Pradesh and Others (2000) 2 SCC 385 did not lay down the correct law as it referred to pre 46th Amendment judgments in arriving at its conclusions which had lost their validity. The Court also specifically commented that after 46th Amendment, State is empowered to levy sales tax on the material used even in those contracts where "the dominant intention of the contract is the rendering of a service, which will amount to a Works Contract". 19. In view of the above, the argument of the respondent assessees that Associated Cement Companies Ltd. v. Commissioner of Customs, (2001) 4 SCC 593, (ACC Ltd. case) did not over-rule Rainbow Colour Lab's case (supra) is, therefore, clearly misconceived. In fact, we are not saying so for the first time as a three-member Bench of this Court in M/s. Larsen and Toubro and Another v. State of Karnataka and another (2014) 1 SCC 708 has already stated that ACC Ltd. had expressly over-ruled Rainbow Colour Lab while holding that dominant intention test was no longer good test after 46th Constitutional Amendment. We may point out that Learned Counsel for the respondent assessees took ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to levy sales tax on the materials used in such contract if it otherwise has elements of works contract. The view taken by a two-Judge Bench of this Court in Rainbow Colour Lab (supra) that the division of the contract after Forty-sixth Amendment can be made only if the works contract involved a dominant intention to transfer the property in goods and not in contracts where the transfer of property takes place as an incident of contract of service is no longer good law, Rainbow Colour Lab (supra) has been expressly overruled by a three-Judge Bench in Associated Cement. 65. Although, in Bharat Sanchar, the Court was concerned with sub-clause (d) of Clause (29A) of Article 366 but while dealing with the question as to whether the nature of transaction by which mobile phone connections are enjoyed is a sale or service or both, the three-Judge Bench did consider the scope of definition in Clause (29A) of Article 366. With reference to sub-clause (b) it said : "Sub-clause (b) covers cases relating to works contract. This was the particular fact situation which the Court was faced with in Gannon Dunkerley-I (State of Madras v. Gannon Dunkerley & Co., AIR 1958 SC 560) and which the Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s been brought on par with a contract containing two separate agreements; (ii) if the legal fiction introduced by Article 366(29A)(b) is carried to its logical end, it follows that even in a single and indivisible works contract there is a deemed sale of the goods which are involved in the execution of a works contract. Such a deemed sale has all the incidents of the sale of goods involved in the execution of a works contract where the contract is divisible into one for sale of goods and the other for supply of labour and services; (iii) in view of sub-clause (b) of Clause (29A) of Article 366, the State legislatures are competent to impose tax on the transfer of property in goods involved in the execution of works contract. Under Article 286(3)(b), Parliament has been empowered to make a law specifying restrictions and conditions in regard to the system of levy, rates or incidents of such tax. This does not mean that the legislative power of the State cannot be exercised till the enactment of the law under Article 286(3)(b) by the Parliament. It only means that in the event of law having been made by Parliament under Article 286(3)(b), the exercise of the legislative power of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the works contract. The States are now empowered to levy sales tax on the material used in such contract. In other words, Clause (29A) of Article 366 empowers the States to levy tax on the deemed sale." 21. To sum up, it follows from the reading of the aforesaid judgment that after insertion of clause (29A) in Article 366, the Works Contract which was indivisible one by legal fiction, altered into a contract, is permitted to be bifurcated into two: one for "sale of goods" and other for "services", thereby making goods component of the contract exigible to sales tax. Further, while going into this exercise of divisibility, dominant intention behind such a contract, namely, whether it was for sale of goods or for services, is rendered otiose or immaterial. It follows, as a sequitur, that by virtue of clause (29A) of Article 366, the State Legislature is now empowered to segregate the goods part of the Works Contract and impose sales tax thereupon. It may be noted that Entry 54, List II of the Constitution of India empowers the State Legislature to enact a law taxing sale of goods. Sales tax, being a subject-matter into the State List, the State Legislature has the competency to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd aspect which needs to be noted is that the dispute therein was whether there is a contract of sale of goods or a contract for service. This matter was examined in the light of law prevailing at that time, as declared in Dunkerley's case as per which dominant intention of the contract was to be seen and further that such a contract was treated as not divisible. It is for this reason in BSNL and M/s. Larsen and Toubro cases, this Court specifically pointed out that Kame's case would not provide an answer to the issue at hand. On the contrary, legal position stands settled by the Constitution Bench of this Court in Kone Elevator India Pvt. Ltd. v. State of Tamil Nadu and Ors. (2014) 7 SCC 1. Following observations in that case are apt for this purpose : "On the basis of the aforesaid elucidation, it has been deduced that a transfer of property in goods under Clause (29A)(b) of Article 366 is deemed to be a sale of goods involved in the execution of a Works Contract by the person making the transfer and the purchase of those goods by the person to whom such transfer is made. One thing is significant to note that in Larsen and Toubro (supra), it has been stated that after the const ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ucting 70% towards material cost on the gross re-treading charges billed in terms of Notification No. 12/2003-S.T., dated 20-6-2003. A show cause notice dated 24-1-2008 was issued to the assessee alleging suppression of value of taxable services with intention to evade payment of service tax and proposing recovery of service tax together with interest and penal action under the provisions of Sections 76, 77 and 78 of the Finance Act, 1994. The said deduction of 70% was denied by the Commissioner and demand of service tax was confirmed on the assessee along with interest and penalty. The appeal preferred by the assessee was considered and decided by a three-member Special Bench of the Tribunal reported as Safety Retreading Company (P) Ltd. v. Commissioner of Central Excise, Salem, (2012) 34 STT 64 (Chennai) = 2012 (26) S.T.R. 225 (Tribunal), wherein coupled with the Notification No. 12/2003-S.T., dated 20-6-2003 a similar issue was considered by the Larger Bench of the Tribunal: "whether in a contract for retreading of tyres, service tax is leviable on the total amount charged for retreading including the value of the materials/goods that have been used and sold in the execution of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... raphs, photo prints and negatives, which have "goods" component exigible to sales tax is constitutionally valid, it is held that value of photography service has to be determined in isolation of cost of goods such as photography paper, consumables and chemicals with which image is printed, negatives and other material which has "goods" component liable to sales tax. Accordingly, the substantial question of law No. 1 is answered in favour of the assessee and against the Revenue. 4.5 In view of the above decision I am of the view that the services provided by the appellant to DVVNL are in nature of "Work Contract Services" and should be assessed accordingly, by allowing the benefit of composition scheme and partial reverse charge as per Notification No 30/2012-ST. 4.6 In view of the discussions as above the demand made needs to be recomputed by treating the services provided to DVVNL as work contract service. For limited purpose of re-computation of demand matter is remanded back to the original authority. The penalty imposed under section 78 is also set aside, to be recomputed after re-computation of the demand. 4.7 All other parts of impugned order not challenged are upheld. 5. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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