2015 (7) TMI 855 - AT - Service Tax

Disallowance of Composition Scheme for works contract service - benefit of 67% abatement under Notification No. 1/2006-S.T. - Availment of Cenvat credit of input services - whether for ongoing contracts which commenced prior to 1-6-2007 and Service Tax was paid under respective services, Composition Scheme could be availed of with effect from 1-6-2007 classifying the service under works contract service has been decided by Andhra Pradesh High Court in the case of Nagarujuna Construction Ltd. holding that for such ongoing contracts, the assessee cannot switch over to Composition Scheme - Held that - There can be no doubt that the classification of service is to be determined in terms of the nature of service rendered vis- -vis the definition of various services as applicable on the date of rendition of service. The Board s circular dated 4-1-2008 is in disharmony with law to the extent it holds that with effect from 1-6-2007 the classification cannot be changed for ongoing projects even if the service rendered is more specifically covered thereunder. Thus even if the classification of service prior to 1-6-2007 in respect of ongoing contracts was under CICS/CCS, the same would be classifiable as works contract service (WCS) with effect from 1-6-2007 if the service rendered was more specifically covered thereunder and if the classification is held to be under WCS the benefit of Notification No. 1/2006-S.T. would not be applicable with effect from 1-6-2007 as the said notification is not applicable to works contract service. However, the benefit of Rule 2A of the Service Tax (Determination of Value) Rules, 2006 or any other applicable notification can be claimed by the appellants subject to producing the required evidence. As regards denial of the benefit of abatement under Notification No. 1/2006-S.T. on the ground that the appellants had taken Cenvat credit in respect of input services, it is to be pointed out that the said notification does not debar availment of Cenvat credit on input services. - Decided in favour of assessee

Summary

Issues involved:
Stay application against Order-in-Appeal rejection for failure to pre-deposit Service Tax amount, denial of Composition Scheme and abatement under Notifications, classification of service under works contract, availability of Cenvat credit on input services.

Analysis:
The appellants filed a stay application with an appeal against the rejection of their appeal due to failure in pre-depositing 50% of the Service Tax amount. They were denied the Composition Scheme for works contract service and the benefit of abatement under Notifications. The issue revolved around the classification of service under works contract and the denial of benefits based on the commencement date of contracts. The appellants argued that they should not be deprived of the Composition Scheme and Notification benefits.

The ld. AR supported the impugned order, stating that the classification of service cannot be changed for ongoing contracts. The Tribunal, after hearing both sides, decided to waive the requirement of pre-deposit due to the nature of the issue involved. It was noted that the appellants started classifying services under works contract from a specific date and began availing the Composition Scheme. The adjudicating authority denied re-classification citing Circulars and previous contracts' dates.

The Tribunal referred to a High Court case regarding ongoing contracts and the applicability of the Composition Scheme. It was concluded that the classification of service should align with the nature of service rendered, irrespective of past classifications. The Board's circular was deemed in disharmony with the law, allowing for re-classification under works contract service post a certain date. The benefit of certain notifications could be claimed subject to evidence.

Regarding the denial of abatement under a Notification due to Cenvat credit on input services, it was clarified that the said notification does not prohibit the availment of Cenvat credit. The Tribunal allowed the appeal by remanding the case for fresh adjudication with specific directions, including determining service classification post a certain date, considering claims under relevant rules and notifications, and not denying benefits based on Cenvat credit.

In conclusion, the Tribunal provided detailed directions for the re-adjudication of the case, emphasizing the correct classification of services, consideration of applicable rules and notifications, and ensuring a fair opportunity for the appellants to present their case.