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2023 (4) TMI 763

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..... scheme for payment of service tax) Rules, 2007 and the valuation of the same was provided under Rule 2A of Service Tax (Determination of Value) Rules, 2006. Valuation for the purpose of payment of VAT - HELD THAT:- It is a deemed fiction which does not represent the exact value of the goods moreover, when there is a composite contract between service provider and service recipient, the service recipient is not concerned with the proportion of the material used in the works contract whereas, he is only concerned with the overall project to be executed as per the terms and conditions of the contract between the service provider and the recipient. There is no separate activity of sale of goods involved, it is only for the purpose of VAT portion of the total value of the project under Works Contract as determined as deemed sale of goods. In fact, no separate sale of goods is involved, no separate invoice of goods is made therefore, infact no sale of goods is involved in the execution of the overall project under Works Contract Service. This is simpliciter case of a particular service on which there is a concessional rate of service tax is prescribed subject to certain conditions - .....

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..... nting of exempted service or non-service activity by the noticee during the relevant period so as to attract the mischief of Rule 6(3) of Cenvat Credit Rules, 2004 and held that the denial of cenvat credit in the instant proceeding is not maintainable. Being aggrieved by the Order-In-Original, the revenue has filed the present appeal. 03. Shri Ghanasyam Soni, learned Additional Commissioner (AR) appearing on behalf of the revenue reiterates the grounds of appeal and submits that there is no dispute that during execution of Works Contract, there is a portion of sale of goods on which the respondent have paid the VAT. This portion of the contract is clearly sale of goods which falls under the exempted service therefore, Rule 6 (3A) of Cenvat Credit Rules, 2004 is clearly applicable according to which the respondent is liable to reverse the proportionate cenvat credit attributed to the exempted service i.e. sale of goods hence, the adjudicating authority is wrong in holding that Rule 6(3) has no application in the present case. 04. Shri P K Sahu, learned counsel appearing on behalf of the respondent reiterates the finding of the order of the adjudicating authority. He submits th .....

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..... sdictional Commissioner Surat having jurisdiction over the respondent. He also submits that in the present case there is no evidence of any suppression or mis-statement of facts with an intent to evade payment of service tax warranting invocation of proviso to Section 73(1) of the Finance Act, 1994 and imposition of penalty therefore, the demand for the extended period is also not maintainable on limitation. He placed reliance on the following judgments:- UB Engineering Ltd. Vs. CCE, 2015 (37) STR 999 Interarch Building Products P. Ltd. Vs. CST, 2018 (10) GSTL 330 (Tri.-All) Indure Ltd. Vs. CTO, (2010) 3 SCC (Civ) 826 BSES Ltd. Vs. Fenner India Ltd.- 2006 (2) SCC 728 GEO MILLER CO. (P) Ltd. Vs. State of M.P.- 2004 (5) SCC 209 SUSHIL AGARWAL Vs. COMMISSIONER OF CUSTOM, 2012 (283) ELT 377 (Tri.-Mumbai) CANON INDIA LTD. Vs. COMMISSIONER OF CUSTOMS, 2021 (376) ELT 3 (SC) 05. We have carefully considered the submissions made by both the sides and perused the records. We find that the show cause notice proposing demand of cenvat credit attributed to the value of deemed sale of goods involved in composite Works Contract service provided by the respondent on .....

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..... ation. - For the purposes of this rule, gross amount charged for the works contract shall not include Value Added Tax (VAT) or sales tax, as the case may be, paid on transfer of property in goods involved in the execution of the said works contract. (2) 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. (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. RULE [2A. Determination 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 .....

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..... r the works contract.] [ (B) in case of works contract, not covered under sub-clause (A), including works contract entered into for, - (i) maintenance or repair or reconditioning or restoration or servicing of any goods; or (ii) maintenance or repair or completion and finishing services such as glazing or plastering or floor and wall tiling or installation of electrical fittings of immovable property, service tax shall be payable on seventy per cent. of the total amount charged for the works contract.] Explanation 1 . - For the purposes of this rule,- (a) original works means- (i) all new constructions; (ii) all types of additions and alterations to abandoned or damaged structures on land that are required to make them workable; (iii) erection, commissioning or installation of plant, machinery or equipment or structures, whether pre-fabricated or otherwise; (b) 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 oth .....

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..... The Works Contact Service cannot be vivisected between service portion and the goods. 5.1 As regard the valuation for the purpose of payment of VAT, it is a deemed fiction which does not represent the exact value of the goods moreover, when there is a composite contract between service provider and service recipient, the service recipient is not concerned with the proportion of the material used in the works contract whereas, he is only concerned with the overall project to be executed as per the terms and conditions of the contract between the service provider and the recipient. There is no separate activity of sale of goods involved, it is only for the purpose of VAT portion of the total value of the project under Works Contract as determined as deemed sale of goods. In fact, no separate sale of goods is involved, no separate invoice of goods is made therefore, infact no sale of goods is involved in the execution of the overall project under Works Contract Service. This is simpliciter case of a particular service on which there is a concessional rate of service tax is prescribed subject to certain conditions. If the department s contention is accepted then in every exemption n .....

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..... uired to follow the provisions of rule 6 of the Credit Rules and failed to discharge liability under rule 6(3) of the Credit Rules and for violation of the said provisions the cenvat credit availed on common input services was not admissible. In other words, the dispute is whether.- (i) M/s L T-MHPS provided exempted service and (ii) availed cenvat credit on common input services that were used for taxable as well as exempted service. The act of 'transfer of property in goods' as part of works contract is sought to be held as an activity that was either not a taxable service or was an exempted service . The noticee has canvassed that, its works contract can be vivisected into three parts i.e. (i) off shore supply (imported goods material), (ii) on shore supply (domestic goods and material) and (iii) services; the transfer of title in goods entailed VAT liability; service tax was paid on works contract service by excluding the value of goods as per rule 2A(i) of the Valuation Rules; it did not engage in trading of goods as supply of goods material was integral to the works contract; it did not provide any exempted services to attract the bar of rule 6 of the Cre .....

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..... rtook activity of supply of goods and material. The scope of works, as demonstrated through sample contracts, involved designing, supply, erection, testing and commissioning of supercritical steam generators with associated auxiliaries for mega power projects on EPC Turnkey basis. It is demonstrated through documentary evidence ie contracts that supply of goods and material is intrinsic part of the 'works contract undertaken by the noticee. The method of valuation, i.e. exclusion of value of goods subjected to VAT by treating the same as deemed sale , cannot change classification of the service rendered by the noticee. The deeming provisions have limited scope as enunciated in the law and may not be permitted to travel beyond the given scope. I find that the issue of valuation is incompliance with the applicable rules and laws. The material presented by the notice; e.g NTPC contract dated 07.10.2014 for Tanda Thermal Power Project, L T contract dated 22.10.2014 for Shri Singaji TPP Khandwa L T contract dated 22.10.2014 for STPP Khargone and the relevant bills raised by the noticee; demonstrate that charges for GTA services for transport of goods have been included in the s .....

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