TMI Blog2023 (12) TMI 783X X X X Extracts X X X X X X X X Extracts X X X X ..... n scheme as the noticees fulfil the condition as mentioned in the notification No. 32/2007-S.T., dated 22-5-2007. Reliance also placed in HARSH CONSTRUCTIONS PVT. LTD. VERSUS COMMISSIONER OF CENTRAL EXCISE, NASHIK [ 2019 (3) TMI 1679 - CESTAT MUMBAI ] where it was held that though the appellant had availed the cenvat credit of service tax paid on the input services, but the same was reversed and the reversal particulars were duly reflected in the period ST-3 returns. Hence, we are of the considered view that the adjudged demands confirmed on the appellant cannot be sustained. Further impugned order also concludes that respondent has not received any consideration from his clients in respect of the two debit notes dated 31.03.2012 and 31.03.2013 against which this demand, but has included the value of these services in his ST-3 return as per the Point of Taxation Rules, 2011 and has paid service tax on these services provided. This finding recorded in the impugned order has not been challenged. Further for the debit note dated 31.03.2011, it is observed that this debit note is for the period prior to introduction of the POT, 2011 and the service tax was to be paid onl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 09/2010 for the construction of a hotel which falls under clause (b) above as construction of a new building for the purposes of commerce. For the construction work the appellant had used various goods such as steel, and RMC on which applicable VAT/ Sales Tax was paid is evident from the sample invoices for the procurement of these goods submitted by the appellant. The property in the goods involved in the execution of the contract for the construction of the hotel involves transfer of the same on the completion of the service. It is therefore evident that the twin conditions as provided under clause (i) and (ii) (b) of the above referred Explanation were fulfilled in the case of the service provided by the appellant. The said services have therefore been correctly classified as ' works contact service' and the service tax has accordingly been discharged by the appellant. The appellant had issued debit notes for the entire consideration including the amounts of VAT/ Sales Tax payable/paid, which was to be reimbursed by the service recipient. 8. Regarding exercise of the option as provided under Rule 3 (3) of the WCR, I find that Hon'ble CESTAT, Principal Bench, New ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t-recoverable'. He has also produced copies of bank statements of the relevant period wherein no receipt of money against such debit notes was reflected. The appellant has also pleaded that the service provided during 2010-11 for which debit note dated 31/03/2011 was issued was actually provided before introduction of POT Rules 2011 and service tax was required to be paid on receipt of payment basis in terms of Rule 6 of the Service Tax Rules 1944 and as no payment had been received against that part of service from the service receiver till date, the value of service was not declared in the ST-3s of the relevant period. It is also submitted that in spite of non-receipt of service consideration shown in subsequent debit notes dated 31/03/2012 and 31/03/2013, he had duly declared those values of services in ST-3s and paid service tax on accrual basis in terms of POT Rules 2011. I find that the appellant has considerably explained and clarified the apparent anomalies pointed out by the department in SCN and demand of service tax on the value of consideration of service as shown in the debit notes is therefore not sustainable. 10. In view of the above discussion and findings ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th 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 misclassifying and claiming the benefit of Work Contract Work Contract (Composition Scheme for Payment of Service Tax) Rules, 2007, the services rendered by them they suppressed the taxable value of the same with a clear intent to evade payment of Service Tax, therefore, differential amount of Service Tax to the tune of Rs. 1,17,35,998/ under the category of 'Commercial or Industrial Construction Service' was required to be recovered from the respondent by invoking the extended per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 rendered by them as Work Contract , without fulfilling the Conditions prescribed under Rule- 3(3) and 3(4) of the Work Contract (Composition scheme for payment of Service Tax) Rules 2007, as they have not exercised such option under rule 3(3) of the Work Contract (Composition scheme for payment of Service Tax) Rules 2007 in respect of a works contract prior to payment of service tax in respect of the said works contract. As per Article 3 of the agreement t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al 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 respondents and their clients have been reproduced in the order in original which state as follows: Article 1 Definitions And Interpretation 1.1 Definitions Unless repugnant or contrary to the context hereof, the following terms, when capitalized, shall have the meanings assigned herein when used in this Agreement. When not capitalized, such words shall be attributed heir ordinary meaning. 1.1.1 'Agreement means th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecution 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 Construction Workers Welfare Cess Act 1996 and Work Contract Tax @4% or any other tax as per applicable law. 3.5 The Owner will deduct Income Tax at source as per applicable law at the time of making the reimbursement payment to the Developer. 4.4 Adjudicating authority has also reproduced the text of the debit notes issued by the respondent in respect of which these demands are made. F ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Grand Total 41,092,700.00 4.5 From the perusal of the above terms of agreement and debit note in dispute it is quite evident that the agreement between 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 contrac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... works contracts. 16. At this stage, it is important to note the scheme of taxation under our Constitution. In the lists contained in the 7th Schedule to the Constitution, taxation entries are to be found only in lists I and II. This 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , it must be stated that the above conclusion has reference to works contracts, which are entire and indivisible, as the contracts of the respondents have been held by the learned Judges of the Court below to be. The several forms which such kinds of contracts 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 provi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ters into computation of service tax. 4.7 In view of the decision of Hon ble Supreme Court as above we are in agreement with the finding arrived in the impugned order to effect that the contract/ agreement between the respondent and their client was a work 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 co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... filled the condition of Rules. For convenience, Rule 3 is extracted below: - 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. 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 compositi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -3-2008 is required to pay service tax at the rate of 4% and not 2%. The department further proceeds to state that this short payment is intentional to evade payment of duty and therefore extended period of limitation can be invoked. The cardinal principle of interpretation has taught us to read 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er yes of no. If answer to Para C1 is yes in Para C2, the assessee is required to furnish the notification number. The assessee has indicated that they availed the benefit of notification no. 32 of 2007 which is the composition scheme, referred above. Para (F) of the return deals with the value of taxable 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 deal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed. Subsequently the assessment was sought to be revised by invoking the power under section 55 of the TNGST Act and revised orders were passed, in which the Assessing Officer took a stand that the petitioner therein has not opted to pay tax under section 7-C of the TNGST Act. Thus, the Court framed the question 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 an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ordance with the various provisions and state in exactitude what he claims under different heads of deprecation. Schedules DOA and DEP in Form ITR # 6 contain the break up of various heads under which deprecation can be claimed. All that the second proviso to Rule 5(1A) of the Income-tax Rules states is that the assessee 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... failed or faulted in some minor or in consequence aspect which cannot be described essence or the substance of the requirements. It was further pointed out that substantial compliance means actual compliance in respect to the substance essential to every reasonable objective of the statute and the court should determine whether the statute 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 acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the court may consider the case and direct that the penalty should not be levied under section 78 of the Act. We are not able to accede such a prayer as it is beyond the scope of the prayer sought for in the writ petition nor such contention appears to have been raised in the writ petition. However, we give liberty to the appellant to raise 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 suffi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... observed that the appellant had paid service tax @ 4% of taxable value, without filing any option for payment of such amount of service tax on composition scheme, as provided under Rule 3 of the Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007. The department interpreted that since no option under Rule 3 of the rules had been 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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