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2019 (7) TMI 1793 - AT - Service TaxLevy of service tax - Works Contract Service - composite contracts involving supply of goods/ materials during execution of civil constructions prior to 1 June 2007 - demand under a category not specified in SCN - benefit of the Composition Scheme post 1 June 2007 - inclusion of value of free of cost material in the total assessable value - Levy of Service Tax on renting of immovable property. Levy of service tax - composite contracts involving supply of goods/ materials during execution of civil constructions prior to 1 June 2007 - HELD THAT - The Supreme Court in COMMISSIONER CENTRAL EXCISE CUSTOMS VERSUS M/S LARSEN TOUBRO LTD. AND OTHERS 2015 (8) TMI 749 - SUPREME COURT noticed that it is only w.e.f 01 June 2007 that Section 65(105)(zzzza) of the Act was introduced to cover composite works contract and so service rendered in a works contract cannot be covered under any other category of service prior to 01 June 2007. The position that emerges is that prior to 1 June 2007 Service Tax could not be levied on a composite works contract involving supply of goods/ materials for execution of Civil Construction. Thus levy of Service Tax for a service provided prior to 1 June 2007 under Commercial and Industrial Service or under Construction of Complex Service cannot be sustained. Demand under a category not specified in the SCN - HELD THAT - A Division Bench of the Tribunal in M/S GURJAR CONSTRUCTION VERSUS COMMISSIONER CENTRAL EXCISE JAIPUR-II 2019 (5) TMI 717 - CESTAT NEW DELHI examined such a position and after placing reliance on the decisions of the Supreme Court in HINDUSTAN POLYMERS CO. LTD. VERSUS COLLECTOR OF C. EX. GUNTUR 1996 (12) TMI 84 - SUPREME COURT and RECKITT COLMAN OF INDIA LTD. VERSUS COLLECTOR OF CENTRAL EXCISE 1996 (10) TMI 100 - SUPREME COURT observed that a demand made under a particular category cannot be sustained under a different category - The Commissioner therefore committed an illegality in confirming the demand under a category not proposed in the show cause notice. Benefit of the Composition Scheme post 1 June 2007 - HELD THAT - The Composition Scheme cannot be treated as an exemption Notification under any circumstance. The Department does not dispute that the Appellant discharged the Service Tax liability by payment of an amount equivalent to a certain percentage of the gross amount charged for the works contract as stipulated in Rule 3 of the Composition Scheme since the only reasons given by the Department are that the Appellant did not submit the option in writing to the Department before payment of Service Tax and the tax paid did not include the cost of the material supplied free of cost to the Appellant. The Constitution Bench of the Supreme Court in COMMISSIONER OF CUSTOMS (IMPORT) MUMBAI VERSUS M/S. DILIP KUMAR AND COMPANY ORS. 2018 (7) TMI 1826 - SUPREME COURT was constituted to examine what would be the interpretative rule to be applied while interpreting a tax exemption provision/ notification when there is an ambiguity as to its applicability with reference to the entitlement of the assessee or the rate of tax to be applied. The Supreme Court observed that the core issue to be examined in the event of any ambiguity in an exemption notification is whether the benefit of such an ambiguity should go to the assessee or should be considered in favour of the revenue by denying the benefit of the exemption to the assessee. The Supreme Court concluded that every taxing statue including charging computation and exemption clause (at the threshold stage) should be interpreted strictly - the impugned order in so far as it denies the benefit of the Composition Scheme to the Appellant for the reason that option was not exercised by the Appellant in writing before the Department cannot be sustained. Inclusion of value of free of cost material in the total assessable value in the Composition Scheme - HELD THAT - The Supreme Court in COMMISSIONER OF SERVICE TAX ETC. VERSUS M/S. BHAYANA BUILDERS (P) LTD. ETC. 2018 (2) TMI 1325 - SUPREME COURT observed that the value of taxable services cannot be dependent on the value of goods supplied free of cost by the service recipient and such a value has no bearing on the value of services provided by the service recipient - The Commissioner therefore could not have denied the benefit of the Composition Scheme for the reason that the appellant had not included the cost of material supplied free of cost to the Appellant in the gross value of services. Levy of Service Tax on renting of immovable property - HELD THAT - The Appellant has deposited the demand of Rs. 5562/- with interest and therefore the issue is not required to be examined - Such being the position the demand of Service Tax in the impugned order except under renting of immovable property cannot be sustained. Appeal allowed - decided in favor of appellant.
Issues Involved:
1. Levy of Service Tax on composite contracts involving supply of goods/materials during execution of civil constructions prior to 1 June 2007. 2. Confirmation of demand for payment of Service Tax under a category not specified in the Show Cause Notice. 3. Applicability of the Composition Scheme post 1 June 2007. 4. Inclusion of the value of free-of-cost material in the total assessable value under the Composition Scheme. Issue-wise Detailed Analysis: First Issue: The primary question was whether Service Tax could be levied before 1 June 2007 on composite contracts involving the supply of goods/materials during civil construction execution. The Supreme Court in Larsen & Toubro clarified that composite works contracts could only be taxed from 1 June 2007 onwards, under Section 65(105)(zzzza) of the Finance Act, 1994. The Commissioner erred in treating the services provided by the Appellant before 1 June 2007 as taxable under "Commercial or Industrial Construction Service" or "Construction of Complex Service." Thus, the levy of Service Tax for services provided prior to 1 June 2007 under these categories cannot be sustained. Second Issue: The Appellant contended that the impugned order could not confirm a demand under a category not proposed in the Show Cause Notice. The Tribunal agreed, citing precedents that a demand made under a particular category cannot be sustained under a different category. The Commissioner confirmed demands under "Works Contract Service" for periods post 1 June 2007, although the Show Cause Notice had proposed demands under "Commercial or Industrial Construction Service" or "Construction of Complex Service." This was deemed illegal. Third Issue: Regarding the applicability of the Composition Scheme, the Tribunal noted that Rule 3 of the Composition Scheme did not require the option to be submitted in writing to the Department before payment of Service Tax. The Appellant had exercised the option by reflecting the rate of tax in the ST-3 returns. The Tribunal rejected the Department's argument that the Composition Scheme is akin to an exemption notification, which should be strictly interpreted in favor of the Revenue. Thus, the denial of the Composition Scheme benefit to the Appellant for not submitting a written option was incorrect. Fourth Issue: The Commissioner denied the Composition Scheme benefit because the Appellant did not include the value of free-of-cost material in the total assessable value. This was contrary to the Supreme Court's decision in Bhayana Builders, which held that the value of free-of-cost material supplied by the service recipient should not be included in the assessable value for Service Tax purposes. The Tribunal thus found the Commissioner's denial of the Composition Scheme benefit on this ground to be unsustainable. Conclusion: The Tribunal set aside the impugned order except for the demand of Rs. 5562/- on renting of immovable property, which the Appellant had already deposited with interest. The appeal was allowed to the extent indicated.
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