2024 (3) TMI 231 - AT - Service Tax

Levy of service tax - works contract service or not - Contract II involved provisions of services along with supply of goods - two SCN issued to the appellants demanding service tax from the appellant alleging that even if the appellant has entered into two separate contracts for sale of goods/supply and works contract services the value of goods sold under Contract I would be required to be included in the gross amount charged under Contract II for the purposes of payment of service tax under the Composition Scheme - Extended period of limitation. HELD THAT - The agreements were entered by the appellant and the service recipient prior to 07.07.2009 i.e. 19.02.2008 and 04.12.2008 and it is not in dispute that the appellant started execution of works prior to 07.07.2009 and raised invoices and also received payments thereof. In that circumstances the CBEC Circular No.150/1/2012-ST dated 08.02.2012 is relevant to decide the present issue - As per the said Circular the explanation has been appended to Rule 3 (1) of the Composition Scheme which clearly shows that the contract entered prior to 07.07.2009 the value of cost of free supply will not be includible to determine the gross amount for the purposes of payment of service tax. As it is evident that all the contracts were entered by the appellants with the service recipient prior to 07.07.2009 and the invoice has been issued and the payment was also received. In that circumstances in terms of CBEC Circular No.150/1/2012-ST dated 08.02.2012 the value of supply of goods contract which were executed by the appellant and the same were given to the appellants for execution of Contract II were the contract value in that circumstances the value of goods in Contract I cannot be included for determination of gross value for payment of service tax. Therefore the appellant is correctly discharged their service tax liability on gross value of works contract i.e. Contract II. The impugned demand is set aside - the penalties imposed on all the appellants waived - appeal allowed.

Summary

Issues Involved:
1. Applicability of Service Tax on Works Contracts
2. Inclusion of Value of Goods Sold Under Separate Contracts
3. Invocation of Extended Period of Limitation
4. Interpretation of CBEC Circular and Legal Precedents

Summary:

1. Applicability of Service Tax on Works Contracts:
The appellants contested the demand of service tax on works contracts under Section 65(105)(zzzza) of the Finance Act, 1994. The service tax was paid under Rule 3 of the Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007. The appellants argued that Contract II was a works contract and they had opted to pay service tax on the gross value of consideration under the Composition Scheme.

2. Inclusion of Value of Goods Sold Under Separate Contracts:
The Revenue contended that the value of goods sold under Contract I should be included in the gross amount charged under Contract II for the purpose of service tax. The appellants argued that Contract I was a sale-simplicitor contract and not a works contract. The Tribunal found that the contracts were executed before 07.07.2009, and as per CBEC Circular No.150/1/2012-ST dated 08.02.2012, the value of free supply of goods should not be included in the gross amount for service tax purposes.

3. Invocation of Extended Period of Limitation:
The show-cause notices invoked an extended period of limitation to demand service tax. The Tribunal did not find any evidence of suppression or misrepresentation by the appellants that would justify the invocation of the extended period of limitation.

4. Interpretation of CBEC Circular and Legal Precedents:
The Tribunal referred to CBEC Circular No.150/1/2012-ST and previous judgments, including Essar Projects (India) Ltd and Tata Projects Ltd, which clarified that for contracts executed before 07.07.2009, the value of free-of-cost supplies should not be included in the gross amount for service tax. The Tribunal concluded that the appellants correctly discharged their service tax liability on the gross value of works contracts under Contract II.

Conclusion:
The Tribunal set aside the impugned order, waived the penalties imposed on the appellants, and allowed the appeals with consequential relief.