2025 (5) TMI 489 - AT - Service Tax

Classification of service - Work Contract Services - availing abatement of 67% on the total amount received by treating the service as Work Contract Service - HELD THAT - On going through the work order placed by the appellant on record and as per the work orders placed by the appellant only one work order No. 511-1400/SGTPS/W/IMD-I/W/Ord-54/733 dated 19.10.2013 material cost is involved Rs. 1, 98, 792/- on which CST @2% has been paid by the appellant and the material cost is shown as Rs. 3, 97, 584/-. On the other contracts produced by the appellant and placed on record does not show any element of supply. In fact all other contracts are periodical maintenance contract and no material is involved on those contracts which are evident from the bills raised by the appellant. Vide Bill No. IIE/14-15/05 dated 09.06.2014 Bill No. IIE/14-15/09 dated 15.07.2014 Bill No. IIE/14-15/05 dated 09.06.2014 Bill No. IIE/13-14/30 dated 30.01.2014 Bill No. IIE/13-14/18 dated 27.09.2013 and Bill No. IIE/13-14/14 dated 04.09.2013 all these bills shows that the appellant has provided only service no material is involved. Therefore the contention of the appellant that they have providing works contract service is not acceptable except the agreement dated 19.10.2013. On the said contract the value of material cost and has already been by worked out i.e. Rs. 3, 97, 584/- therefore on the amount of cost of material i.e. Rs. 3, 97, 584/- no service tax is payable by the appellant. Accordingly demand on the said amount calculating @ 12.36% reduced by Rs. 49, 141/-. Rest of the demand confirmed in the impugned order is payable by the appellant along with interest as said amount has not been paid by the appellant till yet. Therefore the penalty equivalent to said amount is also payable by the appellant. Conclusion - i) The contention of the appellant that they have providing works contract service is not acceptable except the agreement dated 19.10.2013. ii) On the said contract the value of material cost and has already been by worked out i.e. Rs. 3, 97, 584/- therefore on the amount of cost of material i.e. Rs. 3, 97, 584/- no service tax is payable by the appellant. iii) Rest of the demand confirmed in the impugned order is payable by the appellant along with interest as said amount has not been paid by the appellant till yet. Therefore the penalty equivalent to said amount is also payable by the appellant. Appeal disposed off.

1. ISSUES PRESENTED and CONSIDERED

- Whether the appellant's services fall under the category of Work Contract Services for the purpose of service tax liability.

- Whether the appellant was justified in availing abatement of 67% on the total amount received by treating the service as Work Contract Service.

- Whether the appellant was entitled to avail Cenvat credit on inputs during the period under adjudication.

- Whether the demand of service tax along with interest and penalty imposed on the appellant is sustainable.

- Whether the appellant's repeated requests for adjournments affect the conduct and consideration of the appeal.

2. ISSUE-WISE DETAILED ANALYSIS

Classification of Service and Applicability of Work Contract Service Tax

The appellant contended that the services rendered were Work Contract Services involving supply of material along with service, thereby justifying the availing of abatement of 67% on the gross amount. The Tribunal examined the work orders and invoices submitted by the appellant to determine the nature of the services provided.

The appellant submitted multiple contracts, including a specific work order dated 19.10.2013, which indicated involvement of material cost amounting to Rs. 1,98,792/-, with Central Sales Tax (CST) paid @ 2%. The material cost was reflected as Rs. 3,97,584/- in the records. However, other contracts produced by the appellant were identified as periodical maintenance contracts, wherein no material supply was involved. This was corroborated by the bills raised by the appellant on various dates, all indicating provision of service only, with no material component.

The Tribunal held that except for the contract dated 19.10.2013, the appellant's services did not involve supply of material and thus could not be classified as Work Contract Services. The legal framework governing service tax on Work Contract Services requires that material supply be an integral part of the contract for such classification and consequent abatement. The appellant's claim to treat all contracts as Work Contract Services was therefore rejected except in respect of the one contract involving material supply.

Calculation of Service Tax Demand and Abatement

On the contract dated 19.10.2013, the Tribunal accepted that the material cost of Rs. 3,97,584/- was involved and that service tax was not payable on this portion. Accordingly, the demand of service tax was reduced by Rs. 49,141/-, calculated at the applicable rate of 12.36% on the material cost. For the remaining contracts, the demand confirmed in the impugned order was upheld since the appellant had not discharged service tax liability on the entire amount received for pure service contracts.

Entitlement to Cenvat Credit

The adjudicating authority initially denied the appellant's claim for Cenvat credit on inputs. However, the Commissioner (Appeals) allowed the Cenvat credit while confirming the service tax demand. The Tribunal did not find any reason to interfere with the allowance of Cenvat credit as upheld by the Commissioner (Appeals), thereby affirming the appellant's entitlement to Cenvat credit on inputs used for providing output services.

Interest and Penalty

The appellant had not paid the service tax demand confirmed by the authorities till the time of adjudication. The Tribunal held that interest on the unpaid amount was payable as per the provisions of the Finance Act. Furthermore, penalty equivalent to the confirmed demand was also imposed on the appellant, which was upheld by the Tribunal in view of non-payment and non-compliance.

Conduct of the Appellant and Requests for Adjournments

The appellant's counsel repeatedly sought adjournments on multiple occasions, including dates spanning from 2014 to 2025. On the final hearing date, the Tribunal observed that the learned counsel was not interested in arguing the matter and that the attitude of seeking adjournments was unjustified. Consequently, the request for further adjournment was denied and the matter was taken up for final hearing in the interest of justice.

3. SIGNIFICANT HOLDINGS

"The contention of the appellant that they have providing works contract service is not acceptable except the agreement dated 19.10.2013."

"On the said contract, the value of material cost and has already been by worked out i.e. Rs. 3,97,584/-, therefore, on the amount of cost of material i.e. Rs. 3,97,584/-, no service tax is payable by the appellant."

"Rest of the demand confirmed in the impugned order is payable by the appellant along with interest as said amount has not been paid by the appellant till yet. Therefore, the penalty equivalent to said amount is also payable by the appellant."

Core principles established include the necessity of material supply for classification as Work Contract Service for service tax purposes, the entitlement to Cenvat credit on inputs used for output services, and the imposition of interest and penalty for non-payment of confirmed service tax demand.

Final determinations: The appeal was partly allowed by reducing the demand on material cost involved in one contract, while confirming the balance demand, interest, and penalty. The appellant's entitlement to Cenvat credit was affirmed. The appellant's conduct in seeking repeated adjournments was censured, and the matter was disposed of on merits.

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