2025 (6) TMI 763 - AT - Service Tax

Liability of appellant to pay service tax at the enhanced rate of 4% of the taxable income realized under works contract service for the period on or after 01.03.2008 - appellant has paid service tax at the rate of 2% for the services provided by them before 01-03-2008 - HELD THAT - This Tribunal has dealt with such an issue on an earlier occasion as can be seen from the decision in CCE Salem v. M/s URC Constructions Pvt Ltd 2018 (5) TMI 888 - CESTAT CHENNAI where it was held that The issue has been considered by the Hon ble High Court of Delhi in the case of Vistar Construction Pvt. Ltd. 2013 (2) TMI 52 - DELHI HIGH COURT where it was held that the rate of tax applicable on the date on which the services were rendered would be the one that would be relevant and not the rate of tax on the date on which payments were received. Thus it is no more res integra that for the relevant period involved in this dispute the rate of tax applicable on the date on which the services were rendered would be the one that would be relevant and not the rate of tax on the date on which the payments were received. The Delhi High Court in CST v Consulting Engineering Services (I) Pvt Ltd 2013 (1) TMI 434 - DELHI HIGH COURT had in similar circumstances when a change in rate of tax occurred on 14.05.2003 held that the date on which the taxable event had taken place is relevant and in that case since the services were admittedly provided prior to 14.05.2003 the rate of tax prior to 14.05.2003 during which period the service in that case was rendered would be the one that would apply. Conclusion - The appellant s service tax liability for the disputed period should be computed at 2% the rate prevailing at the time the services were rendered and the demand for differential tax at 4% based on payment receipt date is unsustainable. Appeal allowed.

Summary

The primary legal issue considered by the Tribunal was whether, for works contract services rendered prior to 01.03.2008 but for which payment was received on or after 01.03.2008, the appellant is liable to pay service tax at the enhanced rate of 4% applicable from 01.03.2008, or whether the applicable rate should be the rate in force on the date the services were rendered (2%).

Additional issues implicitly considered include the validity and applicability of the Central Board of Excise and Customs (CBEC) Circular dated 28.04.2008, which clarified that the rate of 4% applies to payments received on or after 01.03.2008 regardless of the date of service provision, and the consequent imposition of interest and penalty under the Finance Act, 1994.

Regarding the core issue of the applicable rate of service tax, the Tribunal examined the relevant legal framework, including Section 66 of the Finance Act, 1994, which stipulates that the liability to pay service tax arises on the provision of service, and the definition of the taxable event. The appellant contended that service tax liability arises at the time of rendering the service, and hence the rate prevailing on that date should apply. The appellant relied on Section 83 of the Finance Act read with Section 38A of the Central Excise Act, 1944, to support this position.

The Tribunal referred extensively to precedent decisions, notably the judgment of the Delhi High Court in Commissioner of Service Tax v. Consulting Engineering Services (I) Pvt. Ltd., which held that the rate of tax applicable is the rate in force on the date the service was rendered, not on the date of payment receipt. Furthermore, the Tribunal relied on the decision in CCE, Salem v. M/s URC Constructions Pvt Ltd., where the Tribunal invalidated the CBEC Circular dated 28.04.2008, holding that circulars or instructions issued by the Board cannot override the law as declared by the Supreme Court or High Courts. The Supreme Court's ruling in Commissioner of Central Excise, Bolpur v. Ratan Meltins & Wire Industries was cited to emphasize that circulars contrary to statutory provisions have no legal existence.

The Tribunal analyzed the Board's circular, which stated that service tax becomes chargeable on receipt of payment and that the rate applicable is the rate in force at the time of receipt. However, this was found to be inconsistent with the statutory provisions and judicial pronouncements that the taxable event is the rendition of service, not the receipt of payment. The Tribunal noted that reliance on the circular to demand differential tax at the higher rate for payments received post 01.03.2008 for services rendered pre-01.03.2008 was misplaced.

In applying the law to the facts, the Tribunal observed that the appellant had discharged service tax at 2% on services rendered up to 29.02.2008, which was the rate prescribed at the time. The department's demand for differential tax at 4% for payments received after 01.03.2008 was therefore unsustainable. The Tribunal also considered the appellant's argument regarding penalty imposition, noting that since the question involved interpretation of law and no contumacious conduct was found, penalty was not justified.

Competing arguments from the department reiterated the Appellate Authority's view that the Board's circular and notification imposed liability at the time of receipt of payment. However, the Tribunal rejected this, holding that the circular could not override statutory provisions or judicial decisions.

In conclusion, the Tribunal set aside the impugned order to the extent it upheld the demand for service tax at 4% on payments received after 01.03.2008 for services rendered before that date. The Tribunal held that the applicable rate is the rate prevailing on the date the services were rendered, i.e., 2%, and dismissed the department's appeal accordingly.

Significant holdings include the explicit declaration that the Board's Circular dated 28.04.2008 is invalid to the extent it conflicts with statutory provisions and judicial pronouncements. The Tribunal reaffirmed the principle that the taxable event for service tax is the rendition of service, not the receipt of payment, and that the rate of tax applicable is the rate in force on the date of rendition of service.

Verbatim from the judgment encapsulates this principle: "It is no more res integra that for the relevant period involved in this dispute, the rate of tax applicable on the date on which the services were rendered would be the one that would be relevant and not the rate of tax on the date on which the payments were received."

Further, the Tribunal emphasized the binding nature of Supreme Court and High Court decisions over Board circulars: "Circulars and instructions issued by the Board are no doubt binding in law on the authorities under the respective statutes, but when the Supreme Court or the High Court declares the law on the question arising for consideration, it would not be appropriate for the Court to direct that the circular should be given effect to and not the view expressed in a decision of this Court or the High Court."

Ultimately, the Tribunal's final determination was that the appellant's service tax liability for the disputed period should be computed at 2%, the rate prevailing at the time the services were rendered, and the demand for differential tax at 4% based on payment receipt date was unsustainable. The order imposing interest and penalty was also modified accordingly.