TMI Blog2010 (6) TMI 91X X X X Extracts X X X X X X X X Extracts X X X X ..... REPRESENTED BY: S/Shri S. R. Ashok, Sr. Counsel assisted by Mr. S.Chakrapani, for the petitioner. S/Shri A. Rajasekhara Reddy, Standing Counsel for the respondent. [Order per: Noushad Ali, J.] - The Circular No. 98/1/2008-ST dated 01-01-2008 issued by the 1 st respondent is in challenge. 2. The petitioner is a dealer on the rolls of the Commercial Tax Officer, Srinagar Colony Circle, Hyderabad as well as the service provider, an assessee on the file of the Commissioner of Customs and Central Excise, Hyderabad-II Commissionarate. It carries on the business of execution of civil works including construction of buildings (residential and commercial), roads, bridges, dams, electrical installations etc., throughout the country. The petitioner has been undertaking various civil works 'as a works contract'. It asserts that the works pursued by it fall within the purview of 'works contract' under the respective State enactments dealing with Sales Tax or Value Added Tax, as the case may be and further claims to be paying the taxes under the State Legislations on the material component, in accordance with the State Taxes Legislations including in Andhra Pra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vice from the respective classification and pay service tax for the amount received on or after 01.06.07 under the Composition Scheme? Prior to 01.06.07, service provider classified the taxable service under erection, commissioning or installation service {section 65 (105)(zzd), commercial or industrial construction service {section 65(105)(zzq) or construction of complex service {section 65 (105)(zzzh)}, as the case may be, and paid service tax accordingly. The contact for the service was a single composite contract. Part of service tax liability corresponding to payment received was discharged and the balance amount of service tax is required to be paid on or after 01.06.07 depending upon receipt of payment. Classification of a taxable service is determined based on the nature of service provided whereas liability to pay service tax is related to receipt of consideration. Vivisecting a single composite service and classifying the same under two different taxable services depending upon the time of receipt of the consideration is not legally sustainable. In view of the above, a service provider who paid service tax prior to 01.06.07 for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs V and VA therein. The number of services brought within the ambit of this tax net, extended through the years. Sec. 64(3) of the Act enacts that the provisions of Chapter V shall apply to taxable services provided on or after 01.07.1994 (being the date on which Chapter V of the Act was notified to come into force). Section 65 (also in Chp.V) sets out the definitions; sub-section (105) therein defines taxable services to mean any service provided or to be provided, as are enumerated in the several clauses of sub-section (105) of Sec. 65. 9. Clauses (zzd), (zzq) and (zzzh) - first of these two clauses having been notified on 20.06.2003 w.e.f. 01.07.2003 and the 3rd clause notified on 07.06.2005 w.e.f. 16.06.2005 include as a taxable service any service provided or to be provided : (zzd) to any person, by a commissioning and installation agency in relation to erection, commissioning or installation; (zzq) to any person, by any other person, in relation to commercial or industrial construction service; and (zzzh) to any person, by any other person, in relation to construction of complex. 10. Sub-Secs. 39(a), 25(b) and 30(a) of Sec. 65 of the Act define certain activ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on to residential complex such as glazing, plastering, painting, floor and wall tiling, wall covering and wall papering, wood and metal joinery and carpentry, fencing and railing, construction of swimming pools, acoustic applications or fittings and other similar services; or (c) repair, alteration, renovation or restoration of, or similar services in relation to, residential complex 13. With effect from 01.06.2007, vide a notification dated 22.05.2007 sub-section (105) of Section 65 was amended and Clause (zzzza) introduced. This clause reads: (zzzza) to any person, by any other person in relation to the execution of a works contract, excluding works contract in respect of roads, airports, railways, transport terminals, bridges, tunnels and dams. Explanation:-- For the purposes of this sub-clause, works contract mans a contract wherein, -- (i) transfer of property in goods involved in the execution of such contract is leviable to tax as sale of goods, and (ii) such contract is for the purposes of carrying out, -- (a) erection, commissioning or installation of plant, machinery, equipment or structures, whether pre-fabricated or otherwise, installation of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of a works contract referred to in sub-clause (zzzza) of clause (105) of section 65 of the Act; Rule 3 being relevant is extracted below: 3. (1) Notwithstanding anything contained in section 67 of the Act and rule 2A of the Service (Determination of Value) Rules, 2006, the person liable to pay service tax in relation to works contract service shall have the option to discharge his service tax liability on the woks contract service provided or to be provided instead of paying service tax at the rate specified in section 66 of the Act, by paying an amount equivalent to four per cent of the gross amount charged for the works contract. Explanation:-- For the purpose of this rule, gross amount charged for the works contract shall not include Value Added Tax (VAT) or sales tax, the case may be, paid on transfer of property in goods involved in the execution of the said works contract. (2) The provider of taxable service shall not take CENVAT credit of duties or cess paid on any inputs, used in or in relation to the said works contract, under the provisions of CENVAT Credit Rules, 2004. (3) The provider of taxable service who opts to pay service tax under these rules sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tax) (Amendment) Rules 2008, w.e.f. 01.03.2008. The current rate of tax chargeable under the composition scheme is thus four percent. Sub-rule (3) of Rule-3 (extracted supra) clearly enjoins that the provider of taxable service who opts to pay service tax under these Rules (i.e., the composition scheme) shall exercise such option in respect of 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. 22. On a true and fair construction of Rule 3(3) of the 2007 Rules, it is clear that where in respect of a works contract service tax has been paid, no option to pay service tax under the composition scheme could be exercised. There is no ambiguity in this provision. The entitlement to avail the benefits of the composition scheme is only after an option is exercised under Rule 3(3) of the 2007 Rules and this provision specifically enjoins a disqualification forexercise of such option where service tax had been paid in respect of a works contract. To put it succinctly, where service tax has been paid in re ..... X X X X Extracts X X X X X X X X Extracts X X X X
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