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M/s Interarch Building Products Pvt. Ltd. Versus Commissioner of Service Tax, Noida

2018 (1) TMI 491 - CESTAT ALLAHABAD

CENVAT credit - Valuation - Classification of services - business of manufacture, supply and erection at site of pre-fabricated/pre-engineered steel buildings and parts thereof at its three manufacturing units - classified under Works Contract Service or under Commercial or Industrial Construction Service? - the entire case of Revenue is based on the provisions under Rule 2A of Service Tax (Determination of Value) Rules, 2006 and Composition Scheme in respect of Works Contract Service. It is the .....

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ohibition in the Cenvat Credit Rules, 2004 or the Finance Act, 1994 or the rules made there under. We do not find any such restriction or prohibition nor the ld. D.R. has been able to show any such restriction to us. We find that in the present case, assessments were done by the appellant in accordance with the provisions. - The issue in hand is squarely covered by the decision in the case of M/s SV Jiwani Versus CCE & ST, Vapi [2014 (3) TMI 454 - CESTAT AHMEDABAD], where it was held that it .....

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oint Commissioner (AR), for Respondent ORDER Per : Anil G. Shakkarwar The present appeal is arising out of Order-in-Original No. 31 to 34/Commissioner/ST/Noida/2016-17 dated 31/03/2017 passed by Commissioner of Service Tax, Noida. 2. The brief facts of the case are that the appellants were having centralized registration for Service Tax with Central Excise & Service Tax Commissionerate, Noida for Services under Commercial or Industrial Construction Service and Construction Services in respec .....

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thereof. The goods manufactured are cleared from the place of manufacture on payment of Central Excise duty on which Cenvat credit was availed by the appellants. It appeared to Revenue that the appellant should have classified their service activity under Works Contract Service. It further appeared to Revenue that on classifying service under Works Contract Service appellants were not entitled to avail Cenvat credit on Central Excise duty paid on inputs. It was, therefore, examined by Revenue, t .....

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Service Tax paid through debit of Cenvat credit was ₹ 112,60,92,760 (i.e. 112.60 Crore Rupees). The balance amount was paid through debit of gross Cenvat credit through input service of ₹ 15.42 Crore. The remaining amount of ₹ 3.30 Crore was paid by cash. It appeared to Revenue that the said services should have been classified under Works Contract Service and also to Revenue that on classification under Works Contract Service, it was mandatory for the appellants to either foll .....

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d on inadmissible Cenvat credit to their customers and also collected from the customers in the name of Service Tax ₹ 90,23,90,907/- which was liable to be recovered under the provisions of Section 73A of the Finance Act, 1994. Further under Composition Scheme, Revenue worked out that giving the benefit of inputs service Cenvat credit of ₹ 15.42 Crore & ₹ 3.30 Crore of cash payment, there was short payment of Service Tax to the tune of ₹ 22,37,01,811/-. Therefore, a S .....

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,811/- on account of short paid Service Tax being adjusted was inadmissible Cenvat credit on Construction Materials, after allowing the credit of input service and deducting tax deposited in cash during the period from 2007-08 to 2011-12, should not be demanded in cash from them under Sub-section (1) of Section 73 of the Finance Act, 1994. (iv) An amount of ₹ 90,23,90,907/- collected as cash in excess of the Service Tax assessed/determined by passing the inadmissible Cenvat credit to their .....

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service, it was held to be classified under Works Contract Service. Aggrieved by the said order, the appellant preferred appeal before this Tribunal. The said appeal was decided through Final Order No. A/70073/2016 dated 18/11/2015 allowed the appeal of the appellant by way of remand and sent the matter for de-novo adjudication to the Commissioner, observing as under:- "Having considered the rival contentions, we find it fit and appropriate in the interest of justice set aside the impugned .....

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rder-in-Original No. 31 to 34/Commissioner/ST/Noida/2016-17 dated 31/03/2017, while passing the said order dated 31/03/2017, he also clubbed 3 more Show Cause Notices that had been issued for covering the period from April, 2012 March, 2014. He also stated that the Show Cause Notices invoked the same provisions of law as invoked in the case of Show Cause Notice dated 23/10/2012 except in the case of Show Cause Notice dated 27/10/2014 and 23/10/2015, wherein Cenvat credit on inputs is demanded by .....

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nvat Credit Rules, 2004. The Original Authority stated in the opening Paragraph of his impugned Order-in-Original that, it is issued in compliance to the Tribunals Final Order No. A/70073/2016 dated 18/11/2015. In Para 5.10.13 while dealing with the judgement in S.V. Jivanis case (supra) which had been taken by the Revenue to the Hon ble Bombay High Court and where the appeal of the Revenue was dismissed by the Hon ble Court reported at 2016 (42) STR 209 (Bom.), the Original Authority has stated .....

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n of Value) Rules, 2006 or in terms of Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007, and there was no provision for availment of Cenvat Credit of Central Excise duty paid on the construction materials (inputs) under the said Rules." In view of the said findings, he passed order as follows:- "1. I order to classify the impugned service of the assessee under the Works Contract Service in place of the Commercial or Industrial Construction Serviceexcept for th .....

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terms of Rule 2(k) & 3(1) of the Cenvat Credit Rules, 2004. 3. I confirm the demand of ₹ 20,13,18,981/- [(Rs.22,37,01,811/- (-) ₹ 2,23,82,830/-) (Rupees Twenty Crores Thirteen Lakhs Eighteen Thousand Nine Hundred Eighty One only) (including Education Cess and Secondary & Higher Education Cess)] as per the allegations made in the SCN dated 23.10.2012 issued to the assessee and direct the party to pay the same in cash, being short paid under Sub-section (2) of Section 73 of the .....

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Finance Act, 1994. 5. I order to charge and recover the interest at appropriate rate(s) as applicable during the relevant periods, under Section 73B and Section 75 of the Finance Act, 1994 from the assessee on the aforesaid amounts adjudged in paras 3 & 4 above with reference to the SCN dated 23.10.2012. 6. I impose a penalty of ₹ 10,000/- (Rupees Ten Thousand only) on the assessee under Section 77 of the Finance Act, 1994 for their various acts of omission and commission as mentioned .....

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g paras with reference to the SCN dated 23.10.2012. 8. I disallow the Cenvat credit of building/construction materials as alleged in the SCN dated 22.05.2014 issued to the assessee amounting to ₹ 2,90,92,473/- (Rupees Two Crores Ninety Lakhs Ninety Two Thousand Four Hundered and Seventy Three only) [(Rs.4,39,46,504/- (-) ₹ 1,48,54,031/- including Education Cess and Secondary & Higher Education Cess and reflected in Annexure/Chart A & B to the SCN dated 22.05.2014)] in terms o .....

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interest at appropriated rate(s) as applicable during the relevant periods under Section 73B & Section 75 of the Finance Act, 1994 from the assessee on the aforesaid adjudged amount as per Para 9 with reference to the SCN dated 22.05.2014. 11. I impose a penalty of ₹ 10,000/- (Rupees Ten Thousand only) upon the assessee under Section 77 of the Finance Act, 1994 for their various acts of omission and commission as mentioned in preceding Paras with reference to the SCN dated 22.05.2014. .....

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tion materials as alleged in the SCN dated 27.10.2014 amounting to ₹ 9,20,75,777/- (Rupees Nine Crores Twenty Lakhs Seventy Five Thousand Seven hundred Seventy Seven only) including Education Cess and Secondary & Higher Education Cess in terms of Rule 2(k) & 3(1) of the Cenvat Credit Rules, 2004 and order to recover the same from the assessee under Rule 14 of the Cenvat Credit Rules, 2004 read with Section 73(1) of the Finance Act, 1994. 14. I order to charge and recover the intere .....

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llected in cash as Service Tax and adjusted from the inadmissible Cenvat credit availed on the construction/building materials in excess of the Service Tax assessed/determined in terms of provisions under Section 73A of the Finance Act, 1994. 16. I hereby order to charge and recover the interest, at appropriate rate, as applicable during the relevant periods, under Section 73B & Section 75 of the Finance Act, 1994 from the assessee on the aforesaid confirmed dues with reference to the SCN da .....

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ference to the SCN dated 27.10.2014. 18. I impose the penalty of ₹ 10,000/- (Ten Thousand only) upon the assessee under Section 77 of the Finance Act, 1994 for their various acts of omission and commission as mentioned in the preceding Paras with reference to the SCN dated 27.10.2014. 19. I hereby disallow the Cenvat credit of building/construction materials as alleged in the SOD dated 23.10.2015 amounting to ₹ 36,81,836/- (Rupees Thirty Six Lakhs Eighty One Thousand Eight hundred an .....

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n 75 of the Finance Act, 1994 on the aforesaid confirmed dues in Para 18 with reference to the SOD dated 23.10.2015. 21. I hereby confirm the demand of ₹ 53,59,408/- (Rupees Fifty Three Lakhs Fifty Nine Thousand Fourt Hundred and Eight only) upon the assessee, being the amount collected in cash as Service Tax and adjusted from the inadmissible Cenvat credit availed on construction/building materials in excess of the Service Tax assessed/determined in terms of provisions under Section 73A o .....

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alent to 10% of the dues adjudged under Para 21, amounting to ₹ 53,59,408/- (Rupees Three Lakhs Fifty Nine Thousand Four Hundred and Eight only) under Section 76 of the Finance Act, 1994 read with Rule 15(1) of the Cenvat Credit Rules, 2204 for their various acts of omission and commission as mentioned in the preceding Paras with reference to the SOD dated 23.10.2015." Aggrieved by the said order the appellant has moved the present appeal before this Tribunal. 5. The grounds of appeal .....

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rovision prescribed under said Rule 2A, is subject to the provisions of Section 67 of the Finance Act, 1994. (iii) Opening Para of Rule 3 of Composition Scheme reads as- Notwithstanding anything contained in Section 67 of the Act and Rule 2A of the Service Tax (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 Works Contract Service. It clearly indicates that it is on .....

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ision of service is for a consideration in money, be the gross amount charged by the service provider for such service provided or to be provide by him.Therefore, the said provision which is fundamental in nature and is applicable to any taxable service. (v) The demand towards Cenvat credit confirmed in case of show cause notice dated 23.10.2012 is substantially time barred. (vi) In the impugned order, ld. Commissioner has distinguished the judgment of this Tribunal in the case of S. V. Jiwani ( .....

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vat Credit Rules, 2004 read with Section 73 of the Finance Act, 1994. The only provision for disallowing the Cenvat credit is provided under14 of the said Rules and since said Rule was not invoked, the Cenvat credit which was availed by the appellant was still available to them as it was found to be admissible to the appellant. He further submitted that the proposal to disallow the said Cenvat credit was not under the provisions of Rule 14 of the said Rules, therefore, the said Show Cause Notice .....

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ed out that only when the Composition Scheme is opted, Cenvat credit on inputs is inadmissible but since they have not opted for Composition Scheme, the provisions of Composition Scheme are not applicable to them. He has further pointed out that provision of said Rule 2A of Service Tax (Determination of Value) Rules, 2006, are subject to provisions of Section 67 of the Finance Act, 1994 and they have arrived at assessable value by applying the provisions of Section 67of the Finance Act, 1994 and .....

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7 of the Finance Act, 1994 and as such, there was no contravention of provisions of said Section 67 of the Act, and that the provisions of said Rule 2A of the Rules, are not applicable to them. Further, Composition Scheme is optional and they did not opt for Composition Scheme, and therefore, conditions of Composite Scheme were not applicable to them. The Composition Scheme and said Rule 2A of the Rules do not allow the availment of Cenvat credit on inputs but since both were not applicable in t .....

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nsustainable. He further submitted that the demand of around ₹ 20 crores confirmed in the First Show Cause Notice was on account of forcibly applying option of Composition Scheme on the appellant and therefore, said demand is also not sustainable. He has further submitted that taking all the aspects into consideration, it is a very clear case that there was not loss to exchequer. He finally submitted that the Commissioner has unjustifiably distinguished the judgment in S.V. Jivanis case (s .....

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in the present case. The sole issue before the Apex Court in composite indivisible contract case was, whether service tax can be levied on works contract prior to 01.06.2007 from which date such works contracts were made liable to service tax. The issue, on the other hand, involved in the present case is entirely different. Therefore, the Final Order of this Tribunal in the above sated case of M/s S. V. Jiwani was applicable to the appellant. 7. Heard the ld. A. R. for Revenue, who has also sub .....

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on Service was made taxable vide Finance Act, 2004 w.e.f. 10.09.2004 and w.e.f. 16.06.2005, the scope of the service was expanded and re-named as Commercial or Industrai Construction Service. Taxable services mean any service to be provided to any person, by any other person in relation to commercial or industrial construction (Section 65(105)(zzq). Works Contract Service (Section 65(105)(zzzza) means any service provided or to be provided to any person, by any other person in relation to the ex .....

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value of Services. Every work contract involves an element of sale of goods and provision of service. The Hon ble Supreme Court in the case of BSNL {2006 (2) STR 161 (SC)} has settled the law that works contract can be segregated into a contract of sale of goods and contract of provision of service. With a view to bring certainty and sim0plicity the manner of determination of value of service portion in works contracts has been provided in Rule 2A of the Service Tax (Determination of Value) Rule .....

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mentary proof specifically indicating the value of the said goods and materials, 15/2004-ST that exempted tax from the portion that was in excess of 33% of the tax determined on the gross amount charged and later a mega Notification No.1/2006-ST dated 01/03/2006. CBEC also specified vide Circular No.81/16/2007-TRU dated 22/05/2007 as to when the Erection, Commissioning or Installation Service, Commercial or Industrial Construction Service and Construction of Complex Service fall in the scope of .....

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M/s IBPPLmerits to be classified under the Works Contract Service. 10. Further, the Hon ble Supreme Court in its Order dated 20.08.2015 in Civil Appeal No.6770 of 2004 in the case of L &T Ltd and Others {2015 (39) STR 913 (SC)} has held that (i).. This is clear from the very language of Section 65(105) which defines taxable service as any service provided.All the services referred to in the said Sub-clauses are service contracts simplicitor without any element in them.(ii) Section 67 of the .....

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suant to such contract enters into computation of Service Tax. 11. Therefore, the method adopted by M/s IBPPL to discharge the Service Tax liability on the gross value of contract i.e., combined value of goods transferred and services rendered instead of discharge of Service Tax liability on the gross value of services rendered only was erroneous as well as unconstitutional and caused loss to the Government exchequer in as much as they availed the credit of the input materials (transferred goods .....

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ract Service. It is the contention of the Revenue that after 01.06.2007, the services of the appellant were appropriately classifiable under works contract service only in terms of Section 65 (105) (zzzza) of the Finance Act, 1994 and that the appellant had only two options for valuation of its service and that is, either Rule 2A of Valuation Rules, 2006 of under the composition Scheme and in either of these options, Cenvat credit on inputs is not admissible to the appellant. We find that the ap .....

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position Scheme is optional and provisions of said Rule 2A of the said Rules are subject to provisions of Section 67 of the Finance Act, 1994. We also find that in Para 42 of the said Show Cause Notice dated 23/10/2012, Revenue has not alleged that the appellant had violated the provisions of Section 67 of the said Act. Once the said provisions of Section 67 of the said Act have been complied with, the question of applicability of said Rule 2A of the Rules does not arise. It is further clear fro .....

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ly applying option of Composition Scheme on the appellant. In both these circumstances, the appellants were entitled for Cenvat credit on inputs. We, therefore, find that appellants were entitled for Cenvat credit on inputs. We find that the entire demand is made out on the presumption that Cenvat credit on input was not admissible and as a result there was short payment and as a result there was also a demand Section 73A of the Finance Act, 1994. In view of our above discussion and findings, th .....

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is also not sustainable. We find that the Hon ble Bombay High Court, while discussing the appeal of the Revenue in S.V. Jivanis case (supra), has made general observation on the aspect of Revenue loss but has otherwise upheld the order of the Tribunal. We find that the Commissioners reliance on the observations of the Hon ble High Court on revenue lossare misplaced and without any basis. We find that in the show cause notices, the Department has not made out any such case of the alleged revenue .....

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osition scheme are merely options provided to the assessee. Once this is the legal position, the benefit of Cenvat credit on inputs cannot be denied to the appellants in the absence of any specific bar or prohibition in the Cenvat Credit Rules, 2004 or the Finance Act, 1994 or the rules made there under. We do not find any such restriction or prohibition nor the ld. D.R. has been able to show any such restriction to us. We find that in the present case, assessments were done by the appellant in .....

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onsidering the sole issue of leviability of service tax on the composite contract which are in the nature of works contract prior to 01.06.2007, i.e. the date on which the works contract service was brought under the levy by a specific entry. The issue in the present case is about the valuation methodology of works contract service, after 01.06.2007, the option available to the appellant for valuation and its bearing on admissibility of Cenvat Credit on inputs. The judgment of the Hon ble Apex C .....

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s are appellant were awarded a contract by Classic Marbles Impex Pvt. Ltd., for setting up of their plant which involved procurement of materials and erection. The appellant herein had discharged the Service Tax at 12.36% i.e., full tax on the entire value of the contract under works contract services and availed Cenvat credit of the duty paid on inputs like steel, cement and various other services. It is also undisputed that the Cenvat credit was availed, on correct and valid documents. 8. The .....

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Rule 2A of Service Tax (Determination of Value) Rules, 2006 and or Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007. 10. In our considered view, the entire issue is misconceived by the Adjudicating Authority for more than one reason. 11. Firstly, the appellant entered into works contract service and Service Tax liability on such works contract needs to be discharged based on reading of Section 67 of Finance Act, 1994. In order to appreciate the said provisions we repro .....

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eration not wholly or partly consisting of money, be such amount in money as, with the addition of service tax charged, is equivalent to the consideration; (iii) in a case where the provision of service is for a consideration which is not ascertainable, be the amount as may be determined in the prescribed manner. (2) Where the gross amount charged by a service provider, for the service provided or to be provided is inclusive of service tax payable, the value of such taxable service shall be such .....

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the taxable services provided or to be provided; (b) "money includes" any currency, cheque, promissory note, letter of credit, draft, pay order, travellers cheque, money order, postal remittance and other similar instruments but does not include currency that is held for its numismatic value: (c) "gross amount charged" includes payment by cheque, credit card, deduction from account and any form of payment by issue of credit notes or debit notes and book adjustment, and any am .....

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ered for discharge of Service Tax liability. It is admitted by both sides that the value of the works contract executed by the appellant is the value on which the appellant has discharged full rate of Service Tax. We find from the above reproduced Section 67 of Finance Act, 1994, the said provision of Section 67 can be departed only, and we reiterate only, when value as per the provisions of 67(1)(2)(3) are not ascertainable, and recourse can be taken to provisions of Section 67(4). While applyi .....

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of Rule 2A of the Service Tax (Determination of Value) Rules, 2006. We find that the said rule starts with the expression subject to the provisions of Section 67 means that value of the services, involved in execution of works contract if cannot be determined under said section, then only the said provisions of Rule 2A would apply and shall be determined in the manner as is indicated therein. In our considered view, this rule will not be applicable to the case in hand. 14. Thirdly, we find that .....

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non-obstante clausemay give an impression that the rule will prevail over the provision of Section 67 and Rule 2A of the Valuation Rules for determination of value for discharge of Service Tax liability in cases of works contracts, but on deeper reading we find that the said provisions indicate another intention of legislature. 15. In order to appreciate a correct position, the relevant Rule needs to be reproduced : "1. (1) These rules may be called the Works Contract (Composition Scheme fo .....

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and not defined but defined in the Act shall have the meanings respectively assigned to them in the Act. 3. (1) Notwithstanding anything contained in Section 67 of the Act and Rule 2A of the Service Tax (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 works contract service provided or to be provided, instead of paying service tax at the rate specified in Section 66 .....

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e 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 shall exercise such option in respect of a 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. 16. It is pertinent to note that the said Rule 3(1) of Works C .....

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Rules, 2007 then only meaning that can be attributed will be that the service provider or an assessee has to discharge the Service Tax liability at the full rate. We are fortified in this view, by Apex Court in the case of Chandavarkar Sita Ratna Rao v. Ashalata S. Guram (supra), We also find that larger Bench of the Tribunal in the case of Bhayana Builders P. Ltd. v. CST, Delhi - 2013 (32) S.T.R. 49 (Tri.-LB) was considering more or less identical/similar situation, wherein it was held that co .....

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ed nugatory and otiose. Further we are of the view that an anomalous situation would arise, if it is held so, as benefit of Rule 2A of Valuation Rules would no longer be available as an option to the service provider if non-obstanteclause employed in Rule 3(1) of Composition Rules is read in the manner Revenue wants us to read. In our view, this can neither be the intention of the legislature and no such interpretation can be done which renders a statutory provision nugatory. In our view, Rule 3 .....

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