TMI Blog2021 (3) TMI 823X X X X Extracts X X X X X X X X Extracts X X X X ..... ce - As regard the contention of the revenue that the respondent have executed one composite works contract irrespective of having two separate contract one for supply of goods and other for supply of services, it should be treated as one contract and value of both the contract should be taken together for arriving at gross value of the works contract. To counter the situation like in the present case the amendment was brought with effect from 07.07.2009. If the contention of the revenue is accepted it will amount to give retrospective effect to the amendment of 07.07.2009 which is not permissible under law as per the settled position by Hon ble Supreme Court in various cases that any amendment cannot be made applicable. Retrospectively unless it is specifically mentioned therein, therefore even considering the undisputed fact of two contracts the value of goods supplied under separate contract cannot be added in the value Works Contract Service. Extended period of limitation - wilful suppression of facts or not - HELD THAT:- There is no suppression or wilful misstatement on the part of the respondent. The Learned Commissioner in the impugned order also observed that the re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from Commercial or Industrial Construction Service to Works Contract Services and started paying service tax thereon under the works contract (Composition scheme for payment of service tax)Rules,2007. However, it was observed that they were discharging service tax under the Works Contract only on the value of erection parts and were not taking into consideration the value element of supply of goods required for completion of the contract. The EDAs have floated tenders and invited bid for the purpose of Purchase of Transmission Towers and Erection thereof at their pre-determined sites. The contractor (here the respondent) to manufacture the parts and accessories at its factory premises at Gandhinagar for further erection of transmission tower on various sites, transport such part and accessories ( bear the inland freight charges) to the various sites for erection and installation as per the bid documents. The contractor was paid for the manufacturing of parts of transmission towers the insurance charges and the transportation of goods up to the sites and erection, commissioning and installation therefore, the qualifier of bid and the EDAs discussed the project requirements a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... carried at predetermined sites. The scrutiny of the ST-3 return indicated that the assessee had classified their activities under Works Contract Services and were paying the service tax under (Composition scheme for payment of service tax) Rules, 2007.(for the projects entered by them)prior to 07.07.2009. Scrutiny of documents submitted by the respondent further revealed that while calculating gross value they were not including value of supply portion and were not paying service tax on portion of Supply Contract. The revenue contended that since the respondent paying the service tax under Works Contract (Composition scheme for payment of service tax) Rules, 2007 value of the material supplied and used for erection of the Transmission Towers needs to be included in the gross value of services and service tax payable on the total value, thus by not including the value of manufactured goods supplied by the respondent, they have short paid service tax accordingly, Show Cause Notice No V ST/15-02/Off/OA/2012 was issued. The adjudicating authority vide impugned order vacated the proceeding initiated against the respondent in the aforesaid Show Cause Notice. 3. Being aggrieved by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der any other contract. 4.2 He further submits that the respondent has submitted full and correct details sought by the department and the present issue was raised only during the audit on the basis of bid document, contracts and agreement which was otherwise not accessible by the department. The argument of the respondent of having filed ST-3 return has not legal force as it contains only the statistical data of value of services provided and service tax payable under each category thus the extended period of limitation is rightly applicable. 4.3 He further submits that Learned Adjudicating Authority in giving various findings in the impugned order the transfer of ownership of the goods to EDAs on basis does not having the case of the respondent as the fact remains that parts of transmission towers were manufactured and supplied to EDAs as per design specification and requirement and execution of the contract which stood executed on completion of successful installation and on operational test certificate by EDA as per terms and conditions of the contract. He submits that merely transfer of title shall not relieve the respondent with its responsibilities and all risks, lo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome of a single bid. He also referred to the provision of section 2(7) and 6(3) of the Sale of Goods Act 1930 whereby, he submits that the two contracts one for goods and other for services are none else than an agreement of sale of transmission lines by the respondent and in the terms of the provision in the works contract the value of goods were required to be added for the purpose of payment of service tax as there is no exemption provisions with effect from 01.06.2007. 4.7 He further submits that even for the works contract which remain continued prior to the crucial date 01.06.07 in the absence of any exemption provision for value of material in discharge of service tax under Works Contract Service applies. He submits that the position would be different if there are different parties in the two contracts but in the instant case the parties to the two contracts are one hence for the purpose of service tax the respondent were required to include the value of material also. He also submits that even if the price is paid with legal tax and whereby, ownership said to have been transferred by no stretch of imagination would be term as free supply to exclude the value of materi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the gross amount charged for the works contract. He submits that the above change in statutory provision have been explained by CBEC vide circular DOF No 334/13/2009-TRU dated 06.07.2009 where it was clarified in para 5.1 vided circular No. 150/1/2012- ST dated 8.02.2012 again clarified on the said amendment in Rules 3 of works Contract Rules 2007. 5.1 He submits that Learned Commissioner has observed in para 36.2 of impugned order in original dated 22.01.2015 with all the 24 contracts in the present dispute are prior to 07.07.2009 and payment of service tax of all the 24 contracts have been made and the same was disclosed in the periodical ST-3 Return filed by the respondent. He submits that the respondent provided contract wise / invoice wise details along with ST-3 return filed by the respondent before the jurisdictional Authorities. He invited our attention to a letter dated 21.10.2010 issued by Chief Commissioner concern of Central Excise, Ahmedabad wherein, Hon ble Chief Commissioner has appraised the Member (Service tax) CBEC that according to the office of chief commissioner, Central Excise, Ahmedabad, the amendment carried out under Rules 3 of Works Contract Rul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the part of the respondent and invoked the extended period of limitation. The period of dispute in the present appeal is 01.06.2007 to 31.03.2012. He submits that there is no suppression of any fact of wilful mis-statement on the part of the respondent. On the contrary, the respondent have informed the Jurisdictional Authorities vide letter dated 02.07.2007 and 03.08.2007 recording the classification of their services and also their decision to exercise the option to pay service tax under Works Contract (Composition scheme for payment for service tax) Rules, 2007. Further it was audited by the Revenue Authority for the period 2007-08 however, no objection raised by the revenue auditors further the issue of valuation or services provided by the respondent was raised. The respondent have represented the matter before the chief commissioner and also before the CBEC. It is also worth to note here that the chief Commissioner while representing the matter to the CBEC in the letter dated 21.10.2010 has clearly mentioned with the amendment in Works Contract Rules, 2007 with effect from 07.07.2009 would be prospective only and in the present case it would not apply at all. The above commun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ale of goods before the commencement of work, the property in the goods is with contractor. On completion of the work the property in the goods should vest with the employer. During the completion of work the property in the goods is vested with the employer without any delivery of the goods to the employer. The respondent relied upon Supreme Court judgment in the case of Commissioner of sales tax , MP Vs. Purshottam Premji reported in 1970 (26) STC 38 (SC) = 1970(2) (SCC) 287. 5.5 It is submitted that in view of the aforesaid judgment the transfer of property in goods during the execution of works contract is necessary to be classified as Works Contract under the scheme of Service Tax. The respondent submits that the property in tower/ tower parts are transferred to the respondent at the factory gate of the respondent, this fact is not in dispute. The transferred property in goods under the first contract of sale of tower/tower parts cannot be considered as part of the Works contract therefore, the property in tower/tower parts and accessories supplied along is not getting transferred by accretion/ accession during the execution of the Works Contract and therefore, the value ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cessary to refer to the said rules pre and post its amendment. A.4 Rule 3 of Works Contract (Composition Scheme for payment of Service tax )Rules, 2007 pre- amendment read as under: 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 Works 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 two percent of the gross amount charged for the Works Contract. Explanation:- For the purposes of this rule, gross amount charged for the works contract shall not include Value Added Tax (VAT) or Sales tax, as the case may be, paid on transfer of property in goods involved in the execution of the said works contract. A.5 The above explanation to Rule 3 of works contract (Composition Scheme for payment of Service Tax) Rules, 2007 was amended as under:- Explanation:- For the purposes of this sub-rule, gross amount charged for the Works Contract shal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ding the full value of the goods required for execution of works contract for working out 4 service tax liability under the Composition Scheme by either excluding the value of goods received free of cost from their client or splitting the contract into a sale contract (for a portion of goods required to execute the works contract) and works contract (for only a portion of the total value of goods and the labor charges), thus reducing the value of works contract for the purposes of calculating service tax. In order to plug this loophole, the Explanation appearing in sub-rule (3) is being amended to provide that the composition scheme would be available only to such works contracts where the gross value of works contract includes the value of all goods used in or in relation to the execution of works contract whether received free of cost or for consideration under any other contract. This condition would not apply to those works contracts, where either the execution of works contract has already started or any payment (whether in part or in full) has been made on or before the date of the amendment, i.e. 07.07.2009, from which the said amendment becomes effective (refer notification ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the clear provision under the amended Rule 3 reads with amended explanation and two circular clarifying provision of the said amendment, it is clear that any contract which is executed or payment their against (except the way of credit/ debit) made prior to 07.07.2009, the value of goods supplied under the separate contract cannot be included in the gross value of Works Contract Service. As per the undisputed fact and also finding given by the learned commissioner in the impugned order execution of 24 contracts have been commenced prior to 07.07.2009 therefore, the contention of inclusion of value of goods in the gross amount charged for the works contract as provided under explanation (a)(1) is not applicable. It is pertinent to note that prior to 07.07.2009 there was no clear provision irrespective of separate contract for supply of goods / supply of service value of both to be clubbed to arrive at gross amount charged for Works Contracts. Therefore, admittedly there are two separate contracts one for supply of goods and other for supply of services prior to 07.07.2009. The contract value of supply of goods cannot be included in the gross value of works contract service. 6.5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Works Contract Service one of the condition is that the property in goods used in execution of works contract must be transferred during the execution of contract. In the present case the appellant while clearing the transmission towers from their factory issued the sale invoices accordingly, the property in the said goods does not remain with the respondent but the same was transferred to service recipient and while execution of the works contract service the property in the said goods was with the recipient. Since the transfer of property in the said goods is not taking place during the execution of the Works Contract Service the Value thereof cannot be included in the Works Contract Service. At the same time the respondent have used certain accessories and parts for execution of Works Contract Service and value thereof was admittedly included for the reasons that the property in the said good was transferred only during execution of works contract service. Therefore, there is a clear distinction between goods property of which is transferred prior to execution of Works contract Service and the property in the goods transferred during the execution of Works Contract Servi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2007) 3 SCC 481 6.11 In the above judgments one common issue has been considered that there can be two separate contracts, that is one for sale and another for Works Contract Service as in the present case the value of goods sold, property of which in goods has already been passed on, cannot form part of the value of the second contract i.e. Works Contract. 6.12 The Contention of the revenue is that it is necessary to enter a single indivisible contract is contrary to the principle that there are more than one way for performing an act. It is for parties concerned to choose the method and manner. In this regard the Hon ble Supreme Court in CIT vs. Motors and General Stores (P) Ltd, (1967) AIR1968 SC 200 reads as under: 6. In a later case- Commissioners of Inland Revenue V. Wesleyan and General Assurance Society [ 30 TC II ] - Viscount Simon expressed the principle as follows: ...................... Secondly, a transaction which, on its true construction, is of a kind that would escape tax, is not taxable on the ground that the same result could be brought about by a transaction in another from which would attract tax.. 6.13 From the above judgment it is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ispute that in addition to the supply, the appellant had discharged VAT/CST as the case may be in respect of the supply contracts. The only question remains to be answered is whether the value of this onshore and offshore supplies by the appellants need to be included in the value of services rendered by them under the works contract scheme. It is not in dispute that the material in question was supplied by the appellant with respect to this particular contract and after the supply was completed, the goods which were supplied were given by APPDCL back to appellant for execution of the contract. A plain reading of C.B.E. C. Circular D.O.F. No. 334/13/2009-TRU, dated 6-7-2009 explains that such values became includible in the value of the works contract as per the amendment made vide Notification No. 23/2009-S.T., dated 7-7-2009. By inserting an explanation, it was also clarified by C.B.E. C. themselves that the inclusion of the values would not apply to such contracts where either the execution of works contract has already started or any payment (whether in part or in full) has been made on or before 7-7-2009. In this particular case, the payments in respect of all the three co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r words, the adjudicating authority held that the three contracts in question are essentially part of the same contract and they were signed on 12-8-2009, hence the explanation w.e.f. 7-7-2009 to Rule 3 of the Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007 is not relevant. On a plain reading of the contracts in question, we do not find it so. There are indeed three different contracts and for which three different payments were to be made and were made. The umbrella agreement only combines all these three agreements so as to give a complete perspective of the scope of the contract. In fact, there is no payment whatsoever under the umbrella agreement. Further, the advances in respect of the three contracts were received prior to 7-7-2009 and hence the amended provisions do not apply. In view of the above, we find that the value of the material supplied under offshore and onshore contracts cannot be included in the value of the works contract service as the advance payment in respect of all the three contracts are received prior to 7-72009. 9 .We also find that this case is identical to the case of Essar Projects (India) Limited (supra) in which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e held that appellant is not liable to include the value of the goods as the contracts were signed/payments were made prior to 7-7-2009. We find no reason to deviate from our earlier decision. This covers 13 of the 14 projects in respect of which the demand was raised. In respect of the 14th project namely project with respect to SALSETTE Borivli BMC, which was entered post-7-7-2009, we find from Sl. No. 10 in Annexure-I to the show cause notice the differential tax payable, according to the show cause notice, is negative. Therefore, no Service Tax is payable. In conclusion, the demands as confirmed by the impugned order are liable to be set aside and we do so. Consequently, the interest and penalties associated with the demands are also set aside. 6.18 From the amended provision as well as the judgment cited above, it is clear that to counter the situation like in the present case the amendment was brought with effect from 07.07.2009. If the contention of the revenue is accepted it will amount to give retrospective effect to the amendment of 07.07.2009 which is not permissible under law as per the settled position by Hon ble Supreme Court in various cases that any amendment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orks Contract (Composition Scheme for Payment of Service Tax) Rules, 2007. The adjudicating authority in Para 30 of the impugned order has held that appellant is responsible for installation of the whole facility under the construction contract by using the indigenous machinery procured by appellant and, therefore, both the contracts have to be considered as one. In this regard, it is observed that both, supply contract and construction contract have separate defects liability clauses under Clauses 18 and 34 of the respective contracts. Relevant clause 18.1 of the supply contract and 34.1 of construction contract are reproduced below :- Article 18 - Defects liability 18.1 - The owner shall have the right, but not the obligation, to instruct the Supplier, in writing to perform such additional supply or remedy any Defects or damage in the Balance of Plant or in the Supplier s Documents and any part thereof, as the case may be, during the Defects Notification Period or within 14 (fourteen) days after the expiration as a result of an inspection made by or on behalf of the Owner at any time or times prior to the expiration of the Defects Notification Period. Article 34 - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ...nothing contained in this Explanation shall apply to a works contract where the execution under the said contract has commenced or where any payment, except by way of credit or debit to any account, has been made in relation to the said contract on or before the 7th day of July, 2009. Where execution of works contract has commenced prior to 7-7-2009 or where any payment (except payment through credit or debit) has been made towards a works contract prior to 7-7-2009, then in those cases gross amount for the purpose of payment of Service Tax does not include the value of free of cost supplies. 9.1 It is clear from the above Circular issued by C.B.E. C. that where execution of works contract has commenced prior to 7-7-2009, in those cases gross amount, for the purpose of payment of Service Tax, will not include the free of cost supply by the service recipient. In this regard, appellant has argued that as per clause 15.4 of the Supply Contract, reproduced below, full rights/title/ownership in respect of each item of the Balance of Plant stand transferred to the owner on delivery by the supplier at the site :- 15.4 - The full right, title, ownership and interest and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the said view by us. The revenue s ground as regard the above judgments is that all the judgments have been appealed against before the Hon ble Supreme Court and in some of the cases appeals are admitted. 7. We are of the view that merely because the revenue s appeal is pending in the Hon ble Supreme Court, tribunal judgments do not loose its binding nature in view of the judicial discipline. Therefore, following the above judgments we are of the view that the value of the goods supplied under separate contract cannot be included in the value of service contract of Works Contract Service. 7.1 We find that the respondent has also made an alternative submission that the computation of service tax is erroneous. It was submitted that if the revenue department wants to include the value of material supplied under material supply contract then the respondent should be given option to pay service tax on erection service contract at full rate without any abatement. Since we have already taken a view that value of Supply contract is not includible in the gross value of Works Contract Service, We need not to address this issue. 7.2 The respondent also vehemently argued that the ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
