TMI Blog2019 (7) TMI 1793X X X X Extracts X X X X X X X X Extracts X X X X ..... erials for execution of Civil Construction. Thus, levy of Service Tax for a service provided prior to 1 June 2007 under Commercial and Industrial Service or under Construction of Complex Service cannot be sustained. Demand under a category not specified in the SCN - HELD THAT:- A Division Bench of the Tribunal in M/S GURJAR CONSTRUCTION VERSUS COMMISSIONER CENTRAL EXCISE, JAIPUR-II [ 2019 (5) TMI 717 - CESTAT NEW DELHI] examined such a position and after placing reliance on the decisions of the Supreme Court in HINDUSTAN POLYMERS CO. LTD. VERSUS COLLECTOR OF C. EX., GUNTUR [ 1996 (12) TMI 84 - SUPREME COURT] and RECKITT COLMAN OF INDIA LTD. VERSUS COLLECTOR OF CENTRAL EXCISE [ 1996 (10) TMI 100 - SUPREME COURT] observed that a demand made under a particular category cannot be sustained under a different category - The Commissioner, therefore, committed an illegality in confirming the demand under a category not proposed in the show cause notice. Benefit of the Composition Scheme, post 1 June 2007 - HELD THAT:- The Composition Scheme cannot be treated as an exemption Notification under any circumstance. The Department does not dispute that the Appellant discharged ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /- with interest and, therefore, the issue is not required to be examined - Such being the position the demand of Service Tax in the impugned order except under renting of immovable property cannot be sustained. Appeal allowed - decided in favor of appellant. - SERVICE TAX Appeal No. 56329 of 2013 - FINAL ORDER No.: 51148/2019 - Dated:- 30-7-2019 - MR. DILIP GUPTA, PRESIDENT AND MR. BIJAY KUMAR, MEMBER (TECHNICAL) Mr. B.L.Narsimhan with Ms. Shagun Arora, Advocate for the Appellant Mr. Vivek Pandey, Authorised Representative for the Respondent ORDER The order dated 26 November 2012 passed by the Commissioner of Central Excise, Jaipur [the Commissioner] is sought to be assailed in this appeal. The order confirms the demand of ₹ 2,34,78,415/- and directs it to be recovered from the Appellant with interest and penalty. 2. The Appellant is a contractor engaged in rendering construction and other related services. The dispute relates to the services rendered by the Appellant from April 2006 to March 2010. 3. The service tax was paid by the Appellant during the said period in the following manner for the contracts relating to: (i) Execution of c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1. Execution of civil works (Suratgarh Power Plant) 2006-2011 Service Tax is payable under the category of Works Contract. Benefit of Composition Scheme is not available as (i) the Appellant did not file intimation about opting for the scheme; and (ii) the Appellant had not included the value of free of cost material in the assessable value. 2. Sub-contractor services (Suratgarh Power Plant; Tata Projects; etc) April 2006 to August 2010 Service Tax is payable in the following manner: (i)Commercial and Industrial Construction services till 31.05.2007 (ii)Works Contract from 01.06.2007 Further, benefit of abatement under Notification No. 1/2006-ST would not be available as material was supplied free of cost. Furthermore, benefit of composition scheme would not be available as the scheme was not opted at the time of due date of payment of Service Tax. 3. Construction of married accommodation for Directorate General of Married Accommodation Pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erial for execution of civil construction and it is for this reason that the impugned order classifies the contracts under Works contract post 1 June, 2007. The impugned order has, therefore, wrongly sustained the demand for the period prior to 1 June, 2007 under Commercial or Industrial Construction and/ or Construction of Complex Services. Reliance has been placed on the decisions of the Tribunal in M/s. Emaar MGF Construction Private Limited vs. Commissioner of Central Excise [2019 (5) TMI 1135- CESTAT, New Delhi] and Azad Construction vs. Commissioner of Central Excise and Service Tax, Jaipur [2017 (49) STR 77 (Tribunal-Delhi)]; (iii) Construction service in respect of buildings for DGMA Projects is not subject to service tax and in support of this contention reliance has been placed on the decision of the Tribunal in Sugandha Construction Private Limited Vs Commissioner of Central Excise, Bhopal [2018 (9) GSTL 399 (Tri- Del)]; (iv) The benefit of the Composition Scheme is available to the Appellant in respect of composite contracts but the impugned order seeks to deny the benefit for the reason that the Appellant had not given prior intimation before the payment of servi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder categories not proposed in the show cause notice, which is not permissible in law; and (xi) The extended period of limitation could not have been invoked as disputes pertaining to tax liability under a Works Contract and issue regarding payment of service tax by a sub-contractor were subjected to a major litigation. 7. Shri Vivek Pandey learned Authorised Representative of the Department has, however, supported the impugned order and has submitted that sub-rule (1) and (3) of Rule 3 of the Composition Scheme make it abundantly clear that the person liable to pay Service Tax in relation to Works Contract service has the option to discharge his service tax liability on the Works Contract service provided, instead of paying service tax at the rate specified in Section 66 of the Finance Act 1994 [the Act] by paying an amount equivalent to 2 or 4 percent (as the case may be) of the gross amount charged for the Works Contract, and therefore, the Commissioner was justified in holding that the benefit of the Composition Scheme would not be available to the Appellant for the reason that such an option was not exercised by the Appellant prior to payment of Service Tax nor was the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shment of the contractor is bifurcated into what is relatable to supply of labour and services. Similarly, all other expenses have also to be bifurcated insofar as they are relatable to supply of labour and services, and the same goes for the profit that is earned by the contractor. These deductions are ordinarily to be made from the contractor s accounts. However, if it is found that contractors have not maintained proper accounts, or their accounts are found to be not worthy of credence, it is left to the legislature to prescribe a formula on the basis of a fixed percentage of the value of the entire works contract as relatable to the labour and service element of it. This judgment, therefore, clearly and unmistakably holds that unless the splitting of an indivisible works contract is done taking into account the eight heads of deduction, the charge to tax that would be made would otherwise contain, apart from other things, the entire cost of establishment, other expenses, and profit earned by the contractor and would transgress into forbidden territory namely into such portion of such cost, expenses and profit as would be attributable in the works contract to the transfer of pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Even, after having so noticed, the Commissioner observed that this would not necessarily mean that the service provided by the Appellant prior to 1 June 2007 cannot be classified under any other pre-existing taxable category. The observations of the Commissioner are as follows: (1) From the above discussion it is evident that impugned services were classifiable under Commercial or Industrial construction and Construction of Complex Service during the period 01 June 2006 to 31 May 2007. However, after introduction of works contract service w.e.f. 01 June 2007, the work orders, executed by the noticee are rightly classifiable under Work Contract Service as discussed herein above. Since the definition of work contract is only for the purpose of clause 65 (105) (zzzza) which came into force w.e.f. 01 June 2007, it is valid only for the period w.e.f. 01 June 2007 onwards and for the types of contracts mentioned in it. Therefore, for the period prior to 01 June 2007, it would not be correct to treat a works contract as something different from a service contract. As discussed above if such a work contract is an indivisible service contract, whether or not involving use ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Toubro will apply to a period after 01 June, 2007 also. 13. The position, therefore, that emerges is that prior to 1 June 2007, Service Tax could not be levied on a composite works contract involving supply of goods/ materials for execution of Civil Construction. Thus, levy of Service Tax for a service provided prior to 1 June 2007 under Commercial and Industrial Service or under Construction of Complex Service cannot be sustained. 14. For the period after 1 June 2007, two situations arise in respect of composite works contract. The first is that the demand made in the show cause notice demanding Service Tax on categories of service classified as Commercial or Industrial Construction or Construction of Complex Service cannot be confirmed under a different category namely Works Contract Service . The second is that the Appellant had opted for discharge of his Service Tax liability for composite works contract under the Composition Scheme but this claim was rejected by the Commissioner. These two situations are contained in the Second and Third Issues. SECOND ISSUE 15. The submission of learned Counsel for the Appellant is, as noted above, that the impugn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng relief. The demand that was made upon the Appellants was under Tariff item 68 and it proceeded upon the basis that there was a process of manufacture of coloured polystyrene from uncoloured polystyrene. Having come to a conclusion against the Revenue on these counts, the appropriate order for the Tribunal to have passed was to have set aside the demand and left it open to the Revenue to proceed against the appellants, as permissible under the law. The Appellants would then have had the opportunity of meeting the precise case made out by the Revenue. 15. This is what was also observed by the Supreme Court in Reckitt Colman of India in paragraph 3 of the judgment which is reproduced below: 3. It will be remembered that the case of the Revenue, which the appellant had been required to meet at every stage from the show cause notice onwards, was that the said product was a preparation based on starch. Having come to the conclusion that the said product was not a preparation based on starch, the Tribunal should have allowed the appeal. It was beyond the competence of the Tribunal to make out in favour of the Revenue a case which the Revenue had never canvassed and which the app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 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 contact 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. 19. It needs to be noted that two percent of the gross amount mentioned in rule 3(1) was enhanced to four percent by an amendment made in the rule w.e.f. 1 March 2008. 20. The said Composition Scheme was framed by the Central Government exercising powers conferred by sections 93 and 94 of the Act. Rule 3 (1) provides that, notwithstanding, anything contained in Section 67 of the Act and Rule 2A of the Service Tax (Determination of Value) Rules 2006 [2006 Rules], 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 2 percent (for a period prior to 01 March ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... heme is quite evident from the rate of tax reflected in the ST-3 returns. In any case, they had exercised option on 26-9-2007, the substantial benefit cannot be denied for procedural deficiency of delay in opting for Works Contract Service by a specific declaration under Rule 3. More so, when no format has been prescribed for making/exercising an option nor has it been specified as to whom the option must be addressed. We agree that the fact of paying Service Tax at the composition rate in the returns filed by them, is enough indication to show that they have opted for payment under the Works Contract Composition Scheme. [emphasis supplied] 22. Shri Vivek Pandey learned Authorised Representative of the Department, however, submitted that it was incumbent upon the Appellant to have given the option in writing before an officer of the Department, if it wanted to exercise the option under the Composition Scheme. The submission is that unless such an option is given in writing to the Department, it will not be able to ascertain whether the person opted to pay the Service Tax under the Composition Scheme, more particularly, when it has to be ascertained whether the said option ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... horised Representative is not correct in his submission that the Composition Scheme is by way of an exemption Notification. In any case, as there is no ambiguity in Rule 3, the decision of the Supreme Court in Dilip Kumar and Company will not come to the aid of the Department. 25. The Constitution Bench of the Supreme Court in Dilip Kumar and Company was constituted to examine what would be the interpretative rule to be applied while interpreting a tax exemption provision/ notification when there is an ambiguity as to its applicability with reference to the entitlement of the assessee or the rate of tax to be applied. The Supreme Court observed that the core issue to be examined in the event of any ambiguity in an exemption notification is whether the benefit of such an ambiguity should go to the assessee or should be considered in favour of the revenue by denying the benefit of the exemption to the assessee. The Supreme Court concluded that every taxing statue including, charging, computation and exemption clause (at the threshold stage) should be interpreted strictly. Further, in case of any ambiguity in a charging section, the benefit must necessarily go in favour of the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to include other modes of payments, in whatever form received; be it through cheque, credit card, deduction from account etc. It is in that hue, the provisions mentions that any form of payment by issue of credit notes or debit notes and book adjustment is also to be included. Therefore, the words in any form of payment are by means of issue of credit notes or debit notes and book adjustment. With the supply of free goods/materials by the service recipient, no case is made out that any credit notes or debit notes were issued or any book adjustments were made. Likewise, the words, any amount credited or debited, as the case may be , to any account whether called suspense account or by any other name, in the books of accounts of a person liable to pay service tax would not include the value of the goods supplied free as no amount was credited or debited in any account. In fact, this last portion is related to the debit or credit of the account of an associate enterprise and, therefore, takes care of those amounts which are received by the associated enterprise for the services rendered by the service provider. 16 . In fact, the definition of gross amount charged given in E ..... X X X X Extracts X X X X X X X X Extracts X X X X
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