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TMI Blog2021 (11) TMI 695X X X X Extracts X X X X X X X X Extracts X X X X ..... ods and the services. It is undisputed that the appellant is liable to pay service tax on these services under the head of works contract service and the appellant is also liable to pay VAT on the goods component of these contracts. The appellant paid VAT on the goods component reckoning 70% of the total contract of the value of the goods as per the provisions of Tamil Nadu Value Added Tax Act and Rules and paid service tax on 30% of the total contract value. The case of the Revenue is that since the appellant could not ascertain the actual value of goods transferred, it should have paid service tax under composition scheme. After calling for information from the appellant and examining the records, a show cause notice dated 21.12.2016 was issued to the appellant demanding differential service tax of Rs. 1,51,82,658/- as follows :- Period No. of Invoices Gross Value (Rs.) Taxable value after abatement Rate of (%) Service Tax Payable Service Tax paid Differential Tax to be paid 1.04.2011 to 30.6.2012 51 29228340 29223840 4/4.8 1222294 932989 289305 1.07.2012 to 31.03.2016 269 385523736 251792634 12.36/ 14/14.5 32814774 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o be arrived at as specified in Rule 2A (ii) of Service Tax (Determination of Value) Rules, 2006, as amended. Thus, there are two periods in question upto 30.06.2012 and thereafter. Period Upto 30.06.2012 5. For the period upto 30.06.2012, the case of Revenue is that since the appellant did not separately invoice for the service and goods components of the works contract, it was bound to follow the composition scheme and pay service tax accordingly. Paragraph 6.8 of the impugned order reads as follows: "6.8 It is to be further noted that the provisions of Composite Scheme reads as "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 per cent (4% vide Notification No. 7/2008-ST dated 01.03.2008 and 4.8% vide Notification No. 10/2012-ST dated 17.03.2012) of the gross amount charged for the works contract ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 01.07.2012, the demand in the show cause notice based on enforcing the composition scheme upon the appellant, which is only an option available to the appellant, cannot be sustained and needs to be set aside. Period from 01.07.2012 9. From 01.07.2012, service tax became payable on all services except those which are in the negative list. Section 66E was introduced in the Finance Act, 1994 whereby certain services have been declared as "declared services" and service tax is payable on such services. Clause (h) of this list includes "service portion in the execution of works contract". The composition scheme has been abolished and valuation has to be done as per new Rule 2A of the Service Tax (Determination of Value) Rules, 2006 which reads as follows:- "RULE 2A. Determination of value of service portion in the execution of a works contract. - Subject to the provisions of section 67, the value of service portion in the execution of a works contract, referred to in clause (h) of section 66E of the Act, shall be determined in the following manner, namely :- (i) Value of service portion in the execution of a works contract shall be equivalent to the gross amount charged for the w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tenance or repair or reconditioning or restoration or servicing of any goods; or (ii) maintenance or repair or completion and finishing services such as glazing or plastering or floor and wall tiling or installation of electrical fittings of immovable property, service tax shall be payable on seventy per cent. of the total amount charged for the works contract. Explanation 1. - For the purposes of this rule,- (a) "original works" means- (i) all new constructions; (ii) all types of additions and alterations to abandoned or damaged structures on land that are required to make them workable; (iii) erection, commissioning or installation of plant, machinery or equipment or structures, whether pre-fabricated or otherwise; (b) "total amount" means the sum total of the gross amount charged for the works contract and the fair market value of all goods and services supplied in or in relation to the execution of the works contract, whether or not supplied under the same contract or any other contract, after deducting- (i) the amount charged for such goods or services, if any; and (ii) the value added tax or sales tax, if any, levied thereon: Provided that the fair marke ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... property in goods transferred in the execution of the said works contract, for determination of the value of service portion in the execution of works contract under this clause". Since in this case, the appellant has not paid VAT on the basis of the actual value of the goods transferred but on presumption as per the Tamil Nadu VAT Act such value cannot be adopted for the purpose of calculating the value of service. It is undisputed that the actual value of the property transferred is not available since it was a composite contract. Therefore, Revenue's case is that the appellant is not covered by Rule 2A (i) at all and the value of service has to be determined as per Rule 2 A (ii). This clause deals with three categories of works, of which 'B' applies to the present case: A : works contract for execution of original work whether the service tax shall be payable on 40% of the total amount charged; B : works contract for maintenance or repair or reconditioning or restoration or servicing of any goods where the service tax shall be payable on 70% of the total amount charged ; C : in cases not covered by A or B, the tax shall be payable on 60% of the total amount charged for th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Tamil Nadu VAT Act and Rules, lays down a proportion of the consideration for the indivisible works contracts on which service tax should be paid. Since the works in this case were not original works, it falls under category B of clause (ii) of this Rule and service tax should be paid on 70% of the value of the works contract. In other words, if the Revenue's argument is accepted, the appellant will have to pay service tax on 70% of the gross amount charged for the works contract and the appellant has already paid VAT on 70% of the gross amount charged as per the Tamil Nadu VAT Act. This will lead to an anomalous situation where the appellant has to pay VAT as well as service tax on 40% of the total value of the works contract. On identical situation the Supreme Court in Safety Retreading Co. (P) Ltd. (supra) held as follows: "10. The exigibility of the component of the gross turnover of the assessee to service tax in respect of which the assessee had paid taxes under the local Act whereunder it was registered as a Works Contractor, would no longer be in doubt in view of the clear provisions of Section 67 of the Finance Act, 1994, as amended, which deals with the valuation of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een mentioned and service tax has been sought to be levied at the prescribed rate of ten per cent (10%) on the differential amount. It is now stated before us that the aforesaid figures have been furnished by the assessee himself and, therefore, must be understood not to be authentic. This, indeed, is strange. No dispute has been raised with regard to the correctness of the said figures furnished by the assessee in the show cause notice issued to justify the stand now taken before this Court; at no point of time such a plea had been advanced. 13. Besides the above, the affidavit of the learned Commissioner, referred to above, proceeds on the basis that the appellant assessee is also liable to pay service tax on the remaining seventy per cent (70%) towards material costs in addition to the 30% of the retreading charges. This is clear from the following averments made in the said affidavit of the learned Commissioner : "The relevant bills showed that the Appellant had paid service tax only on the labour component after deducting 70% towards material cost on the gross tyre Retreading charges billed and received for the period from 16-6-2005. In short, they have paid service tax on ..... X X X X Extracts X X X X X X X X Extracts X X X X
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