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TMI Blog2022 (12) TMI 523X X X X Extracts X X X X X X X X Extracts X X X X ..... dated 01.09.2008 enhancing the rate of service tax from 2% to 4% as illegal, ultravires the Finance Act, 1994 and the Constitution of India, and bad in law in so far as it seeks to levy additional burden of service tax upon the contracts for which the option under Notification No. 32 of 2007, dated 22nd May, 2007 as already been exercised by the appellant; for a declaration that notification No. 10 of 2012 dated 17.03.2012 effective from 01.04.2012 enhancing the rate of service tax from 4% to 4.8% as illegal, ultravires the Finance Act, 1994 and the Constitution of India, and bad in law in so far as it seeks to levy additional burden of service tax upon the contracts for which option under notification No. 32 of 2007 dated 22.05.2007 as already been exercised; for issuance a writ of declaration that the amendment vide Notification vide No. 7 of 2008, dated 01.03.2008 to works contracts (Composition Scheme for Payment of Service Tax) Rules 2007 would apply to the contracts only in respect of which option is exercised after 01.03.2008 and/or only after the expiry of the previous contracts for which option under notification No. 32 of 2007, dated 22.05.2007 has been exercised; for a d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder the works contract to pay service tax in relation thereto by paying an amount equivalent to 2% of the gross amount charged for the works contract. It was further stated that once the service provider exercises such option under the composition scheme the rates of service tax at the time of option would continue for the entire works contract period and the service provider cannot recite from the said scheme until the completion of the said works contract and therefore any change in the rate of tax on the basis of subsequent notification is impermissible and hit by the Doctrine of Promissory Estoppel. The reply submitted by the appellant was rejected by the department on the ground that the appellant had exercised option only on 26.03.2008 when the rate of service tax was enhanced from 2% to 4%. For such reason, the proposal made in the show cause notice was confirmed, interest was demanded and penalty was also imposed. 3. The learned Writ Court framed four issues for consideration:- Firstly, whether the notifications dated 01.03.2008 and 17.03.2012 can be given retrospective effect after an option is exercised and whether it is repugnant or contrary to the composition scheme v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld there is freedom of contract between two individuals unless it is against public policies. Finally, the Court proceeded to hold that the appellant having exercised the option for the first time only on 26.03.2008, the rate of tax shall be 4%. Aggrieved by such findings, the appellants are before us by way of this appeal. 5. When the appeal was heard, the Division Bench by order dated 11.04.2017 directed the appellant to file a comprehensive statement disclosing therein the particulars of vouchers through which the appellant claims that they had paid service tax at the rate of 2% under the composition scheme prior to 01.03.2008. This has been complied with by the appellant and a supplementary affidavit along with necessary documents have been filed and taken on record. 6. We have heard Mr. G. Dhara Maduri, learned advocate appearing for the appellant assisted by Mr. P. Purushottam and Mr. Avra Majumdar, learned advocates for the appellants and Mr. K.K. Maiti, learned senior standing counsel assisted by Mr. Tapan Bhanja, learned advocate for the respondent. 7. The short issue which falls for consideration is as to in what manner an option has to be exercised by the assessee to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (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. (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 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. [F. No. B1/7/2007-TRU] (G.G. Pai) Under Secretary to the Government of India 9. By notification No. 07 of 2008, dated 01.03.2008, the rate of service was substituted as 4% instead of 2% and this notification came into effect on 01.03.2008. Subsequently, by notification No. 10 of 2012, dated 17.03.2012 the rate of tax was substituted at 4.8% with effect from 01.04.2012. From the above notification more particularly, Rule 3(1), it is seen that it commences with non-obstante clause taken ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the 2% instead of rates specified in Section 66. Sub rule (3) of Rule 3 states that the provider of the taxable service who opts to pay service tax under the composition scheme shall exercise such option prior to the payment of service tax. If rule 3(1) and (3) and read in conjunction and harmoniously, the intention of the scheme is to give an option to the provider of taxable service to discharge his service tax liability by paying an amount equivalent to 2%. This being the substantive part of the scheme, sub rule (3) which is a machinery provision has to give life to the substantive part of the rule namely Rule 3(1) and that would mean that the option shall be exercised by paying the amount equivalent to 2% of the gross amount charged for the works contract. It is the submission of the learned senior standing counsel that the crucial words in sub rule (3) of Rule 3 is "opts" and "prior to payment of service tax". Thus, the department would contend that the option has to be exercised by the provider of taxable service prior to the payment of service tax. If that be so the rule should provide in what manner the provider of taxable service has to exercise such option. Admittedly no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctual issue, we will consider as to in what manner similar provisions has been dealt with by other High Courts in statutes which are pari materia. 13. In T. Azhakesan Versus State Tax Officer and Others 2021 SCC Online Mad 10505, the Division Bench of the High Court of Madras considered a similar issue, but, arising under the provision of the Tamil Nadu Value Added Tax Act, 2006. The said Act also contained a similar provision stating that the option should be exercised by the dealer prior to payment of tax. Similarly, under the said Act, there was no prescribed form for exercising such option. This issue was considered and the same was decided in favour of the dealer therein. The relevant portion of the judgment is herein below: The appellant's case is that when they filed their return under the provisions of the TNVAT Act in Form-L, they have exercised such an option and they have paid tax at 2% being lumpsum payment in terms of Section 6(1) of the TNVAT Act. The Assessing Officer did not raised query and the returns were accepted along with the proof of payment of tax. It is much after when the Enforcement Wing inspected the business premises of the appellant, they pointed ou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted error in holding that the dealer did not exercised his option and accordingly, the said question was answered in favour of the dealer. The operative portion of the order reads as follows: In this regard, useful reference can be made to the decision of the Hon'ble Division Bench of this Court in the case of Commissioner of Income Tax Versus Kikani Exports Private Limited, in TCA No. 330 of 2013 etc. batch dated 09.09.2014. The substantial question of law, which arose for consideration before the Hon'ble Division Bench was whether the return of income filed by the assessee under Section 139(1) of the Income Tax Act claiming depreciation can be treated as exercising of option before the due date as prescribed in second proviso to Rule 5 (1A) of the Income Tax Rules. This question was answered in favour of the assessee and against the revenue on the following terms:- Short of petition, the issue that arise for consideration is for the purpose of claiming depreciation, whether the assessee should exercise an option before the due date in the manner other than by filing return of income in terms of sub section (1) of Section 139 of the Income Tax Act. According to the Revenue, ea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ax under Section 7-C of the TNGST Act. Therefore, it can be safely concluded that the assessee by filing a return and paying tax under Section 7-C of the TNGST Act amounts to exercising option under the said provision. Thus, the respondents committed an error in holding that the petitioner did not exercise his option. Therefore, the first question is answered in favour of the petitioner and against the revenue. We are informed that the above order has become final as the revenue has not carried the matter on appeal. The only distinction in the case on hand is that the present assessment is under the provisions of the TNVAT Act and the said Act does not provide for any separate procedure or method of form of application for exercising option under Section 6(1) of the Act. Therefore, it is to be held that the appellant/dealer having filed their return in Form-L had opted to pay lumpsum tax at 2% is deemed to have exercised his option to pay tax at compounded rates in terms of Section 6(1) of the TNVAT Act. The above decision would squarely apply to the facts and circumstances of the case before us. 14. In GE T and N India Limited Versus Commissioner of Central Excise and Servic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is whether the extended period of limitation could have been invoked. The disputed period can be divided into two the first of which being from March 2008 to March 2012. For this period, the show cause notice for the periods from March 2008 to March 2011 have all been issued after a long delay as the show cause notices were issued on 17.04.2013. The said show cause notice also covered the period from April 2011 to September 2011 and October 2011 to March 2011 but for such period the show cause notice was within the time permitted. The question would be whether extended period of limitation could have been invoked in the facts and circumstances of this case and courts have held that such extended period of limitation can be invoked only when that there is a deliberate intention to evade payment of tax and it does not empower the department to invoke the extended period on the sole ground of omission. In several decisions, the Hon'ble Supreme Court has pointed out that every non-payment or non-levy of duty does not attract extended period and there must be a deliberate default; mere non-payment of duties is not equivalent to collision or willful mis statement or suppression of facts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eme. That apart, we note the facts in Nagarjuna Constructions to be entirely different. Since the appellant therein had already paid the taxes and did not opt to pay the service tax under the composition scheme but later sought for such a benefit which was negatived. Therefore, the said decision is inapplicable to the facts and circumstances of the case on hand. 18. As noticed by us above, the substantial part of the order passed by the learned Single Bench enures in favour of the appellant, the department having accepted such portion of the judgment cannot be heard to argue contrary to what has been held against them. The learned Single Bench has in no uncertain terms recorded that the service tax was paid of 2% and duly received by the department prior to 01.03.2008. Further it has been held that the rates of tax as increased would be prospective and shall not affect the pending contracts. Further it has been held there is no prescribed mode for exercising option. The court had also noted Rule 6 of the service tax rules which provides that the service tax shall be paid on or before 6th of every month, following the months the payment are received for such taxable service; Rule 7 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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