TMI Blog2023 (5) TMI 138X X X X Extracts X X X X X X X X Extracts X X X X ..... ment/value of the service rendered and the sales tax/tax on the element of goods transferred pursuant to the contract. Whether despite Rule 2A of the Service Tax (Determination of Value) Rules, 2006 and the Composite Scheme still the assessee is entitled to take the total contract value which includes both goods and services in terms of Section 67 of the Act, 1994 and remit service tax on the entire value as works contract service and the assessee is also entitled to avail CENVAT Credit? - HELD THAT:- Rule 2A applicable prior to 01.07.2012 is reproduced hereinabove. It is to be noted that Rule 2A is the specific provision for determination of value of taxable service in relation to services involved in the execution of a works contact shall be determined by the service provider in the manner provided under Rule 2A(1)(i) i.e. value of works contract service determined shall be equivalent to the gross amount charged for the works contract. As per explanation to Rule 2A gross amount charged for the works contract shall not include Value Added Tax (VAT) or sales tax, as the case may be, paid, if any, on transfer of property in goods involved in the execution of the works contract. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es both goods and services and remit service tax on the value as works contract service and, in the process, also entitled to avail the CENVAT Credit on the entire amount - now the service tax needs to be computed in terms of Rule 2A of the (Determination of Value) Rules, 2006 and as the assessee has not opted for the composition scheme, the matter is remitted back to the CESTAT for re-computation of the demands in terms of Rule 2A. Appeal allowed in favor of Revenue. However, matter remitted back to the CESTAT for re-computation of value and determination of issue of Extended Period of limitation. - M. R. SHAH And KRISHNA MURARI , JJ. For the Appellant : Mr. N. Venkataraman, ASG Mr. Mukesh Kumar Maroria, AOR For the Respondent : Mr. V. Raghuraman, Sr. Adv. Mr. Ranjan Kumar Pandey, AOR Mr. Shailesh Sheth, Adv. Mr. Sandeep Bisht, Adv. Mr. Divyam Garg, Adv. Mr. Yati Ranjan, Adv. Mr. Raghavendra Cr, Adv. JUDGMENT M. R. Shah , J. 1. Feeling aggrieved and dissatisfied with the impugned judgment and order dated 09.11.2017 passed by the Customs, Excise and Service Tax Appellate Tribunal, Regional Bench at Allahabad (hereinafter referred to as the Ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 73(1) of the Act, 1994. It appeared to the Revenue that services should have been classified under Works Contract Service . It was mandatory for the respondent to either follow Rule 2A of Service Tax (Determination of Value) Rules, 2006 or adopt Composition Scheme. The said Rule 2A and Composition Scheme do not allow the availment of CENVAT Credit on input. Therefore, it appeared to the Revenue that the CENVAT Credit of Rs.112,60,92,760/as availed on input was inadmissible and therefore, the said debit has resulted in short payment of Service Tax. 2.4 The Show Cause Notice was related to the period from June, 2007 to March, 2012. The respondent was called upon to show cause as to why the services being provided by them be reclassified under Works Contract Service in place of Commercial or Industrial Construction Services , inadmissible CENVAT Credit of building material amounting to Rs.112,60,92,760/be disallowed in terms of Rules 2 3(1) of CENVAT Credit Rules, 2004; an amount of Rs.22,37,01,811/on account of short paid Service Tax towards the liability debited from the inadmissible Cenvat Credit on construction materials be recovered under Section 73(1) of the Act, 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 one of the options given to the Service Provider to discharge Service Tax liability in respect of Works Contract Service and it is not mandatory to adopt the said Rule under Composition Scheme for discharge of Service Tax liability. (iv) Section 67 of the Finance Act, 1994 provides for arriving at assessable value which states subject to the provisions of this Chapter, where Service Tax is chargeable on any taxable service with reference to its value, then such value shall in a case where the provision 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, Id. Commissioner has distinguished the judgment of this Tribunal in the case of S. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... demands are sustainable and the OrdersinOriginal need to be restored. 4.3 Shri N. Venkataraman, learned ASG has taken us to the relevant provisions of the Act, 1994 more particularly Chapter 5 and the definition of works contract and the definition of taxable service contained in Section 64(54) and Section 65(105)(zzzza) respectively. It is submitted that post 01.07.2012, the Finance Act, 1994 underwent major amendments by the insertion of both negative list and declared services. It is submitted that Section 66E was introduced for the first time which defined declared services. He has taken us to subclause (h) of Section 66E of the Act. 4.4 It is submitted that the Service Tax (Determination of Value) Rules, 2006 came into force w.e.f. 19.04.2006 vide Notification No.12/2006 Service Tax. Rule 2A has been inserted vide notification 29/2007 dated 22.05.2007 w.e.f. 01.06.2007 which reads as under, which has been amended periodically: Prior to 01.07.2012 it reads as under: 2A. Determination of value of services involved in the execution of a works contract: (1) Subject to the provisions of section 67, the value of taxable service in relation to services in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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. 4.6 It is submitted that the subrules came to be amended vide Notification No.23/2009 ST dated 07.07.2009 and further amended by Notification 1/2011 ST dated 01.03.2011. 4.7 It is submitted that Section 67 of the Act, 1994 deals with valuation of taxable services reads as under: 67. Valuation of taxable services for charging Service Tax 1) Subject to the provisions of this Chapter, service tax chargeable on any taxable service with reference to its value shall, (i) in a case where the provision of service is for a consideration in mo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 22.05.2007 issued clarifications regarding various amendments brought out Vide Finance Act, 2007. It is submitted that paras 9.1 to 9.7 which are relevant read as under: 9.1 Works contract is a composite contract for supply of goods and services. A composite works contract is vivisected and, (i) VAT/sales tax is leviable on transfer of property in goods involved in the execution of works contract [Art.366 (29A)(b) of the Constitution of India], and (ii) Service tax will be leviable on services provided in relation to the execution of works contract. 9.2 Service tax is chargeable on the gross amount charged by the service provider for the taxable services provided (Section 67). In the case of works contract, the taxable value of services is to be determined by vivisecting the composite works contract. Rule 2A of Service Tax (Determination of Value) Rules, 2006 [Notification No.29/2007 Service tax, dated 22.05.2007], provides that value of works contract service shall be equivalent to the gross amount charged for the works contract less the value of transfer of property in goods involved in the execution of the said works contract. Thus, wherever the service pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... include VAT or sales tax paid on transfer of property in goods involved in the execution of the said works contract. The provider of taxable service opting to pay service tax under the said composition scheme is not entitled to take CENVAT Credit of duty on inputs, used in or in relation to the said works contract, under the provisions of CENVAT Credit Rules, 2004. 9.7 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 cannot be withdrawn until the completion of the said works contract. 4.9 Relying upon the above provisions, rules and regulations and the circulars, it is submitted that works contract is contract involving supply of goods and services together. A composite works contract gets vivisected into transfer of property into goods liable to sales tax/VAT in terms of Article 366 (29A)(b) of the Constitution of India and the service portion liable to service tax w.e.f. 01.06.2007. Reliance is placed on the decision of this Court in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cally addressed this issue by bringing the similarity of the service elements as mentioned in Constitution Bench s decision in Gannon Dunkerly (supra) and framed as Rule 2A of the Valuation Rules, 2006. Reliance is placed on paras 25 and 26 of the said judgment. 4.14 It is submitted that the decision of this Court rendered in Larsen and Toubro (supra) came up for reconsideration in the batch of matter in the case of Total Environment Building Systems Pvt. Ltd. (supra) wherein this Court vide para 28 rejected the request to refer the matter to the larger Bench by observing in paragraph 28 which reads as under: 28. While appreciating the prayer/submission made on behalf of the Revenue to reconsider the binding decision of this Court in the case of Larsen and Toubro Limited (supra) and to refer the matter to the Larger Bench, few facts are required to be taken into consideration, which are as under: (i) The decision of this Court in the case of Larsen and Toubro Limited (supra) has been delivered/passed in the year 2015, in which, it is specifically observed and held that on indivisible works contracts for the period pre Finance Act, 2007, the service tax was not leviab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that this Court in the case of Larsen and Toubro (supra) as reiterated in Total Environment Building (supra) has made it clear that the goods value in the nature of transfer of property of goods would suffer sales tax/VAT and the service components or elements would suffer service tax w.e.f. 01.06.2007 by virtue of the definition of taxable service under Section 65(105)(zzzza) and later as Section 66E(h) as a declared service post 01.07.2012. 4.16 It is submitted that the incorporation of taxable service w.e.f. 01.06.2007 also resulted in the introduction of Rule 2A in the Valuation Rules, 2006 clearly identifying the service elements or components which would constitute the value for determination and payment of service tax. These components again were retained even after the insertion of Section 66E(h) post 01.07.2012. 4.17 It is submitted that this Court in the case of Larsen and Toubro (supra) vide para 25 had referred to Rule 2A of the Valuation Rules, 2006 and its purport by holding that the said Rule goes on to say that the service component of the works contract is to include the 8 elements laid down in the second Gannon Dunkerly s case and the value attributable to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... paying service tax on the total contract value including goods and correspondingly availing CENVAT Credit on the input is not only misconceived but also legally untenable besides a Constitutional bar. 4.20 Now so far as the reliance is placed upon the decision of this Court in the case of Commissioner of Service Tax and Ors. Bhayana Builders Pvt. Ld. and Ors, (2018) 3 SCC 782 is concerned, it is submitted that on facts it has no relevance. It is submitted that on the contrary the decision of this Court in the case of Larsen and Toubro (supra) would apply. It is submitted that even the circular dated 22.05.2005 makes it amply clear as to how a works contract service needs to be taxed and vide para 9.2 referred to Rule 2A of the Valuation Rules, 2006 to affirm that the value of works contract service shall be equivalent to the gross amount charged for the works contract less the value of transfer of property in goods involved in the execution of the said contract and vide para 9.3 rings out the elements of services which matches exactly with the elements laid down by this Court in the case of Gannon Dunkerly (supra). 5. Making above submissions it is prayed to allow the presen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to provisions of Section 67 . It is submitted that this would mean that Rule 2A would apply only when value of the service involved in execution of the works contract could not be determined under Section 67 of the Act. 6.4 It is further submitted by learned counsel appearing on behalf of the respondent assessee that prior to 01.07.2012 the assessee had three options: (i) Follow the tenets of Section 67 and pay tax on the full value and take input tax credit. (ii) Rule 2A of the Valuation Rules: to pay service tax at the full applicable rate on the taxable value as determined in terms of Rule 2A of the Valuation Rules. No bar to avail CENVAT Credit on inputs. (iii) Composition Rules: To pay service tax @ 2.06% (increased to 4.12% w.e.f. 01.03.2008) on the gross amount charged for the Contract, in terms of the Composition Rules. Cenvat credit on inputs would be inadmissible. 6.5 After 01.07.2012 the assessee had three options: (i) Follow the tenets of Section 67 and pay tax on the full value and take input tax credit. (ii) Rule 2A(i): To determine the taxable value of service after deducting the actual value of the material involved. (iii) Rule 2(ii): To p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at as such services rendered by the respondent assessee can be said to be works contract service as per the Finance Act, 1994 w.e.f. 01.06.2007 as per Section 64(54) read with Section 65(105)(zzzza). 8.2 As per the law laid down by this Court in the case of Larsen and Toubro (supra) and Gannon Dunkerly and Co. (supra) and the subsequent decision in the case of Total Environment Building Systems Pvt. Ltd. (supra) with respect to the works contract an assessee is liable to sales tax on the goods element and the service tax on the availment of service/value of service rendered. 8.3 In the case of Gannon Dunkerly and Co. (supra) while dealing with measure of tax in para 47 this Court had provided a list of exclusions from the cost of valuation of goods and as to what would constitute the service elements. As per the law laid down by this Court in the aforesaid decision the following are to be excluded from the cost of valuation of the goods. 47. .. The value of the goods involved in the execution of a works contract will, therefore, have to be determined by taking into account the value of the entire works contract and deducting therefrom the charges towards labour and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of a works contact shall be determined by the service provider in the manner provided under Rule 2A(1)(i) i.e. value of works contract service determined shall be equivalent to the gross amount charged for the works contract. As per explanation to Rule 2A gross amount charged for the works contract shall not include Value Added Tax (VAT) or sales tax, as the case may be, paid, if any, on transfer of property in goods involved in the execution of the works contract. The position is made more clear post 01.07.2012. Post 01.07.2012 as per Rule 2A value of service portion in the execution of a works contract shall be determined taking into consideration the value of service portion in the execution of a works contract equivalent to the gross amount charged for the works contract less the value of property of goods transferred in the execution of the said works contract. Therefore, as such the things which were already there as per the decision of this Court in the case of Gannon Dunkerly and Co. (supra) and Rule 2A earlier has been made explicitly clear. 8.7 However, as per the Composition Scheme vide notification 32/2007 ST dated 22.04.2007 by which works contract (Composition Sc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it of Composition Scheme. Therefore, either the assessee has to go for Composition Scheme or go for Determination of Value as per Rule 2A and the assessee has to pay service tax on the service element and can claim CENVAT Credit on the said amount only. 9 In view of the above the impugned judgment and order passed by the CESTAT taking the contrary view is unsustainable by which it is held that the assessee is entitled to take the total contract value which includes both goods and services and remit service tax on the entire value as works contract and the assessee is also entitled to avail the CENVAT Credit on the same. 9.1 However, at the same time the service tax needs to be paid in terms of Rule 2A of Service Tax (Determination of Value) Rules, 2006 and since the assessee has not opted for composition scheme, the matter is to be remitted back for re-computation of the demands in terms of Rule 2A. As the issue with respect to the extended period of limitation has also not been decided by CESTAT the matter is to be remanded to the CESTAT to decide the issue of limitation. 10 In view of the above and for the reason stated above, the present appeal succeeds. The impugned ..... X X X X Extracts X X X X X X X X Extracts X X X X
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