Contracts dated 24.08.2007 separate for service tax

The Tribunal concluded that the two contracts dated 24.08.2007 should be treated as separate and distinct for service tax purposes. The explanation to Rule 3(1) introduced on 07.7.2009 does not apply to these contracts. The appeal by the appellant was allowed, and the cross-objection by the Revenue was rejected.

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Issues Involved:

1. Whether the two contracts dated 24.08.2007 executed by the appellant with service recipients can be considered as separate contracts or as one contract for determining taxable value of the service provided.
2. Applicability of the explanation to Rule 3(1) of the Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007, to contracts entered before 07.7.2009.
3. Transfer of ownership/title of the Balance of Plant and its impact on service tax liability.
4. Relevance of CBEC Circular No. 150/1/2012-ST dated 08.02.2012 and Circular No. 334/13/2009-TRU dated 06.7.2009 to the case.
5. Applicability of the ITAT judgment dated 28.02.2010 to the present case.

Issue-wise Detailed Analysis:

1. Separate or Composite Contracts:
The primary issue was whether the two contracts, one for supply and the other for construction, should be treated as separate or composite for service tax purposes. The appellant argued that both contracts were independent, with distinct defect liability clauses (Clause 18 in the Supply Contract and Clause 34 in the Construction Contract). The adjudicating authority had previously held that the contracts should be considered as one, but the Tribunal found that the contracts had separate provisions for defects liability, indicating they were distinct.

2. Applicability of Rule 3(1) Explanation:
The appellant contended that the explanation to Rule 3(1) of the Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007, introduced on 07.7.2009, should not apply to their contracts executed on 24.08.2007. The Tribunal agreed, citing CBEC Circular No. 150/1/2012-ST, which clarified that the explanation applies only to contracts entered after 07.7.2009. Thus, the gross amount for service tax should not include the value of free supplies for contracts commenced before this date.

3. Transfer of Ownership/Title:
The adjudicating authority had held that the ownership of the Balance of Plant transferred only upon completion of the facility. However, the Tribunal found that as per Clause 15.4 of the Supply Contract, the title and ownership transferred to the recipient upon delivery at the site. This contradicted the adjudicating authority's findings and supported the appellant's argument that the supply contract's value should not be added to the construction contract for service tax purposes.

4. Relevance of CBEC Circulars:
The Tribunal emphasized the importance of CBEC Circular No. 150/1/2012-ST and Circular No. 334/13/2009-TRU. These circulars clarified that for contracts executed before 07.7.2009, the value of free supplies should not be included in the gross amount for service tax. The Tribunal found no evidence that the contracts were artificially bifurcated to evade service tax.

5. Applicability of ITAT Judgment:
The Revenue had relied on an ITAT judgment which treated similar contracts as composite. However, the Tribunal noted that income tax law operates differently from service tax law. The Tribunal concluded that the ITAT judgment was not applicable to the present case, as the determination of value under the Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007, is distinct from income tax considerations.

Conclusion:
The Tribunal concluded that the two contracts dated 24.08.2007 should be treated as separate and distinct for service tax purposes. The explanation to Rule 3(1) introduced on 07.7.2009 does not apply to these contracts. The appeal by the appellant was allowed, and the cross-objection by the Revenue was rejected.

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