2014 (12) TMI 712 - AT - Service Tax

Tribunal rules in favor of appellant, finding service tax demand unsustainable. Abatement and Composition Scheme applied. Extended time demand unjustified.

UB ENGINEERING LTD. Versus COMMISSIONER OF CENTRAL EXCISE, PUNE III

The tribunal ruled in favor of the appellant, finding that the demand for service tax was not sustainable. The appellant was deemed eligible for abatement ... Nature of activity - Works contract or not - Availability of composition scheme - Availability of Cenvat Credit while paying service tax on works contract under composition scheme or abatement - whether use of materials such as nuts, bolts etc. are clearly incidental in nature while provided erection and installation services - Held that:- In this case the goods involved as part of Service Contract are subjected to payment of Sales Tax/VAT. In respect of both contracts the appellant have submitted documents evidencing payment of works contract tax under the West Bengal Value Added Tax Act, 2003. Thus, appellants' case is supported by the Board Circular. Therefore we are of the view that the Service contract entered into by the appellants are covered under Works contract category. Works Contract Service came into force vide Section 65(105)(zzzza) w.e.f. 01.06.2007. The appellants have rightly relied on the Board circular no. 98/1/08-ST dated 04.01.2008 to contend that both the contracts in question came into force after 1.06.2007 and therefore they are eligible to work under the WCS service. Cenvat credit on input services - Held that:- Appellant has availed credit on input services only - the statement of ld. AR in the written submissions that the Cenvat Credit has been availed on materials is not a correct statement. The Composition Scheme as mentioned above only requires that the provider of service must not have taken Cenvat Credit on inputs. Therefore, there is no reason to deny the option of Composition Scheme to the appellant. Extended period of limitation - Held that:- it has been held in various judicial pronouncements that wrong classification cannot lead to the conclusion of suppression of facts etc. when no mens rea established. The Adjudicating Authority has also wrongly come to the conclusion that availment of input service credit will debar the appellant form the benefit of Notification 1/06. In the present case, this benefit of Notification has not been availed, rather option of Composition Scheme has been availed which does not bar the availment of Cenvat credit on input service.. Demand set aside - Decided in favor of assexxee. Issues Involved:1. Classification of services under 'Works Contract Services' (WCS) versus 'Erection, Commissioning and Installation' (ECI).2. Eligibility for abatement under Notification No. 1/06-ST.3. Availment of Cenvat credit on input services.4. Invocation of extended time period for demand.Detailed Analysis:1. Classification of Services under WCS vs. ECI:The appellant provided services categorized as 'Works Contract Services' (WCS) and 'Erection, Commissioning and Installation' (ECI). The revenue's primary contention was that the contracts should be classified under ECI rather than WCS. For M/s. Air Liquide North India Pvt. Ltd., it was alleged that the appellant changed the classification from ECI to WCS, which is not permissible under Rule 3(3) of the Composition Scheme. However, the tribunal found that the appellant never changed the classification to WCS and continued to pay service tax under ECI after taking abatement of 67% from April 2008 onwards. The tribunal held that the revenue's assumption was without basis and that the ECI service involved substantial supply of materials, thus justifying the classification under WCS.2. Eligibility for Abatement under Notification No. 1/06-ST:For M/s. Air Liquide North India Pvt. Ltd., the tribunal found that the appellant was eligible for abatement of 67% under Notification No. 1/06-ST. The appellant had availed input service credit of Rs. 2,69,580/-, which they reversed, making them eligible for the abatement. The tribunal relied on judgments such as B.G. Shirke Technology, Khyati Tours & Travels, and Ramkrishna Travels, which held that once the credit is reversed, the benefit of the notification would be available. The tribunal concluded that denying the abatement for a small amount of initially availed and later reversed credit would be unjust.3. Availment of Cenvat Credit on Input Services:The tribunal addressed the issue of Cenvat credit availed by the appellant on input services. For the contracts with MCC PTA India Corporation Pvt. Ltd. and SAIL ISSCO Steel Plant, the tribunal found that substantial materials were supplied as part of the contracts, and the appellants had paid service tax on the entire value, including materials. The tribunal held that the appellants were eligible for the Works Contract Composition Scheme, as they had not taken Cenvat credit on inputs, only on input services, which is permissible. The tribunal noted that the revenue's argument that the contracts were purely service activities was incorrect, as substantial materials were involved.4. Invocation of Extended Time Period for Demand:The tribunal examined the invocation of the extended time period for the demand. It found that there was no suppression of facts or misdeclaration by the appellant. The service tax payments were reflected in the ST-3 returns, and the wrong classification of service could not be considered as suppression. The tribunal cited the case of Indian Institute of Chemical Technology, where it was held that wrong classification does not constitute suppression of facts. The tribunal concluded that the extended time period was not invocable in this case.Conclusion:The tribunal set aside the impugned order, holding that the demand of service tax was not sustainable. The appellant was found eligible for the abatement under Notification No. 1/06-ST and the Works Contract Composition Scheme. The tribunal also ruled that the invocation of the extended time period was not justified. The appeal was disposed of in favor of the appellant, and the stay application was also disposed of.