2015 (1) TMI 455 - Commissioner - Service Tax

Service Tax Appeal Outcome: Benefit of Composition Scheme Granted, Penalties Upheld, Time-Barred Demand Dismissed

The judgment upheld the demand for service tax against the appellants based on the classification of services provided. However, the appellants were ... Construction of Commercial/Industrial Complex Service - Invocation of extended period of limitation u/s 73 - Penalty u/s 76, 77 & 78 - Whether the services provided by the appellants during the period of demand fell under the category of ‘Construction of Commercial/Industrial Complex service’ when the contracts allotted were ‘Works contracts’ - Held that:- Services provided by the appellants were taxable during the entire period of demand. Further, the appellants during the investigation proceedings did not provide the documents sought for by the department so that specific nature of the contract/s could be examined and demand could be raised accordingly. The department has resorted to best possible available means to determine the classification of the services provided even when there was intentional avoidance by the appellants to join the investigations or provide the documents/contracts which could enable the department to arrive at the correct classification. Such assessees cannot be let off, but have to be dealt with stringent action so as to have deterrent effect on them. I thus, hold that the demand is sustainable and services are classifiable under ‘Construction of Commercial/Industrial Complex Service’ for the period prior to 1-6-2007 and under ’Works Contract Service’ w.e.f. 1-6-2007. Thus, the demand has correctly been raised and confirmed vide the impugned order which needs no interference on this count. Thus, the first issue stands decided against the appellants. For the ongoing contracts which were classified where service tax has been paid in the respective specified services before being classifiable under the ‘works contract service’, the benefit of composition scheme would not be applicable. Conversely, if no service tax has earlier been paid, the benefit of the scheme would be admissible to assessee. In the instant case the appellants were not registered with the department and they had have not paid any service tax under the category of ‘Construction of Commercial/Industrial Complex Services’ till the filing of appeal. Hence, in view of my deliberations supra, all the pre-requisites of availing the facility under Rule 3(1) of the Composition Scheme, are met with. Benefit under the composition scheme, is admissible to the appellants and the service tax liability needs to be quantified at the prevalent rates specified under the composition scheme during the relevant period and the impugned order requires modification on this issue to the extent discussed above. The second issue thus, decided in favour of the appellants. However, the jurisdictional Deputy/Assistant Commissioner, is required to re-compute the demand within 15 days of the receipt of this order and convey the same to the appellants. The appellants have also contested that the demand was time barred, though no reason whatsoever has been attributed for their claim. On the contrary I observe that the appellants suppressed the fact of provision of services from the department and in spite of initiation of investigations, and repeated communications, did not provide the information sought for. This clearly speaks of their intent to evade payment of service tax by suppressing the facts from the department. Hence, extended period had rightly been invoked and confirmed and the same stands upheld in the present proceedings also. Demand has been made by invoking the extended period of limitation and no period of demand is beyond five years. Hence, this plea of the appellants is devoid of any merits. There is no justification in imposing penalty under Section 76 when penalty under Section 78 of the Act has been imposed. Accordingly, penalty imposed under Section 76 is set aside. As regards imposition of penalty under Section 77 and 78 of the Act, the appellants have not put forth any contentions. However, since the appellants failed to take registration and fulfil the formalities of the Service Tax Law, penalty under Section 77 of the Act has rightly been imposed and stands upheld by me. Further, in view of my observations in para 11 above, I hold that penalty is imposable on the appellants under Section 78 of the Act. - Decided partly in favour of assessee. Issues Involved:1. Classification of services provided by the appellants.2. Entitlement to the benefit of payment of service tax under the composition scheme.3. Time-barred demand.4. Simultaneous penalty under Section 76 and 78.Detailed Analysis:Issue 1: Classification of Services Provided by the AppellantsThe appellants argued that the services provided fell under the category of 'Works Contract Service' and not 'Construction of Commercial/Industrial Complex Service.' The adjudicating authority classified the services under 'Construction of Commercial/Industrial Complex Service' for the period prior to 1-6-2007, and under 'Works Contract Service' thereafter. The judgment held that prior to 1-6-2007, any 'person' providing 'Construction Services' was liable to pay service tax, regardless of whether the contract involved the supply of materials. Post 1-6-2007, the classification depended on the nature of the contract, with composite contracts falling under 'Works Contract Service.' The judgment cited the case of Alstom Projects India Ltd. and Nagarjuna Construction Co. Ltd. to support this classification. Therefore, the demand for service tax was upheld, and the first issue was decided against the appellants.Issue 2: Entitlement to the Benefit of Payment of Service Tax Under the Composition SchemeThe appellants contended that the demand would have been lower if the services were correctly classified under 'Works Contract Service.' The judgment noted that the appellants could be eligible for the composition scheme if they met the conditions specified under Rule 3 of the Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007. Since the appellants were not registered and had not paid any service tax, they had not violated the conditions under Rule 3(2) and 3(2A). The judgment referred to a CBEC Circular clarifying that ongoing contracts could opt for the composition scheme if no service tax was paid before 1-6-2007. Consequently, the benefit under the composition scheme was deemed admissible, and the jurisdictional Deputy/Assistant Commissioner was directed to re-compute the demand. Thus, the second issue was decided in favor of the appellants.Issue 3: Time-barred DemandThe appellants claimed that the demand was time-barred but provided no specific reasons. The judgment observed that the appellants had suppressed information and failed to cooperate with the investigation, justifying the invocation of the extended period of limitation. The demand within the five-year period was upheld, and this plea was dismissed as meritless.Issue 4: Simultaneous Penalty Under Section 76 and 78The appellants argued that simultaneous penalties under Section 76 and 78 were not justified. The judgment cited the case of First Flight Courier Ltd., where it was held that penalty under Section 76 is not justified if penalty under Section 78 has been imposed. Consequently, the penalty under Section 76 was set aside. However, penalties under Section 77 and 78 were upheld due to the appellants' failure to register and comply with service tax laws.Conclusion:- The appeal was partially allowed, with the benefit of the composition scheme being granted and the penalty under Section 76 being set aside.- The jurisdictional Deputy/Assistant Commissioner was directed to re-compute the demand within 15 days.- The stay application was disposed of accordingly.