Tribunal overturns service tax demand due to Composition Scheme option exercised, procedural lapse rectified

The Tribunal set aside the order confirming a demand for payment of service tax at a specific rate without filing an option under the Composition Scheme. It was found that the appellant had effectively exercised the option by declaring tax payable at the specified rate in the relevant return, despite a procedural lapse in format. The reversal of cenvat credit and proper reflection in returns further supported the appellant's position, leading to the unsustainable nature of the confirmed demands. The appeal was allowed in favor of the appellant.

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Issues:
Interpretation of Works Contract (Composition Scheme for payment of service tax) Rules, 2007 regarding the payment of service tax at a specific rate without filing an option.

Analysis:
The appellant, engaged in providing works contract service, was registered with the Service Tax authorities. The Service Tax Department observed that the appellant had paid service tax at 4% of the taxable value without filing an option for payment under the Composition Scheme. Show cause proceedings were initiated, leading to a demand of &8377; 27,07,015/- under Section 73 of the Finance Act, 1994, along with interest and penalties. The adjudication order confirmed the demand, imposing penalties under Section 76 of the Act. The Commissioner (Appeals) upheld the demand, stating that no option had been exercised for the Composition Scheme and that availing cenvat credit for composition amount payment was impermissible.

Upon review, it was found that the appellant had declared tax payable at 4% in the relevant ST-3 return, indicating an exercise of the option for the Composition Scheme. The absence of a specific format for exercising the option was considered a procedural lapse, not affecting the substantive right for composition tax payment. Additionally, although cenvat credit was initially availed, it was duly reversed and reflected in the returns. Consequently, the confirmed demands were deemed unsustainable.

The Tribunal concluded that the impugned order lacked merit and set it aside, allowing the appeal in favor of the appellant.

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