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of <h1>Tribunal overturns service tax liability order, citing procedural flaws and lack of clarity in taxation basis</h1> The Tribunal set aside the order holding the appellant liable to pay service tax as Consulting Engineers, emphasizing procedural irregularities in the ... Turnkey Works Contract - Commissioner (Appeals) observed that drawing, designing a engineering services were paid separately for which the appellant should be brought to the ambit of tax as “Consulting Engineer’ and confirmed the demand – Held that - It is the elementary principle of natural justice that basis of levy is to be made known to the tax payer for his defence. Otherwise, proceeding shall be ill-founded. Nature of service, value of taxable service and from whom such value was received were not patent from the show-cause notice - are surprised that how both the Authorities below proceeded to merely make guess work in the matter of levy of tax when tax is to be levied by strict letters of law – matter remanded. Issues:Challenge to order on liability to pay service tax as Consulting Engineers, levy of penalty, nature of works contract, procedural irregularities in show-cause notice.Liability to Pay Service Tax as Consulting Engineers:The appellant challenged the order holding them liable to pay service tax as Consulting Engineers for services rendered. The ld. Commissioner upheld the liability, stating that the appellant should be taxed as a Consulting Engineer based on separate payments for drawing, designing, and engineering services. The appellant argued that the contract with Gujarat Industries Power Company Ltd. and Madhya Pradesh Electricity Board was composite and lump sum without specific consideration for Consulting Engineering Services. They contended that the Authorities unreasonably taxed them, ignoring the composite nature of the contract and the predominant activity of the Turnkey contract. The Tribunal observed that the Authorities failed to provide a clear basis for taxation in the show-cause notice, violating principles of natural justice. Consequently, the impugned order was set aside, directing the Adjudicating Authority to grant a fair hearing to the appellant on the basis of levy and proceed in accordance with the law.Levy of Penalty:Regarding the levy of penalty, the ld. Adjudicating authority upheld the penalty without considering 'mens rea' as an essential ingredient. The appellant contested this decision, arguing that the penalty was confirmed by the lower Appellate Authority without due consideration. The Tribunal did not delve into the merits of the penalty but focused on procedural irregularities and legal infirmities in the order. The Tribunal set aside the impugned order, emphasizing the need for a fair opportunity of hearing and adherence to due process of justice.Nature of Works Contract:The appellant emphasized the composite and lump sum nature of the works contract, executed with Gujarat Industries Power Company Ltd. and Madhya Pradesh Electricity Board, to argue against being taxed as Consulting Engineers. They highlighted that the contract involved various activities, making it inconceivable to tax each item separately. The Tribunal noted the appellant's submission that the Authorities failed to consider the composite character of the contract and the principal activity of the Turnkey contract, which was predominant. The Tribunal stressed the importance of considering the entire package of works contract awarded to the appellant before imposing taxation.Procedural Irregularities in Show-Cause Notice:The Tribunal pointed out significant procedural irregularities in the show-cause notice, noting that the basis of levy of Service Tax was not clearly spelled out. The Tribunal emphasized that the tax payer must be informed of the nature of the service, value of taxable service, and other relevant details for a proper defense. Failing to provide such information renders the proceedings ill-founded and denies the tax payer due process of justice. Consequently, the Tribunal set aside the impugned order and directed the Adjudicating Authority to ensure a fair opportunity of hearing and compliance with legal procedures.In conclusion, the Tribunal allowed the appeal by way of remand, highlighting the need for a fair hearing, adherence to legal procedures, and consideration of the composite nature of the works contract before imposing taxation on the appellant.
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