Works contract composition rate dispute referred to Larger Bench over effect of later rate increase

Under Rule 3 of the Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007, the dispute concerned whether the composition rate prevailing when the option was exercised continues for the full works contract despite a later enhancement in rate. The Tribunal noted conflicting views and the Calcutta High Court's consideration of the issue, but did not finally decide the tax liability in the appeal. Instead, it referred the question on the applicability of the revised composition rate to a Larger Bench for authoritative determination.

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Issues: Whether, under Rule 3 of the Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007, the composition rate applicable when the option was exercised continues for the entire works contract despite a subsequent enhancement in the rate, and whether the matter should be referred to a Larger Bench.

Analysis: The dispute arose from the Revenue's demand for service tax at the enhanced composition rate after 01 April 2012, whereas the assessee contended that the rate prevailing on the date of exercise of option governed the entire contract. Earlier conflicting views within the Tribunal and the decision of the Calcutta High Court on the effect of a subsequent change in rate after exercise of option were noticed. In view of the divergence on the legal issue, the Bench found it appropriate not to finally resolve the substantive question in the present appeal and instead sought authoritative consideration by a Larger Bench.

Conclusion: The question on the applicability of the revised composition rate to an ongoing works contract was referred to a Larger Bench.

Final Conclusion: The appeal was not finally adjudicated on the merits of the tax liability and the legal issue was left for determination by a Larger Bench.

Ratio Decidendi: Where the legal effect of a subsequent increase in composition rate on an ongoing works contract is disputed and conflicting views exist, the matter may be referred for decision by a Larger Bench instead of being finally decided in the referring order.

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