2020 (2) TMI 1000 - AT - Service Tax

Interpreting Tax Rates in Works Contracts: Revision Impact on Composition Scheme

The appeal contested the demand for Service Tax and interest imposed by the Commissioner for a period when the Appellant provided 'Works Contract Service' ... Revision of amount of service tax - Composition scheme - works contract - difference of opinion - matter referred to the Larger Bench/ HELD THAT:- It would be appropriate to refer the following issue to a Larger Bench: “Whether in view of the provisions of Rule 3 of the Composition Scheme, a person who is liable to pay Service Tax in relation to a Works Contract Service opts to discharge his Service Tax liability under Rule 3 of Composition Scheme by opting to pay an amount equivalent to the percentage of the gross amount charged for the works contract, shall be required to pay the amount equivalent to the same percentage of the gross amount charged for the works contract till the completion of the said contract, even if the percentage is revised subsequently?” The file may, therefore, be placed before the Hon'ble the President for constituting a Larger Bench. Issues:- Applicability of revised Service Tax rate under Composition Scheme for works contracts.- Interpretation of Rule 3 of the Composition Scheme.- Retrospective effect of revised tax rate post exercising the option.- Conflict between different judicial decisions on the issue.Analysis:The appeal challenged a demand for Service Tax and interest confirmed by the Commissioner, Service Tax, Delhi, for a period when the Appellant primarily provided 'Works Contract Service' under the Composition Scheme. The dispute arose as the Appellant continued to pay tax at a lower rate despite subsequent revisions. The key issue was whether the revised tax rate under the Composition Scheme applied to contracts where the option was exercised before the revision.The Appellant argued that once the option was exercised under Rule 3 of the Composition Scheme, the tax rate prevailing at that time should apply for the entire contract duration, regardless of subsequent revisions. They relied on legal provisions and a Calcutta High Court decision supporting this interpretation. However, the Department contended that the Appellant should pay the revised rate from the effective date of the change.A Division Bench decision in a related case highlighted the importance of applying the revised rate for the entire contract period, rejecting the Appellant's argument. The Tribunal noted the conflicting views and decided to refer the crucial issue to a Larger Bench for clarification. The question raised was whether a person opting for the Composition Scheme must continue paying the initially chosen percentage of tax for the entire contract, even if the rate is revised later.The Tribunal's decision to seek a clarification from a Larger Bench indicates the complexity and significance of the issue regarding the applicability of revised tax rates under the Composition Scheme for works contracts. This case underscores the need for a consistent interpretation to resolve the conflicting judicial opinions and provide clarity on the legal obligations concerning Service Tax payments under the Composition Scheme.