2020 (12) TMI 1015 - AT - Service Tax

Tribunal grants benefits under works contract, rejects interest and penalties

The Tribunal allowed the appeal, setting aside the impugned order. It confirmed the appellant's entitlement to benefits under the Notification dated March ... Admissibility of abatement under the Notification dated March 1, 2006 - impugned order has denied the abatement availed by the appellant during the month of March, 2006 on the ground that the appellant availed and utilized credit for providing the output services of CIC for the month of March 2006, which is not permitted under the Notification dated March 1, 2006 - HELD THAT:- CENVAT credit availed by the appellant of the service tax paid by the service providers for the services rendered prior to 01.03.2006 cannot be faulted with as availment of CENVAT credit by service recipient is subject to the condition that payment for such service rendered as the provisions. Undisputedly, in this case the appellant had paid the service providers / settled the service providers bill subsequently from March 2006 for the service rendered prior to 01.03.2006 and has correctly claimed the legitimate CENVAT credit available. The Commissioner has held in the impugned order that the agreement between the Principles and the Consortium Members is a composite contract for provision of services and supply of goods. According to the appellant, the composite contract has the essential character of a “works contract”, as it involves both supply of goods as well as provision of services. Hence, the various services provided by the appellant under the agreement will more appropriately being classified under ‘works contract’ service which became taxable w.e.f June 1, 2007 - The impugned order also records a finding that the contract involves provision of services as well as supply of goods. Thus, the demand raised for a period prior to June 1, 2007 is not sustainable. Even for the period post June 1, 2007, the demand cannot be sustained as it has been raised under CIC and ECI and not under “works contract” service. The demand raised under CIC and ECI for the period July 1, 2007 and post June 1, 2007 cannot be sustained - Appeal allowed - decided in favor of appellant. Issues Involved:1. Admissibility of abatement under Notification No. 01/2006-ST dated March 1, 2006 for 'commercial or industrial construction service' (CIC) and 'erection, commissioning or installation service' (ECI).2. Classification of services under 'works contract' services.3. Utilization of CENVAT credit for input services.4. Application of extended period of limitation.5. Cum-tax benefit entitlement.6. Imposition of interest and penalties.Issue-wise Detailed Analysis:1. Admissibility of Abatement under Notification No. 01/2006-ST:The appellant contested the denial of abatement availed during March 2006, arguing that the CENVAT credit entry of Rs. 2,18,816/- in the ST-3 Return for March 2006 pertained to input services received before March 1, 2006. The Tribunal found that the restriction in the Notification dated March 1, 2006, did not apply to credits availed before this date. The Tribunal cited the cases of M/s Shapoorji Pallonji & Co. Ltd. and M/s. IL & FS Maritime Infrastructure Co. Ltd., which supported the appellant's position that credits availed prior to the effective date of the Notification could not be denied.2. Classification of Services under 'Works Contract':The appellant argued that the services provided under the agreement were more appropriately classifiable under 'works contract' services, which became taxable only from June 1, 2007. The Tribunal accepted this argument, referencing the Supreme Court's decision in Commissioner vs. M/s. Larsen & Toubro Ltd. and Others, which held that composite contracts involving both goods and services should be classified as 'works contract' services. Consequently, the demand raised for the period before June 1, 2007, was deemed unsustainable, and even for the period after June 1, 2007, the demand could not be sustained as it was raised under CIC and ECI instead of 'works contract' services.3. Utilization of CENVAT Credit for Input Services:The appellant claimed that it availed credit for input services used for the output service of Consulting Engineer (CE) only. The Tribunal noted that the appellant received designs and drawings from sub-contractors who discharged their service tax liability under CE. The appellant utilized this credit for its output service of CE, which was permissible under a Circular dated August 23, 2007. The Tribunal found no fault in the appellant's utilization of CENVAT credit for input services received prior to March 1, 2006.4. Application of Extended Period of Limitation:The appellant argued that the show cause notice and the impugned order failed to establish suppression or mis-declaration on its part, making the invocation of the extended period of limitation unjustified. The Tribunal did not find sufficient grounds for the extended period of limitation to be invoked.5. Cum-tax Benefit Entitlement:The appellant contended that it was entitled to cum-tax benefit. The Tribunal did not explicitly address this issue in the judgment, implying that the primary focus was on the classification and utilization of CENVAT credit.6. Imposition of Interest and Penalties:The Tribunal set aside the impugned order, which had confirmed the demand of service tax along with interest and imposed penalties under Sections 76, 77, and 78 of the Finance Act, 1994. The appellant's arguments regarding the reversal of credit and the absence of suppression or mis-declaration were accepted, leading to the conclusion that interest and penalties were not imposable.Conclusion:The Tribunal allowed the appeal, setting aside the impugned order and confirming that the appellant was entitled to the benefits claimed under the Notification dated March 1, 2006, and that the services provided were more appropriately classified under 'works contract' services. The demands raised under CIC and ECI for periods before and after June 1, 2007, were deemed unsustainable.