Works contract composition scheme eligibility confirmed for ongoing contracts from 01.06.2007 despite classification changes

The CESTAT Ahmedabad allowed the appeal regarding eligibility for works contract composition scheme for ongoing contracts as of 01.06.2007. The tribunal held that appellants engaged in composite works contracts involving both goods supply and services were correctly classified under works contract service post-01.06.2007. The original authority's denial of composition scheme benefits solely based on classification change from construction service to works contract service was overturned. Following precedent from Gujarat HC in JMC Project India Ltd, the tribunal confirmed that work contract activities were not taxable prior to 01.06.2007, making appellants eligible for composition scheme benefits for ongoing projects from 01.06.2007 onwards.

---

---

Issues Involved:
Whether the works contract composition scheme can be opted by the Appellants in respect of ongoing works contract as on 01.06.2007.

Summary:

Issue: Eligibility for Works Contract Composition Scheme for Ongoing Projects
The appellant, M/s. Kalpataru Power Transmission Ltd., engaged in the manufacture and erection of high-tension power transmission line towers, reclassified their services from construction services to works contract services after the introduction of the taxable service category 'works contract' under section 65(105)(zzzza) of the Finance Act 1994, effective from 01.06.2007. They paid the service tax at the prescribed rate of 2% on the total value of the works contract. The department issued a show cause notice demanding differential service tax, arguing that the appellant wrongly availed the benefit of the composition scheme for ongoing projects, contrary to CBEC Circular No. 98/01/2008-ST dated 04.01.2008. Both lower authorities confirmed the demand along with the penalty.

Appellant's Argument:
The appellant argued that their activity fell under the 'works contract' service at the time of opting for the Composition Scheme and fulfilled all required conditions. They contended that prior to 01.06.2007, their activity was not taxable, and upon the introduction of the new tax entry, they classified their service under the appropriate statutory classification. They cited several cases, including CCE vs Larsen & Toubro Ltd. and Jija Builders vs CCE, to support their claim that the benefit of the composition scheme cannot be denied merely because they previously discharged service tax under a different head.

Revenue's Argument:
The Revenue reiterated the findings of the impugned order, emphasizing that the appellant switched from construction service to works contract service solely to avail the benefit of the composition scheme, contrary to the provisions of the scheme.

Tribunal's Findings:
The Tribunal noted that the contracts executed by the appellant were composite in nature, involving both supply of goods and services, and were rightly classified under the 'works contract service' tax entry. Citing the Supreme Court's interpretation in Larsen & Toubro Ltd., the Tribunal observed that there was no liability to service tax for indivisible composite works contracts prior to 01.06.2007. The Tribunal found that the denial of the composition scheme by the Adjudicating Authority was based solely on the change of service classification, which was not sustainable. The Tribunal referenced several cases, including B.R Kohli Construction Pvt. Ltd. and Jija Builders, which supported the appellant's eligibility to exercise the composition scheme option for ongoing projects.

Conclusion:
The Tribunal held that the appellant was eligible for the Composition Scheme under Works Contract for ongoing projects as on 01.06.2007. The impugned order was set aside, and the appeal was allowed with consequential relief, if any, in accordance with the law. The Tribunal also set aside the simultaneous penalty imposed under section 76, upholding the demand of service tax and penalties under section 78, along with interest under section 75. The judgment emphasized that the legal position regarding the eligibility for the composition scheme for ongoing projects is well-settled.

---