Works contracts before July 7, 2009: separate goods supply contracts excluded from service tax calculation under Composition Scheme

CESTAT Kolkata held that where works contracts were entered prior to 07.07.2009, the value of goods supplied under separate contracts cannot be included in gross amount for service tax calculation under Composition Scheme. The tribunal relied on CBEC Circular No.150/1/2012-ST which clarified that for pre-07.07.2009 contracts, free supply costs are excludible from gross amount determination. Since appellant had separate contracts for goods supply and works services executed before the specified date, service tax liability was correctly discharged on works contract value only. Demand set aside and penalties waived.

---

---

Issues Involved:
1. Applicability of Service Tax on Works Contracts
2. Inclusion of Value of Goods Sold Under Separate Contracts
3. Invocation of Extended Period of Limitation
4. Interpretation of CBEC Circular and Legal Precedents

Summary:

1. Applicability of Service Tax on Works Contracts:
The appellants contested the demand of service tax on works contracts under Section 65(105)(zzzza) of the Finance Act, 1994. The service tax was paid under Rule 3 of the Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007. The appellants argued that Contract II was a works contract and they had opted to pay service tax on the gross value of consideration under the Composition Scheme.

2. Inclusion of Value of Goods Sold Under Separate Contracts:
The Revenue contended that the value of goods sold under Contract I should be included in the gross amount charged under Contract II for the purpose of service tax. The appellants argued that Contract I was a sale-simplicitor contract and not a works contract. The Tribunal found that the contracts were executed before 07.07.2009, and as per CBEC Circular No.150/1/2012-ST dated 08.02.2012, the value of free supply of goods should not be included in the gross amount for service tax purposes.

3. Invocation of Extended Period of Limitation:
The show-cause notices invoked an extended period of limitation to demand service tax. The Tribunal did not find any evidence of suppression or misrepresentation by the appellants that would justify the invocation of the extended period of limitation.

4. Interpretation of CBEC Circular and Legal Precedents:
The Tribunal referred to CBEC Circular No.150/1/2012-ST and previous judgments, including Essar Projects (India) Ltd and Tata Projects Ltd, which clarified that for contracts executed before 07.07.2009, the value of free-of-cost supplies should not be included in the gross amount for service tax. The Tribunal concluded that the appellants correctly discharged their service tax liability on the gross value of works contracts under Contract II.

Conclusion:
The Tribunal set aside the impugned order, waived the penalties imposed on the appellants, and allowed the appeals with consequential relief.

---