Service tax payment and return filing sufficient to exercise Composition Scheme option for works contract service

CESTAT New Delhi held that formal written notification to the department is not required to exercise the option under the Composition Scheme for works contract service. Following precedents from ABL Infrastructure and Zuberi Engineering Company cases, and Calcutta HC's decision in Larsen Toubro, the tribunal ruled that payment of service tax under the scheme and filing returns constitutes sufficient compliance for exercising the option. The Commissioner's order dated 29.03.2017 was set aside and appeal allowed.

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Issues Involved:
1. Requirement of formal intimation to the department for availing the Composition Scheme.
2. Validity of extended period of limitation for demand of service tax.

Summary:

1. Requirement of formal intimation to the department for availing the Composition Scheme:

The appellant, M/s. Zuberi Engineering Company, contested the order confirming the demand of service tax, interest, and penalty, arguing that there was no requirement of separately filing any intimation to the department for availing the Composition Scheme. The appellant asserted that paying service tax at the rate of 4.12% and submitting returns based on the Composition Scheme was sufficient intimation as contemplated under rule 3(3) of the Composition Scheme. The Commissioner, however, did not accept this contention and reduced the demand to Rs. 73,27,280/- for four work orders where the appellant had not exercised the option for the Composition Scheme.

The Tribunal examined whether there is a requirement of first formally informing the department in writing about exercising the option to pay service tax under the Composition Scheme. The Tribunal referred to previous decisions, including ABL Infrastructure Pvt. Ltd. vs. Commissioner of C. Ex., Nashik and the Calcutta High Court in Larsen & Toubro Ltd. vs. Assistant Commissioner, Service Tax Commissionerate, Division-III, Kolkata. It was observed that the fact of paying service tax at the composition rate in the returns filed is enough indication of opting for payment under the Works Contract Composition Scheme, and no specific format or procedure for exercising such option was prescribed.

The Tribunal concluded that payment of service tax under the Composition Scheme and filing the return would be sufficient compliance of exercising the option under the Composition Scheme. Therefore, the impugned order dated 29.03.2017 could not be sustained and was set aside.

2. Validity of extended period of limitation for demand of service tax:

The Commissioner had found that the extended period of limitation was correctly invoked. However, given the Tribunal's decision that the appellant's actions constituted sufficient compliance with the Composition Scheme, the demand based on the extended period of limitation was also set aside.

The appeal was allowed, and the order pronounced on 20.03.2024.

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