Service tax demands mostly set aside as tribunal rules composition scheme payment constitutes valid option exercise

CESTAT Kolkata allowed the appeal, setting aside most service tax demands. The tribunal held that payment of service tax under Composition Scheme constituted valid exercise of option without requiring written election, following precedent. For GTA services and CENVAT credit denial, demands were set aside and remanded for proper document verification by authorities. The tribunal ruled that works contracts after 01.07.2012 attracted service tax on 40% value as Original Works, not 60% as Other Works, lacking departmental evidence. Extended limitation period was rejected as the case involved statutory interpretation with bona fide belief, making penalty also unsustainable.

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Issues Involved:

1. Demand of Service Tax under Works Contract Service.
2. Demand of Service Tax under GTA.
3. Reversal of CENVAT credit under Rule 6(3) of CCR.
4. Demand of Service Tax under 'other works contract'.
5. Reversal of Cenvat Credit disallowed.
6. Invocation of extended period of limitation.

Summary of Judgment:

1. Demand of Service Tax under Works Contract Service:
The appellant was denied the benefit of the Composition Scheme for payment of service tax on the ground that they had started payment under the scheme prior to officially exercising the option. The Tribunal held that the payment of service tax itself should be construed as exercising the option, following the decision in Mehta Plast Corporation v Commissioner of Central Excise, Jaipur. Therefore, the demand of Rs. 1,19,97,075/- was set aside.

2. Demand of Service Tax under GTA:
The demand of Rs. 12,61,280/- was confirmed without verifying the documents submitted by the appellant. The Tribunal remanded the matter back to the adjudicating authority to verify the documents and determine the service tax liability after giving the appellant an opportunity to explain their case.

3. Reversal of CENVAT credit under Rule 6(3) of CCR:
The appellant had reversed the proportional credit attributed to exempted services along with interest. The Tribunal held that the demand of an amount equivalent to 6/8% of the value of exempted services was not sustainable, following the decision in M/s. Aster Pvt. Ltd. v CC & CE, Hyderabad - III. Therefore, the demand of Rs. 37,91,781/- was set aside.

4. Demand of Service Tax under 'other works contract':
The appellant executed new construction works and paid service tax on 40% of the total amount charged, considering these services as 'original works'. The Tribunal held that the appellant was liable to pay service tax as 'Original Works' on the 40% value and set aside the demand of Rs. 19,32,135/- and Rs. 1,13,323/-.

5. Reversal of Cenvat Credit disallowed:
The demand was confirmed without verifying the documents submitted by the appellant. The Tribunal remanded the matter back to the adjudicating authority to verify the documents and determine the eligibility of Cenvat credit after giving the appellant an opportunity to explain their case.

6. Invocation of extended period of limitation:
The Tribunal observed that there was no evidence of suppression of facts, and the matter involved interpretation of statutory provisions. Therefore, the extended period of limitation could not be invoked, and the demand was not sustainable on this ground. Consequently, no penalties were imposable on the appellant.

Order:
(i) Demand of Rs. 1,19,97,075/- under Works Contract Service is set aside.
(ii) Demand of Rs. 12,61,280/- under GTA is set aside and remanded for verification.
(iii) Reversal of CENVAT credit of Rs. 37,91,781/- is set aside.
(iv) Demand of Rs. 19,32,135/- and Rs. 1,13,323/- under 'other works contract' is set aside.
(v) Reversal of Cenvat Credit amounting to Rs. 56,58,476/- is set aside and remanded for verification.
(vi) Penalties imposed are set aside.

(Order pronounced in the open court on 23.04.2024)

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