Payment under composition scheme constitutes deemed exercise of option, service tax payable when services rendered

CESTAT Kolkata allowed the appeal concerning irregular availment of composition scheme and service tax demands. The tribunal held that payment under composition scheme constitutes deemed exercise of option, citing Calcutta HC precedent. Service tax is payable at rates applicable when services are rendered, not when payments are received, following Delhi HC ruling. Demands totaling Rs.3,53,30,714 based on GL code comparisons were set aside as the adjudicating authority failed to consider appellant's reconciliation report. Contract-wise separate records satisfied Rule 6 requirements for input services. No Cenvat credit reversal required for bad debts as no statutory provision mandates it. Extended limitation period and penalties were unsustainable due to absence of suppression with intent to evade tax.

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Issues Involved:
1. Irregular availment of Works Contract Composition Scheme.
2. Short payment of tax due to the discharge of tax at the rate prevailing on the date of provision of service.
3. Short payment of tax by following realization basis as against the accrual basis.
4. Short payment of tax based on an improper comparison of select GL Codes.
5. Violation of Rule 6 of the CCR on account of non-maintenance of separate records.
6. Irregular availment of pro-rata Cenvat credit attributable to bad debts written off.
7. Invocation of the extended period for demanding service tax.

Detailed Analysis:

1. Irregular Availment of Works Contract Composition Scheme:
The appellant contended that they were eligible for the composition scheme as clarified by Circular No. 128/10/2010 - ST. The appellant argued that the payment made under the scheme is construed as deemed exercise of the option due to the absence of a prescribed formal requirement. This view was supported by the decision in Larsen and Toubro Limited Vs. Assistant Commissioner, Service Tax Commissionerate, Kolkata, which held that the payment of service tax at the compounded rate in statutory returns is sufficient compliance. The tribunal agreed, setting aside the demand of Rs. 68,02,449/-.

2. Short Payment of Tax Due to Rate Prevailing on Date of Provision of Service:
The appellant argued that the taxable event is the rendition of service, and hence, the rate of tax applicable is the one prevalent when the services were rendered. This was supported by the judgment in Vistar Construction (P) Ltd. Vs. Union of India, which held that the taxable event is the rendition of service. The tribunal agreed, setting aside the demand of Rs. 56,172/-.

3. Short Payment of Tax by Following Realization Basis:
The appellant provided a detailed reconciliation report and argued that they were discharging tax on an accrual basis post the introduction of POT Rules. They also pointed out that they had already paid Rs. 18,128/- along with interest. The tribunal confirmed the demand of Rs. 18,128/- and set aside the remaining demand of Rs. 18,95,028/- due to lack of contrary findings by the adjudicating authority.

4. Short Payment of Tax Based on Improper Comparison of GL Codes:
The appellant submitted a detailed reconciliation report certified by a Chartered Accountant, showing no differences in income as alleged. The tribunal noted that the adjudicating authority had ignored this report and relied on the judgment in Firm Foundations & Housing Pvt. Ltd. Vs. Pr. Commr. Of ST, Chennai, which held that there cannot be a straitjacket comparison between trial balance and ST 3 returns for construction companies. The tribunal set aside the demand of Rs. 3,53,30,714/-.

5. Violation of Rule 6 of the CCR:
The appellant maintained separate records contract-wise/project-wise in their accounting software (SAP), showing compliance with Rule 6 of the Cenvat Credit Rules. The tribunal relied on the judgment in Essar Projects India Limited Vs. CCE, which held that project-wise/contract-wise maintenance of records suffices. The demand of Rs. 49,90,185/- was set aside.

6. Irregular Availment of Pro-rata Cenvat Credit Attributable to Bad Debts:
The appellant argued that there is no provision requiring reversal of Cenvat credit for services provided without receiving consideration. The tribunal agreed, citing the judgment in SBI Cards and Payments Services Private Limited Vs. Commissioner of Service Tax, Delhi, which held that there is no requirement for reversal of Cenvat credit for unreceived consideration. The demand of Rs. 18,27,025/- was set aside.

7. Invocation of Extended Period for Demanding Service Tax:
The tribunal found no suppression of facts with the intention to evade tax, noting that the appellant had regularly filed returns and disclosed all information. The entire demand was based on their profit and loss account and balance sheet. Thus, the tribunal held that the demands confirmed by invoking the extended period of limitation were not sustainable.

Conclusion:
1. All demands confirmed in the impugned order were set aside on merit and limitation, except for Rs. 18,128/- along with interest, which was already paid by the appellant.
2. All penalties imposed on the appellant were set aside.
3. The appeal was disposed of on these terms.

(Order Pronounced in Open court on 27.09.2024)

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