Works contract vs Construction services

[ROHIT GOEL]

Dear Sirs,

X & Co. executed a contract for construction of building involving transfer of property in goods. However, while filing their service tax return for FY 2010-11 and FY 2011-12, they filed return under service category of 'industrial and commercial construction' and availed 67% abatement and paid tax on the balance.

Thereafter, case was opened for adjudication by invoking extended period of limitation within 5 years on the grounds that assessee had concealed material facts which only came to light upon departmental audit. The AO held that the assessee's services were actually of the nature of works contract and he was not eligible for abatement of 67%. Instead, value of service was determined by Valuation rules which restrict value of service in a works contract at 40% of the contract value.

My question is:

a) When there was transfer of property in goods involved, are the actions of the AO correct in light of law prevailing during FY 2010-11 and FY 2011-12?

b) Whether extended period of limitation could be invoked here as facts regarding payment of tax under construction category instead of works contract were present on record in the service tax returns and as such there was no suprresion of facts as alleged?

c) Since Valuation rules prescribe 2 options of either 40% taxable value or Service value=consideration-Value of goods as per VAT, was the assessee entitled to plead that the second option be applied as it is more beneficial to assessee?

AI Summary

Forum Confirms Tax Classification for X & Co. as Works Contract, Not Industrial Construction, for FY 2010-12 A discussion on a forum addressed whether a company, X & Co., correctly filed service tax returns under the 'industrial and commercial construction' category, claiming a 67% abatement, instead of as a 'works contract' for FY 2010-11 and FY 2011-12. The adjudicating officer argued that the services should be classified as a works contract, limiting the taxable value to 40% of the contract value. The forum concluded that the department's stance was correct under the applicable laws, the extended period of limitation was not applicable, and the company could opt for a more beneficial valuation method.