Wrong demand confirmed through Order

[Sudhir Kumar]

The department issued a Show Cause Notice alleging that the noticee had deducted the cost of material and also took in eligible abatement from gross value of services provided to their service recipient to reach taxable value without furnishing the valid documents like 'Work Contract agreement' based on which they had claimed deduction of material value and had taken abatement. In absence of Work agreement the service provided by the noticee to be considered pure service and full S.Tax liability will be applicable on the noticee.

The noticee replied that he is a sub-contractor and was providing services to Principal Contractor companies. Principal Contractor Companies does not enter into works contract agreement as their modus operandi but provide purchase order for value of service of work contract and make payment on the basis of invoice. Noticee has shown value of material and amount of eligible abetment based as per Rule 2A of the Service Tax Rules 2006 in ST-3 return of the period which are based on invoice raised and amount of service tax received from the recipient of services. The noticee relied on Notification No. 12/2003-ST dated 20.06.2003.

The department has not accepted the reply and purchase order and confirm the demand only on the ground that the noticee have not submitted any Work agreement to establish that he has provided the work contract service hence no abatement or no deduction of material cost from gross value is allowed and service tax is liable to pay on Full value of Taxable supply without granting abatement.

Please guide us.

AI Summary

Sub-contractor Challenges Service Tax Demand Over Material Cost Deductions, Citing Notification No. 12/2003-ST and Verbal Contracts A Show Cause Notice was issued by the department alleging a noticee improperly deducted material costs and claimed abatement without valid documentation, such as a work contract agreement, leading to a demand for full service tax liability. The noticee, a sub-contractor, argued that principal contractors use purchase orders instead of work contracts, and relied on invoices and Notification No. 12/2003-ST for deductions. The department rejected this, insisting on a work agreement for abatement. Discussions in the forum highlighted the legal validity of verbal contracts with documentary evidence and the need to understand distinctions between different contract types and services for abatement eligibility.