TaxTMI 
TaxTMI 
2012 (6) TMI 165
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....n of the relevant show-cause notices covering various periods as shown below:- Appeal No. Date of SCN Period of dispute OIO No. and date S. Tax + Education Cess Penalty imposed u/s 76 Penalty imposed u/s 77 Penalty imposed u/s 78 ST/476/2009 24/10/2008 June 2007 to May 2008 No.14/2009-ST dt. 17/2/2009 Rs.2,79,12,913/- @2% of service tax per month Rs.1000/- Rs.2.8 crores ST/1589/2010 25/08/2009 June 2008 to March 2009 No.15/2010-ST dt. 29/3/2010 Rs.2,57,97,663/- @2% of service tax per month Rs.5000/- --- ST/432/2010 18/06/2009 June 2007 to Sept 2008 No.51/2009-ST dt. 30/11/2009 Rs.13,46,28,909/- @2% of service tax per month Rs.1000/- Rs.14 crores 2. Facts of appeal No.ST/476/2009 2.1. From the results of investigations into the works undertaken by the appellant in execution of certain contracts awarded by the Irrigation and Command Area Development (CAD) Department, Govt. of Andhra Pradesh, it appeared to the Anti-Evasion Wing of the Commissionerate of Service Tax, Hyderabad-II that the appellant was providing to the Statement Government "works contract service" (WCS) ....
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.... 20.00 to Km 30.00 including formation of Cherlapalli Reservoir, Constructions of CM and CD works and distributor system to feed an ayacut of 5,500 ac. Khareef I.D. 5 HNSS (Handri Neeva Sujala Sravanthi) Phase-II-Km 30.00 to Km 74.00 EPC Turnkey System SHE 3/EPC/2006-07 23/04/2007 73.99 Description/scope of work: Investigation, preparation of Hydraulic particulars, designs, drawings and each work excavation of Punganur Branch canal from Km 30.00 to Km 74.00 including Construction of CM and CD works and distributor system to feed an ayacut of 19100 ac. Under Phase II. 6 GNSS (Galeru Nagari Sujala Sravanthi) Project - Flood Flow Canal from Owk Reservoir to Gandikota Reservoir - Package No.49A EPC System 4 SE/2007-08 11/06/2007 90.495 Description/scope of work: Additional Investigation, design, preparation of Hydraulic particulars, estimates and earthwork excavation of GNSS flood flow canal from Owk Reservoir to Gandikota Reservoir from Km 32.520/34.800 to Km 52.184 including Construction of CM and CD work enroute the canal for carrying capacity of 20,000 cu. Secs (upto start of Tunnel) in Kadapa Dist., AP. It was found by the investigators....
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....e benefit of Section 80 of the Finance Act, 1994 was claimed in this connection. After hearing the party, the learned Commissioner passed the impugned order, (a) confirming the demand of service tax against the assessee under Section 73(2) of the Finance Act, 1994 with interest thereon under Section 75 of the Act and (b) imposing penalties on them under Sections 76, 77 and 78 of the Act. This order of the Commissioner is under challenge in the above appeal filed by Ramky-Murthy JV. 3. Facts of appeal No.ST/1589/2010 3.1. A show-cause noticed dt. 25/08/2009 was issued to Ramky-Murthy JV on similar grounds demanding service tax (with education cesses) under Section 73(1) of the Finance Act, 1994 for the period from June, 2008 to March, 2009, with interest thereon under Section 75 of the Act, and for imposing penalties under Sections 76 and 77 of the Act. This demand was also contested by the party on the same grounds as in the earlier case. In adjudication of the dispute, the Commissioner passed the impugned order (a) confirming the demand of service tax and education cesses against the appellant for the above period under Section 73(2) of the Act with interest th....
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....eru Nagari Sujala Sravanthi) Package 29 EPC Contract 5SE/2006-07 06.03.07 171.63 Description/Scope of Work: Package No.29/2006-investigation, Design and excavation of GNSS Flood flow Canal (Gorakallu Reservoir to Owk Reservoir) for the reach from 46.000 KM to 57.700 including Construction of CM and CD works route to Kurnool Dist., on EPC Turnkey contract. 2 SRBC Nandyal project Package No.26/2006 EPC Contract 1SE/2006-07 06-12-07 257.85 Description/Scope of Work: Package No.26/2006-investigation, Design and excavation of widening of SRBC Main Canal from 25.067 KM to 56.775 and Construction of additional structures/improvements and alternations to CM and CD works including all other allied works on EPC Category-I 3 Flood Flow Canal Project from SRSP EPC/Turnkey contract 17/FFC/2004-05 23-03-05 210.06 Description/Scope of Work: Earthwork Excavation, forming embankment and construction canal from Km 86.000 to Km 103.00 in Balwanthpur (V), Mallai (M) of Karimnagar District 4 Indira Sagar (Polavaram) Project Package-3 On EPC/Turnkey system 73/2004-05 18-03-05 212.94 Description/Scope of Work: Conducting detail....
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....d distributory system for an ayacut of 80,060 ac. On EPC Turnkey system. 9 Pranahitha Chevella LIS project EPC Turnkey system LS AB No.03/2008-09 26-05-08 215.47 Description/Scope of work: PCLIS - Detailed investigation and preparation of designs, drawings, estimates, land plan schedules and excavation of gravity canal including forming embankment, construction of sluices, cross masonry and cross drainage works lining etc., complete for the reach from Km 15.000 to Km 28.500 (Karjalli to Suragapally) which is taking off from the right flank of the proposed barrage across river pranahitha near Tummidi hetti (V), Koutala (M), Adilabad Dist. - Package No.II. The show-cause notice invoked the proviso to Section 73(1) of the Finance Act on the alleged ground of "wilful misstatement and suppression of material facts" and "contravention of the provisions of the Finance Act, 1994 and the Rules thereunder" "with intent to evade payment of service tax". 4.2. The demand of service tax and the connected proposals were contested by the appellant on numerous grounds by and large similar to the grounds raised by Ramky-Murthy JV. In adjudication of the dispute, the....
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....nstruction of a new building or a civil structure or a part thereof, or of a pipeline or conduit, primarily for the purposes of commerce or industry; or (c) construction of a new residential complex or a part thereof; or (d) completion and finishing services, repair, alteration, renovation or restoration of, or similar services, in relation to (b) and (c); or (e) turnkey projects including engineering, procurement and construction or commissioning (EPC) projects; [underlining added] 5.2. In the course of their arguments before the adjudicating authority, the appellants also relied on Section 65A(2)(a) and (b); apparently the adjudicating authority has followed Section 65A(1). These provisions read as under: Section 65A. Classification of taxable services - (1) For the purpose of this Chapter, classification of taxable services shall be determined according to the terms of the sub-clauses of clause (105) of Section 65; (2) When for any reason, a taxable service is, prima facie, classifiable under two or more sub-clauses of clause (105) of Section 65, classification shall be effected as follows:- (a) the sub-cla....
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....to be provided to any person by any other person in relation to site formation and clearance, excavation and earth moving and demolition and such other similar activities. 5.4. Before the adjudicating authority, Ramky-Murthy JV also argued that their activities were alternatively classifiable under "site formation and clearance, excavation and earth moving, and demolition" defined under Section 65(97a) of the Finance Act, 1994. This definition, which took effect from 16/6/2005, reads as follows:- Section 65(97a) "site formation and clearance, excavation and earth moving and demolition" includes,- (i) drilling, boring and core extraction services for construction, geophysical, geological or similar purposes; or (ii) soil stabilization; or (iii) horizontal drilling for the passage of cables or drain pipes; or (iv) land reclamation work; or (v) contaminated top soil stripping work; or (vi) demolition and wrecking of building, structure or road, but does not include such services provided in relation to agriculture, irrigation, watershed development and drilling, digging, repairing, renovating or restoring of wate....
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....TRU dt. 27/07/2005 and Notification No.17/2005-ST dt. 07/06/2005 relied on.] 6.3. A "works contract" as defined under Section 65(105)(zzzza) of the Finance Act, 1994, must be a contract for construction or a new building or civil structure or a part thereof or for construction of a pipeline or conduit, primarily for the purposes of commerce or industry. Impliedly, such construction, activities undertaken for non-commercial/non-industrial purposes would not be taxable as "works contract". Just as non-commercial activities cannot enter into the ambit of "commercial or industrial construction service", they would remain outside the scope of "works contract service" as well. [Board's Circular No. 123/5/2010 dt. 24/05/2010 relied on.] Case law cited- Indian Hume Pipes Co. Ltd. vs. CCE, Trichy [2008(12) STR 363 (Tri. Chennai)] Nagarjuna Construction Co. Ltd. vs. CCE [2010(19) STR 259 (Tri. Bang.)] Larsen and Toubro Ltd. v CST [2011 (22) STR 459 (Tri. Ahmd.)] Dinesh Chandra Agarwal Infracon Pvt. Ltd. vs. CCE [2011 (21) STR 41 (Tri. Ahmd.)] 6.4. In any case, within the definition of "works contract", clause (b) is mo....
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....tract" by reason of its non-commercial/non-industrial nature, it cannot be brought within the ambit of another clause [clause (e)] of the said definition for the purpose of levy of service tax. 6.7. (Without prejudice to the denial of tax liability) The taxable value ought to have been determined by deducting the retention money from the gross amount billed to the State Government. 6.8. (Without prejudice to the denial of tax liability) The amount received from the State Government ought to have been taken as cum-tax value and the tax element excluded from it for arriving at the taxable value in view of Section 67(2) of the Finance Act, 1994 and the following decisions: Sri Chakra Tyres Ltd. vs. CCE, Madras [1999(108) ELT 361 (Tri. LB)] CC vs. Maruti Udyog Ltd. [2002(141) ELT 3 (SC)] 6.9. No penalty can be imposed under Section 76, 77 or 78 of the Finance Act, 1994 on the appellant who has no liability to pay the service tax demanded. In any case, the appellant can legitimately claim the benefit of Section 80 of the Act in view of the following decisions: Hindustan Steel Ltd. vs. The State of Orissa [AIR 1970 (SC) 253] ETA Engineerin....
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....the Finance Act, 1994. Moreover, the question whether the services rendered by the appellant would fall under clause (b) or clause (e) of the definition of 'works contract' is a question for interpretation. For all these reasons, the invocation of the proviso to Section 73(1) of the Finance Act, 1994 in this case cannot be sustained. The following case law was cited in this connection: Padmini Products Ltd. vs. CCE [1989(43) ELT 195 (SC)] CCE vs. Chemphar Drugs and Liniments [1989(40) ELT 276 (SC)] Continental Foundation JV vs. CCE [2007(216) ELT 177 (SC)] 8. The submissions for the Revenue The learned Special Consultant for the Revenue made the following submissions/arguments in the appeals of Ramky-Murthy JV (which were adopted by the learned Commissioner (AR) in the appeal of Maytas-NCC JV): 8.1. All the contracts in question are EPC/Turnkey contracts and the parties thereto have understood the contracts to be so. The scope of work under the contracts encompassed a wide range of activities including investigation, soil survey, preparation of designs/drawings and hydraulic particulars, excavation, procurement/supply of ....
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....to 01/06/2007, by which time "WCS" was specifically brought within the scope of levy of service tax. The new taxable service was not created by bifurcation of any pre-existing entry under Section 65 of the Finance Act, 1994, nor by amalgamation of any services which were already subject to service tax. It was introduced as a new and distinct service. There are clear points of distinction between WCS and pre-existing services. Firstly, the existence of a contract is a requirement under WCS. Secondly, there must be transfer of property in goods involved in the execution of the contract and the same should be exigible to tax as sale of goods. These two crucial requirements of WCS clearly indicate that the service covers execution of composite and indivisible contracts involving supply of goods and provision of service. These features are conspicuously absent in "commercial or industrial construction service" and "site formation and clearance services". More significantly, turnkey/EPC contracts were introduced for the first time w.e.f. 01/06/2007 for levy of service tax and the same did not find a place in any of the pre-existing entries or definitions under Section 65 of the Finance A....
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....s, railways, tunnels, bridges and dams. Therefore, there is no room for applying any principle of interpretation. Reliance is placed on Grasim Industries Ltd. vs. CC [2002(141) ELT 593(SC)). In the light of the ratio of this decision, it can be safely held that the services in question are squarely covered by clause (e) of the definition of "works contract" under Section 65(105)(zzzza) of the Finance Act, 1994. 8.8. As the execution of a turnkey/EPC contract is squarely covered by clause (e) ibid and there is no scope for classifying it under other headings, the argument of the appellants that, if the execution of the contract could be classified under two headings, the classification which is beneficial to the assessee is to be adopted has no relevance and the decisions contextually cited by them are not applicable. 8.9. In the Circular dt. 15/09/2009, there is a reference to 'canal system' but this is in the context of examining the definition of 'commercial or industrial construction' and not that of 'works contract'. In the same circular, there is also a reference to construction of dams, etc. through EPC mode. In this context, the ci....
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.... by filing ST-3 returns. The projects executed by the JV are very similar in scope and content to those executed by its leading partner, Ramky. These facts clearly indicate that the JV was fully aware of their service tax liability in respect of the contracts in question. Hence the plea of bona fide belief raised by them is liable to be rejected. The allegation of wilful suppression/misdeclaration of facts and contravention of legal provisions with intent to evade payment of service tax is well-founded and the extended period of limitation has been rightly invoked. 9. The issues Broadly, the following issues arise for consideration: 1) Whether, on the facts of the case, the service provided by the appellants to the Irrigation and CAD Department of Government of Andhra Pradesh during the relevant periods are classifiable under the head "works contract service" in terms of Section 65(105)(zzzza) of the Finance Act, 1994; 2) Whether the deductions (claimed by the appellants) from the gross amounts billed to the contractee can be allowed in the determination of the taxable value of the service for payment of service tax under the above head; 3) Wheth....
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....tion, finalization of location, designing and engineering of structures on canal system as per investigation and design criteria of Irrigation Department, relevant 1.5. Codes, IRC Publications, CWC Manuals and circulars issued by the department from time to time etc. Preparing temporary land acquisition cases for barrow area required if any, land acquisition cases on the basis of approved alignment (private land, Govt., land, forest land if any) property cases if any such as wells, trees, houses, etc., submitting to the department, pursuing the same with LAO and getting approval/award from competent authority. Construction and of Dam/Barrage and appurtenant works, whole canal unlined/lined as per approved design-drawings, specifications of the department, relevant I.S. Codes, CWC Manuals, Circulars issued from time to time. Construction of all structures of whole canal systems as per approved design-drawings, specifications of the department, relevant I.S. Codes, IRC Publications, CWC Manuals, Circulars issued by department from time to time. Formation of inspection path/service road and plantation of shade trees along the banks of earth dams/canals....
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....and Investigation (Section-I), (b) Design and Engineering (Section-II), (c) Civil Works (Section -III), (d) Gates and Embedded Metal parts (Section-IV) and (e) Maintenance during Defect Liability Period (Section-V). We have seen a wide range of activities under each Section. The "civil works" mentioned in Section-III are the following: Head Works: Construction of earth Dam Construction of spillway regulator and surplus arrangements Construction of head Sluices Fabrication, supply and erection of gates etc. Electrification and Plantation and beautification of Dam Monitoring of programme and progress (computer aided) Operation and Maintenance of system Canals: Distributories to cater the needs of specified ayacut (Branch canals, Majors, Minors, sub-Minors) Structures on Distributories Field Channels (Micro Network to service upto 1 Ha. Holding) including structures Inspection path on the canals Plantation along with canals Monitoring of programme and progress (computer aided) Operation and Maintenance of system It appears from the description and scope of the contract that what was executed b....
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....(105)(zzzza) of the Finance Act, 1994 inasmuch as (i) transfer of property in goods was involved in the transaction and VAT was paid on such goods, (ii) the contracts were for the purpose of carrying out irrigation projects of the Government through turnkey/EPC mode, and (iii) none of the contracts was in the excluded category of works contracts. 10.8. The learned counsel for the appellant, Maytas-NCC JV argued that the contracts awarded by the Government to them were assigned to sub-contractors and that the transfer of property in goods used in the execution of such contracts was from the sub-contractors to the Government and not from the appellant to the Government and therefore the execution of such contracts would not be covered by the definition of "works contract". This argument is unacceptable for more than one reason. Firstly, this plea was not raised by the appellant in their reply to the show-cause notice or in their subsequent written submissions filed before the adjudicating authority. Therefore this plea cannot be entertained at this stage. Secondly, the definition of "works contract" does not stipulate that, where the contracts were executed by the contracto....
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....ndependently and not as part of complete work such as laying of cables under the road". In the present case, any site formation, clearance, excavation, earth moving, demolition carried out by the appellants was only preparatory to the execution of the project and therefore these minor preparatory activities, per se, would not determine the classification of the entire service provided by the appellants to the Government. For this very reason, nothing turns in favour of the appellants on the legal position that such services as those specified in the main part of the definition of "site formation and clearance, excavation, earth moving and demolition" are, if provided in relation to irrigation, excluded from the taxable service. This exclusion only means that, if the appellants had undertaken only the activities specified in the main part of the said definition and nothing more than that, they could have claimed non-taxability of such activities on the ground that such activities were undertaken in relation to irrigation. The appellants, on the facts of this case, cannot set up such a claim because they were executing EPC projects in relation to irrigation and not mere drilling, bor....
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.... relation to certain specified items including "irrigation". Therefore, according to the counsel for the appellants, any service provided in relation to "dams" and "irrigation" should be deemed to have been excluded from the purview of "works contract service" as well. There is no warrant for deeming so inasmuch as every taxable entry needs to be understood with reference to the language used in such entry and, accordingly, a given service has to be classified, which is the mandate of sub-section (1) of Section 65A of the Finance Act, 1994. We have not found anything in the text of the definition of "works contract" to indicate that turnkey/EPC projects for irrigation are excluded from the ambit of taxable service of works contract. With regard to "dams", we have already expressed our views in para (10.6.) of this order. As rightly submitted by the learned Special Consultant for the Department, there is no room for any intendment or assumption or presumption and, where the words of the statute are plain and clear, there is no room for applying any of the principles of interpretation. In this context, the reliance placed by the Special Consultant on the decision of the apex court in....
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....e contracts were awarded to the appellants prior to 01/06/2007 could not, in any case, be classified under the head "works contract service". As the levy is on any taxable service 'provided or to be provided' by one person to another, the date of award of contract by the Government to the appellants is not the decisive factor. What matters is the fact that the contracts were executed by the appellants and payments received by them after 01/06/2007 and therefore they are liable to pay service tax on the taxable service. 10.16. As rightly submitted by the learned Special Consultant for the Department, an exemption notification cannot be given retrospective effect unless it expressly provides for retrospective operation. Notification No.41/2009-ST dt. 23/10/2009 exempted a works contract in respect of canals, other than canals primarily used for commercial or industrial purposes, from the whole of the service tax leviable thereon. This notification appears to be the first of its kind issued after introduction of works contract service as a taxable service, and did not provide for retrospective operation. Therefore the arguments advanced by the learned counsel, claimi....
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....he basis of Rule 3(1) of the Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007. The appellants have not objected to quantification of tax under these rules. These rules were made under Section 94 of the Finance Act, 1994, which authorized the Central Government to make rules, inter alia, for the determination of the amount and value of taxable service under Section 67 vide clause (aa) of sub-section (2) of Section 94 of the Act. Rule 3(1) of the Works Contract (Composition Scheme) Rules, 2007 reads as under: 3.(1) Notwithstanding anything contained in Section 67 of the Act and rule 2A of the Service tax (Determination of Value) Rules, 2006, the person liable to pay service tax in relation to works contract service shall have the option to discharge his service tax liability on the works contract service provided or to be provided, instead of paying service tax at the rate specified in section 66 of the Act, by paying an amount equivalent to [our percent.] of the gross amount charged for the works contract. Explanation: for the purposes of this sub-rule, gross amount charged for the works contract shall be the sum- (a) Including- (i) the v....
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....tion money from the gross amount charged. On a perusal of the terms and conditions of the contracts, we have found that the contractee (State Government) was, while making payments to the contractor, retaining a small part of the gross amount billed. However, upon satisfactory execution of the contract the "retention money" was to be released to the contractor, which fact is not in dispute. In other words, the retention money was only a deferred payment and the appellants were entitled to receive the gross amount charged in the R.A. Bill. If that be so, there can be no valid claim for deduction of the retention money from the gross amount as rightly held by the adjudicating authority. 11.4. The appellants are not entitled to claim CENVAT credit on inputs used in the execution of the subject contracts as this benefit is barred under Rule 3(2) of the Works Contract (Composition Scheme) Rules, 2007. But there appears to be no embargo on taking CENVAT credit on capital goods or input services. 11.5. In the result, the valuation of the taxable service has to be reworked out by the adjudicating authority by granting the aforesaid benefits to the assessees. 1....
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....s cited by counsel are not applicable. 13. Our findings on Issue No.4 13.1. In the aforesaid circumstances, we have not found any reason to grant the benefit of Section 80 of the Act to the assessees in these cases. Where an assessee proves that there was reasonable cause for his failures (non-filing of returns, non-payment of tax etc.), Section 80 can be invoked to do away with penalties under Sections 76 to 78. But we have already analysed the commissions and omissions of the assessees. The explanations given by them do not constitute any reasonable cause for non-taking of registration, non-filing of returns, non-disclosure of material facts in the returns filed, non-payment of service tax etc. hence Section 80 is not applicable to the present cases. 13.2. The legal requirements for invoking the proviso to Section 73(1) of the Finance Act for recovery of service tax dues beyond the normal period of limitation and the legal requirements for invoking Section 78 for imposition of penalty on the tax defaulter are identical and, therefore, there can be no valid ground against Section 78 penalty in these cases. However, as the taxable value and the amount ....