TaxTMI 
TaxTMI 
2016 (7) TMI 1271
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....egal, ultra vires to the Finance Act, 1994 and the Constitution of India. The facts, which are more or less undisputed, are adumbrated as below: The petitioner entered into several works contract in the year 2006 & 2007 on a turnkey basis. After coming in force of the Works Contract (Composite Scheme for Payment of Service Tax) Rules, 2007 (herein after referred to as the composite scheme), the petitioner exercised an option under the said scheme and admittedly paid the service tax @ 2% as provided therein. Admittedly the petitioner submitted ST-3 returns for the period from March 2008 to 2011-2012 showing the payment of service tax @ 2% in respect of the services rendered under the works contract. In course of the scrutiny, it was revealed that the petitioner paid the service tax on the value of the works contract @ 2% under the said composite scheme after exercising the option on 26th March, 2008. By notification no. 7 of 2008 dated 1st March, 2008, the rate of service tax was enhanced from 2% to 4% with effect from the date of the notification. Because of the alleged discrepancy, the Commissioner of Service Tax issued a show cause notice cum demand dated 17th April, 2013 d....
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.... 2008 and an interim order was passed therein. The parties are unison on the fact that the writ petition filed before the Madras High Court is still pending. The issues, which are broadly raised in this writ petition, are firstly; that the notification dated 1st March, 2008 and 17th March, 2012 cannot be given a retrospective effect after an option is exercised and is, therefore, repugnant and/or contrary to the composite scheme offending under Section 94 of the Finance Act, 1994. Secondly, the purported notification, in effect, have rendered the composite scheme unreasonable and unworkable offending Article 14, 19 (i) (g) and 265 of the Constitution of India. Thirdly, enhancing the rate by a subsequent notification after the parties are allowed to alter the position is hit by principle of promissory estoppel and fourthly, the show cause notice was palpably barred by limitation and no ground exists for invocation of the extended period. The imposition of tax on the works contract was a center of debate because of its peculiar nature and indivisibility, imbibing several elements including labour services and materials. There was a divergent of views on interpretation of the....
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.... on the second objection, it was held that sales tax laws passed by the legislatures of States levying taxes on the transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract are subject to the restrictions and conditions mentioned in each clause or sub-clause of Article 286 of the Constitution. It is, however, held that the state's competence to levy the tax on an indivisible and composite works contract was not conferred prior to the said amendment but it is made divisible by legal fiction into one for sale of goods and other for supply of labour services. By an amendment in the Finance Act, 1994, the works contract have been brought within the purview of the taxable services by introducing clause -zzzza under sub-section 105 of section 65 of the said Act. The Works Contract "Composite Scheme for Payment of Service Tax" Rules 2007 was introduced in exercise of the power conferred under Section 93 & 94 of the Finance Act, 1994 providing an option to a person liable to pay service tax in relation to works contract to discharge the service tax liability on the works contract service provided or to be provided, instead of p....
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....ntract. (2) The provider of taxable service shall not take CENVAT credit of duties or cess paid on any inputs, used in or in relation to the said works contract, under the provisions of CENVAT Credit Rules, 2004. (3)The provider of taxable service who opts to pay service tax under these rules shall exercise such option in respect of a works contract prior to payment of service tax in respect of the said works contract and the option so exercised shall be applicable for the entire works contract and shall not be withdrawn until the completion of the said works contract." (G.G.Pai) Under Secretary to the Government of India" The petitioner says that once an option is exercised by the tax provider under the said Rules, he cannot resile therefrom for the entire period of works contract and also cannot claim the CENVAT credit of duties and cess paid on any inputs used in or in relation to the works contract under the CENVAT Credit Rules, 2004. According to the learned Advocate for the petitioner, a choice was given to the service provider to take a decision in its commercial wisdom by exercising the option to avoid the cumbersome procedure for payment of the service tax o....
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....operative through out the works contract and cannot be withdrawn until completion thereof. The changes in the rate of tax having brought subsequently by way of an amendment cannot impair the vested right by virtue of its operation from the retrospective date. The composite scheme was framed in exercise of the power under Sections 93 and 94 of the Finance Act, 1994 by the Central Government. The Finance Minister in its budgetary speech proposed the optional composition scheme under the Service Tax to be levied on total value of the works contract. The object for framing such optional scheme was to avoid the maintenance of the voluminous records and dissecting services exigable to tax from the transfer of property of goods involved in execution of the works contract. It is an alternative, simplified and hassle free method of assessment of the tax payable and aim to have a different route but to arrive at the same destination. It is really in the nature of a contract as the department made an offer to the dealers under the works contract to agree or not to agree. Once the dealer exercises an option and agreed to be taxed under the composite scheme, it becomes binding and therefore the....
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....tax shall be paid on or before 6th of every month following the month the payments are received for such taxable service. Rule 7 thereof postulates that the return shall be filed on half yearly basis on or before 25th day of the month following the particular area. In the present case, the service tax was paid at the rate of 2% and was duly received by the department prior to 01.03.2008. The expression 'opts to pay service tax under these rules' cannot be construed and mean the filing of the return and the payment would sufficiently constitute the exercise of option under composite scheme. Apart from relying upon Rules 6 and 7 of the Service Tax Rules there is no iota of piece of paper produced before this Court that an option was exercised prior to 26.03.2008 by payment of the service tax under composite scheme. The authorities have proceeded that since the option was exercised for the first time on 26.03.2008 the Petitioner cannot claim that he would still be liable to pay the tax at the rate of 2% under the said composite scheme and not at the rate of 4% subsequently changed on and from 1^st March, 2008. If the rate which was applicable as on the date of exercising an option ....
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....gh there is no difficulty in accepting that after the amendment of 2000 the liability to pay the service tax is on the appellant as the assessee, the liability arose out of the services rendered by the respondent to the appellant, and that too prior to this amendment when the liability was on the service provider. The provisions concerning service tax are relevant only as between the appellant as an assessee under the statute and the tax authorities. This statutory provision can be of no relevance to determine the rights and liabilities between the appellant and the respondent as agreed in the contract between two of them. There was nothing in law to prevent the appellant from entering into an agreement with the respondent handling contractor that the burden of any tax arising out of obligations of the respondent under the contract would be borne by the respondent. 27. If this clause was to be read as meaning that the respondent would be liable only to honour his own tax liabilities, and not the liabilities arising out of the obligations under the contract, there was no need to make such a provision in a bilateral commercial document executed by the parties, since the respondent....