TaxTMI 
TaxTMI 
2023 (4) TMI 763
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....respect of input service however, they have not availed the cenvat credit in respect of any inputs used in relation to the said works contract service. The respondent have paid VAT to the state government on a deemed sale value of the goods. 02. The case of the department is that the portion of the value of the product which represent the value of deemed sale of goods which is exempted service accordingly, the common input service used for the entire products is excluded under Works Contract Service shall attract Rule 6(3A) of Cenvat Credit Rules, 2004 which prescribes reversal of proportionate cenvat credit attributed to the exempted service accordingly, the show cause notice proposed demand of proportionate cenvat credit attributed to the value of deemed sale in the execution of works contract service. The adjudicating authority after detailed analysis of the legal provision concluded that the revenue has fallen short of establishing renting of exempted service or non-service activity by the noticee during the relevant period so as to attract the mischief of Rule 6(3) of Cenvat Credit Rules, 2004 and held that the denial of cenvat credit in the instant proceeding is not mainta....
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....ution. The government through Rule 2A of the Valuation Rules has provided a rough and rapid method of taxing works contracts where the contractor has to pay sales tax on the value of the goods treating its incorporation in the works as deemed sale. Rule 2A is a self contained code, in this partial exemption is given prescribing of deemed taxable value which is less than the Works Contract Service. Since the taxable value has been worked out considering the denial of cenvat credit on inputs, there is no necessity for proportionate reversal as prescribed in Rule 6(3A). Proportionate reversal apply only when the assesse pays full tax on the entire transaction value and has taken input credit on all inputs and input service. 4.2 He further submits that the show cause notice was issued by Commissioner (Audit) Surat who has no jurisdiction to issue a show cause notice nor has legal authority to assign the adjudication of the noticee to the jurisdictional Commissioner Surat having jurisdiction over the respondent. He also submits that in the present case there is no evidence of any suppression or mis-statement of facts with an intent to evade payment of service tax warranting invocatio....
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....2. Definitions. - In these rules, unless the context otherwise requires, - (a) "Act" means the Finance Act, 1994 (32 of 1994); (b) "section" means the section of the Act; (c) "works contract service" means services provided in relation to the execution of a works contract referred to in sub-clause (zzzza) of clause (105) of section 65 of the Act; (d) words and expressions used in these rules and not defined but defined in the Act shall have the meanings respectively assigned to them in the Act. 3.(1) Notwithstanding anything contained in section 67 of the Act and rule 2A of the Service (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 two per cent. of the gross amount charged for the works contract. Explanation. - For the purposes of this rule, gross amount charged for the works contract shall not include Value Added Tax (VAT) or sales tax,....
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.... (c) where value added tax or sales tax has been paid or payable on the actual value of property in goods transferred in the execution of the works contract, then, such value adopted for the purposes of payment of value added tax or sales tax, shall be taken as the value of property in goods transferred in the execution of the said works contract for determination of the value of service portion in the execution of works contract under this clause; (ii) Where the value has not been determined under clause (i), the person liable to pay tax on the service portion involved in the execution of the works contract shall determine the service tax payable in the following manner, namely :- (A) in case of works contracts entered into for execution of original works, service tax shall be payable on forty per cent of the total amount charged for the works contract; [Provided that where the amount charged for works contract includes the value of goods as well as land or undivided share of land, the service tax shall be payable on thirty per cent. of the total amount charged for the works contract.] [ (B) in case of works contract, not covered under sub-c....
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....tification of the Government of India in the Ministry of Finance (Department of Revenue), No. 12/2003-Service Tax, dated the 20th June, 2003 [G.S.R. 503(E), dated the 20th June, 2003]. Explanation. - For the purposes of this sub-rule, the gross amount charged shall include the value of goods and materials supplied or provided or used for providing the taxable service by the service provider From the plain reading of Works Contract Rules, 2007, it is clear that it is one single service i.e. Works Contract Service which is defined under special clause (zzzza) of Clause (105) of Section 65 of the Finance Act, 1994 according to which the assesse has option if they opt for this scheme, they are liable to pay the concessional rate of service tax which is equivalent to 2% (upto 28.02.2008)/4% (with effect from 01.03.2008). As per this provision, the assesse is required to pay the service tax of 2%/4% on the entire value of works contract which includes the use of goods for providing Works Contract Service also therefore, it is only one service i.e. Works Contract Service on which the concessional rate of service tax is provided. The Works Contact Service cannot be vivisected b....
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....f Rule 6 (3A) of Cenvat Credit Rules, 2004. The learned Commissioner in the adjudication order after analysis of the legal provision gave the following finding for dropping proceeding of the show cause notice. 3. I have considered the records of case and defence submissions at length. It is undisputed that M/s L&T-MHPS is an EPC contractor executing the erection of boilers meant for thermal power plants and such activity of erection of boilers qualified as 'works contract service during the relevant period. It is narrated in the show cause notice that M/s L&T- MHPS was providing 'works contract' service and paying service tax after deducting from gross charges the value of property in goods transferred to its customers in terms of rule 2A(i) of the Valuation Rules. Reference is made to section 66E(h) of the Act which provided that "service portion in the execution of a works contract" will constitute "declared service". The show cause alleges that 'supply of goods' as part of the works contract constituted an activity that was either not a "service" or was an "exempted service", accordingly M/s L&T-MHPS was required to follow the provisions of rule 6 of....
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.... have been transferred to service receivers as the same is treated as "deemed sale" under the law and attracts VAT. The show cause notice is treating the activity of deemed supply of goods and material in the course of execution of works contract as akin to trading of goods i.e. an activity not amounting to service or amounting to 'exempted service'. The demand is based on plank that input services were commonly used for taxable and exempted services and such a situation attracted the provisions of rule 6(3) of the Credit Rules that was not complied with by the noticee. On examination of the material available on records, I find that the legal position is very clear that 'transfer of property in goods' as part of "works contract" activity is treated as "deemed sale" i.e. by a fiction created in law. It is well settled law that such fiction in law has a limited purpose as defined in the relevant statute. The fact of deduction of value of goods & material from the gross value of works contract & charge of VAT on such value as the same is considered as "deemed sale" ipso facto would not lead to the conclusion that noticee undertook activity of supply of goods and mater....