TaxTMI 
TaxTMI 
TaxTMI 
2023 (4) TMI 763
X X X X Extracts X X X X
X X X X Extracts X X X X
....ve 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 maintainable. Being aggrieved by the Order-In-Ori....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ation 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 invocation of proviso to Section 73(1) of the Finance Act, 1....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ion 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, as the case may be, paid on transfer of property in goods involved in the execution of the said works contract. (2) The provider of taxable service shall not take CENVAT credit of duties or ces....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ds 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-clause (A), including works contract entered into for, - (i) maintenance or repair or reconditioning or restoration or servicing of any goods; or (ii) maintenance or repair or completion and finishing services such as glazing or plastering or floor and wall tiling or installation of electrical fittings of immovable....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ng 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 between service portion and the goods. 5.1 As regard the valuation for the purpose of payment of VAT, it is a deemed fiction which does not represent the exact value of the goods moreover, when there is a composite contract between service provider and service recipient, the service recipient is not concerned with the proportion of the material used in the works contract whereas, he is only concerned with the overall proje....
X X X X Extracts X X X X
X X X X Extracts X X X X
....f 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 the Credit Rules and failed to discharge liability under rule 6(3) of the Credit Rules and for violation of the said provisions the cenvat credit availed on common input services was not admissible. In other words, the dispute is whether.- (i) M/s L&T-MHPS provided "exempted service" and (ii) availed cenvat credit on common input services that were used for "taxable" as well as "exempted service. The act of 'transfer of proper....
X X X X Extracts X X X X
X X X X Extracts X X X X
....xable 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 material. The scope of works, as demonstrated through sample contracts, involved designing, supply, erection, testing and commissioning of supercritical steam generators with associated auxiliaries for mega power projects on EPC Turnkey basis. It is demonstrated through documentary evidence ie contracts that supply of goods and material is intrinsic part of the 'works contract undertaken by the noticee. The method of valuation, i.e.....