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TaxTMI 
TaxTMI 
TaxTMI 
2023 (5) TMI 138
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....The respondent - assessee was engaged in the business of manufacture, supply and erection at the site of prefabricated/preengineered steel buildings and parts thereof classifiable under the relevant Headings/subheadings of the First Schedule to the Central Excise Tariff Act, 1985. The respondent was having centralized registration for Service Tax with the Service Tax Department for services under "Commercial or Industrial Construction Service" and "Construction Services" right from the commencement of production. The goods manufactured were cleared from the place of manufacture on payment of central excise duty on which CENVAT Credit was made by the respondent. The unit at Greater Noida registered as a Centralized Service Provider, availed CENVAT Credit (i) Excise duty paid by the units at the time of removal (ii) duty paid on capital goods (iii) service tax paid on input services. They paid service tax on the gross amount of contract for engineering, procurements supply, construction, erection etc. under the category "commercial or industrial constructions services" as referred under Section 65(105)(zzq) of the Finance Act, 1994 (hereinafter referred ....
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....Sections 73B and 75 of the Act and the penalties be imposed under Sections 77 & 75 of the Act, 1994 read with Rule 15(3) of CENVAT Credit Rules, 2004. By Order dated 28.03.2004 the Adjudicating Authority who disallowed the CENVAT Credit amounting to Rs.1,12,60,92,760/confirmed the amounts of Rs.22,37,01,811/being short paid, confirmed the claim in the show cause notice. 2.5 The department had issued further Show Cause Notices/statement of demands for the subsequent period also. 2.6 By order dated 18.11.2015, the learned Tribunal set aside the adjudication order and remanded the matter back to the adjudicating authority with the direction that the tax liability be redetermined after hearing the respondent. On remand the adjudicating authority passed a fresh order dated 31.03.2017 and confirmed the demands. The Commissioner held that the services rendered by the respondent was classifiable as 'Works Contract Service' and rejected the availability of CENVAT Credit amount and directed recovery under Section 73A of the Act, 1994. The Order-in-Original passed by the adjudicating authority was the subject matter of the present appeal before the Tribunal. 2.7 Before the Tribunal t....
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....g authority by observing that the composition scheme is optional and the provisions of Rule 2A of the said Rules are subject to provisions of Section 67 of the Act, 1994. The learned Tribunal has also observed that it is clear from the provisions of subsection 4 of Section 67 of the Act, that where value cannot be determined as provided under subrule (1) to (3) of Section 67 of the Act, then only the value is to be determined as provided under the Rules. Therefore, the Tribunal held that there is no question on applicability of Rule 2A nor there was any question of forcibly applying the option of Composition Scheme. The learned Tribunal held that in both these circumstances, the respondent was entitled to CENVAT Credit on inputs. 2.9 Feeling aggrieved and dissatisfied with the impugned judgment and order passed by the learned Tribunal setting aside the Order-in-Original, the Revenue has preferred the present appeal. 3. Shri N. Venkataraman, learned ASG has appeared on behalf of the Revenue and Shri V. Raghuraman, learned Senior Counsel has appeared on behalf of the respondent - assessee. 4. Shri N. Venkataraman, learned ASG appearing on behalf of the Revenue has made the f....
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....orks contract service determined shall be equivalent to the gross amount charged for the works contract less the value of transfer of property in goods involved in the execution of the said works contract. Explanation. For the purposes of this rule,( a) gross amount charged for the works contract shall not include Value Added Tax (VAT) or sales tax, as the case may be, paid, if any, on transfer of property in goods involved in the execution of the said works contract; (b) value of works contract service shall include, (i) labour charges for execution of the works; (ii) amount paid to a subcontractor for labour and services; (iii) charges for planning, designing and architect's fees; (iv) charges for obtaining on hire or otherwise, machinery and tools used for the execution of the works contract; (v) cost of consumables such as water, electricity, fuel, used in the execution of the works contract; (vi) cost of establishment of the contractor relatable to supply of labour and services; (vii) other similar expenses relatable to supply of labour and services; and (viii) profit earned by the servic....
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....ing of money, be such amount in money, with the addition of service tax charged, is equivalent to the consideration; (iii) in a case where the provision of service is for a consideration which is not ascertainable, be the amount as may be determined in the prescribed manner. (2) Where the gross amount charged by a service provider, for the service provided or to be provided is inclusive of service tax payable, the value of such taxable service shall be such amount as, with the addition of tax payable, is equal to the gross amount charged. (3) The gross amount charged for the taxable service shall include any amount received towards the taxable service before, during or after provision of such service. (4) Subject to the provisions of subsections (1), (2) and (3), the value shall be determined in such manner as may be prescribed. Explanation -For the purposes of this section, (a) "consideration" includes (i) any amount that is payable for the taxable services provided or to be provided; (ii) any reimbursable expenditure or cost incurred by the service provider and charged, in the course of providing or agreeing ....
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....tion of works contract. 9.3 Wherever VAT/sales tax on transfer of property in goods involved in the execution of works contract is paid on actual value, the same value is also taken for the purpose of determining the value of works contract service. In other cases, value of works contract service shall be determined based on the actual. It has also been explained that value of works contract service shall include: (i) labour charges for execution of the works; (ii) amount paid to a subcontractor for labour and services; (iii) charges for planning, designing and architect's fees; (iv) charges for obtaining on hir or otherwise, machinery and tools uses for the execution of the works contract; (v) cost of consumables such as water, electricity, fuel, used in the execution of the works contract, the property in which is not transferred in the course of execution of works contract; (vi) cost of establishment of the contract relatable to supply of labour and services; (vii) other similar expenses relatable to supply of labour and services; and (viii) profit earned by the service provider relatable to supply of labour and service; 9.4 If the gross amount charged for the ....
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.... list of service elements as found in Gannon Dunkerly and Co. vs. State of Rajasthan, (1993) 1 SCC 364 case will suffer service tax and the goods portion would suffer VAT or sales tax. 4.11. It is submitted that the Constitutional Bench of this Court in the case of Gannon Dunkerly and Co. (supra) while dealing with the measure of tax vide para 47 had provided a list of exclusions from the cost of valuation of goods and as to what would constitute the service elements. He has heavily relied upon para 47 of the said decision. It is submitted that this Court observed in para 47 in the case of Gannon Dunkerly and Co. (supra) as under: "47. ..... The value of the goods involved in the execution of a works contract will, therefore, have to be determined by taking into account the value of the entire works contract and deducting therefrom the charges towards labour and services which would cover- (a) Labour charges for execution of the works; (b) amount paid to a subcontractor for labour and services; (c) charges for planning, designing and architect's fees; (d) charges for obtaining on hire or otherwise machinery and tools used for the ....
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....cogent reasons, a conscious decision has been taken by this Court holding that the service tax was not leviable preFinance Act, 2007 on indivisible/Composite Works Contracts; (iii) While holding that for the period preFinance Act, 2007, on indivisible/Composite Works Contracts, the service tax is not leviable, number of decisions have been dealt with and considered by this Court in the aforesaid decision; (iv) That subsequently, the decision of this court in the case of Larsen and Toubro Limited (supra) has been followed and considered by this Court in the case of Commissioner of Service Tax and Ors. Bhayana Builders Pvt. Ld. And Ors, (2018) 3 SCC 782,; (v) That after the decision of this Court in the case of Larsen and Toubro Limited (supra) rendered in the year 2015, the said decision has been consistently followed by various High Courts and the Tribunals; (vi) The decisions of the various High Courts and the Tribunals, which were passed after following the decision of this Court in the case of Larsen and Toubro Limited (supra) have attained finality and in many cases, the Revenue has not challenged the said decisions; (vii) No efforts....
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....e would comply with the constitutional requirements as it seeks to bifurcate a composite indivisible works contract and takes care to see that no element is attributable to the property in goods transferred pursuant to such contract enters into the computation of the service tax. It is submitted that therefore the purport of Rule 2A of the valuation rules is only to bring the elements of service tax as that alone would meet the constitutional requirements and no elements attributable to the property in goods should enter in the computation of service tax. It is, therefore, the entire contention of the respondent assessee that they have a legal right to pay tax even on the goods portion as service tax and also take input credit on the duty paid on the goods is clearly contrary to para 25 of the Larsen and Toubro (supra) judgment and Rule 2A of the Valuation Rules, 2006. 4.18 Now so far as the composition scheme is concerned, it is submitted that the assessee falling under the definition of 'works contract service' from 01.06.2007 has to discharge service tax liability either under Rule 2A of the valuation rules only on the service components without taking any CENVAT Credit on th....
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....earing on behalf of the respondent - assessee. 6.1 While opposing the present appeal and in support of the impugned order passed by the CESTAT, learned counsel appearing on behalf of the respondent has made the following submissions: (i) That the composition scheme is optional as per Rule 3(1) of the Composition Rules; (ii) Provisions of Rule 2A of the Valuation Rules are subject to the provisions of Section 67 of the Finance Act, 1994; (iii) Once the provisions of Section 67 of the Finance Act, 1994 have been complied with, neither the question of applicability of Rule 2A of the Valuation Rules arise nor was there any question of forcibly applying option of Composition Scheme on the assessee; (iv) Even if the services of the respondent are considered as classifiable under 'works contract service' after 1st June, 2007, as claimed by the Revenue, the further claims of the Revenue that there were only two options as above for valuation of the works contract service namely the composition rules and the Rule 2A of the Valuation Rules available to the assessee and consequential non-admissibility of CENVAT Credit has no merit. (v) It is sub....
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....ercentage of the total amount charged for the works contract. 6.6 It is submitted therefore under the above scheme the assessee had the option to pay the service tax at full value on the entire amount charged towards providing construction service or works contract services under the provisions of Section 67 of the Finance Act, 1994. 6.7 It is submitted that in this case the assessee would be eligible to full CENVAT Credit and input, input services and capital goods under CENVAT Credit Rules, 2004 OR to pay service tax under the head construction services by opting for abatements specified in Notification under 15/2004 - HT, as amended from time to time or replaced with new notification; OR to pay service tax under the head 'works contract services' either in terms of Rule 2A of the Valuation Rules or in terms of the Composition Rules. 6.8 It is further submitted that the words used in Rule 2A 'subject to Section 67' conveys the clear idea that the valuation done under Section 67 is supreme and the rules are subject to the Act. 6.9 It is submitted that therefore the composition rules are completely optional for the assessee to exercise the assessee can opt for Section 6....
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....over- (a) Labour charges for execution of the works; (b) amount paid to a subcontractor for labour and services; (c) charges for planning, designing and architect's fees; (d) charges for obtaining on hire or otherwise machinery and tools used for the execution of the works contract; (e) cost of consumables such as water, electricity, fuel, etc. used in the execution of the works contract the property in which is not transferred in the course of execution of a works contract; and (f) cost of establishment of the contractor to the extent it is relatable to supply of labour and services; (g) other similar expenses relatable to supply of labour and services; (h) profit earned by the contractor to the extent it is relatable to supply of labour and services. The amounts deductible under these heads will have to be determined in the light of the facts of a particular case on the basis of the material produced by the contractor." 8.4 It is required to be noted that thereafter the above service elements have found a statutory recognition as part of Rule 2A of the Service Tax (Determination of Value) Rule....
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.... Scheme for payment of Service Tax) Rules, 2007 came to be introduced, as per Rule 3(1) and notwithstanding anything contained in Section 67 of the Act and Rule 2A of the Rules, 2006, the person liable to pay service tax in relation to works contract service shall have the option to discharge the service tax at the rate specified in Section 67 of the Act, by paying an amount equivalent to 2% of the gross amount charged for the works contract. Explanation specifically provides that gross amount charged for the works contract shall not include the 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. At this stage, it is required to be noted that post 01.07.2012 Rule 2A specifically provides that the taxable service shall not take CENVAT Credit of duty or cess paid on inputs used in or in relation to said works contract, under the provisions of CENVAT Credit Rules, 2004. 8.8 It is the case on behalf of the respondent - assessee that as in Rule 2A and even in the Composition Scheme the word used are subject to the provisions of Section 67 the assessee had an option to pay the service tax on the entire contra....