TaxTMI 
TaxTMI 
2023 (12) TMI 783
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....e appellant was not classifiable under the category of Works Contract Service'. It was further alleged that construction of hotel was purely a commercial activity and it would fall under "Commercial or Industrial construction Service". It was also alleged that the appellant had not paid service tax correctly on the value of services as shown in the debit notes issued by the appellant debiting service recipient's account. 7. Under Section 65 (105) (zzzza) of the Finance Act 1994 defined the 'Works Contract Service'. The relevant part of the Explanation to the said Section reads as- Explanation- For the purpose of this sub-clause, "works contract" means a contract wherein, (i) transfer of property in goods involved in the execution of such contract is leviable to tax as sale of goods, and (ii) such contract is for the purposes of carrying out, a. ... b. construction of a new building, or a civil structure or a part thereof, or of a pipeline or primarily for the purposes of commerce or industry; or In the instant case, the appellant had executed a project development agreement with the service recipient on ....
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....the Rules 3(3) and 3(4) of the WCR. In view of the above I hold that the appellant has correctly classified the service provided by him and paid the service tax accordingly. The demand of the service tax due to alleged wrong classification of the taxable service is therefore not sustainable. As the demand is not sustainable on merits, any further discussion on the limitation of time for raising the demand is not warranted 9. Regarding alleged differences between the value of services as shown in three debit notes dated 31.3.2011, 31.3.2012, and 31.3.2013 and the value as declared in ST-3s submitted during the relevant period, I find that the issuance of debit note or credit note is an established accounting procedure wherein some transactions are accounted for in books of account of buyers and sellers. The appellant has contended that he had not received any payment from the recipient of service against those debit notes till date. In support of his contention he has produced copies of ledger accounts relating to the service receiver maintained for the period from 01/04/2010 to 31/01/2017 wherein the entries relating to such debit notes were still showing as cost of constr....
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....ulated in the table below: S No. Debit Note dated Taxable Value Rate S. Tax Payable Service Tax paid Service Tax short paid 1 31.03.2011 39098423 10.30 4027138 - 4027138 2 31.03.2012 122333791 10.30 12600380 5011603 (Cenvat Credit) 7588777 3 31.03.2013 971543 12.36 120083 - 120083 TOTAL . 162403757 16747601 - 11735998 2.5 On examination of the ST-3 submitted by the respondents for the period October 2010 to March 2011& October 2012 to March 2013 vis-à-vis the debit notes dated 31.03.2011 & 31.03.2013, it was noticed that the respondent has filed a NIL return in both cases in respect of Work Contract Services' and not reflected the taxable value as reflected in these debit notes and failed to discharge the service tax liability. October 2011 to March 2012, the respondent had shown taxable value as Rs. 12,16,40,863/- which does not match with the taxable value of Rs. 12,23,33,791/- as per debit not dated 31.03.2012. The respondent had paid service tax of Rs 50,11,603/- through Cenvat credit as per their ST-3 return and hence short paid....
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....ly suppressed the facts of not discharging due service tax & order to be recovered from them. The adjudged dues may be deposited forthwith. 2.9 Respondents challenged this order before Commissioner (Appeal) who vide impugned order allowed the appeal. 2.10 Aggrieved revenue has filed this appeal against the impugned order urging following grounds: Period involved in this case is Dec 2010 to June 2012 i.e. prior to the negative list regime. During the relevant period the Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007 was applicable. Rule 3(3) and 3(4) of the Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007 provides that :- (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. (4) The option under sub-rule (3) shall be permissible only where the declared value of the w....
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....., the same had also been used to discharge the liability of output service. As the respondent were availing the CENVAT credit benefit of this notification could not have been extended to them. 3.1 None appeared on the behalf of respondent when the appeal was posted for hearing. However as we find that the issue is in very narrow compass, the same has been taken up for consideration after hearing Shri S T Khairnar, Authorized Representative for the revenue in terms of Rule 21 of CESTAT Procedure Rules, 1982, reproduced below: "RULE 21. Hearing of appeals ex parte. - Where on the day fixed for the hearing of the appeal or on any other day to which the hearing is adjourned the appellant appears and the respondent does not appear when the appeal is called on for hearing, the Tribunal may hear and decide the appeal ex parte." 3.2 Learned authorized representative reiterated the arguments advanced in the appeal filed by the revenue. 4.1 We have considered the impugned order along with the submissions made in the appeal and during the course of arguments. 4.2 The issue involved in the present case can be summarized as follows: a. Whether the respondent was c....
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....mpower the developer through a board resolution to fulfill the obligations contemplated herein. 2.5 The right, title and interest in the Land and the Project shall vest in the Owner and the Developer shall act as agent of the Owenr to develop the Project in terms of this agreement. Article 3 Considerations 3.1 All costs and expenses to be incurred in relation to procuring the Approvals required for the Project shall be borne by the Developer. The entire cost of development/construction of the Buildings, including fees or other payments (including statutory dues to workmen, employees etc) payable to the Architect, engineers, contractors, staff and workmen shall be borne by and paid for by the Developer. 3.2 Any/all mobilization advance and or material advance paid to a contractor/sub contractor or supplier etc for execution of contract or purchase of materials the Developer shall be reimbursed by the Owner on a demand. 3.3 All costs and expenses as detailed in article 3.1 above and paid for by the Developer shall be reimbursed by the Owner to the Developer on a quarterly basis The Developer shall raise quarterly bills of all the costs and....
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.... COST OF CONSTRUCTION GRAND HYATT, NOIDA-AS ON 31.03.2011 PAYMENT OF CONSULTANCY/ SECURITY CHARGES 8.036.433.00 PAYMENT TO CONTRACTORS 13,080,840.00 PAYMENT TO SUPPLIERS 7,303.282.00 PAID FOR NON TAXABEL SERVICES 6,806,038 .00 Total 37,236,593.00 37,236,593.00 Add Margn @ 5% 1,861,830.00 Add VAT on Steel @ 5% 383,422.00 Add: Service Tax @ 4.12% 1,610,855.00 Grand Total 41,092,700.00 4.5 From the perusal of the above terms of agreement and debit note in dispute it is quite evident that the agreement between the respondent and their client is a contract for supply of material along with the provision of services. It is settled law that "work contract service" is different from a plain service as there is transfer of property as well as service simultaneously, as has been held in the following cases. i. Larsen and Turbo [2015(39) S.T.R 913 (SC)] ii. Sobha Developer Limited [2017-VIL-09-SC] iii. M/s Bagai Construction [2014 TIOL 3094 CESTAT DEL] iv. Nagarjuna Construction Co. Ltd. [2012 (28) ....
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.... the measure of tax can only be on that portion of works contracts which contain a service element which is to be derived from the gross amount charged for the works contract less the value of property in goods transferred in the execution of the works contract. This not having been done by the Finance Act, 1994, it is clear that any charge to tax under the five heads in Section 65(105) noticed above would only be of service contracts simpliciter and not composite indivisible works contracts. 16. At this stage, it is important to note the scheme of taxation under our Constitution. In the lists contained in the 7th Schedule to the Constitution, taxation entries are to be found only in lists I and II. This is for the reason that in our Constitutional scheme, taxation powers of the Centre and the States are mutually exclusive. There is no concurrent power of taxation. This being the case, the moment the levy contained in a taxing statute transgresses into a prohibited exclusive field, it is liable to be struck down. In the present case, the dichotomy is between sales tax leviable by the States and service tax leviable by the Centre. When it comes to composite indivisible work....
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.... allow a statute not covered by it to intrude upon this field." (at paras 88 and 89) 17. We find that the assessees are correct in their submission that a works contract is a separate species of contract distinct from contracts for services simpliciter recognized by the world of commerce and law as such, and has to be taxed separately as such. In Gannon Dunkerley, 1959 SCR 379, this Court recognized works contracts as a separate species of contract as follows :- "To avoid misconception, it must be stated that the above conclusion has reference to works contracts, which are entire and indivisible, as the contracts of the respondents have been held by the learned Judges of the Court below to be. The several forms which such kinds of contracts can assume are set out in Hudson on Building Contracts, at p. 165. It is possible that the parties might enter into distinct and separate contracts, one for the transfer of materials for money consideration, and the other for payment of remuneration for services and for work done. In such a case, there are really two agreements, though there is a single instrument embodying them, and the power of the State to separate the agree....
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.... of account of the contractor are not looked into for any reason) by determining in different works contracts how much shall be the percentage of the total amount charged for the works contract, attributable to the service element in such contracts. It is this scheme and this scheme alone which complies with constitutional requirements in that it bifurcates a composite indivisible works contract and takes care to see that no element attributable to the property in goods transferred pursuant to such contract, enters into computation of service tax." 4.7 In view of the decision of Hon'ble Supreme Court as above we are in agreement with the finding arrived in the impugned order to effect that the contract/ agreement between the respondent and their client was a work contract agreement And the services provided by them would fall under the category of 'Work Contract Service." 4.8 Having held that the services provided by the appellant fall in the category of work contract service and they are well within their right to determine the value of taxable service provided as per "Work Contract(Composition Scheme for Payment of service Tax rules, 2007". Revenue has in their appeal state....
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....nsequential relief to the appellant." 4.9 In case of ABL Infrastructure Pvt. Ltd [2015 (38) S.T.R. 1185 (Tri. - Mumbai)] following was held: "6.3 Having viewed that the appellant have executed the new contract w.e.f. 5-6-2007 and the activity is eligible to be classified as a Works Contract Service, we may now examine whether they are eligible for paying duty at the lower rate under the Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007. The objection of Revenue is that the appellant has not fulfilled the condition of Rules. For convenience, Rule 3 is extracted below: - "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." The above Rule requires that the provider who opts to pay tax under the Rule shall exercise such option prior to payment of Service Tax. We find force in the appellant's contention that the fact that they ha....
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....ged for the works contract. Sub rule (3) of Rule 3 states that a person who opts to pay service tax under the composition scheme shall exercise such option prior to payment of service tax 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. The argument of the department is that the option to pay service tax under the composition scheme shall be exercised prior to the payment of service tax and the appellant having not exercised the option prior to 26-3-2008 is required to pay service tax at the rate of 4% and not 2%. The department further proceeds to state that this short payment is intentional to evade payment of duty and therefore extended period of limitation can be invoked. The cardinal principle of interpretation has taught us to read the rule in its entirety to ascertain the true meaning and intention of the legislation. If that be so sub rule (3) of Rule 3 of the scheme cannot be read in isolation. It is required to be read in conjunction with sub rule (1) of Rule 3. 11. Sub-rule (1) of Rule 3 is substantive portion of the rule which provides for an option to be ex....
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....taken up form ST3 for the period October 2007 to March 2008. Under the column works contract services, there are several questions which have been asked and information has been called for. In para A2, the question is whether the assessee is liable to pay service tax on his taxable service as a service provider or a service receiver. The appellant has indicated that they are liable to pay service tax as a service provider. Para C1 requires the assessee to mention as to whether they have availed benefit of any exemption notification, the answer should be either yes of no. If answer to Para C1 is yes in Para C2, the assessee is required to furnish the notification number. The assessee has indicated that they availed the benefit of notification no. 32 of 2007 which is the composition scheme, referred above. Para (F) of the return deals with the value of taxable service, service tax payable and gross amount charged. Under the said column, the appellant has given the service tax rate wise breakup details and indicated in respect of services the tax had been paid at 2% under composition scheme. The proof of payment of tax along with the challan numbers. have also been given in the return....
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.... Act [TNGST Act]. Two issues arose for consideration in the said writ petition, first of which would be relevant, namely whether the Assessing Officer in the said case was justified in holding that the said petitioner has not opted to pay tax under section 7-C of the TNGST Act. The dealer in the said case had filed the return and paid the tax at 2% and the return was processed and the nature of work done by the petitioner therein being works contract, the benefit of Section 7-C of the TNGST Act was extended and the rate of tax was fixed at 2% and the returns were accepted. Subsequently the assessment was sought to be revised by invoking the power under section 55 of the TNGST Act and revised orders were passed, in which the Assessing Officer took a stand that the petitioner therein has not opted to pay tax under section 7-C of the TNGST Act. Thus, the Court framed the question as to whether the dealer was required to exercise an option to pay tax under section 7-C of the TNGST Act by means of a separate letter or a petition. It also noted that under the provisions of the TNGST Act and the rules framed thereunder, there is no prescribed format or procedure as to how the option shoul....
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....on. All the details required for claiming depreciation under various heads are set out thereunder. Rule 5 of the Income-tax Rules is in relation to determination of profits and gains of business or profession and deprecation forms part of such determination. Therefore, there cannot be an option exercised in isolation (i.e.) deprecation with regard to determination of profits and gains of business or profession in the manner other than the procedure prescribed under section 139(1) of the Income-tax Act. The assessee is liable to file the return of income and claim deprecation in accordance with the various provisions and state in exactitude what he claims under different heads of deprecation. Schedules DOA and DEP in Form ITR # 6 contain the break up of various heads under which deprecation can be claimed. All that the second proviso to Rule 5(1A) of the Income-tax Rules states is that the assessee has to exercise the option before the due date for furnishing the return of income. In other words, if the option is exercised after furnishing of the return of income under sub-section (1) of Section 139, it is of no avail. This assumes importance, as no procedure is prescribed for exerc....
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....y the service provider is enough indication to show that they have opted for payment under the works contract composition scheme. 15. While on this issue, it will be beneficial to refer to the decision of the Hon'ble Supreme Court in Commissioner of Central Excise v. Hari Chand Shri Gopal and Others [2011] SCC 236 in the said decision, the doctrine of substantial compliance was explained. It was held that doctrine of substantial compliance is a judicial invention, equitable in nature, designed to avoid hardship, in the cases where the party does all that he can reasonably expected of it, but failed or faulted in some minor or in consequence aspect which cannot be described "essence" or the "substance" of the requirements. It was further pointed out that substantial compliance means actual compliance in respect to the substance essential to every reasonable objective of the statute and the court should determine whether the statute has been followed sufficiently so as to carry out the intent of the statute and accomplish the reasonable objective for which it was passed. We are informed that there are several decisions of the tribunal which have held on the above lines a....
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....eriod of limitation, for the period indicated above, is thoroughly flawed and illegal. For the disputed period from April 2011 to March 2013, there is no delay in issuance of show cause notice. The learned advocate appearing for the appellant on instructions submits that the appellant will pay the differential amount of service tax for the said period that is from April 2012 to June 2012, July 2012 to September 2022 and October 2012 to March 2013 at the appropriate rates. Since the service tax had been paid only at the rate of 2 %, the appellant agrees to pay interest thereon. The learned advocate submits that the court may consider the case and direct that the penalty should not be levied under section 78 of the Act. We are not able to accede such a prayer as it is beyond the scope of the prayer sought for in the writ petition nor such contention appears to have been raised in the writ petition. However, we give liberty to the appellant to raise all contentions both on law and facts in the event there is proposal to levy penalty for the aforementioned period. 17. Mr. Maiti, learned senior standing counsel appearing for the revenue referred to the decision of the Hon'b....
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....e. As the appellant has freedom to enter into contract and in the absence of the contract being contrary to the public policy, it is binding between contracting parties and cannot in any manner assist the department." 4.11 In the case of Harsh Constructions [2020 (37) G.S.T.L. 217 (Tri. - Mumbai)] Mumbai Bench held as follows: "2. Brief facts of the case are that the appellant is engaged in providing works contract service and for that purpose, was registered with the jurisdictional Service Tax authorities. During scrutiny of ST-3 returns for the period October, 2010 to March, 2011, the Service Tax Department observed that the appellant had paid service tax @ 4% of taxable value, without filing any option for payment of such amount of service tax on composition scheme, as provided under Rule 3 of the Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007. The department interpreted that since no option under Rule 3 of the rules had been exercised by the appellant, it should be liable to pay the service tax @ 10.30%. Accordingly, show cause proceedings were initiated against the appellant, seeking for recovery of the short paid service tax amount alon....