Custom, Excise & Service Tax Tribunal
Cgst & Central Excise Ahmedabad North vs Trio Elevators Co India Ltd on 8 April, 2025
Customs, Excise & Service Tax Appellate Tribunal
West Zonal Bench At Ahmedabad
REGIONAL BENCH- COURT NO. 3
Service Tax Appeal No. 10443 of 2020-DB
(Arising out of OIO-AHM-EXCUS-002-COMMR-18-22-2019-20Dated-03/02/2020passed by
Commissioner of Central Excise, Customs and Service Tax-SERVICE TAX - AHMEDABAD)
C.S.T.-SERVICE TAX - AHMEDABAD ........Appellant
7 Th Floor, Central Excise Bhawan, Nr. Polytechnic
Central Excise Bhavan, Ambawadi,
Ahmedabad,Gujarat-380015
VERSUS
TRIO ELEVATORS CO INDIA LTD ........Respondent
404, Shivam Complex, Near Bhuyangdev Cross Road Ahmedabad, Ahmedabad Gujarat APPEARANCE:
Shri. Ghanasyam Soni, Additional Commissioner (AR)for the Appellant Shri. Jigar Shah, Advocate for the Respondent CORAM: HON'BLE MR. RAJU, MEMBER (TECHNICAL) HON'BLE MR. SOMESH ARORA MEMBER (JUDICIAL) Final Order No. 10235/2025 Dated: 08.04.2025 Interim Order No. I/ 11 _/2023 DATE OF HEARING: 08.02.2023 DATE OF DECISION:06.06.2023 Somesh Arora The present appeal has been filed by the Commissionarate after a review of the impugned order. The matter has come up in this appeal after the same was remanded earlier by CESTAT to adjudicating authority to ascertain the genuineness of the claim based on percentage of goods and its costing in the first round. The respondents engaged in supply of elevators were as per provisions of Finance Act, 1994 covered under Erection, Commissioning and Installation and Maintenance and Repairs service. Period of dispute in present case is from April, 2007 to June, 2017.They were also discharging VAT/ Sales Tax on the value shown in the invoices of 85 percent, claimed as being towards the goods and on the remaining value of 15 percent, they were discharging service tax. The percentage of 85 percent was stated by the respondents to be in accordance with the contracts entered by them. Multiple Show Cause Notices were issued from time to time to the respondents during the impugned period. While remanding matter, this tribunal gave following direction to the Commissioner (Appeals) 2 ST/10443/2020 vide order No. A/11183/2014 dated 03.07.2014 through the following observations:
"5...........As per Rule 2A (ii) of the Service Tax (Determination of Value Rules, 2006, the actual value of transfer of property in goods involved in execution of works contract Is not to be taken into consideration while discharging service Tax liability under the Works Contract is not to be taken into consideration while discharging Service Tax liability under the Works Contract Services. It is the claim of the appellant that VAT/ Sales Tax was paid on the actual material value of the material sold, as per audit account furnished to the adjudicating authority and on examination of the records, it seems to be so. However, this matter whether VAT/ Sales Tax has been paid on the actual paid on the actual materials sold to the service recipient is required to be gone into detail by the adjudicating authority. Matter is therefore, required to be remanded back to the adjudicating authority for de-novo consideration."
2. On remand of the matter, various materials were furnished by the respondent in support of their submission that VAT/ CST had been discharged on the actual value on the material supplied which constituted 85% of the total contract value and consequently the service tax on balance 15% was paid, as per provisions of the law. It was also the submission that scrutiny by the learned Commissioners in the impugned orders was based on all relevant records and not merely on the basis of certificate issued by C.A. and Cost accountants and therefore demand was correctly dropped by the Learned Commissioner for the impugned period.
3. Committee constituted of Principal Chief Commissioner and Chief Commissioner vide review order 4/2020-21 directed filling of the appeal on the grounds indicated. Based on which present appeal has been filed by the department, challenging impugned order- in- original and seeking, inter-alia, remand of the case back to the adjudicating to again examine whether VAT/CST has been correctly discharged on the actual value of material sold and whether 85% of value of goods on some average value has been erroneously accepted by the commissioner as adjudicating authority without looking into the relevant data. Further grounds taken by the department are that the adjudicating authority has erred in accepting the Cost Accountant's Certificate, showing that the service portion is hardly 15%. The said calculation appears to have been prepared without covering the expenses made against the service portion and hence the same appears to be misleading. The value of materials, at the most, would ideally include the actual purchase cost of materials, sales tax, octroi, 3 ST/10443/2020 packing/forwarding, etc. and the remaining expenses were common and ought to have been apportioned against erection, installation and maintenance services, proportionately which appears to have not been done in the said work sheet prepared and submitted along with the aforesaid certificate. As a result, thereof, average value of materials portions in the contract shown as 85% and the remaining 15% against services, which appears to be incorrect. Though there is no provision in the law to discharge the duty/tax on average value basis, an attempt has been made to ascertain the authenticity of the said certificate based on the figures available in the Financial Statements of M/s Trio, which is tabulated herein below:-
S. Financial Total Value Value of Percentag
No Year of Supply & material e
Installation transferred
1. 2007- Financial statements not available
2008
2. 2008- 20,86,50,393 16,44,49,639 78.82
2009
3. 2009- 21,11,82,558 16,73,61,487 79.25
2010
4. 2010- 27,79,43,253 21,55,29,003 77.54
2011
5. 2011- 44,42,14,992 40,04,97,935 90.16
2012
6. 2012- 66,88,89,118 54,09,72,250 80.88
2013
7. 2013- 54,43,86,433 40,65,99,136 74.69
2014
8. 2014- 54,43,86,433 34,27,44,825 70.00
2015
9. 2015- 74,16,09,303 54,79,31,030 73.88
2016
10 2016- Financial statements not available
. 2017
3.1 The above tabulation clearly demonstrates that the value of
materials involved in the supply portion of contract as arrived at by M/s Trio was far lesser than 85% except for the financial year 2011-12. Therefore, the adjudicating authority erred in accepting such certificate issued by the Cost Accountant, which is incorrect and improper. That even such average value has been arrived at on yearly basis and not on contract basis.
The said calculation also prima facie proves that the calculation made by M/s Trio for payment of Service Tax and the Certificate issued by the Cost 4 ST/10443/2020 Accountant were incorrect and needed an independent verification by the adjudicating authority.
4. As against the above, the Learned Counsel for the Respondent pointed out that while making appeal, department has over looked the fact that besides cost accountant and C.A certificate which have been submitted, a number of other documents were examined by the jurisdictional authority, before coming to its conclusion and all these have been reproduced in the impugned order. Therefore, the grounds of the department that only Cost Accountant and C.A certificate were relied upon and not underlying documentary evidence suffers from factual infirmity. Further, he relied upon various decisions specifically of Safety Re-treading Company Pvt. Ltd. reported in-2017-1-TMI-1110-S.C as well as of Johnson lifts Pvt. Ltd vs. CC- Chennai-2018 (6)-TMI-384-CESTAT-Chennai and on the ratio of decision of Infrastructure and Solution Pvt. Vs. CCE,. Chennai reported at 2021 (11) tmi-695-CESTAT to put forth his arguments that they have correctly discharged duty on actual basis and not on any notional. That after discharging duty as per contract on goods, the remaining could be treated as service component. He also pointed out the matter of Johnson Lifts Pvt. Ltd of CESTAT (Chennai) specifically covered the matter and has attained finality and in the documentary evidence produced and examined all these aspects were sufficiently covered by the adjudicating authority in its order and same was sustainable. The Learned Authorized Representative put forth arguments on grounds taken by the department in its memo of appeal and sought remand for further fact finding.
5. We have gone through the rival submissions and records and relevant case law. We find that in the matter of Safety Retrading Company Pvt. Ltd - 2017-1-TMI-1110-S.C, from the facts mentioned in the decision, it emerges that at the relevant time when the decision of this Tribunal was taken the majority was of the view that in the composite contract when there was no evidence of sale of material in rendering service of maintenance and repair, the gross value would be taken as a value of service. However, when the matter was agitated before the Hon'ble Supreme Court, it concluded that if under the State Legislation 70% was taken as the cost of material and tax discharged on that, the balance 30% could be taken as service component. It is clear that when the decision was taken, neither in the Finance Act, 1994 or in notifications thereof, separate rates of deemed service component was provided for. However, since 2004, vide Notification No. 15/2004-ST and 5 ST/10443/2020 thereafter through various amended notifications as well as Service Tax Valuation Rules segregated components towards goods and services came to be provided and even the Composition Scheme under various provisions of Finance Act,1994 was introduced for the tax payer to avail. While, D.O.F 334/1/2007-TRU dated 28.02.2007, it was provided that value of the service provided can be either arrived at, on the basis of records maintained by the assessee or it was allowed to pay 2% on the total value of work contract as service tax with no CENVAT credit. In the instant case the department is aggrieved mainly because 85% as a value of material supplied has been derived from the State Act despite specific provision in Finance Act, 1944 as well as in various notifications providing for specific abetment or composition scheme under the provision of Finance Act, 1944. However as against this, the respondent has been claiming the same to be actual based on their contracts, invoices etc, and same not being just a notional value but a contractual value and therefore acceptable. The decision cited (Supra) of Safety Retrading Company Pvt. Ltd had derived the 70:30 ratio of goods and services basis upon State Legislation and therefore needs to be followed.
6. In this regard we find the following provisions are relevant for the purpose of deciding the matter:
Rule 2A of the Service Tax Determination of Value) Rules,2006 "2A. Determination of value of services involved in the execution of a works contract :
(1) Subject to the provisions of section 67, the value of taxable service in relation to services involved in the execution of a works contract (hereinafter referred to as works contract service), referred to in sub-
clause (zzzza) of clause (105) of section 65 of the Act, shall be determined by the service provider in the following manner :-
(i) Value of works 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 sub-contractor 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;6
ST/10443/2020
(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 service provider relatable to supply of labour and services;
(ii) Where Value Added Tax or sales tax, as the case may be, has been paid on the actual value of transfer of property in goods involved in the execution of the works contract, then such value adopted for the purposes of payment of Value Added Tax or sales tax, as the case may be, shall be taken as the value of transfer of property in goods involved in the execution of the said works contract for determining the value of works contract service under clause (i).
Similarly, Section 2A(ii)at the relevant time provided that "(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 execution of original works, service tax shall be payable on forty 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 property, Service tax shall be payable on seventy percent of the total amount charged for the works contracts."
6.1 In view of the above adversarial propositions, issue for our consideration is whether duty paid on 15% as service component by the assessee considering 85% element of good supplied, which has been described by it as the actual value, on the basis of contract price or as per their invoices and which as per the department`s view was not actual value but a uniform notional value on which VAT was discharged and remaining 15% was treated as value for the service tax even though the percentage of abatement under service tax only could be ousted by external value of goods based on costing. The department's point is that despite specific percentage being mandated in rule 2A(ii)( ibid) of the Service Tax Determination of Value) Rules,2006 on a percentage prescribed , when actual value was not available of the goods, the assessee has circumvented by not providing actual data/ cost etc. and Commissioner too has as adjudicating authority largely accepted the same without detailed scrutiny.
7ST/10443/2020
7. We find that in the matter of Johnson Pvt Vs. Central excise (Chennai IV) reported at 2018 (6) TMI 384 CESTAT-Chennai relied upon by the respondent. Similar issue pertaining to same service and same Rules had come to be considered by the coordinate bench, where in 15% tax was discharged as service tax on lifts supply and 85% was discharged on goods portion under Tami Nadu Value Added Tax. Based on another decision of the same party and relying on the ratio of Safety Re-treading Company(P) Ltd Vs. CCE Salem reported in 2017 (1) TMI 1110 (Supreme Court). The percentage of 15% as service tax was held justified by the coordinate Bench even on notional basis after 85% was considered as goods portion as prescribed under State legislation. We find that the decision though in the matter of Safety Re-treading Company(P) Ltd Vs. CCE Salem reported in 2017 (1) TMI 1110 (Supreme Court) was of period prior to 2004, when specific percentage of service component was not provided for in the Finance Act,1994 or its notifications, but only percentage under the State Tax legislation existed, the Hon'ble Supreme Court held that on inadequate proof of the goods component in a composite contract not being available, taxing gross value under service tax may not be proper and it was appropriate to take into account the notional percentage under state legislation and adopt the percentage as taken in the state legislation to be the portion of goods and to treat balance as service related portion even under Service tax. Point of emphasis is that in the dynamics of service tax at the relevant time, there was no prescribed percentage for service component in Finance Act, 1994. The choice only existed between gross value or actual value based on documentary evidence. In the matter of Johnson case (cited supra), while following decision of the Apex Court, the coordinate bench considered that the percentage of 85% under Tamil Nadu Value Added Tax legislation being goods portion and 15% balance being service tax portion was sufficient and proper. The decision however, did not throw light on the aspect, as to which particular percentage whether of State or Central legislation i.e. Finance Act, 1994 will prevail and whether primacy could be given to state legislation when the percentage of 85 + 33 i.e 118% exceeded 100% of value and which would have absurd consequences due to overlapping 18% for the tax payer and the reduction in percentage to confine the same to 100 percent should be borne by State or Centre. And how to deal with the same when delivering decisions under any particular statute, of which this tribunal is a part. We are of the view that some of these questions can have wider constitutional interpretational ramifications, which we may be unable to address from this forum. Again, 8 ST/10443/2020 the situation may not be confined to the instant service only, as it appears no serious attempt was made in Pre GST era to harmonise tax structure between various states on one hand vis-a- vis Centre on the other hand, on the question of component of percentage in works contract. Further, it may need to be separately decided as to whether there was any legal principle based on predominance of goods component or service component, which allowed precedence to the percentage of State or Centre or if there was conflict of any kind between state or central legislatures allowing later and not former to prevail. Following observation on in Touchstone Infrastructure and Solutions Pvt. Ltd. V. CCE, Chennnai,-2021 (11) TMI 695 are also relevant in this regards:-
"13. The question which falls for consideration in this case is where the value of the works contract is split notionally into value of goods and value of services as per the State Act and Rules and VAT has been paid on the goods component on which and there is no break-up of the actual value of the goods which are transferred or deemed to have transferred in execution of the contracts, can service tax also be charged on the same amount? In this case in view of the Tamil Nadu VAT Act and Tamil Nadu VAT Rules (which were also in existence prior to 01.07.2012 also) the appellant is bound to pay VAT on 70% of the value of the indivisible works contract deeming it to be the value of the goods transferred. It is undisputed that the appellant paid VAT accordingly and paid service tax on the remaining 30%. On the other hand, as per Rule 2A of the Service Tax (Determination of Value) Rules, 2006, Explanation (c) of Clause (i) where value added tax has been paid or is payable on the actual value of property in goods transferred in the execution of works contract the same shall be taken into account for determining the value of the works contract on which service tax has to be paid and the actual value is not available from the records. According to the Revenue, the value should be determined as per the clause (ii), which also, like the Tamil Nadu VAT Act and Rules, lays down a proportion of the consideration for the indivisible works contracts on which service tax should be paid. Since the works in this case were not original works, it falls under category B of clause (ii) of this Rule and service tax should be paid on 70% of the value of the works contract. In other words, if the Revenue's argument is accepted, the appellant will have to pay service tax on 70% of the gross amount charged for the works contract and the appellant has already paid VAT on 70% of the gross amount charged as per the Tamil Nadu VAT Act. This will lead to an anomalous situation where the appellant has to pay VAT as well as service tax on 40% of the total value of the works contract. On identical situation the Supreme Court in Safety Retreading Co. (P) Ltd. (supra) held as follows:
"10. The exigibility of the component of the gross turnover of the assessee to service tax in respect of which the assessee had paid taxes under the local Act whereunder it was registered as a Works Contractor, would no longer be in doubt in view of the clear provisions of Section 67 of the Finance Act, 1994, as amended, which deals with the valuation of taxable services for charging service tax and specifically excludes the costs of parts or other material, if any, sold (deemed sale) to the customer while providing maintenance or repair service. This, in fact, is what is provided by the Notification dated 20th June, 9 ST/10443/2020 2003 and CBEC Circular dated 7th April, 2004, extracted above, subject, however, to the condition that adequate and satisfactory proof in this regard is forthcoming from the assessee. On the very face of the language used in Section 67 of the Finance Act, 1994 we cannot subscribe to the view held by the Majority in the Appellate Tribunal that in a contract of the kind under consideration there is no sale or deemed sale of the parts or other materials used in the execution of the contract of repairs and maintenance. The finding of the Appellate Tribunal that it is the entire of the gross value of the service rendered that is liable to service tax, in our considered view, does not lay down the correct proposition of law which, according to us, is that an assessee is liable to pay tax only on the service component which under the State Act has been quantified at 30%."
7.1 However, for the purpose of limited issue agitated before us, and no stay having been shown to us by the department, we are inclined to follow the precedent decisions of Chennai bench and maintain that even if notional 85%of goods component based on contract discharges duty, 15% of gross amount realised as service tax under contract is sufficient. The question relating to difference between cost of goods and value of goods not having been specifically taken before us, or even whether values indicated or opted for by the parties can be taken as transactional value and therefore acceptable for the purposes both of state and central legislation, we are leaving the same open too. Accordingly, we hold the value of goods, as taken of 85% as per underlying contract and invoices by the commissioner in order- in- original is sustainable in view of the decision of Johnson Pvt Vs. Central excise (Chennai IV) reported at 2018 (6) TMI 384 CESTAT-Chennai of the coordinate bench, including that of Touchstone infrastructure and Solutions Pvt. Ltd v/s CCE, Salem reported in 2021(11) TMI695 .
8. Departmental appeal is accordingly dismissed.
(SOMESH ARORA) MEMBER (JUDICIAL) PRACHI 10 ST/10443/2020 RAJU
9. I have gone through the order of Learned Member (Judicial). I am unable to agree with the arguments and conclusion made therein.
10. The present appeal has been filed by Revenue. The issue involved in the instance case is the determination of value of Services provided by the respondents. The respondents were discharging VAT/Sale Tax on certain amount claimed as value of goods sold in their invoices. In the invoices, the respondents were showing that 85% of the total price recovered by them as value of goods and the balance amount of 15% was apportioned to value of services. The matter had earlier reached Tribunal wherein the appellant had contended that the value showed in their invoices are actual values of the goods sold on which VAT/Sale Tax has been paid. The revenue at the material time had contended before the Tribunal that the value shown are not actual values. In para 2, 4, 5 of the tribunal order dated 03.07.2014 following has been observed:
2. Shri R. Nambirajan (Advocate) and Shri Jigar Shah (Advocate) appeared on behalf of the appellant. Shri R. Nambirajan argued that the appellant is engaged in providing the services under the categories of maintenance & repair service; erection, commissioning & installation service and were discharging Service Tax liability on these services from October 2006 and was regularly filing ST-3 returns. It was his case that while providing the erection, commissioning & installation services, the contract entered into are both with respect to supply of materials and providing of services as per contracts. He made the Bench go through the relevant provisions of such representative contracts and submitted that services portion of the contract constitutes 15% of the total contract value and the remaining 85% value of the contract represents the material portion sold to the customers and VAT is also paid on the materials so sold. That regular VAT/Sales Tax payments are made and returns are filed with the respective VAT authorities. It was his case that as per the provisions of Explanation to Rule 2A of the Service Tax (Determination of Value) Rules 2006, the value equivalent to the transfer of property is not required to be taken into consideration while discharging the Service Tax liability. It was submitted that the material cost on which VAT/ Sales Tax liability is discharged is on actual value basis and not on approximate 15% as held by the adjudicating authority. That appellant has paid VAT liability always on the actual valuation of the material sold; that the details of material sold is available in the certified segmental working data derived from their audited statements which was also produced before the adjudicating authority. He made the Bench go through Para 40 and 42 of the Order-in-Original dt.28.01.2014 and argued that the observations made by the adjudicating authority, that the contracts entered into by the appellant with the service recipients are composite contracts and cannot be vivisected are not correct and not as per the submissions made by the appellant.11
ST/10443/2020
4. Dr. Jeetesh Nagori, (AR) appearing on behalf of the Revenue argued that the contracts entered into by the appellant with the service recipients are works contracts and are composite ones which cannot be vivisected into value of the services provided and the value of the materials sold. It was his case that 15% value of the contract taken for the purpose of payment of Service Tax is not on actual basis and cannot be taken as proper value for discharge of Service Tax liability and Service Tax was required to be paid upon the gross value of the contract including the value of the materials supplied for which separate value is not available in the contracts. It was also his case that certain clauses in contract clearly convey that contracted value cannot be vivisected into material portion and the service portion.
5. Heard both sides and perused the case records. As the issue involved in the present proceedings lies in narrow compass, therefore, after allowing the Stay Petition, appeal itself is taken up for disposal. The appellant, inter alia, is providing erection, commissioning & installation services on which Service Tax is paid on 15% of the total contracted value which as per the appellant is proper discharge of Service Tax and the remaining 85% of the contract value represent supply of materials on which VAT/ Sales Tax is paid. It is the case of the appellant that 85% of the Sales Tax value of materials is arrived at on actual basis and is not paid on any imaginary or hypothetical calculation. The adjudicating authority while deciding the issue, has not considered the submissions made by the appellant and has held that the contracted value has been artificially bifurcated into the material portion and the service portion. It is observed from the clause 25 of the representative contract dt.06.11.2009 entered into between the appellant and M/s Tej Complex, Ahmedabad, that 15% of the contract value represent erection, commissioning and installation services on which VAT / Sales Tax not paid by the appellant. As per Rule 2A(ii) of the Service Tax (Determination of Value) Rules 2006, the actual value of transfer of property in goods involved in execution of the works contract is not to be taken into consideration while discharging Service Tax liability under the works contract services. It is the claim of the appellant that VAT/ Sales Tax was paid on the actual material value of the material sold, as per audit account furnished to the adjudicating authority and on examination of the records, it seems to be so. However, this matter whether VAT/ Sales Tax has been paid on the actual materials sold to the service recipient is required to be gone into detail by the adjudicating authority. Matter is, therefore, required to be remanded back to the adjudicating authority for de-novo consideration. Needless to say that the appellant should be given an opportunity of personal hearing before an order is passed by the adjudicating authority that VAT/ Sales Tax has been paid on the actual materials sold to the service recipient. It is made clear that we have not expressed any opinion on the merits of the case and all issues have been kept open for the adjudicating.
12ST/10443/2020 (Emphasis Supplied) From the above it is seen that the matter was remanded to the Commissioner to ascertain if the actual value of goods sold is indeed 85% of the total value or more as claimed by the respondents, or of the same is less than 85%.
11. In the remand proceedings, the Commissioner holds that the services provided by the appellant are classifiable as Works Contract Services as alleged in the SCN. Thereafter, the Commissioner goes on to examine the valuation of the Works Contract Service. It is seen that the respondent has not challenged the classification of service under the head of Works Contract service. The Commissioner in the impugned order has examined the valuation of goods for the period 2007-08 to 2011-12 in the context of the following three options for discharging Service Tax liability as follows:
(i) Rule 2A of the Service Tax (Determination of Value) Rules, 2006,
(ii) Works Contract (Composition Scheme) Rules, 2007,
(iii) Notification No. 12/2003-ST, dated 20.06.2003.
12. The impugned order recognizes that deduction of the actual value of goods can be allowed in terms of Rule 2A of Service Tax (Determination of Value) Rules, 2006. It also highlight that both sides agree to that principle. The impugned order further observes as follows:
"88. In the present case, no separate invoices have been issued by the assessee, for the transfer of property or sale of goods on which VAT has been paid. No details regarding separate amount for the value of goods and separate amounts for the value of service have been shown in the invoices. The assessee has themselves chosen to pay VAT on lumpsum 85% of the billing amount, which was not acceptable to the department and therefore, demands were raised against the assessee. Transfer of property involved in the execution of a works contract as specified under the said Valuation Rules, Works Contract Composition Rules or the aforesaid notifications, is not to be understood as normal sale of goods. Such transfer of property has been termed as "deemed sale"
and made liable for payment of VAT/sales tax by way of specific Constitutional provisions. In the instant case, inputs which are used during the execution of works contract are allegedly not sold to the service recipients, but are consumed as a part of the works contract service. In other words, it was alleged that consumption of such inputs is a part of executing works contract. After the works contract is executed, there remains no separate identity on the goods in the form which it has been originally sold/deemed sold to the customers of the said assessee.
89. I find that the said assessee has been vehemently trying to establish that they have paid VAT or sales tax on the goods which were utilized by them during the course of providing taxable services, and hence service tax cannot be charged on the same. They have cited several case laws and circulars 13 ST/10443/2020 issued by CBEC to thrust their point. In this regard, the facts and evidences as well as the legal provisions as discussed in the foregoing paras would suggest that mere payment of VAT or sales tax would not by ipso facto provide exemption to the said assessee from service tax on the value of materials used in the rendition of taxable service. On the other hand, eligibility or otherwise for the exemption routes provided under rule 2A of Valuation Rules, Composition Rules or Notification 12/2003 would be the determining factor for exclusion of the value of materials from the 'gross amount' charged towards taxable services.
90. The assessee in their written submission have themselves mentioned that as per Rule 2A(i) the assessee can pay service tax on the labour portion after reducing the actual value of goods transferred from the gross amount charged. Thus, it is apparent that there is a clear understanding on the part of the assessee that only actual value of goods is deductible to arrive at the taxable value of the service portion, which they have not done. On the contrary, instead of arriving at the actual value, it was alleged that they have artificially bifurcated the contract value into material and service portion in the ratio of 85% and 15% respectively. This bifurcation is also not disputed by the assessee. However, they have contended that they have paid VAT on 85% value of the contracts, which has been accepted by the VAT department and therefore on the remaining 15%, service portion, they have appropriately paid service tax."
(Emphasis Supplied)
13. Thereafter after examining the decision of Hon'ble Apex Court in the case of Larson & Toubro Ltd., -2005 (39) STR 913(S.C) impugned order holds as follows:
"92. I hereby rely on the above judgment of the Hon'ble Supreme Court, above, wherein it has been held that in case of composite indivisible works contract, no element attributable to property in goods is transferred pursuant to such contract, enters into computation of Service Tax.
93. Further, from the above discussion, it is evident that statute stipulates that no Service tax can be recovered on the materials used in-the execution of the Contract on which VAT / Sales tax has been paid. CESTAT, vide its order No. A/11183/2014, dated 03/07/2014, in this matter, "As per Rule 2 A(ii) of the Service Tax (Determination of Value Rules, 2006, the actual value of transfer of property in goods involved in execution of works contract is not to be taken into consideration while discharging Service Tax liability under the Works Contract Services. It is the claim of the appellant that VAT/Sales Tax was paid on the actual material value of the material sold, as per audit account furnished to the 14 ST/10443/2020 adjudicating authority and on examination of the records, it seems to be so. However, this matter whether VAT./Sales Tax has been paid on the actual materials sold to the service recipient is required to be gone into detail by the adjudicating authority. Matter is therefore, required to be remanded back to the adjudicating authority for de-novo consideration."
94. In view of the above, hereby examine the documentary proof produced by the assessee to establish their contention that VAT has been paid on the value of the said goods and materials and that the material portion of the Works Contracts actually amounts to 85% of the contract value. I have examined the copies of the VAT returns and the detailed charts showing the collection and payments of VAT during the relevant period. find that applicable VAT has been paid on the materials, equipment and parts, which form an integral part of the total contract value. I find that the assessee has undertaken an exercise to ensure that the assessee collects and pays VAT on the basis of the actual value of materials, parts and equipment supplied in relation of a particular job, and to ensure that the changes of fluctuations in the supply side of the contract are neutralized. For this, the assessee engages in an annual review of all the jobs and the value of the materials, parts and equipment supplied therein. The aforesaid exercise is undertaken on a contract-wise and job- wise basis and is purely based on actual data available with the assessee. The aforesaid exercise has been conducted over several years, and has yielded that about 85% of the Total Contract Value is towards the supply of materials; parts and equipment used in the erectioning, commissioning and installation of the elevators. The balance, in terms of the applicable law, is considered as the Service portion in the Contract and applicable Service tax is paid thereon. A statement certifying the aforesaid, for the period 2008-09 to 2011-12, obtained pursuant to an independent study by M/s. Kantilal Patel & Co., dated 23.1.2012, Chartered Accountant has been produced by the assessee.
95. Further, vide their letter dated 27.01.2020, the assessee has submitted a detailed report issued by M/s. P.D. Modh& Associates, Cost Accoutants, certifying the actual cost of materials supplied and the value of service provided in their contracts. Vide this Certificate, the Cost Accountants have interalia certified as under:
(1) All contracts for supply and erection of elevators, enetered into with its customers, by TRIO, have the following two disctinct elements for which separate pricing is provided in the contract itself:
a. Supply b. Service (2) In each of the contract entered int by TRIO with its customer, it is clearly specified that for every Rs. 100/- worth of the contract, Rs. 15/- shall be collected towards the service rendered for erectioning and commissioning of the elevators.
The balance Rs. 85 /- are specifically charged towards the supply of materials. They have also verified the purchase costs 15 ST/10443/2020 for TRIO for purchasing such materials which are in turn supplied to the customer in relation to the respective contract.
(3) On such Rs. 15/- specifically charged for rendering the service, TRIO collects and pays applicable service tax and duly discloses the value of such service rendered to the customer, in its Tax invoice, along with applicable Service Tax and Cess collected.
(4) For the supply of material, TRIO specifically provides the value of the material so supplied in relation to the contract and collects and pays applicable VAT in relation to the same. The details of the VAT collected along with the value on which it is collected is duly specified in the Tax Invoice which TRIO issues to its customers.
(5) Collection and payment of VAT and/or Service Taz, is may be applicable, is on 'ACTUAL BASIS' and TRIO has not availed of the benefit of abatement as provided under VAT law or under the Service Tax law.
(6) All amount of VAT collected by TRIO from its customers, in relation to the materials supplied, is duly paid and deposited with the Government exchequer, in accordance with the applicable laws.
(7) All amount of Service Tax collected by TRIO from its customers, in relation to the service rendered, is duly paid and deposited with the Government exchequer, in accordance with the applicable laws."
14. It can be seen from para 93 of the impugned order that it takes note of the observation of CESTAT, in its order No. A/11183/2014, dated 03/07/2014, that, "As per Rule 2 A(ii) of the Service Tax (Determination of Value Rules), 2006, the actual value of transfer of property in goods involved in execution of works contract is not to be taken into consideration while discharging Service Tax liability under the Works Contract Services." Thereafter in para 99, the impugned order holds that the demand is not sustainable for the following reasons:
"99. The valuation of Works Contract Service, as discussed in the foregoing paras, provide for a deduction of the amount on which VAT has been paid in relation to the materials, equipment and parts supplied as a part of the contract. The scrutiny of the VAT returns and invoices submitted by the assessee, show that VAT has been been paid on the materials used in providing the Works Contract Service. A Chartered Accountant and a Cost Accountant have certified that the manner of arriving at the value of materials in the contract service and have certified that it amounts to 85 % of the contract value. The Certificates issued by the Chartered Accountant and the Cost Accountant are authentic documents given by professionals. These certificates cannot be 16 ST/10443/2020 wrong as penal action can be taken against these professionals, in case it is found that they have issued false certificates. Further, in many cases, as cited above, CESTAT, has held that such certificates are authentic and have been looked upon as evidence. From the records of the case also, I find no reason to rebut the claim of the C.A and the Cost Accountant. Therefore, I accept the above Certificates produced by the assessee. Further, from the records of the case, I also observe that the assessee has not availed Cenvat Credit on inputs and the same is also certified by the Chartered Accountant. In such a scenario, the methodology of bifurcation of the value of contract into service portion and material portion, adopted by the assessee is in consonance with the applicable law. Even though the assessee, has paid Service Tax under Notification 12/2003, dated 26.6.2003, when they ought to have paid the Service Tax under Rule 2 A(i) of the Service Tax Determination Rules, 2006, as amended, the entire exercise, is a revenue neutral situation, with no impact whatsoever to the Government exchequer, in as much as the assessee has appropriately paid Service Tax on the service portions of the Works Contract. The assessee has submitted sufficient proof to substantiate their claim that VAT has been paid on the materials consumed during the course of the execution of the Works Contract and that the supply portion of the contract amounts to 85% of the contract value. I, therefore hold that the demand of Service Tax amounting to Rs.14,35,41,624/- towards non payment of Service tax on the supply portion of the contract value is not sustainable."
From the above, it is seen that the Commissioner has accepted the CA and Cost Accountant certificates without any scrutiny. It can be seen from the para 23-25 below that the certificate of CA is insufficient and such certificate of Cost Accountant is erroneous and does not take into account the requirements of Rule 2A of Service Tax (Determination of Value) Rules, 2006. In that context, I find that the observation of Commissioners are ill founded. The matter was remanded to Commissioner for the purpose of verification of the data which has not been done by the Commissioner.
15. The revenue is in appeal before Tribunal on the ground that the value of material sold has to be determined on actual basis based on the records maintained by the assessee. It has been argued by the revenue, the adjudicating Authority has failed to appreciate the fact that Rule 2A of the Service Tax (Determination of Value) Rules, 2006 prior to 01.07.2012 prescribes as under:
2A Subject to the provisions of section 67, the value of taxable service in relation to services involved in the execution of a works contract (hereinafter referred to as works contract service), referred to in sub- clause (zzzza) of clause (105) of section 65 of the Act, shall be determined by the service provider in the following manner :-17
ST/10443/2020
(i) Value of works 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 sub-contractor 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 service provider relatable to supply of labour and services;
(c) Where Value Added Tax or sales tax, as the case may be, has been paid on the actual value of transfer of property in goods involved in the execution of the works contract, then such value adopted for the purposes of payment of Value Added Tax or sales tax, as the case may be, shall be taken as the value of transfer of property in goods involved in the execution of the said works contract for determining the value of works contract service under clause (i).] It is seen that the Rule, 2A of Service Tax (Determination of Value) Rules, 2006, as it existed before 01.07.2012, mandated that the value of works contract shall be equivalent to the gross amount charged less the value of transfer of property in goods involved in the execution of said works contract. Clause C of the explanation of the said rule clearly indicates that VAT/Sale Tax if paid on "actual value of transfer of property goods"
involved in the execution of works contract and then such value can be excluded from the gross amount charged. The Explanation B to the said Rule 18 ST/10443/2020 specifically points out the heads of expenditure which need to be included in the value of works contract service. The said explanation (b) also mandates inclusion of not only the heads of expenses, but also the profit earned by the service provider relatable to supply of labour and services.
16. Rule 2A of Service Tax (Determination of value) Rules, 2006 after 01.07.2012 read as under:
2A. Subject to the provisions of section 67, the value of taxable service in relation to services involved in the execution of a works contract (hereinafter referred to as works contract service), referred to in sub- clause (zzzza) of clause (105) of section 65 of the Act, shall be determined by the service provider in the following manner :-
(i) Value of service portion in the execution of a works contract shall be equivalent to the gross amount charged for the works contract less the value of property in goods transferred in the execution of the said works contract.
Explanation. For the purposes of this clause,-
(a) gross amount charged for the works contract shall not include value added tax or sales tax, as the case may be, paid or payable, 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 sub-contractor 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 service provider relatable to supply of labour and services;
(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.
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(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 execution of original works, service tax shall be payable on forty 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 property, Service tax shall be payable on seventy percent of the total amount charged for the works contracts.] Explanation 1.-For the purposes of this rule,-
(a) "original works" means-
(i) all new constructions;
(ii) all types of additions and alterations to abandoned or damaged structures on land that are required to make them workable;
(iii) erection, commissioning or installation of plant, machinery or equipment or structures, whether pre-fabricated or otherwise;
(b) "total amount" means the sum total of the gross amount charged for the works contract and the fair market value of all goods and services supplied in or in relation to the execution of the works contract, whether or not supplied under the same contract or any other contract, after deducting-
(i) the amount charged for such goods or services, if any; and
(ii)the value added tax or sales tax, if any, levied thereon:
Provided that the fair market value of goods and services so supplied may be determined in accordance with the generally accepted accounting principles.
Explanation 2.-For the removal of doubts, it is clarified that 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.] 20 ST/10443/2020 The aforesaid amended rule w.e.f 01.07.2012 prescribed the following criteria for determination of value. The criteria prescribe in clause (i) of the said rule 2A was essentially same as the Clause (i) of the un-amended rule 2A. It also prescribed in clause (i) and explanation c that for valuation of works contract service "actual value of property in goods transferred in the execution of works contract" can be excluded from gross amount charge. It also prescribe in explanation b, the heads of expenditure which need to be included in the value of works contract service. The Clause 2A(ii) of the rule prescribed that in case the actual value of transfer of property in goods is not determined than the Service Tax need to be paid on 40% of the gross amount charged in cases of original works and 70% in other cases. The proviso of the said rule as amended from 01.07.2012 prescribed that the fair market value of goods and services supplied may be determined in accordance with generally accepted accounting principles. Thus the actual value of property in goods transferred need to be ascertained adopting generally accepted accounting principles.
17. It has been argued by revenue that Rule 2A of the Service Tax (Determination of Value) Rules, 2006 clearly lays down that only actual value of transfer of property in goods involved in the execution of Works Contract Service can be excluded from the total value of the contract. It is noticed that Commissioner in the impugned order in Para 90 has also held the same in following words:
90. The assessee in their written submission have themselves mentioned that as per Rule 2A(i) the assessee can pay service tax on the labour portion after reducing the actual value of goods transferred from the gross amount charged. Thus, it is apparent that there is a clear understanding on the part of the assessee that only actual value of goods is deductible to arrive at the taxable value of the service portion, which they have not done.
From the above, it is apparent that both sides are in agreement that only the actual value of goods can be deducted from the total value of the contract.
18. The impugned order holds that the VAT/Sale Tax paid on the material supplied to their clients has discharged VAT/Sale Tax and therefore such value cannot be included in the assessable value. It has been argued by the revenue that the assesse was required to establish the veracity and legitimacy of the actual value involved in the goods which are to be excluded from the gross amount charged. Even in terms of Notification No.12/2003- ST dated 20.06.2003 they were required to establish value of goods sold. It has been argued that the impugned order accepts an average value of 15% without any verification. It has been argued that the impugned order relies solely on the certificate given by the Cost Accountant without any 21 ST/10443/2020 verification done regarding the actual value of materials involved despite the order of Tribunal directing the Adjudicating Aruthority to do so, The revenue has argued that no independent exercise has been done by the Adjudicating Authority to establish the authenticity of the submissions made by Respondent. Revenue has argued that the onus of establishing the correct value of goods sold is on the respondents.
19. Revenue relied on the decision of Tribunal in the case of M/s. Toyota Kirloskar Motors Ltd- 2012 (286) ELT 690 (Tri.-Bang.). In the said decision following has been observed:
"......12.As rightly contended by the learned Commissioner (AR), the burden of proof is on the appellant to establish that they had not passed on the incidence of duty paid on tyres and tubes to the buyers of motor vehicles. This onerous burden should have been discharged by adducing primary evidence in the form of invoices in terms of Section 12A of the Central Excise Act. A certificate of Chartered Accountant/Cost Accountant is just a corroborative evidence only as held by the Hon'ble High Court vide 2010 (256) E.L.T. 216 (Kar.). The Hon'ble High Court's view was not disturbed by the Hon'ble Supreme Court vide 2011 (274) E.L.T. 321 (S.C.)."
It has been argued that the said decision of Triibunal upheld by the Hon'ble High Court of Karnataka as reported in 2014 (313) ELT 8(Kar.)wherein following has been observed:
"12........................ Over and above these certificates, the assessee did not produce any other material/additional evidence on record before the Tribunal in support of their claim. In other words, no efforts of whatsoever nature were made by the assessee in producing the additional materials/ evidence before the Tribunal after the order of remand passed by this Court and confirmed by the Supreme Court."
The said argument has been accepted by the impugned order in Para 87 of the impugned order. The impugned order concludes in para 87 reads as follows:
"87. One of the main arguments raised by the said assessee, in this regard, is that they have already paid VAT or sales tax on the materials supplied to their clients and hence service cannot be demanded on the value of such materials. I reiterate that it is nobody's case that service tax would per se be leviable on the goods which are sold by an assessee on payment of appropriate VAT/Sales Tax. In fact, service tax statute contains abundant precaution to exclude the value of goods which are subjected to 'sale' or 'deemed sale' and payable to VAT or sales tax, from levy of service tax. In other words, if an assessee has effected 'sale' or 'deemed sale' of any goods or property during the course of provision of taxable services, he has to go through the legal provisions specified in the statute to exclude the value of such goods or property on which appropriate VAT or sales 22 ST/10443/2020 tax has been paid. (Accordingly, he has to opt for any of the routes as provided under rule 2A of the said Valuation Rules, Composition Rules or Notification No. 12/2003, as the case may be. However the assessee has to prove about the veracity and legitimacy of the actual value of goods which are excluded from the 'gross amounttowards the value of goods so sold."
From the above observation, it is apparent that commissioner holds that the onus of providing that the actual value of goods sold is on respondents. Hence, it was imperative that he should have examined the actual value of goods sold as directed by Tribunal in remand order.
20. It has been argued by revenue that the certificate issued by the Cost Accountant is not to be blindly followed. For this assertion revenue has relied on the decision of Hon'ble High Court of Madras in the case of 2018 (8) GSTL 47(Mad.). It has been argued by revenue that prima facie, it appears that Cost Accountant has apportioned almost all the expenses against the value of materials sold to inflate the value of goods and has shown very negligible or nil expenses against the service portion to depress the value of services. It has been argued that in terms of explanation (b) to Rule 2A (i) of Service Tax (Determination of Value) Rules, 2006, the value of materials should include the actual purchase cost of materials, sale tax, octroi, packing and forwarding expenses, etc., and the remaining expenses which are common ought to be apportioned against the service and sale portion. It has been asserted by revenue that the said apportionment has not been done as it apparant from the certificate of Cost Accountant. it has been argued that there is no provision in laws to discharge the Duty/ Tax on average value basis. The revenue has carved out figures from the financial statements of the respondent in following manner:
On the strength of this assertion, it has been argued that the impugned order relies blindly on the certificate given by the Cost Accountant/Chartered Accountant without critically examining the same.23
ST/10443/2020
21. It has been asserted by revenue that the impugned order has wrongly invoked revenue neutrality. It has been argued that the concept of revenue neutrality can only be invoked only after the actual value of goods involved in transfer of property is ascertained. It has been argued that the Commissioner in the impugned order has blindly accepted the argument of revenue neutrality without examining the veracity of the claims made by the respondent.
22. It has also been argued by revenue that the Commissioner has not verified if any CENVAT Credit has been availed on the inputs involved in transfer of goods. The Commissioner has blindly relied on the CA certificate. It has been argued that merely because the respondent has filed ST-3 returns regularly and never defaulted on Service Tax cannot be a ground for holding that extended period is not invokable.
23. Rule 2A (ii) of Service Tax (Determination of Value) Rules, 2006 specifically mandates determination of actual value of goods. Explanaiton (b) to Rule 2A (i) of the said rules lists the costs that need to be included in the actual value of services. First proviso to Rule 2A, as amended mandates determination of value of goods as per Generally Accepted accounting principles. To examine the claims made by the revenue the reports of CA M/s. Kantilal Patel & Co., and of Cost Accountant P. D Modh & Associate are examined in detail. The impugned order has relied on statement given by M/s. Chartered Accountant Kantilal Patel & Co., dated 23.01.2012 24 ST/10443/2020 Subsequently another report has been taken by respondent from the CA M/s. kantilal Patel & Co., with respect to the period April, 2007 to June, 2017, dated 31 December 2019, wherein following has been stated:
25ST/10443/2020 26 ST/10443/2020 27 ST/10443/2020 From the examination of above certificates it is seen that no costing records have been examined by the CA. There is no assertion that generally accepted an accounting principles have been followed. The exact nature of the exercise conducted is also not clear. An examination of the above report of CA Kantilal & Co, the following emerges:
(i) The report is based on the basis of request to conduct agreed upon procedure dated Dec 27, 2019 and further communication. There are no details of agreed upon procedure that was requested by appellants.
(ii) Para 7.1, 7.2 & 7.3 of the report read as under:
"7.1 We have traced the amounts reported as CENVAT Credit availed in Service Tax returns filed for the period April, 2007, to March, 2017, under the Financial Act, 1994, read with Service Tax Rules, 1994. The same has been mentioned in the Statement;28
ST/10443/2020 7.2 We have verified the working of service tax paid for period from April, 2017 to June, 2017. The same has been mentioned in the statement;
7.3 We have verified the amount of CENVAT credit availed as reported in service tax returns filed and working of service tax paid with the records available with the Company, for the period from April, 2007, to June, 2017, to check whether the CENVAT tax credit taken is relating to input services or not;"
The report is largely in respect of availment of Cenvat credit based on service tax return. That does not have any relevance with determination of value of goods.
(iii) Only the agreed upon procedures were under taken and the CA does not take responsibility of sufficiency of the procedures for the purpose of report. There is no assertion regarding following of generally accepted accounting principles as required under the proviso to amended rule 2A of the Rules.
(iv) In the para 10 the CA states as follows:
"10. Because the above procedures do not constitute either an audit or a review made in accordance with generally accepted auditing standards in India, we do not express any assurance on the individual components."
(v) The purpose of the report is related to CENVAT and not the ascertainment of value of goods sold para 11 as follows:
"11. Had we performed additional procedures or had we performed an audit or review of the financial statements in accordance with generally accepted auditing standards in India, other matters might have come to our attention that would have been reported to you."
It is apparent that the said report is not in respect of determination of actual value of goods sold. It merely examines the price charged in the invoices and does not take into account either the inclusion required to be made in value of goods in terms of Explanation (b) to Rule 2A of the Service Tax (Determination of Value) Rules, 2006 or to necessity of following generally accepted accounting principles in terms of the proviso to rule 2A of Service Tax (Determination of Value) Rules, 2006.
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24. Now I examine the Cost Accountant certificate produced by the respondents. The said certificate reads as follows:
30ST/10443/2020 Now I examined the certificate of Cost Accountant certificate for the finance year 2007- 08 and the data related to the said year. The said data reads as follows:31
ST/10443/2020 32 ST/10443/2020 33 ST/10443/2020 From the said certificate, it is seen that 100% of the following costs are apportioned to sale of goods:
(i) Salary, Wages, Allowances, Bonus, Benefits(net) (ii) Provident Fund (iii) Direct Employee Cost (iv) Freight & Forwarding (v) Freight & Packing (vi) Octroi duty (vii) Power and Fuel (viii) Rent (ix) Repair and maintenance- other (x) Insurance (xi) Rates and taxes (xii) Travelling and conveyance (xiii) Legal and professional expenses (xiv) Consultancy Charges to Director (xv) Audit Fees (As auditor) (xvi) Provision for doubtful debts (xvii) Miscellaneous Expenses (xviii) Depricaltion
The cost accountant has apportioned 100% of these expenses to material cost. Rule 2A of Explanation 2(b) to Service Tax (Determination of Valuation) Rules, 2006 as it existed prior to 01.07.2012 prescribed inclusion of following costs in the value of services.
Explanation- For the purposes of this rule, 34 ST/10443/2020
(a) ------------
(b) value of works contract service shall include, -
(i) labour charges for execution of the works;
(ii) amount paid to a sub-contractor 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 service provider relatable to supply of labour and services;
(ii) -----------
After 01.07.2012, the Explanation (b) to Rule 2A(i) prescribes inclusion of following expenses:
Explanation. For the purposes of this clause,-
(A) value of works contract service shall include,-
(i) labour charges for execution of the works;
(ii) amount paid to a sub-contractor 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 service provider relatable to supply of labour and services;35
ST/10443/2020 The rule mandates inclusion of labour charges of execution, charges for planning designing and architecture, charges for obtaining on hire or otherwise machinery and tools for execution, cost of consumer such as water, electricity, fuel used in execution of works contract, cost of establishment of contractor relatable supply of labour services etc., are specifically includable in the value for the purpose ascertaining the value of Works Contract Service. The said provision also requires inclusion of the profit earned by the services provided. From the certificate of Cost accountant it apparent that none of these expenses have been including the cost of installation. All these expenses have been apportioned 100% to the cost of material. Thus the certificate of cost accountant is in total dis regard of the requirements of Rule 2A of Service Tax (Determination of Value) Rules.
25. Now I examine the Cost Accountant certificate relating to the financial Year, 2008-09. The data reads as follows:
36ST/10443/2020 37 ST/10443/2020 It is apparent from the certificate of Cost Accountant that the expenses under the head of Employees, Petroleum Allowances, Petrol Expenses, Provided Fund Exp., Salary, Contractual Labour Exp., Travelling Expenses, Bonus etc, have not been apportioned to the installation cost, and entire expenses under these head have been apportioned to material cost. It is also seen that Legal And Provisional Expenses, Packing And Forwarding Charges, Transist Insurance Charges, Insurance Expenses(Other Than Vehicle) Sales Promotion Expenses, Consulting Charges have all been apportion to material cost. It is also seen that the entire trade discount has been apportioned to installation cost thereby reducing the cost of installation. It is further seen that the entire cost of repair and maintenance of vehicles. Service tax on transport, safety cost expenses, drawing and design expenses, provision of doubtful debts, miscellaneous expenses, telephone expenses, electric expenses, audit fee, have been apportioned to the cost of material and none have been apportion to the installation cost. It is also seen that almost entire cost of over heads has been apportioned to material and none of it has been apportioned to the installation cost. This is totally contrary to the requirement of Rule, 2A (i) explanation (b). It is seen that the same practice has been done in the Cost Accountant report for all other years. From the above, it is apparent that there are obvious error and the report of cost accountant is contrary to the requirement of 2A (i) explanation (b). Since I find these certificates of cost accountant are in total dis regard of Rule 2A of Service Tax (Determination of Value) Rules and do not have any assertion regarding following generally accepted accounting principles, the same cannot be accepted. I have examined two years data and found this deficiency therefore, I am not going into data for other years.
26. The order recorded by Learned Brother relied on the decision of co- ordinate Bench in the case of M/s. Infrastructure and Solution Pvt Ltd.- 2021 (11) TMI 695. The said decision in term relied on the decision of Hon'ble 38 ST/10443/2020 Apex Court in case of M/s. Safety Re-trading Company Ltd.- 2017 (1) TMI 1110 (S.C). It is noticed that in the said case the dispute related to the valuation for the purpose of Service Tax in cases involving re-trading of tyres. In the said case revenue was seeking to tax the entire value of re-trading cost recovered by the appellant. The appellant in the said case was seeking deduction of 70% as the value of the goods and parts used in the contract and sold to customer. It is noticed that in the said case there was no dispute regarding the actual value of goods sold by the appellant to the clients during re-trading of tyres. In the instant case it is noticed that the data relating to the actual value of goods involved in execution of the works contract is doubted and is rightly challenged. It can be seen from the analysis para 14- 18 above wherein the data in respect of the Financial Year 2007-08 to 2008- 09 was examined. It is seen that the respondent in the said case have apportioned the entire cost of over heads to the sale of goods despite the necessity of including many of this cost in the value of services. It is seen that Explanation (b) to Rule 2A(i) specifically requires inclusion of certain cost in the value of services prior to 01.07.2012. Similarly after 01.07.2012 also explanation b to Rule 2A(i) require inclusion of certain heads of expenditure in the value of Service. It is also seen that the proviso to the rule 2A of Service Tax (Determination of Value) Rules, 2006, clearly lays down that the fair market value of goods and services supplied may be determined in accordance with generally accepted accounting principles. It is not been verified by the lower authority if apportionment of the entire cost to the value of goods instant of the value of service is as per generally accepted accounting of principles. Thus the facts of the instant case are different from the fact of the case relied upon. In the case of Safety Re-trading Company Ltd., the actual value of goods was not disputed. In the instant case it has been disputed and rightly so as can be seen from para 23-25 above.
27. In these circumstances, it is felt that the Commissioner has failed to examine critically the certificates given by the Cost Accountant and the C.A and has blindly relied on them despite prima facie errors and contradiction in the same. In these circumstances, it is felt that the matter needs to be remanded to the commissioner for proper examination of the records and determination of actual cost of material sold by the respondents as directed in earlier order of Tribunal dated 03.07.2014. The respondents are at liberty to produce necessary evidence in support of their claim. The impugned order therefore deserves to be set aside and appeal allowed by way of remand.
RAJU MEMBER (TECHNICAL) 39 ST/10443/2020 In view of above difference of opinion the matter may be placed before the Hon'ble President to nominate a third member for resolution of following difference of opinion:
(i) If the appeal is to be allowed as held by the Hon'ble Member (Judicial) or the matter is to be remanded in view of observations made by the Member (Technical).
(Pronounced in the open Court on 06.06.2023) SOMESH ARORA RAJU MEMBER (JUDICIAL) MEMBER (TECHNICAL) PALAK Interim Order No. 12/2025 DATE OF HEARING: 18.03.2025 DATE OF DECISION: 21.03.2025 R. MURALIDHAR Vide interim order No. I/11/2023 dated 06.06.2023, the matter has been placed before me as a third Member for following difference of opinion:-
"(i) If the appeal is to be allowed as held by the Hon'ble Member (Judicial) or the matter is to be remanded in view of observation made by the Member (Technical)."
2. The learned Counsel appearing on behalf respondent submits that the Respondent is engaged in Erection and Commissioning of Elevators which is in the nature of 'Works Contract Services' involved with both supply of goods and supply of services being involved. The assessee has been treating 85% of the contract as consideration received towards goods and has paid the VAT thereon. Treating in the balance 15% consideration as received towards service portion, they were paying the Service Tax on such consideration. Proceedings were initiated on the ground that the assessee was showing higher amount towards the value of goods without proper evidence because of which the Service Tax being paid was lower than what should have been paid by them. The Show Cause Notices were issued for the period April, 2007 to June,2017. The matter reached the Tribunal for some of the SCNs, wherein 40 ST/10443/2020 vide final order No. A/11183/2014 dated 03.07.2014, the matter was remanded to the adjudicating authority. During the de-novo proceedings, the adjudicating authority has gone through the various documentary evidence produced by the Respondent and after verifying the same, he has dropped the demands. Being aggrieved, Revenue filed this appeal before the Tribunal.
3. The learned AR appearing on behalf of the Revenue submits that the Hon'ble Member (Technical) has gone through the documentary evidence placed by the assessee before the adjudicating authority and has given a finding that the proper verification was not taken up in terms of the directions given by the Tribunal. The learned AR relies on the detailed findings of the Hon'ble Member (Technical) and submits that the matter is required to be remanded to the adjudicating authority for properly considering the documentary evidence and to verify the factual details. He also submits that the conditions specified under Notification No. 12/2003 has not been fulfilled by the respondent herein. In view of this submissions, he prays that the matter may be remanded to the adjudicating authority, as has been held by the Hon'ble Member (Technical).
4. The learned Advocate on behalf of the Respondent submits that all the necessary documents like copies of invoices, Chartered Accountant's Certificate, Balance sheet, etc. were made available to the adjudicating authority. He has undertaken a thorough verification of these documentary evidence and has come to a conclusion that VAT has been paid on the goods value portion and Service Tax has been paid on the service value portion. Only after this, he has dropped the proceedings.
5. When the appeal was taken up by the Tribunal, The Hon'ble Member (Judicial) has placed reliance on Touchstone Infrastructure and Solution Pvt. Ltd. V. CCE, Chennai,- 2021 (11) TMI 695, wherein the Hon'ble Supreme Court's decision in the case of Safety Retreading Co. (P) Ltd.- 2017 (1) TMI 1110, case was also discussed. He has also held that the Commissioner has correctly relied on the case law of Johnson Lifts Pvt Ltd Vs. Commissioner of GST & Central Excise, Chennai, IV- 2018 (6) TMI 384 CESTAT, Chennai. After this the Hon'ble Member (Judicial) has dismissed the appeal filed by the Revenue.
6. The Learned Counsel places reliance on the case law in case of Johnson Lifts Pvt ltd vs. CGST, Chennai- 2023 (9) TMI 79 CESTAT Chennai on identical 41 ST/10443/2020 issue. However, he fairly submits that this decision was rendered by Chennai Bench subsequent to the Interim Order passed by this bench which is before make for as a third Member reference bench.
7. On being queried as to whether there is a basis for the assessee to have adopted 85% for payment of VAT, the Learned Advocate draws my attention to the notification issued by the State Government on 11.10.2006. He draws my attention to Sr. No. 5 of this Notification wherein it is clearly shown that in respect of lifts and elevators, the percentage of abatement allowed on account of service portion is 15% only. He submits that in view of this specific notification issued by the the Government of Gujarat, the assessee was paying the VAT on 85% of the consideration and paying the Service Tax on the balance 15%. With respect of the Revenue's argument that as per the balance sheet figures, the value of the goods was approximately around 70 to 75 %, he submits the Revenue has derived this percentage based on the purchase value of the goods involved. If they had taken the value of the sales price, this percentage could be at 85% only.
8. He also submits that the assessee has provided copies of the Chartered Accountant certificate clarifying that VAT was being paid on 85% of the consideration. In view of this facts, he submits that the Hon'ble Member (Judicial) has correctly decided that the case law of Touchstone Infrastructure and Solution Pvt. Ltd. and Johnson Lifts Pvt Ltd are applicable and has accordingly dismissed the appeal filed by the Revenue. He prays that the appeal filed by the Revenue may be dismissed.
9. Heard both sides perused appeal papers and the documentary evidence placed before me.
10. I find that the main argument of the appellant Revenue is that on scrutiny of the assessee's accounts and Balance Sheet, the value portion of the goods supplied could be in the range of 70 to 80 %, whereas the assessee was claiming the value to be @ 85%. The Revenue feels that in spite of clear directions given to the adjudicating authority in the Final order of this Tribunal dated 03.07.2014, proper verification has not been undertaken by him, while dropping the demand.
42ST/10443/2020
11. I have gone through this Tribunal's Final Order No. A/11183/2014 dated 03.07.2014, wherein the matter was remanded to the adjudicating authority with the following observation: -
"As per Rule 2 A(ii) of the Service Tax (Determination of Value Rules, 2006, the actual value of transfer of property in goods involved in execution of works contract is not to be taken into consideration while discharging Service Tax liability under the Works Contract Services. It is the claim of the appellant that VAT/Sales Tax was paid on the actual material value of the material sold, as per audit account furnished to the adjudicating authority and on examination of the records, it seems to be so. However, this matter whether VAT./Sales Tax has been paid on the actual materials sold to the service recipient is required to be gone into detail by the adjudicating authority. Matter is therefore, required to be remanded back to the adjudicating authority for de-novo consideration."
12. From the above portion of the earlier Final Order, it is observed that the Tribunal has already considered that VAT was being paid on the value of the goods portion. Only to verify as to whether the same was being paid or not, and correct value was adopted or not, these facts were required to be verified by the Adjudicating Authority. The adjudicating authority has gone through the documentary evidence placed before him including the Chartered Accountant's Certificate/Cost Accountant's certificate and has concluded that the assessee has paid the VAT on goods value portion.
13. I also find that the Government of Gujarat has issued the Notification No. (GHN-105) VAR-2006 (8) dated 11.10.2006, wherein in case of lifts and elevators 15% abatement is granted on account of service portion and the assessee is required to pay VAT on 85%. The relevant entry is reproduced below:-
43ST/10443/2020 44 ST/10443/2020
14. The same issue was before the Chennai in the case of Johnson Lifts Pvt Ltd - 2023 (9) TMI 79. The relevant is extracted below: -
"1.2 It appears that during further verification, the appellant revealed that the payment of VAT for works contract was made as per the 45 ST/10443/2020 prevailing/respective State VAT law. States allowed standard deduction as 15% except the State of Andhra Pradesh wherein such standard deduction was 30%. By this, the Revenue entertained a doubt that the payment of Service Tax by the appellant was not as per Rule 2A of the Service Tax (Determination of Value) Rules, 2006, subsequent to which it appears that there were few exchanges of communication, but however, the Revenue chose to further investigate into the matter.
8.1 The undisputed fact is that the appellant provided works contract:
it also discharged VAT at a certain percentage, admittedly as prescribed by the relevant States. In order to ascertain the correctness of the appellant's claim, it appears that even the Chief Commissioner authorised a cost accountant to verify the same. We find that reports of the said cost accountant are placed on record at page numbers 123 to 127 and 93 to 97 of the respective appeal memoranda, wherein even the said cost accountant has clearly specified the State-wise details of the percentage of material portion and the service portion on which the respective VAT and service tax to be paid for the years 2012-13 and 2013-14. This, according to the appellant, has been followed by them.
8.2 We also find from the record that in the appellant's own case (supra), although for a different period, even the original authority had accepted the value of service portion as 15% only, which the appellant claimed to have followed in the year under challenge. It was also argued that the Revenue had accepted the above Commissioner's adjudication order dated 07.02.2013, which was for the period from April 2008 to March 2012, by not filing any further appeal.
9.3 Further, in the case of M/s. Touchstone Infrastructure and Solutions Pvt. Ltd. (supra), the Bench had observed as under-
2. The facts of the case, after filtering out unnecessary details, are that the appellant provides finishing services on works contract basis to various parties. This work includes providing false ceiling, flooring, glazing, fixing up of partition, electrical work etc. The appellant charges a single amount for the entire contract without invoicing separately for the goods and the services. It is undisputed that the appellant is liable to pay service tax on these services under the head of works contract 46 ST/10443/2020 service and the appellant is also liable to pay VAT on the goods component of these contracts. The appellant paid VAT on the goods component reckoning 70% of the total contract of the value of the goods as per the provisions of Tamil Nadu Value Added Tax Act and Rules and paid service tax on 30% of the total contract value. The case of the Revenue is that since the appellant could not ascertain the actual value of goods transferred, it should have paid service tax under composition scheme. After calling for information from the appellant and examining the records, a show cause notice dated 21.12.2016 was issued to the appellant demanding differential service tax of Rs. 1,51,82,658/- as follows:-
4. The appellant paid VAT as per Section 5 of the Tamil Nadu VAT Act, read with Rule 8 (5) (d) of Tamil Nadu VAT Rules which prescribe that in case of works contracts 30% of the total amount charged would be treated as the service component and VAT shall be paid on the remaining 70%. The appellant discharged VAT accordingly and paid service tax on the 30% of the total amount reckoning it as the service component. The case of the Revenue is that service tax on works contract is chargeable on the consideration received for service portion of works contract if such consideration is available in the contract/invoice separately, otherwise service tax must be paid under the "Works Contract (Composition Scheme for payment of Service Tax) Rules, 2007 upto 30.06.2012. For the period after 01.07.2012, the value of service portion of works contract of composite nature has to be arrived at as specified in Rule 2A (ii) of Service Tax (Determination of Value) Rules, 2006, as amended. Thus, there are two periods in question upto 30.06.2012 and thereafter.
6. The case of the appellant is that the composition scheme is an option given to the appellant and it cannot be forced upon it.
Revenue also cannot choose any option for the appellant who is free to choose to pay as per Composition Scheme or otherwise in case of works contracts. It has paid service tax on the service component of the works contract and paid VAT on the goods component of it. To bifurcate the amount charged for 'works contract between goods and services, it is bound to follow the 47 ST/10443/2020 law laid down in the Tamil Nadu VAT Act which specifies the 30% of the value can only be taken as service component. Once VAT is paid on the remaining 70% service tax cannot also be charged on that amount for this period.
14. Respectfully following ratio of the Supreme Court in Safety Retreading Co. (P) Ltd. (supra), we hold that where the value has already been split as per the state law and VAT has been paid on the goods component of the composite works contract, no service tax can be levied on such component again taking recourse to Rule 2A(ii) of Service Tax (Determination of Value) Rules, 2006. The demand for the period post 01.07.2012 also needs to be set aside on this ground. Since the demand of service tax does not sustain, the demand of interest under Section 75 and imposition of penalty under Section 76, 77 and 78 do not also survive."
(Emphasis supplied) 9.4 In view of the above clear decision of the Hon'ble Supreme Court, which has been consistently followed, we are of the view that the impugned demand cannot sustain, for which reason the impugned orders deserve to be set aside, which we hereby do."
15. In the present case, I find that Hon'ble Member Judicial has also followed Touchstone Infrastructure and Solution Pvt. Ltd. (wherein Supreme Court's decision in the case Safety Retreading Co. (P) Ltd was relied upon) and Johnson Lifts Pvt Ltd case of Chennai Tribunal (in their earlier case) and has dismissed the appeal filed by Revenue.
16. Sample copy of the invoice is reproduced below:-
48ST/10443/2020 49 ST/10443/2020
17. On going through sample invoice No. 119 of the appeal book (reproduced above), I find that the total consideration is divided at 85% towards sales on which VAT has been paid @ 12.5% and on the balance 15% erection charges (service) Service Tax @ 12.36% is being paid. Such invoice itself would be proof enough once the same is read along with the Notification issued by the State Government towards payment of VAT, to come to a conclusion that the assessee has not arbitrarily adopted 85 to 15% bifurcation in respect of their transactions.
18. Even for the prior period, if Notification 12/2003 is read carefully it says that "subject to the condition that there is documentary proof specifically indicating the value of the said goods and materials." There can be no better documentary proof than the invoice raised by the assessee. In the present case, it is clearly seen that the VAT is being paid on the 85% consideration treating the same as value of the goods. The Supreme Court's decision in the case of Safety Retreading Co. (P) Ltd case has already held that once VAT is paid on the value component as per the statutory provision of the State Government, the value of service cannot be put to question.
19. In view of the foregoing, I am in agreement with the conclusion arrived at by Hon'ble Member (Judicial).
20. Matter to be placed before the regular bench for final disposal.
(Pronounced in the open court on 21.03.2025) (R. MURALIDHAR) MEMBER ( JUDICIAL ) Raksha 50 ST/10443/2020 MAJORITY ORDER Date of Hearing : 08.04.2025 Date of Decision : 08.04.2025 SOMESH ARORA:
In view of the majority order, the appeal is dismissed.
(Dictated & Pronounced in the open court) (SOMESH ARORA) MEMBER (JUDICIAL) (SATENDRA VIKRAM SINGH) MEMBER (TECHNICAL) Raksha