Custom, Excise & Service Tax Tribunal
Shrey Associates vs Alwar on 16 April, 2024
CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL
NEW DELHI.
PRINCIPAL BENCH,
COURT NO. I
SERVICE TAX APPEAL NO. 50997 OF 2017
[Arising out of the Order-in-Original No. ALW-EXCUS-OIO-COM/103/16-17
dated 28.02.2017 passed by the Commissioner of Central Excise and Service
Tax, Alwar]
M/s Shrey Associates ...Appellant
S-33/34, JDA Shopping Centre
Amrapali Circle
Vaishali Nagar
Jaipur 302021
Versus
Commissioner of Central Excise ....Respondent
And Service Tax, Alwar
APPEARANCE:
Shri Alok Kumar Kothari, Advocate for the appellant.
Shri Manoj Kumar, Authorized Representative for the Department
CORAM:
HON'BLE MR. JUSTICE DILIP GUPTA, PRESIDENT
HON'BLE MR. P.V. SUBBA RAO, MEMBER (TECHNICAL)
FINAL ORDER NO. 55537 /2024
DATE OF HEARING : 30.11.2023
DATE OF DECISION: 16.04.2024
P.V. SUBBA RAO
M/s. Shrey Associates1, filed this appeal to assail the order
in original2 dated 28.2.2017 passed by the Commissioner Alwar
whereby he confirmed a demand of service tax of Rs.
2,02,72,567/- under section 73(2) invoking extended period of
limitation along with interest under section 75 and imposed
penalties.
1 the appellant
2 the impugned orders
2
ST/50997/2017
2. The appellant was registered with the service tax
department on 11.6.2007 under the category of "works contract
service'. On 16.9.2010, the officers of the anti-evasion wing of
the Commissionerate visited the appellant, scrutinised its records
and it appeared to them that the appellant:
(a) had been rendering 'commercial and industrial
construction service' even before registering with the
department on 11.6.2007, but it had not paid any
service tax on such services;
(b) had not paid service tax on some projects/contracts on
the ground that they were charitable/educational
hospitals or projects and hence did not fall under the
category of 'commercial and industrial construction
service';
(c) had not paid service tax on certain residential
construction on the ground that they were residential
units and did not fall under the category of 'residential
complexes';
(d) had collected some amounts as 'service tax' in some of
the running bills on these projects, but did not deposit
these amounts in the exchequer;
(e) had not included the value of materials supplied free of
cost by its clients in the value of taxable services; and
(f) had not paid any service tax at all in respect of the
services rendered by it from April 2009 to June 2010.
3
ST/50997/2017
3. After recording statements and investigating the matter, a
Show Cause Notice3 dated 20.10.2010 was issued which was
decided by the impugned order dated 28.2.2017 by the
Commissioner complying with a direction from the Chief
Commissioner dated 22.11.2016 to dispose of the SCN.
Submissions by the appellant
4. Learned counsel for the appellant made the following
submissions:
a) The demand for the period 1.4.2005 to 31.4.2007 was
made under the category of "commercial and industrial
construction service' while the same service was classified
as "works contract service" from 1.6.2007. Changing of
classification of the same service is not correct and hence
the demand under this head needs to be set aside.The
benefit of abatement was not given to the appellant on the
ground that the appellant had not added the value of free
of cost materials supplied by its clients. As decided by the
larger bench of this Tribunal in Bhayana Builders(P) Ltd.
vs CCE, Delhi4, the value of free supplies need not be
included in the taxable value for determining the service
tax. The demand is time barred and service tax was not
paid as there was a lot of confusion and the appellant was
under the bonafide belief that no service tax was payable.
b) For the period 1.6.2007 to 30.6.2010, since the service was
classified as Works Contract service, the benefit of Works
3 SCN
4 2013 (32) STR 49 (Tr-LB)
4
ST/50997/2017
Contract (Composition scheme for payment of service tax)
Rules, 2007 should have been given but it was denied on
the ground that the appellant had not exercised its option
as per the scheme. The benefit of composition is available
even if no letter was filed exercising this option. Reliance is
placed on:
i) ABL Infrastructure Pvt. Ltd. vs Commissioner 5
ii) Bridge and Roof Co. (India) Ltd. vs
Commissioner of Central Excise, Jaipur6
c) The demand in respect of the work done for (i) Mahatma
Gandhi Hospital; (ii) Acharya Tulsi Shanti Pratisthan; and
(iii) Shri Amar Jain Medical Relief Society were not
chargeable to service tax because these organisations were
exempted under section 12AA of the income tax Act, 1961.
d) Service tax is not leviable on construction of residential
bungalows of single units and hence demand of service tax
on this count is liable to be dropped.
e) Extended period of limitation under section 73 was wrongly
invoked;
f) Penalties were wrongly imposed on the appellant.
Submissions on behalf of the Revenue
5 2015 (38) STR 1185 (Tri-Mumbai)
6 2012(27) STR 406 (Tri-Del.)
5
ST/50997/2017
5. Learned authorised representative for the Revenue
supported the impugned order and submitted that it calls for no
interference.
Findings
6. We have considered the submissions on both sides and
perused the records.
7. As far as the demand for the services provided prior to
1.6.2007 are concerned, the demand is under the head
'commercial and industrial construction service'. During this
period, the appellant was not registered with the service tax.
From 1.6.2007, the appellant is registered under the head 'Works
Contract Service' and paid service tax on the service. There is no
dispute that the nature of the service was the same both before
and after 01.06.2007.
8. 'Works Contract Service' is a contract which involves
rendering of service along with transfer or deemed transfer of
property in goods. For instance, if a builder constructs a building
under a contract including the cost of materials, not only does he
render the service but he also transfers the property in the
material used such as bricks, steel, cement, etc. while rendering
the service. Such services are distinct from contracts for sale of
goods or contracts for rendering services and are known to
commerce as a separate species of contracts. Such contracts
became chargeable to service tax as 'works contracts service'
w.e.f 1.6.2007 and there was no charge of service tax on such
services prior to 01.06.2007 as held by the Supreme Court in
6
ST/50997/2017
Commissioner vs Larsen and Toubro Ltd.7. Relevant portions
of this judgment are reproduced below:
"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 agreement to sell, from the
agreement to do work and render service and to impose a
tax thereon cannot be questioned, and will stand untouched
by the present judgment." (at page 427)
......
20. We also find that the assessees' argument that there is no charge to tax of works contracts in the Finance Act, 1994 is correct in view of what has been stated above.
........
24. A close look at the Finance Act, 1994 would show that the five taxable services referred to in the charging Section 65(105) would refer only to service contracts simpliciter and not to composite works contracts. This is clear from the very language of Section 65(105) which defines "taxable service" as "any service provided". All the services referred to in the said sub-clauses are service contracts simpliciter without any other element in them, such as for example, a service contract which is a commissioning and installation, or erection, commissioning and installation contract. Further, under Section 67, as has been pointed out above, the value of a taxable service is the gross amount charged by the service provider for such service rendered by him. This would unmistakably show that what is referred to in the charging provision is the taxation of service contracts simpliciter and not composite works contracts, such as are contained on the facts of the present cases. It will also be noticed that no attempt to remove the non-service elements from the composite works contracts has been made by any of the aforesaid Sections by deducting from the gross value of the works contract the value of property in goods transferred in the execution of a works contract. ......
27. In fact, the speech made by the Hon'ble Finance Minister in moving the Bill to tax Composite Indivisible Works Contracts specifically stated :-
"State Governments levy a tax on the transfer of property in goods involved in the execution of a works contract. The value of services in a works contract should attract service tax. Hence, I propose to levy service tax on services involved in the execution of a works contract. However, I 7 2015 (39) S.T.R. 913 (S.C.) 7 ST/50997/2017 also propose an optional composition scheme under which service tax will be levied at only 2 per cent of the total value of the works contract."
28. Pursuant to the aforesaid speech, not only was the statute amended and rules framed, but a Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007 was also notified in which service providers could opt to pay service tax at percentages ranging from 2 to 4 of the gross value of the works contract.
29. It is interesting to note that while introducing the concept of service tax on indivisible works contracts various exclusions are also made such as works contracts in respect of roads, airports, airways transport, bridges, tunnels, and dams. These infrastructure projects have been excluded and continue to be excluded presumably because they are conceived in the national interest. If learned counsel for the revenue were right, each of these excluded works contracts could be taxed under the five sub-heads of Section 65(105) contained in the Finance Act, 1994. For example, a works contract involving the construction of a bridge or dam or tunnel would presumably fall within Section 65(105)(zzd) as a contract which relates to erection, commissioning or installation. It is clear that such contracts were never intended to be the subject matter of service tax. Yet, if learned counsel for the revenue is right, such contracts, not being exempt under the Finance Act, 1994, would fall within its tentacles, which was never the intention of Parliament."
9. Therefore, the demand of service tax on works contracts executed prior to 1.6.2007 under the head 'commercial or industrial construction service' cannot be sustained.
10. As far as the demand for the period after 1.6.2007 is concerned, the appellant contested it both on limitation and on merits. On limitation, it is the case of the appellant that none of the elements necessary to invoke extended period of limitation viz., fraud or collusion or wilful mis-statement or suppression of facts or violation of the Act or Rules with an intent to evade payment of duty were present. The reasons for invoking extended period of limitation given in the SCN are as follows:
"12. Whereas it appears that the said assessee have wilfully and deliberately suppressed the fact with intent to evade service tax ...... inasmuch as they failed to register themselves with the department before 11.6.2007 and even after taking registration on 11.6.2007, they neither disclosed the collection of gross amount collected for providing services to the department nor filed ST 3 returns in due time........."
11. The appellant's reply on this question are as follows:
" That the above referred case laws itself proves that lot of confusions existed during the period about taxability, valuation and thus the allegation of suppression, evasion is 8 ST/50997/2017 not correct. That the noticee were always in a bonafide belief that service tax is not payable. They never intended to suppress the fact. Thus the allegation of suppression is not correct and justifiable....."
12. The findings in the impugned order on the question of limitation is as follows:
" 58. In this case, the assessee had wilfully and deliberately suppressed the facts with intent to evade service tax........ in as much as they failed to register themselves with the department before 11.6.2007 and even after taking registration on 11.6.2007, they neither disclosed the collection of gross amounts collected for providing services to the department nor filed ST-3 returns in due time. It was not a case of ignorance. In some case, they even collected service tax without depositing in Government account. Thus, it is clear that the assessee wilfully suppressed the material facts to the department with an intention to evade due service tax. Therfore, provisions related to extended period envisages under proviso to section 73(1) of the Finance Act, 1994 are applicable in this case and mandatory equal penalty under section 78 of the Finance Act, 1994 gets attracted."
13. We have considered the submissions on this question. Evidently, the extended period of limitation was invoked for three reasons:
a) the appellant had not registered with the department before 11.6.2007;
b) Even after registering, it had not truthfully declared the gross amounts collected for rendering services in the ST 3 returns;
c) In some cases, it had collected amounts as service tax from its clients and had not deposited the same.
14. As far as the first of the above grounds is concerned, the settled legal position in Larsen & Toubro is that there was no charge of service tax at all on works contracts prior to 1.6.2007. 9
ST/50997/2017 Therefore, the appellant was correct in not taking registration and not paying service tax on such contracts. The second ground is that even after registering, the appellant had not disclosed truthfully, the gross amounts which it had collected for the services. This is quite understandable because if according to the understanding of the appellant, it was not liable to pay service tax on certain services and according to the Revenue, it was liable to pay service tax on such services, the gross value of services differs in the two calculations. If in the opinion of the officer, the assessee had not assessed the duty correctly, or if the assessee had not filed the return at all by due date, he had to resort to best judgment assessment under section 72. The remedy against wrong self-assessment by the assessee is the best judgment assessment by the officer whose job it is to scrutinise the returns and call for any records and accounts which he deems necessary and raise a demand within the normal period of limitation. If the officer fails to do so, it does not mean that the assessee has suppressed any facts and it only means that the officer did not discharge his duties and it resulted in loss of some service tax which was due but became time-barred. We, therefore, find in favour of the appellant and against the Revenue on the question of limitation. The demand for the period prior to October 2009 was made beyond the normal period of limitation and hence is time barred and hence cannot be sustained.
15. On merits of the demand, the appellant's submissions are as follows:
10
ST/50997/2017
a)The services rendered to (i) Mahatma Gandhi Hospital; (ii), Acharya Tulsi Shanti Pratisthan; and (iii) Shri Amar Jain Medical Relief society were not taxable because these organisations were exempted under section 12AA of the income tax Act, 1961.
b) Where the services were rendered in relation to construction of a single house, they are not covered under 'construction of complex services'.
c) It was eligible to Works Contract (Composition) scheme which was not given to it on the sole ground that it had not submitted a letter opting for it;
d) The value of free supply of goods by the service recipient cannot be included in the assessable value as has been done in the impugned order;
16. We have considered these submissions. The appellant cannot claim exemption from service tax on the ground that its client was exempted under some provision of income tax. If it wants to claim exemption from service tax, it is its responsibility to show how it was covered by an exemption notification or exemption clause under the provisions of the service tax. Similarly, if it wants to claim exemption from income tax, it has to show how it is exempted under the laws of income tax. However, we find from Annexure B(1) of the SCN that the amounts which it had received from these three organisations were received clearly beyond the normal period of limitation and hence any demand on this count is hit by limitation. 11
ST/50997/2017
17. On the second question of construction of individual houses as opposed to complexes, we find that the demand for the normal period of limitation was not under "construction of residential complexes" but only under the head of 'Works Contract Service' and hence this submission is also irrelevant.
18. On the third question of composition scheme, we do find that the SCN notes that the appellant had not opted for the composition scheme as it had not given a letter exercising such option and therefore, sufficient time was given to the appellant to produce the details and evidence of the value of the goods but the appellant had not done so. Therefore, the demand has been raised on the gross amounts received without any abatement towards the value of the goods. The reason for not allowing abatement as recorded in paragraphs 44 and 45 of the impugned order is that the appellant had not opted for payment of service tax under Works Contract Composition scheme. In this factual matrix, when it is undisputed that goods were used in execution of the contracts and the value of the goods is not available, it will not be open to the department to charge service tax on the entire gross amounts received including the value of the good transferred. Service tax cannot be charged on the value of the goods sold or otherwise transferred as a part of the contract. We find that even if the appellant had not opted for the composition scheme by submitting a letter in writing as required during the relevant period, if it is otherwise eligible for the benefit of the composition, it cannot be denied for the technical fault of not submitting a letter within time. Accordingly, the demand for the 12 ST/50997/2017 normal period of limitation under this head is confirmed allowing abatement under the Composition scheme.
19. The last submission on merits of the case is that the impugned order confirmed demands on the value of the free materials supplied by the clients of the appellant. We do find from the SCN that demands have been made on this account. It has been decided by the larger bench of this Tribunal in Bhayana Builders (P) Ltd. vs Commissioner8 that the value of supplies made free of cost by the service recipient cannot be included in the taxable value for calculating service tax. This decision was upheld by the Supreme Court9. Therefore, the demand on this account needs to be set aside.
20. In view of the above, the appeal is partially allowed and the impugned order is modified as below:
a) the demand under the head 'commercial and industrial construction service' for the period before 1.6.2007 is set aside;
b) other demands beyond the normal period of limitation are set aside;
c) for the demands within the normal period, the appellant is entitled to the Works Contract (composition) scheme and the value of any free materials supplied by the client to the appellant cannot be included in computing the service tax payable;
d) the matter is remanded to the original authority for the limited purpose of calculation of service tax as above;
8 2013 (32) S.T.R. 49 (Tri. - LB) 9 2018 (10) G.S.T.L. 118 (S.C.) 13 ST/50997/2017
e) if any service tax becomes due after calculating as above, interest on such amount shall also be paid;
f) all penalties are set aside.
21. The appellant will be eligible for consequential relief, if any.
[Order pronounced in open court on 16/04/2024.] (JUSTICE DILIP GUPTA) PRESIDENT (P.V. SUBBA RAO) MEMBER (TECHNICAL) Tejo