Custom, Excise & Service Tax Tribunal
M/S Abl Infrastructure Pvt. Ltd vs Commissioner Of Central Excise, Nashik on 7 January, 2015
IN THE CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL WEST ZONAL BENCH AT MUMBAI COURT NO. II Appeal No. ST/429/11 (Arising out of Order-in-Appeal No. 11/ST/2011 dated 30.3.2011 passed by the Commissioner of Central Excise & Customs, Nashik). For approval and signature: Honble Shri Anil Choudhary, Member (Judicial) Honble Shri P.S. Pruthi, Member (Technical) ======================================================
1. Whether Press Reporters may be allowed to see : No the Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982? 2. Whether it should be released under Rule 27 of the : Yes CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not? 3. Whether their Lordships wish to see the fair copy : Seen of the order? 4. Whether order is to be circulated to the Departmental : Yes authorities? ====================================================== M/s ABL Infrastructure Pvt. Ltd. Appellant Vs. Commissioner of Central Excise, Nashik Respondent Appearance: Shri A.B. Naval, Cost Accountant for Appellant Shri D. Nagvenkar, Addl. Commr. (AR) for Respondent CORAM: SHRI ANIL CHOUDHARY, MEMBER (JUDICIAL) SHRI P.S. PRUTHI, MEMBER (TECHNICAL) Date of Hearing: 07.01.2015 Date of Decision: 07.01.2015 ORDER NO. Per: P.S. Pruthi
The appellants are in appeal against the order of Commissioner of Central Excise, Nashik, who confirmed the demand of (i) Rs.88,18,183/-, (ii) Rs.35,64,563/- and (iii) Rs.1,81,747/- and confirmed interest under Section 75, imposed penalty under Section 76 in respect of demands at Sr. No. (i) & (iii) above and imposed penalty of Rs.35,64,563/- under Section 78 in respect of demand in Sr. No. (ii).
2. The facts of the case are that the appellant was registered with Central Excise department in the category of Commercial or Industrial Construction Service. They obtained the contract for construction of City Centre Mall, Nashik under an Agreement executed on 8.12.2006. The material such as cement and steel was to be supplied by M/s City Centre Mall Pvt. Ltd. Due to certain disputes, the contract was terminated on 31.5.2007 and separate invoice was raised for works completed prior to 31.5.2007. Thereafter, when M/s City Centre Mall Pvt. Ltd. invited bids again for completing the construction of the mall, the appellant participated in the tender process and were again awarded the contract. Based on opinion from consultants, they started paying Service Tax under Works Contract Service for which registration was obtained on 26.9.2007. They started paying tax 2.06% under the Works Contract Composition Scheme. Audit of the appellant resulted in issue of show-cause notices to them for the period June 07 to March 08 (show-cause notice issued on 22.4.2009), April 08 to Sept 08 (show-cause notice issued on 7.9.2009), June 07 to March 08 (show-cause notice issued on 22.4.2009) for the reason that the appellants were not entitled to change the classification from Commercial or Industrial Construction Service to Works Contract Service for the same work undertaken by them i.e. to construct the City Centre Mall. Another allegation in the show-cause notice is that they neither obtained registration under Works Contract Service till 26.9.2007 nor exercised the option as required under Rule 3(3) of the Works Contract (Composition Scheme) for payment of Service Tax. Proceedings resulted in the passing of adjudication order confirming the demands of duty against which, the appellants are in appeal before us.
3. Heard both sides.
4. The learned Counsel for the appellants forcefully stated that the earlier contract entered into by them with M/s City Centre Mall Pvt. Ltd. was terminated and the termination is valid in law in terms of the Indian Contract Act, 1872. After the introduction of Works Contract Service, they were legally entitled to classify their activity in this service being the more specific classification. They relied on the following decisions: -
(i) Glaxo Simthkline Pharmaceuticals Ltd. Vs. Commissioner of Central Excise, Mumbai 2006 (3) STR 711 (Tri-Mum).
(ii) CCE, Ludhiana Vs. Lal Path Lab (P) Ltd. 2007 (8) STR 337 (P&H)
(iii) Homa Engineering Works Vs. CCE 2007 (7) STR 546 (Tri-Mum).
(iv) BCCI Vs. CCE, Mumbai 2007 (7) STR 384 (Tri-Mum)
(v) Zee Telefilms Ltd. Vs. CCE 2006 (4) STR 349 (Tri-Mum) 4.1 At the time of the first hearing which took place on 10.12.2014, the learned Counsel for the appellant agreed to produce documents to show that the termination of the earlier contract was perfectly valid in law and the new contract was awarded to them on competitive basis. Thereafter, on the second hearing on 7.1.2015, they placed before the Bench detailed document which are: -
(i) Minutes of meeting of M/s City Centre Mall Pvt. Ltd.
(ii) Invitation for tender by M/s City Centre Mall Pvt. Ltd.
(iii) Comparative statement of Bidders for completion of City Centre Mall.
(iv) Bids submitted by the appellant with quotation.
(v) Ledger abstract of old contract between M/s City Centre Mall Pvt. Ltd. and appellant.
(vi) Ledger abstract of new contract between M/s City Centre Mall Pvt. Ltd. and appellant.
4.2 The learned Counsel argued that Boards Circular No. 98/1/2008-Service Tax dated 4.1.2008 and the judgment of Hon'ble Andhra Pradesh High Court in the case of Nagarjuna Construction Company Ltd. Vs. Govt. of India 2010 (19) STR 321 (AP) referred to by the respondent side, only apply in cases where work is continued under the same contract through the period before the introduction of Works Contract Service as well as after the introduction of Works Contract Service. In their case, he stated that work was started under a fresh contract executed on 1.6.2007 for which their activity was classifiable under Works Contract Service. He further prayed that as they had paid Service Tax under Composition Scheme, by this very act they had satisfied the condition of exercising of option prior to payment of Service Tax in terms of Rule 3 of the Works Contract (Composition Scheme for payment of Service Tax) Rules, 2007. The learned Counsel relied on the case of Bridge & Roof Co. (India) Ltd. Vs. Commissioner of Central Excise, Jaipur 2012 (27) STR 406 (Tri-Del).
4.3 On the issue of limitation, the learned Counsel contended that the show-cause notice for the period June, 07 to March, 08 is time barred because they had obtained registration under Works Contract Service and were paying duty correctly under the Composition Scheme. Therefore, according to him, no penalty is warranted under Section 76 and 78 of the Finance Act, 1994.
5. The learned AR reiterated the findings of the Commissioner. He contended that the change of contract from old contract to new contract is only an amendment with the same object i.e. construction of City Centre Mall. Secondly, he argued that the issue of classification is significant and relied on Boards Circular No. 98/1/2008-ST dated 4.1.2008 and the judgment of Nagarjuna Construction (supra), to justify his stand that once the service provider started paying Service Tax prior to 1.6.2007 in a particular category of Service Tax, such as Commercial or Industrial Construction Service, he is not entitled to change the classification of the service on or after 1.6.2007 for the same activity. Lastly, the learned AR stated that appellant had not exercised the option to avail Works Contract (Composition Scheme) as required under Rule 3 of the Works Contract (Composition Scheme for payment of Service Tax) Rules, 2007.
6. We have considered the submissions made by both sides.
6.1 The facts briefly quoted are that the appellant was executing the contract under the Commercial or Industrial Construction Service and constructing City Centre Mall for M/s City Centre Mall Pvt. Ltd., Nashik. Due to the dispute, the contract was terminated. Thereafter, M/s City Centre Mall Pvt. Ltd. invited new Bids, evaluated the bids and again awarded the contract to the appellant from 1.6.2007. The appellant again renewed the work of construction of City Centre Mall, but this time started paying Service Tax under the Works Contract Service, which was introduced from 1.6.2007 as Section 65(105)(zzzza). The appellant also availed the benefit of Works Contract (Composition Scheme of payment of Service Tax) Rules, 2007. The essential issue to be decided is whether the appellant was executing the work under the same contract before 1.6.2007 and after 1.6.2007. Revenue is of the view that the change to a new contract for execution of a same job to construct the City Centre Mall is just a covering or exercise in camouflage and the appellant must be compelled to continue to pay Service Tax under the category of Commercial or Industrial Construction Service. At first sight it does appear strange that one contract ends on 31.5.2007 and the second contract between the same parties for the same work starts afresh on 5.6.2007. However, the appellant has placed before us a large number of documents to establish that the whole sequence of events took place in a natural way and there was no cover up only to show that a fresh contract was executed w.e.f. 5.6.2007. He showed the Minutes of the Boards Meeting dated 3.7.2007 stating that the Management Committee issued the notice to the appellant on 14.5.2007 under clause (28) of the Agreement entered into 18.12.2006, for termination of the contract as the civil construction work was behind schedule and backlog was affecting further work. Boards minutes also stated that contract was terminated on 31.5.2007, the Construction Management Committee held the meting on 1.6.2007 at Site Office at City Centre Mall. The City Centre Mall Pvt. Ltd. issued fresh tender and invited bids from reputed civil contractors for the balance civil work of City Centre Mall, on 12.5.2007. The tenders were sent to 8 persons, out of which 4 presented their bids. Being one of the lowest bidders and also because the existing infrastructure was already mobilized by the appellant, in a meeting of the Construction Management Committee on 1.6.2007, it was decided to again award the contract to the appellant.
6.2 The appellant also showed the detailed tender document/bids submitted by the 4 parties, who submitted bids for the renewal of work and also showed the comparative analysis sheet of the 4 Bidders who applied. The selection of the appellant again for renewal of the construction work has also been recorded in the Boards minutes dated 3.7.2007 of the City Centre Mall Pvt. Ltd. An affidavit to this effect regarding the entire sequence of events and certifying that a new agreement was entered into by City Centre Mall with the appellant is also placed on record. The learned Counsel also showed the difference between the old contract and the new contract entered into with the appellant by M/s City Centre Mall Pvt. Ltd. We have seen the difference between the old contract and the new contract and find significant differences in Contract value, preamble to quantities clause (3), preamble to bill of quantities clause (18), Earnest money deposit, Retention money, Mobilization Advance, Recovery of Mobilization Advances, and Minimum billing amount. The comparison is shown below: -
Sr. No. Point of Differences OLD Contract New Contract 1 Date of Contract 8th December 2006 5th June 2007 2 Period of Contract 12 months From 24th Dec 2006 to 23rd Dec 2007
07 Months From 5th June 2006 to 23rd January 2008 3 Total Contract Value Rs. 14,42,71,542/-
Rs. 9,87,53,659/-
Work completed upto the moment of termination of contract i.e. 10th RA Rs. 5,15,44,690/-
Balance Work Rs. 9,27,26,852/-
4Difference between the remaining amount of work and new contract value Rs. 60,26,807/-
5Preamble to quantities, Clause 3 Contractor shall arrange at his own cost storage, site security and unloading of material.
Contractor shall arrange at his own cost storage, site security and unloading of material excluding cement unloading at store.
6Preamble to bill of quantities Clause 18 No Such terms Project Manager has right to keep amount on hold on advoc basis for rectification 7 Preamble to bill of quantities Clause 19 No Such terms Project Manager has right to keep on hold excess cement recovery in full or in part till the Completion of work 8 Earnest Money Deposit Rs. 6,00,000/-
Nil 9 Retention Money 5% of RA amount 2% of RA amount 10 Mobilization Advance Rs. 250 lacs in 3 installments As decided by Project Manager 11 Recovery of Mobilization Advances Rs. 100 lacs in 3rd Month, 7 installments of Rs. 20 lacs each month and Rs. 10 lacs in 11th months or 5% of RA bill whichever I higher As decided by Project Manager 12 Minimum Billing Amount 20 lacs 15 lacs 13 Payment tender Documents 25000 Nil From the above table, it is apparent that two contracts are different in factual details. The clauses relating to Retention money and Mobilization advances are very significant clauses in such type of Agreements. In the present case, these two clauses are quite different in the earlier Contract and the later Contract. Further evidence has been provided by the appellant in the form of Ledger abstract showing payment made to the appellant by M/s City Centre Mall Pvt. Ltd., Nashik. The Ledger abstract clearly indicated that the payments are differentiated as under the old contract and the new contract. Therefore, we arrive at the conclusion that the old contract was terminated w.e.f. 31.5.2007 and a fresh contract was executed w.e.f. 5.6.2007. Having stated that the fresh contract from 5.6.2007 is to be considered as a new contract, there cannot be any objection to classify the service rendered in this contract as a Works Contract Service, which was introduced w.e.f. 1.6.2007.
6.3 Having viewed that the appellant have executed the new contract w.e.f. 5.6.2007 and the activity is eligible to be classified as a Works Contract Service, we may now examine whether they are eligible for paying duty at the lower rate under the Works Contract (Composition Scheme for payment of Service Tax) Rule, 2007. The objection of Revenue is that the appellant has not fulfilled the condition of Rules. For convenience, Rule 3 is extracted below: -
The provider of taxable service who opts to pay service tax under these rules shall exercise such option in respect of a works contract prior to payment of service tax in respect of the said works contract and the option so exercised shall be applicable for the entire works contract and shall not be withdrawn until the completion of the said works contract. The above rule requires that the provider who opts to pay tax under the Rule shall exercise such option prior to payment of Service Tax. We find force in the appellants contention that the fact that they had started paying tax under the Works Contract Composition Scheme is quite evident from the rate of tax reflected in the ST-3 returns. In any case, they had exercised option on 26.9.2007, the substantial benefit cannot be denied for procedural deficiency of delay in opting for Works Contract Service by a specific declaration under Rule 3. More so, when no format has been prescribed for making/exercising an option nor has it been specified as to whom the option must be addressed. We agree that the fact of paying Service Tax at the composition rate in the returns filed by them, is enough indication to show that they have opted for payment under the Works Contract Composition Scheme. Reliance is placed on the case of Bridge and Roof Company (supra), wherein it was held as under: -
After hearing both sides, duly represented by Shri Bipin Garg, learned Advocate appearing for the appellant and Shri K.K. Jaiswal, learned AR appearing for the Revenue, we find that the Revenues main objection is absence of option exercised by the appellant before they started paying duty under the works contract. However, we find that as the appellant applied for registration under works contract, the same amount would amount to exercise of option in the absence of any format laid in the said rule for exercising said option. Similarly, we find favour in the appellants contention that the restriction under Rule 3(3) of the said rules is for availing credit in respect of input and not input service. We have also seen Boards Circular and the judgment of Nagarjuna Construction (supra) relied upon by Revenue. The facts there are different because there the situations were that a single and same contract was in existence before 1.6.2007 and after 1.6.2007. In the present case, we have held above that the appellant was executing work in a new contract from 5.6.2007 and was therefore eligible under the category of Works Contract Service. We, therefore, set aside the demands of Service Tax.
7. Having set aside the demands of Service Tax, we do not find it necessary to go into the aspect of limitation and penalties.
8. The appeal is allowed with consequential relief, if any, in accordance with law.
(Pronounced in Court)
(Anil Choudhary) (P.S. Pruthi)
Member (Judicial) Member (Technical)
Sinha
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