Custom, Excise & Service Tax Tribunal
Karmvir Builders vs Cgst & Central Excise Vadodara I on 6 December, 2024
Customs, Excise & Service Tax Appellate Tribunal
West Zonal Bench at Ahmedabad
REGIONAL BENCH-COURT NO.3
SERVICE TAX APPEAL NO. 10189 of 2018-DB
(Arising out of OIA-VAD-EXCUS-003-APP-234-235-2017-18 dated 24/07/2017 passed by
Commissioner ( Appeals ) Commissioner of Central Excise, Customs and Service Tax-
VADODARA-I)
Karmvir Builders ........Appellant
Ground Floor, Karmvir Tower, Kapadvanj Road,
Nadiad, KHEDA, GUJARAT
VERSUS
COMMISSIONER OF CGST & CENTRAL
EXCISE - CGST & Central Excise Vadodara I ........Respondent
Central GST Building, Race Course Circle, Vadodara, Gujarat-390007 WITH SERVICE TAX APPEAL NO. 10190 of 2018-DB (Arising out of OIA-VAD-EXCUS-003-APP-234-235-2017-18 dated 24/07/2017 passed by Commissioner ( Appeals ) Commissioner of Central Excise, Customs and Service Tax-
VADODARA-I) Dharamvirsingh Rajpurohit ........Appellant M/s. Karmvir Builders,
Ground Floor, Karmvir Tower, Kapadvanj Road, Nadiad, KHEDA, GUJARAT VERSUS Commissioner of C.E. & S.T-Anand ........Respondent Office of the Commissioner, Central Excise, Customs & Service Tax, Central Excise Building, Nr. Juna Dadar, Behind Old Bus Depot Anand Gujarat-388001 APPEARANCE:
Shri Jigar Shah, Advocate with Shri Amber Kumrawat, Advocate appeared for the Appellant Shri Tara Prakash, Deputy Commissioner (AR) appeared for the Respondent CORAM: HON'BLE MEMBER (JUDICIAL), MR. RAMESH NAIR HON'BLE MEMBER (TECHNICAL), MR. C L MAHAR Final Order No.13110-13111/2024 DATE OF HEARING: 04.12.2024 DATE OF DECISION: 06.12.2024 RAMESH NAIR The present appeals are filed against Order in Appeal having number VAD-EXCUS-003-APP-234-235/2017-18 dated 24.07.2017 wherein the demand of service tax of Rs.1,68,97,303/- along with interest and penalty were confirmed and also imposed penalty of Rs.1,00,000/- on Mr.
2 ST/10189-10190/2018-DB Drarmvirsingh Rajpurohit the partner of the main Appellant firm under Section 78A of the Finance Act, 1994.
1.1 Brief facts leading to the present dispute are that the Appellant is engaged in providing construction of complex services to the potential buyers. The Appellant owns the land which is being developed by them for residential purposes. A search was carried out by Directorate General of Central Excise Intelligence (DGCEI) on 09.01.2014. The above investigation culminated in to issuance of show cause notice dated 29.09.2015 demanding service tax of Rs.1,68,97,303/- for the period 01.07.2010 to 31.03.2014. The show cause notice also proposed to appropriate the sum of Rs.66,56,702/- paid by the Appellant during the course of investigation. The show cause notice demanded the above service tax along with interest and also penalty under Section 77 and 78 of the Finance Act, 1994.
1.2 The Appellant being unsuccessful before the adjudicating authority and also before the first appellate authority is before us in the present appeals.
2. We have heard Mr. Jigar Shah learned Advocate with Shri Amber Kumrawat, Advocate for the Appellants and Mr. Tara Prakash, Ld. Deputy Commissioner and Authorized Representative of the Revenue Department.
3. Filtering out unnecessary facts for the determination of the present dispute and as points raised by the Ld. Advocate for the Appellant, the main issue to be decided in the present case is that whether the service tax is liable to be paid by the Appellant under the category of "construction of complex"
service or under the taxable category of "works contract" services in the present case. A perusal of the show cause notice dated 29.09.2015 would reveal that the demand of service tax in the present case has been raised under the taxable category of "construction of complex" services while it is argued by Ld. Advocate that the proper classification of the services would be "works contract services". For this proposition Ld. Advocate heavily relied on the decision of Hon'ble Supreme Court in case of Larsen & Toubro Ltd. Vs. State of Karnataka reported in 2014 (303) ELT 3 (SC).
3.1 We find that the similar question arose before the Principal Bench of this Tribunal at New Delhi in case of Krishna Homes reported in 2014 (34) STR 881 (Tri.-Del) wherein it is observed as under:
"7. We have considered the submissions from both the sides and perused the records.
8. Coming first to the question as to whether the activity of M/s. Krishna Homes and M/s. Raj Homes was taxable during the period of 3 ST/10189-10190/2018-DB dispute or not, by Finance Act, 2005, Clause (zzzh) was introduced into Section 65(105) of Finance Act, 1994, so as to bring within the purview of the term 'taxable service', a service provided or to be provided to any person by any other person "in relation to construction of complex". The expression "construction of complex" was defined in sub-section (30a) of Section 65 and accordingly this expression covered - "(a) construction of a new residential complex or a part thereof or (b) completion of finishing services in relation to residential complex such as glazing, plastering, painting, floor and wall tiling, wall covering and wall papering, wood and metal joinery and carpentry, fencing and railing, construction of swimming pools, acoustic applications or fittings and other similar services; or (c) repair, alteration, renovation or restoration of, or similar services in relation to, residential complex". The expression residential complex was defined in Section 65(91a) of the Finance Act, 1994 as any complex comprising of - "(i) a building or buildings, having more than twelve residential units; (ii) a common area; and (iii) any one or more of facilities or services such as park, lift, parking space, community hall, common water supply or effluent treatment system, located within a premises and the layout of such premises is approved by any authority under law for the time being in force, but does not include a complex which is constructed by a person directly engaging any other person for designing or planning of the layout, and the construction of such complex is intended for personal use as residence by such person". There is no dispute that the complex constructed by both the assessees in these appeals are covered by the definition of "residential complex" as given in Section 65(91a). There is also no dispute that both the assessees had engaged contractors for construction of the complexes. The dispute in these appeals is as to whether the assessees would be liable to pay Service Tax on the amounts charged by them from their customers with whom they had entered into agreements for construction of the residential units and whose possession was to be handed over on completion of the construction and full payment having been made by the customers. It is seen that on this point, the Tax Research Unit of the Central Board of Excise & Customs, which is a wing of the C.B.E. & C. dealing with legislation work, had vide Circular No. 332/35/2006-TRU, dated 1-8-2006 clarified that in case where a builder, promoter, developer builds a residential complex having more than 12 residential units by engaging a contractor for construction of such residential complex, the contractor shall be liable to pay Service Tax on the gross amount charged for the construction service provided to the builder/promoter/developer under construction of complex service falling under Section 65(105)(zzzh) of the Finance Act, 1994 and that if no person is engaged by the builder, promoter, developer for construction work who undertakes construction work on his own without engaging the services of any other person than in such cases, in absence of the service provider and service recipient relationship, the question of providing taxable service to any person by any other person does not arise. W.e.f. 1-7-2010 an explanation was added to Section 65(105)(zzzh) which was as under :-
"Explanation. - For the purposes of this sub-clause, the construction of a new building which is intended for sale, wholly or partly, by a builder or any person authorized by the builder before, during or after construction (except in cases for which no sum is received from or on behalf of the prospective buyer by the builder or the person authorized by the builder before grant of completion certificate by the authority competent to issue such certificate under any law for the time being in force) shall be deemed to be service provided by the builder to the buyer."
Thus, in terms of this explanation, when a builder/promoter/developer got a residential complex constructed for his customers with whom he had individually entered into agreements, in terms of which the prospective 4 ST/10189-10190/2018-DB customers were required to make payments for the residential units to be constructed in instalments and the possession of the residential units was to be given to the customers on completion of the complex and full payment having been made, the builder/promoter/developer was to be treated as a deemed provider of construction of residential complex service to his customers. Thus, by this explanation, the scope of the Clause (zzzh) of Section 65(105) has been expanded and this amendment by adding an explanation has been held by this Tribunal in the case of CCE, Chandigarh v. U.B. Construction (P) Ltd. (supra) as prospective amendment. In this regard, para 5 of this judgment is reproduced below :-
"5. In Maharashtra Chamber of Housing Industry v. Union of India - 2012 (25) S.T.R. 305 (Bom.), the validity of the 'Explanation' added to Sections 65(105)(zzq) and (zzzh) was challenged on several grounds. The Bombay High Court, also considered the issue whether the explanation was prospective or retrospective in operation and ruled that the explanation inserted by the Finance Act, 2010 brings within the fold of taxable service a construction service provided by the builder to a buyer where there is an intended sale between the parties whether before, during or after construction; that the 'Explanation' was specifically legislated upon to expand the concept of taxable service; that prior to the explanation, the view taken was that since a mere agreement to sell does not create any interest in the property and the title to the property continues to remain with the builder, no service was provided to the buyer; that the service, if any, would be in the nature of a service rendered by the builder to himself; that the explanation expands the scope of the taxable service, provided by builders to buyers pursuant to an intended sale of immovable property before, during or after the construction and therefore the provision is expansive of the existing intent and not clarificatory of the same; and is consequently prospective".
9. In view of the above, though in view of the Apex Court judgment in the case of M/s. Larsen & Toubro Limited and Others v. State of Karnataka & Others (supra), the agreements entered into by a builder/promoter/developer with prospective buyers for construction of residential units in a residential complex against payments being made by the prospective buyers in instalments during construction and in terms of which the possession of the residential unit, is to be handed over to the customers on completion of the residential complex and full payment having been made, are to be treated as works contracts, it has to be held that during the period of dispute, there was no intention of the Government to tax the activity in terms of such contracts a builder/developer with prospective customers for construction of residential units in a residential complex. Such works contracts involving transfer of immovable property were brought within the purview of taxable service by adding explanation to Section 65(105)(zzzh) w.e.f. 1-7-2010, and therefore, it has to be held that such contracts were not covered by Section 65(105)(zzzh) during the period prior to 1-7-2010."
3.2 Further, if the activity of the Appellant is classified under the taxable category of "construction of complex" service then abatement from the value of services is applicable. This itself demonstrates that the contracts are composite in nature and it would be classifiable as "works contract services"
appropriately. We place reliance on the decision of coordinate bench in case 5 ST/10189-10190/2018-DB of ETA Constructions of India Ltd. reported in 2024 (7) TMI 996 - CESTAT Chennai wherein it is observed as under:
"5. The issue to be decided is whether the demand of service tax, interest under Construction of Commercial or Industrial Construction Service for the period prior to 1.7.2012 in the case of works of composite nature is sustainable or not. In the present case, the allegation is that the appellant rendered the services to M/s.Chennai City Holdings Pvt. Ltd. for construction of a commercial complex. As per the quantification of service tax given in para-5 of the SCN, the appellant has been given 67% abatement. This would show that the contracts are composite in nature involving supply of materials as well as rendition of services. The demand under such composite contracts can only be made under the category of WCS. The Tribunal in the case of Real Value Promoters Pvt. Ltd. (supra) had considered the issue as to whether the demand made under CICS / RCS / CCS can sustain for the period prior to 1.7.2012 for composite contracts. The said decision was followed by the Tribunal in the case of Jain Housing & Construction Ltd. (supra) whereby the Tribunal set aside the demand following the decision in the case of Real Value Promoters Pvt. Ltd. (supra). The decision of the Tribunal was maintained by the Hon'ble Apex Court by dismissing the appeal filed by the Department as reported in (2023) 10 Centax 171 (SC).
6. The Tribunal has taken similar view in the case of Sri Rosh Properties Pvt.
Ltd. Vs CCE & ST vide Final Order No.40217/2014 dated 01.03.2024.
7. Following these decisions, we are of the considered opinion that the demand cannot sustain. In the result, the impugned order is set aside. The appeal is allowed with consequential relief, if any."
3.3 It is also pertinent to note that if the activity of the Appellant is classifiable under the taxable category of "works contract" services then the question would arose that in absence of any mechanism for deduction of the value of land whether service tax is leviable or not. This question was raised before Hon'ble Delhi High Court in case of Suresh Kumar Bansal reported in 2016 (43) STR 3 (Del) wherein it is observed as under:
"37. Undisputedly, the contract between a buyer and a builder/promoter/developer in development and sale of a complex is a composite one. The arrangement between the buyer and the developer is not for procurement of services simplicitor. As noticed hereinbefore, an agreement between a flat buyer and a builder/developer of a complex - who is developing the complex for sale is, essentially, one of purchase and sale of developed property. But, by a legislative fiction, such agreements, which have been entered into prior to completion of the project and/or construction of a unit, are imputed with a character of a service contract; the works involved in construction of a complex are treated as being carried by the builder on behalf of the buyer. However, indisputably the arrangement between the buyer and the builder is a composite one which involves not only the element of services but also goods and immovable property. Thus, while the legislative competence of the Parliament to tax the element of service involved cannot be disputed but the levy itself would fail, if it does not provide for a mechanism to ascertain the value of the services component which is the subject of the levy. Clearly service tax cannot be levied on the value of undivided share of land acquired by a buyer of a dwelling unit or on the value of goods which are incorporated in the project by a developer. Levying a tax on the constituent 6 ST/10189-10190/2018-DB goods or the land would clearly intrude into the legislative field reserved for the States under List-II of the Seventh Schedule to the Constitution of India.
38. In Commissioner of Central Excise and Customs v. Larsen & Toubro (supra), the Supreme Court clearly explained the necessity for segregating the elements of services and sale of goods in a composite contract in the following words :-
"At this stage, it is important to note the scheme of taxation under our Constitution. In the lists contained in the 7th Schedule to the Constitution, taxation entries are to be found only in lists I and II. This is for the reason that in our Constitutional scheme, taxation powers of the Centre and the States are mutually exclusive. There is no concurrent power of taxation. This being the case, the moment the levy contained in a taxing statute transgresses into a prohibited exclusive field, it is liable to be struck down. In the present case, the dichotomy is between sales tax leviable by the States and service tax leviable by the Centre. When it comes to composite indivisible works contracts, such contracts can be taxed by Parliament as well as State legislatures. Parliament can only tax the service element contained in these contracts, and the States can only tax the transfer of property in goods element contained in these contracts. Thus, it becomes very important to segregate the two elements completely for if some element of transfer of property in goods remains when a service tax is levied, the said levy would be found to be constitutionally infirm."
39. In the present case, we find that there is no machinery provision for ascertaining the service element involved in the composite contract. In order to sustain the levy of service tax on services, it is essential that the machinery provisions provide for a mechanism for ascertaining the measure of tax, that is, the value of services which are charged to service tax.
40. Section 67 of the Act provides for valuation of taxable services. The said section as amended by Finance Act, 2010 reads as under :-
"67. Valuation of taxable services for charging Service Tax. -
(1) Subject to the provisions of this Chapter, service tax chargeable on any taxable service with reference to its value shall, -
(i) in a case where the provision of service is for a consideration in money, be the gross amount charged by the service provider for such service provided or to be provided by him;
(ii) in a case where the provision of service is for a consideration not wholly or partly consisting of money, be such amount in money, with the addition of service tax charged, is equivalent to the consideration;
(iii) in a case where the provision of service is for a consideration which is not ascertainable, be the amount as may be determined in the prescribed manner."
41. Prior to the amendment brought about by Finance Act, 2010, Section 67 of the Act provided that the value of taxable services would be "the gross amount charged by the service provider for such service rendered by him". Section 67 of the Act was amended also to provide for value in cases where the consideration for the services was not wholly or partly consisting of money and in cases where the consideration for the service was not ascertainable.
42. Section 65(86) of the Act defines the expression "prescribed" to mean as " 'prescribed' by rules made under this Chapter". Thus, by virtue of Section 67(1)(iii) of the Act, in cases where the consideration for provision of services 7 ST/10189-10190/2018-DB is not ascertainable, the same was to be determined in accordance with the Rules made under the Act.
43. For the purposes of ascertaining the value of services, the Central Government has made Service Tax (Determination of Value) Rules, 2006 (hereafter 'the Rules'). However none of the rules provides for any machinery for ascertaining the value of services involved in relation to construction of a complex.
44. Rule 2A of the Rules provides for determination of the value of service in execution of a works contract and prior to 1st July, 2012 the said Rule read as under :-
"2A. Determination of value of taxable services involved in the execution of a works contract. - Subject to the provisions of section 67, the value of taxable service involved in the execution of a works contract (hereinafter referred to as works contract service), referred to in clause (8) of section 66E of the Act, shall be determined by the service provider in the following manner, namely :-
(i) Value of works contract service 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 clause, -
(a) gross amount charged for the works contract shall not include value added tax 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 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, 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 this clause.
(ii) Where the value has not been determined under clause (i), the person liable to pay tax on the taxable service involved in the execution of the works contract shall determine the service tax payable in the following manner, namely :-
8 ST/10189-10190/2018-DB (A) in case of works contracts entered into for execution of original works, service tax shall be payable on forty per cent. of the total amount charged for the works contract :
Provided that where the gross amount charged includes the value of the land, in respect of the service provided by way of clause (8) of section 66E of the Act, service tax shall be payable on twenty five per cent. of the total amount including such gross amount;
(B) in case of other works contracts including completion and finishing services such as glazing, plastering, floor and wall tiling, installation of electrical fittings not covered under sub-clause (A), service tax shall be payable on sixty per cent. of the total amount charged for the works contract;
Explanation 1. - For the purposes of this rule, -
(I) "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;
(II) "total amount" means the sum total of gross amount and the value of all goods, excluding the value added tax, if any, levied on goods and services supplied free of cost for use in or in relation to the execution of works contract, under the same contract or any other contract :
Provided that where the value of goods or services supplied free of cost is not ascertainable, the same shall be determined on the basis of the fair market value of the goods or services that have closely available resemblance;"
45. Whilst Rule 2A of the Rules provides for mechanism to ascertain the value of services in a composite works contract involving services and goods, the said Rule does not cater to determination of value of services in case of a composite contract which also involves sale of land. The gross consideration charged by a builder/promoter of a project from a buyer would not only include an element of goods and services but also the value of undivided share of land which would be acquired by the buyer.
46. In Mathuram Agrawal v. State of M.P. : (1999) 8 SCC 667, the Supreme Court held as under :-
"In a taxing Act it is not possible to assume any intention or governing purpose of the statute more than what is stated in the plain language. It is not the economic results sought to be obtained by making the provision which is relevant in interpreting a fiscal statute. Equally impermissible is an interpretation which does not follow from the plain, unambiguous language of the statute. Words cannot be added to or substituted so as to give a meaning to the statute which will serve the spirit and intention of the legislature. The statute should clearly and unambiguously convey the three components of the tax law, i.e., the subject of the tax, the person who is liable to pay the tax and the rate at which the tax is to be paid. If there is any ambiguity regarding any of these ingredients in a taxation statute then there is no tax in law. Then it is for the legislature to do the needful in the matter."
47. A similar view was expressed by the Supreme Court in Govind Saran Ganga Saran v. CST : (1985) 155 ITR 144 (SC), wherein the Court held as under :-
9 ST/10189-10190/2018-DB "6. The components which enter into the concept of a tax are well-
known. The first is the character of the imposition known by its nature which prescribes the taxable event attracting the levy, the second is a clear indication of the person on whom the levy is imposed and who is obliged to pay the tax, the third is the rate at which the tax is imposed, and the fourth is the measure or value to which the rate will be applied for computing the tax liability. If those components are not clearly and definitely ascertainable, it is difficult to say that the levy exists in point of law. Any uncertainty or vagueness ill the legislative scheme defining any of those components of the levy will be fatal to its validity."
48. In Commissioner Central Excise and Customs, Kerala v. Larsen & Toubro Ltd. (supra), the Supreme Court considered the question whether service tax could be levied on indivisible works contract under sub-clauses (g), (zzd), (zzh), (zzq) and (zzzh) of Clause (105) of Section 65 of the Act. The Court referred to various earlier decisions on the question whether a levy of tax could be sustained in absence of the machinery provisions and held that since neither the Act nor Rules provided for any machinery provisions to exclude the non- service element from a composite contract, the taxable services referred in sub-clauses (g), (zzd), (zzh), (zzq) and (zzzh) of Clause (105) of Section 65 of the Act could only refer to services in relation to a service contract simplicitor and not to composite contracts. The relevant extract of the said decision is quoted below :-
"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."
49. The Supreme Court further overruled the decision of this Court in G.D. Builders (supra), wherein this Court had, inter alia, held that sub-clauses (g), (zzd), (zzh), (zzq) and (zzzh) of Clause (105) of Section 65 of the Act would also take within their sweep indivisible composite works contracts. The Supreme Court further concluded that prior the enactment of the Finance Act, 2007 - by virtue of which Section 65(105)(zzzza) of the Act was introduced and Section 67 of the Act was amended - a composite contract was not taxable. This was so because in absence of Rule 2A of the Rules there was no machinery for excluding the non-service element from such composite works contracts involving an element of services and transfer of property in goods. Whilst the impugned explanation expands the scope of Section 65(105)(zzzh) of the Act, it does not provide any machinery for excluding the non-service components from the taxable services covered therein. The Rules also do not contain any provisions relating to determination of the value of services involved in the service covered under Section 65(105)(zzzh) of the Act. Thus the said clause 10 ST/10189-10190/2018-DB cannot cover composite contracts such as the one entered into by the petitioners with the builder.
50. In Maharashtra Chamber of Housing Industry (supra), the Bombay High Court upheld the constitutional validity of the impugned explanation by examining the object of the taxation. The Court held that the legislative competence must be determined with reference to the object of the levy and not with reference to the incidence of tax or the machinery provisions. As indicated above, we are also of the view that in the present case, the Parliament would have the legislative competence to levy service tax in relation to the services rendered in construction of a complex. However, as explained in Commissioner Central Excise and Customs, Kerala v. Larsen & Toubro Ltd. (supra), in absence of machinery provisions to exclude non-service elements from a composite contract, the levy on services referred to in Section 65(105)(zzzh) could only be imposed on contracts of service simplicitor - that is, contracts where the builder has agreed to perform the services of constructing a complex for the buyer - and would not take within its ambit composite works contract which also entail transfer of property in goods as well as immovable property. The measure of tax assumes significance in such contracts as a levy of the service tax taking the gross amount charged by a builder for a composite contract would amount to a levy of service tax not only on the service element but also on the immovable property and the property in goods transferred or intended to be transferred to the ultimate buyer.
51. In CIT v. B.C. Srinivasa Shetty : (1981) 2 SCC 460, the Supreme Court examined the levy of capital gains tax on sale of goodwill and had noted that the machinery provisions did not provide for calculation of capital gains - which is the measure of tax for imposition of tax on gains from sale of capital assets
- where the cost of acquisition was not ascertainable. The Court held that the charging sections and the computation provisions together constitute an integrated code and the transaction to which the computation provisions cannot be applied must be regarded as never intended to be subjected to charge of tax.
52. It was stated that an assessee is entitled to abatement to the extent of 75% and only 25% of the gross amount charged by a builder from a flat buyer is charged to service tax. It was suggested on behalf of the Revenue that this indicated that the value of the immovable property as well as the property in goods incorporated in the works would stood excluded. In our view, this issue also stands concluded against the Revenue by the judgment in the case of Commissioner of Central Excise v. Larsen and Toubro Limited (supra). In that case, the Supreme Court had affirmed the decision of the Orissa High Court in Larsen and Toubro Limited v. State of Orissa and Ors. : (2008) 12 VST 31 (Orissa), wherein the Court held that Circulars or other instructions could not provide the machinery provisions for levy of tax. The charging provisions as well as the machinery for its computation must be provided in the Statute or the Rules framed under the Statute. The relevant extract from the decision of the Orissa High Court is reproduced below :-
"This Court is of the opinion that if the Act is unworkable in the absence of necessary Rules, as has been held by several judgments referred to above, any assessment under the said Act cannot be enforced even if such an assessment order is made by an authority under the Act purportedly in accordance with the provisions of the Act. The inherent infirmity of an assessment order passed on the basis of circulars which have no statutory sanction cannot be cured by an appellate order. In other words, if the assessment order itself is not sustainable on account of unworkability of the provisions under which they are purportedly made, no purpose would be served by filing appeal against the said order and this question cannot be decided by the appellate authority 11 ST/10189-10190/2018-DB under the Act. In the instant case, both the assessing officer and the appellate authority are bound to follow the instructions contained in the circulars. Therefore, no purpose would be served by filing appeal before the appellate authority.
In order to constitute valid basis for taxation, the rate of deduction, specially a flat rate of deduction cannot be applied to calculate the taxable turnover in works contract. So those circulars cannot hold the field. As stated in the judgments referred to above, in the absence of any statutory basis for calculation of taxable turnover, the Act remains unworkable. Such gap in the statute cannot be filled up by the circulars which are purely ad hoc and administrative in nature and specially so when it relates to taxing law.
It is a well-settled principle that in matters of taxation either the statute or the Rules framed under the statute must cover the entire field. Taxation by way of administrative instructions which are not backed by any authority of law is unreasonable and is contrary to Article 265 of the Constitution of India. Therefore, the impugned circulars are set aside as also the impugned orders of assessment. The assessee's liability to pay tax remains but in order to assess that the State has to act in accordance with the statutory prescription by framing Rules under its rule-making power under Section 29 of the Act and the assessing authority can pass fresh orders of assessment on the basis of such statutory Rules."
53. As noticed earlier, in the present case, neither the Act nor the Rules framed therein provide for a machinery provision for excluding all components other than service components for ascertaining the measure of service tax. The abatement to the extent of 75% by a notification or a circular cannot substitute the lack of statutory machinery provisions to ascertain the value of services involved in a composite contract.
54. Insofar as the challenge to the levy of service tax on taxable services as defined under Section 65(105)(zzzzu) is concerned, we do not find any merit in the contention that there is no element of service involved in the preferential location charges levied by a builder. We are unable to accept that such charges relate solely to the location of land. Thus, preferential location charges are charged by the builder based on the preferences of its customers. They are in one sense a measure of additional value that a customer derives from acquiring a particular unit. Such charges may be attributable to the preferences of a customer in relation to the directions in which a flat is constructed; the floor on which it is located; the views from the unit; accessibility to other facilities provide in the complex, etc. As stated earlier, service tax is a tax on value addition and charges for preferential location in one sense embody the value of the satisfaction derived by a customer from certain additional attributes of the property developed. Such charges cannot be traced directly to the value of any goods or value of land but are as a result of the development of the complex as a whole and the position of a particular unit in the context of the complex.
55. In view of the above, we negate the challenge to insertion of sub-clause (zzzzu) in Clause (105) of Section 65 of the Act. However, we accept the petitioners contention that no service tax under Section 66 of the Act read with Section 65(105)(zzzh) of the Act could be charged in respect of composite contracts such as the ones entered into by the petitioners with the builder. The impugned explanation to the extent that it seeks to include composite contracts for purchase of units in a complex within the scope of taxable service is set aside.
56. These petitions were admitted by an order dated 21-7-2011 and the applications for stay of recovery filed along with the petitions were disposed of 12 ST/10189-10190/2018-DB by directing that if any amount is collected on the basis of the impugned explanation, the same shall be refunded with the interest in case the petitioners succeed. Accordingly, the concerned officer of respondent No. 1 shall examine whether the builder has collected any amount as service tax from the petitioners for taxable service as defined in Section 65(105)(zzzh) of the Act and has deposited the same with the respondent authorities. Any such amount deposited shall be refunded to the petitioners with interest at the rate of 6% from the date of deposit till the date of refund.
57. The petitions are disposed of in the aforesaid terms."
3.4 Therefore, on the basis of above, even if the category of service is held as "construction of complex" services as alleged by the revenue department in the show cause notice dated 29.09.2015 then also the demand of service tax is not sustainable in the facts of the present case.
3.5 We also place reliance on the decision of this Tribunal in case of Adani Estate Management Pvt. Ltd. reported in 2024-VIL-1555-CESTAT-AHM- ST wherein it is observed as under:
"4. We have carefully considered the oral submissions made by both the sides and perused the records, including the written synopsis, written submissions and paper book furnished by the appellant. We have also carefully perused the facts presented in the impugned order and show cause notice and averments made by the revenue therein. We find from the records, facts and averments made by both the sides that the construction activities, other than sale of land, undertaken by the appellant by way of construction of frameworks and constructions of balance works, were involving transfer of property in goods by the appellant and thus constituted indivisible arrangement insofar as goods and services by way of construction of building concerned. We find that the revenue has not disputed that the appellant has used own goods while carrying out the construction activities. We also find that another aspect of the construction of villa, which relates to construction of balance works, was classified as works contract services and accepted by the revenue in impugned order. We also find that the appellant has vehemently pressed that the construction of balance works in indispensable part for construction of villa and which submission has not been controverted by the revenue with plausible explanations or contemporary evidences. We also find that the revenue has not disputed that the activity of constructing framework was indivisible in nature with respect to goods and services and value of goods was not separately measured by the appellant. We also find that the revenue has not disputed another important aspect that the appellant has subjected the construction activities to VAT under respective statute. We also find that the case before us is involving taxability, classification and valuation and the burden of proof to frame the allegations and substantiation thereof lied on the revenue according to the principle of qui incumbit probatio qui decit non qui negat and thus we shall accordingly examine the issues in light of the facts remained uncontroverted by the revenue.
4.1 In view of above, we evaluate the issue on hand. Adjudicating authority has found by referring to the definition of 'works contract' given in section 65B(44) that there are four elements of a works contract out of which element 13 ST/10189-10190/2018-DB named as (d) in para 51.2 i.e. "The contract should be for the purpose of carrying out construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, alteration of any movable or immovable property or for carrying out any other similar activity or a part thereof in relation to such property." is not fulfilled in the agreement executed by the appellant. Adjudicating Authority also contended that there is no mention of the appellant agreeing to construct villa on behalf of the buyer and thus the agreement was to sale of villa solely and not for the purpose of carrying construction and thus the transaction cannot be classified as works contract. We find that the adjudicating authority has deemed the transaction as that of sale of villa instead of construction whereas the adjudicating authority has classified the transaction under clause (b) which deemed "construction of a complex, building, civil structure or a part thereof, including a complex or building intended for sale to a buyer, wholly or partly, except where the entire consideration is received after issuance of completion certificate by the competent authority". Needless to elaborate that the very applicability of clause (b) would also require services by way of construction of a complex or building and sale thereof before completion of construction, which apparently and unequivocally transpires from the plain language of clause (b). If the transaction, according to the adjudicating authority, is limited to that of sale of villa and not involving agreement to construct the same, the same cannot fall within the scope of clause (b) whereas the adjudicating authority has classified the transaction under clause (b). Thus, we find that the arguments and averments made by adjudicating authority in the impugned order to declassify the transactions under works contract and to classify them under the construction services are self-contradictory as well as preposterous.
4.2 We find that the definition of "works contract" provided under section 65B(54), is in pari materia with the concept articulated under article 366(29A). The notion of "works contract" under VAT laws and service tax laws represents two facets of the same coin. Therefore, it is impermissible to deviate from the guidelines laid down by Supreme Court in case of Larsen & Toubro v. State of Karnataka. Relevant para of the decision of Apex Court are as follows :
"114. In Article 366(29A)(b), the term 'works contract' covers all genre of works contract and it is not limited to one specie of the contract. In Raheja Development (supra), the definition of "works contract" in KST Act was under consideration. That definition of "works contract" is inclusive and refers to building contracts and diverse construction activities for monetary consideration viz.; for cash, deferred payment or other valuable consideration as works contract. Having regard to the factual position, inter alia, Raheja Development (supra) entered into development agreements with the owners of the land and it also entered into agreements for sale with the flat purchasers, the consideration being payment in installments and also the clauses of the agreement the Court held that developer had undertaken to build for the flat purchaser and so long as there was no termination of the contract, the construction is for and on behalf of the purchaser and it remains a "works contract". The legal position summarized by us and the foregoing discussion would justify the view taken by the two-Judge Bench in Raheja Development (supra)."
4.3 In view of the above judgement of Apex court, it is abundantly clear that the sale of a building prior to completion of construction constitutes a works contract and the issue is no more res integra and thus contention made by 14 ST/10189-10190/2018-DB adjudicating authority in impugned order to draw distinction between sale of villa prior to completion of construction and agreeing to construction activity is unacceptable and contrary to settled position of law. We also find force / merit in the argument placed by Shri Rahul Patel that amendment in rule 2A retrospectively by way of section 129 of Finance Act, 2017 shows the clear intention of the government to align the valuation machinery with the law settled by the Supreme Court. Thus, we do not find force / merit in the arguments and averments made by adjudicating authority in the impugned order and find that the classification adopted by the appellant under clause (h) is correct and lawful.
4.4 Another issue which requires due consideration is valuation, wherein the value of land has been included in the value of construction services by the revenue. From the impugned order and the show cause notice, we observe that the value of land was included in the value of construction services, and the taxable value was determined in terms of Sl. No. 12 of Notification No. 26/2012-ST dated 20.06.2012, which pertains to the valuation of construction services classifiable under clause (b) of Section 66E of the Act. Since we have found that the classification of works contract under clause (h) is correct and accordingly the value was to be determined as per rule 2A of Service Tax (Determination of Value) Rules, 2006 which is correctly determined by the appellant, valuation determined by revenue in terms of Notification No. 26/2012-ST has become infructuous in nature and thus liable to be dismissed. Since there is no contention in the impugned order or allegation in the show cause notice to re-determine the value of works contract services under rule 2A to include the value of land, value determined by the appellant under rule 2A shall be accepted as final. However, we find that the appellant has raised various grounds and substantiated with the help of logical interpretation that the value of land cannot be included in the value of works contract under rule 2A. We find strong force in the arguments placed by Shri Rahul Patel that the subject matter of service tax is the service portion involved in execution of a works contract which transpires from the language of section 66E(h). We also find force in the clarity brought on record by him that the service tax cannot be extended to the value of land which is not a necessary an integral element of works contract like goods. Since the land is subject matter of State levy, same cannot be deemed as part of the service so defined in section 65B(44) of the Act. Thus, it is necessarily transpiring that the works contract is comprised of only two elements i.e. 'goods' and 'service' and does not include 'land' as integral part of it. However, this may not have any restriction to combine the works contract along with land under commercial arrangement and if that has been done the arrangement needs to be vivisected so as to separate the works contract from the land. It is a settled position of law that where the tax is imposed on the subject matter the measure for levying such a tax can only be the value of such subject matter. Supreme Court has in case of Commissioner, Central Excise & Customs versus M/s Larsen & Toubro Ltd. And Others referred to the principle elucidated in case of Gannon Dunkerley - (1993) 1 SCC 364 - 1992-VIL-01-SC that the measure for levying sale tax / vat shall be the value of goods only and not the works contract. Relevant paras are as follows:
"15. A reading of this judgment, on which counsel for the assessees heavily relied, would go to show that the separation of the value of goods contained in the execution of a works contract will have to be determined by working from the value of the entire works contract and deducting therefrom charges towards labour and services. Such deductions are stated by the Constitution Bench to be eight in number. 15 ST/10189-10190/2018-DB What is important in particular is the deductions which are to be made under sub-paras (f), (g) and (h). Under each of these paras ,a bifurcation has to be made by the charging Section itself so that the cost of establishment of the contractor is bifurcated into what is relatable to supply of labour and services. Similarly, all other expenses have also to be bifurcated insofar as they are relatable to supply of labour and services, and the same goes for the profit that is earned by the contractor. These deductions are ordinarily to be made from the contractor's accounts. However, if it is found that contractors have not maintained proper accounts, or their accounts are found to be not worthy of credence, it is left to the legislature to prescribe a formula on the basis of a fixed percentage of the value of the entire works contract as relatable to the labour and service element of it. This judgment, therefore, clearly and unmistakably holds that unless the splitting of an indivisible works contract is done taking into account the eight heads of deduction, the charge to tax that would be made would otherwise contain, apart from other things, the entire cost of establishment, other expenses, and profit earned by the contractor and would transgress into forbidden territory namely into such portion of such cost, expenses and profit as would be attributable in the works contract to the transfer of property in goods in such contract. This being the case, we feel that the learned counsel for the assessees are on firm ground when they state that the service tax charging section itself must lay down with specificity that the levy of service tax can only be on works contracts, and the measure of tax can only be on that portion of works contracts which contain a service element which is to be derived from the gross amount charged for the works contract less the value of property in goods transferred in the execution of the works contract. This not having been done by the Finance Act, 1994, it is clear that any charge to tax under the five heads in Section 65(105) noticed above would only be of service contracts simpliciter and not composite indivisible works contracts."
4.5 Though the works contract is a different and distinct specie of contracts and distinct from a contract for service simplicitor, measure of tax is considered divisible so as to ensure that the tax is imposed only on that value which attributes to the powers available with respective tax authority. The Supreme Court has categorically held that the moment the levy contained in a taxing statute transgresses into a prohibited exclusive field, it is liable to be stuck down. This necessitates a complete segregation of the elements involved in the works contract to ensure compliance with constitutional mandates. Relevant para of the judgement is as follows :
"16. At this stage, it is important to note the scheme of taxation under our Constitution. In the lists contained in the 7th Schedule to the Constitution, taxation entries are to be found only in lists I and II. This is for the reason that in our Constitutional scheme, taxation powers of the Centre and the States are mutually exclusive. There is no concurrent power of taxation. This being the case, the moment the levy contained in a taxing statute transgresses into a prohibited exclusive field, it is liable to be struck down. In the present case, the dichotomyis between sales tax leviable by the States and service tax leviable by the Centre. When it comes to composite indivisible works contracts, such contracts can be taxed by Parliament as well as State legislatures. Parliament can only tax the service element contained in these contracts, and the States can only tax the transfer of property in goods element contained in these contracts. Thus, it becomes very important to segregate the two 16 ST/10189-10190/2018-DB elements completely for if some element of transfer of property in goods remains when a service tax is levied, the said levy would be found to be constitutionally infirm. This position is well reflected in Bharat Sanchar Nigam Limited v. Union of India, (2006) 3 SCC 1 - 2006-VIL-07-SC-LB, as follows:-
"No one denies the legislative competence of the States to levy sales tax on sales provided that the necessary concomitants of a sale are present in the transaction and the sale is distinctly discernible in the transaction. This does not however allow the State to entrench upon the Union List and tax services by including the cost of such service in the value of the goods. Even in those composite contracts which are by legal fiction deemed to be divisible under Article 366(29-A), the value of the goods involved in the execution of the whole transaction cannot be assessed to sales tax. As was said in Larsen & Toubro v. Union of India[(1993) 1 SCC 364] : (SCC p. 395, para 47) :-
"The cost of establishment of the contractor which is relatable to supply of labour and services cannot be included in the value of the goods involved in the execution of a contract and the cost of establishment which is relatable to supply of material involved in the execution of the works contract only can be included in the value of the goods."
For the same reason the Centre cannot include the value of the SIM cards, if they are found ultimately to be goods, in the cost of the service. As was held by us in Gujarat Ambuja Cements Ltd. v. Union of India [(2005)4 SCC 214] - 2005-VIL-35-SC-ST, SCC at p. 228, para 23:-
"This mutual exclusivity which has been reflected in Article 246(1) means that taxing entries must be construed so as to maintain exclusivity. Although generally speaking, a liberal interpretation must be given to taxing entries, this would not bring within its purview a tax on subject-matter which a fair reading of the entry does not cover. If in substance, the statute is not referable to a field given to the State, the court will not by any principle of interpretation allow a statute not covered by it to intrude upon this field." (at paras 88 and 89)"
4.6 Following the above principles of law and reading the language employed in section 65B(44) with respect to definition of 'service', section 65B(54) with respect to 'works contract', section 66E(h), we find that the land is required not to be clubbed with the works contract since the land is neither the subject matter of service tax nor it is integral part of a works contract. Thus any reference to the measure of taxable event shall be on the basis of measure of works contract by excluding the actual value of goods involved or be on the basis of measured as per fictional machinery provided in rule 2A(ii), however measure of levy cannot solely depend upon the measure of a bundle comprising works contract and land. We also find that the value of land is identified in the agreement and clearly discernible therefrom and therefore the measure shall be construed as divisible in nature. We also find that the appellant had vehemently argued before the adjudicating authority that the value of land agreed upon by the parties in the agreement had not been challenged or disputed by revenue in the show cause notice. Thus, it is not a case of revenue leading to overvaluation of land by the appellant. Accordingly, 17 ST/10189-10190/2018-DB we hold that the value agreed upon with the buyer with respect to land and indicated in the agreement shall be the value of land required to be separated from the works contract. Accordingly, we find force in the argument that the land value is not includable in the value of works contract irrespective of and regardless of the option exercised by the appellant for valuation of works contract services under rule 2A. Similar view has been taken by this tribunal in case of Commissioner Of CGST & Central Excise - CGST & Central Excise Ahmedabad Versus Shree Siddhi Infrabuild Pvt Ltd relevant para of which are as follows :
"4. We have carefully considered the submission made by both the sides and perused the records. We find that as regard merit of the case the issue is whether in case of 'works contract service' the value of land is includable or otherwise. To decide this issue, it is necessary to go through valuation provision as regard the works contract service. Hence, provision of Rule 2 A (i) is reproduced below:-
"[2A. Determination of value of service portion in the execution of a works contract.:
Subject to the provisions of section 67, the value of service portion in the execution of a works contract, referred to in clause (h) of section 66E of the Act, shall be determined in the following manner, namely:-
(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, 3C[or in goods and land or undivided share of land, as the case may be] 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;
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(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.
(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 for execution of original works, service tax shall be payable on forty per cent. of the total amount charged for the works contract;
[Provided that where the amount charged for works contract includes the value of goods as well as land or undivided share of land, the service tax shall be payable on thirty per cent. of the total amount charged for the works contract.]"
From the above Rule 2A(i), it is clear that for the purpose of value of service in the execution of works contract the gross value shall not include the value of land or undivided share of land. In view of this provision the value of land is not includible and service tax demand on this ground is not sustainable on merit."
In view of above, the classification made by the revenue in impugned order is rejected and the demand of service tax of Rs. 1,20,74,334/- is accordingly deleted."
3.6 On the basis of above, we hold that the demand of service tax in the present case is not sustainable.
19 ST/10189-10190/2018-DB 3.7 We also find that the issue involved in the present case is classification of services. From the above observation it is clear that the very same issue has come up before this Tribunal and higher judicial forums and the issues involved are pure interpretation of complex legal provisions. Therefore, the demand of service tax would be hit by limitation as well. We hold that the extended period of limitation is also not invocable in the facts of the present case.
3.8 Ld. Advocate for the Appellant also brought to our notice the recent decision of Principal Bench at New Delhi in case of Kopertek Metals Pvt. Ltd. having final order number 59511-59720/2024 dated 25.11.2024 wherein it is observed as under:
"4. The order impugned deserves to be set aside for the reason that the Central Excise Officer determined the amount of duty under sub-section (10) of section 11A of the Central Excise Act beyond the period prescribed under sub-section (11) of section 11A of the Central Excise Act; The provisions of section 36B of the Central Excise Act were not adhered to for admissibility of electronic evidence; and The provisions of section 9D of the Central Excise Act relating to relevance of statements under certain circumstances were not complied with. The first issue that has been raised by the learned counsel for Kopertek and the learned counsel appearing for the other appellants that the impugned orders deserve to be set aside for the sole reason that the Central Excise Officer did not determine the amount of duty of excise under sub-section (10) of section 11A within the period stipulated in sub-section (11) of section 11A shall be examined first, because in the event this issue is decided in favour of the appellants, it may not be necessary to examine the other two issues that have been raised by the learned counsel for the appellants.
11. What is important to note is that the show cause notice that was issued on 28.04.2015 was required to be adjudicated latest by 27.04.2016; the first personal hearing was fixed by the Adjudicating Authority almost after five months from 27.04.2016 on 07.09.2016; dates for cross-examination were fixed from 22.02.2018 to 22.03.2021; personal hearings were held on 26.07.2021, 24.08.2021 and 24.09.2021; and the order was passed by the Adjudicating Authority on 14.06.2022.
12. It was incumbent upon the Adjudicating Authority to determine the amount of duty within one year from 28.04.2015, where it was possible to do so. The discussion and findings in the impugned order start from paragraph 117 but no reason has been given in the impugned order by the Adjudicating Authority for not being able to determine the duty within the stipulated period of one year from the date of issuance of the show cause notice.
13. Learned authorized representative appearing for the department has, however, submitted that the adjudication was completed within nine months from the completion of the last hearing on 24.09.2021. Prior to this hearing, it was incumbent upon the Adjudicating Authority to "scrupulously adhere to the principles of natural justice by giving ample opportunities to the noticees to make their written submissions, allow cross-examination and opportunities for personal hearing" as contemplated in section 33A of the Central Excise Act. Learned authorized representative submitted that if the adjudication was completed without providing the aforesaid opportunities, Koperek could have 20 ST/10189-10190/2018-DB raised an issue relating to violation of principles of natural justice. Learned authorized representative also submitted that the time limit of one year specified in sub-section (11) of section 11A is not mandatory in nature, but is merely directory which is explicit from the use of the words "where it is possible to do so". Learned authorized representative also placed reliance upon certain decisions, to which reference shall be made at the appropriate stage.
14. Learned counsel for Kopertek, however, submitted that the department has not been able to substantiate that the Adjudicating Authority was prevented by "such circumstances or insurmountable exigencies" from concluding the adjudication proceedings within the stipulated period contemplated under sub-section (11) of section 11A. In this connection, learned counsel placed reliance upon the judgment of the Delhi High Court in Swatch Group India Pvt. Ltd. vs. Union of India, wherein the provisions of section 28(9) of the Customs Act, 19626, which also require the proper officer to determine the amount of duty within a specified period, when it was possible to do so. Learned counsel placed reliance upon certain other decisions of High Courts, to which reference shall be made at the appropriate stage.
26. It is in the light of the aforesaid principles that the facts of the appeal would have to be examined.
27. The show cause notice, in the present case, was issued on 28.04.2015. It called upon the noticees to show cause within thirty days from the date of receipt of notice, failing which it was specifically provided that the matter would be adjudicated ex parte without any further communication. It is seen that the period one year from 28.04.2015 expired on 27.04.2016. Even if cause was not shown by the noticees to the said notice, the Adjudicating Authority should have proceeded to decide the matter ex parte, but what is seen is that the Adjudicating Authority even let this statutory time limit of one year pass without even adhering to the stipulation contained in the show cause notice that the matter would be decided ex parte even if no cause is shown within thirty days. It appears that it is only on 07.09.2016 i.e. almost after a period of five months after the expiry of one year that the first hearing was fixed by the Adjudicating Authority on 07.09.2016. The chart submitted by the department further shows that after the first hearing was fixed on 07.09.2016, the matter was taken up on 22.02.2018 for cross examination which period is itself after more than one year, and this cross-examination continued from 22.02.2018 to 22.03.2021 and though five dates for cross-examination were fixed in 2018, four dates were fixed in 2019 and thereafter two dates for cross- examination were fixed in 2021. There is absolutely no reason assigned in the written submissions or in the date and event chart as to why the cross- examination process continued for almost three years from 2018 upto 2021, when the adjudication itself was required to be completed within one year. Three dates for personal hearing were fixed in 2021 at an interval of almost one month and thereafter the show cause notice was adjudicated after nine months from the last date of personal hearing on 14.06.2022.
28. A clear statutory time limit of one year is provided in sub-section (11) of section 11A for the Adjudicating Authority to adjudicate the show cause notice but no reason has been given in the impugned order as to why it was not feasible or practicable for the Adjudicating Authority to adjudicate the show cause notice. It was incumbent upon the Adjudicating Authority to have clearly spelt out the "insurmountable exigencies" leading to delayed adjudication but none has been pointed out in the impugned order. The Adjudicating Authority has to record reasons in the order adjudicating the show cause notice and not leave it to the department to speculate why the Adjudicating Authority could not adhere to the time limit provided to it under a Statute to adjudicate the show cause notice.
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29. Learned authorized representative appearing for the department only submitted that the delay occurred on account of the appellant as the appellant did not file a reply to the show cause notice within the period of one month stipulated in the show cause notice and, in fact, no reply was filed till 07.09.2016, which was the date fixed for hearing by the Adjudicating Authority. In this connection, learned authorized representative appearing for the department not only placed reliance upon section 33A of the Central Excise Act, but also contended that since the Adjudicating Authority is required to strictly adhere to the principles of natural justice that require adequate opportunities to be given to the noticees before the adjudicating the show cause notice the Adjudicating Authority was justified in granting time to the noticees to cross-examine and also provide adequate personal hearing.
30. It is not possible to accept this contention of the learned authorized representative appearing for the department.
31. The principles of natural justice do not admit of such delayed adjudication where time limit is fixed under a Statute to adjudicate the matter. The Adjudicating Authority cannot endlessly wait and has to utilize its discretion in a fair and reasonable manner so as to balance between the principles of natural justice and the time set out in the Statute for adjudication of the show cause notice. The show cause notice required the noticees to file a reply within thirty days, failing which it was mentioned that the matter would be adjudicated ex parte. Assuming that no reply was filed by the noticees, still the Adjudicating Authority should have proceeded to adjudicate the show cause notice ex parte as it was bound to adjudicate in show cause notice within one year, unless there were strong and compelling reasons for it not to adjudicate the show cause notice within the stipulated time. Learned authorized representative appearing for the department is, therefore, not justified in making this submission. Nothing has been shown which can even remotely demonstrate that there were circumstances, much less insurmountable exigencies, which prevented the Adjudicating Authority from completing the adjudication process within the stipulated term.
42. The aforesaid discussion would lead to the inevitable conclusion that the impugned order would have to be set aside only for the reason that the adjudication was not completed within the time limit prescribed under sub- section (11) of section 11A of the Central Excise Act.
43. It would, therefore, not be necessary to examine the other two contentions raised by the learned counsel for the appellants.
44. The first issue that has been decided also arises for consideration in all the remaining 209 appeals that have been filed by the assessees for setting aside the impugned order. This would be apparent from the chart annexed as "Annexure A" to this order wherein details of the Excise Appeals, date of show cause notice, and the date of order has been provided.
45. It is evident that in all the 209 cases, the adjudication has taken place beyond the period stipulated in sub-section (11) of section 11A of the Central Excise Act and there is no plausible explanation as to why it was not possible for the Adjudicating Authority to complete the adjudication process within the stipulated time.
46. Thus, the impugned orders that have been assailed in all the 210 Excise Appeals would have to be set aside and are set aside. The appeals are, accordingly, allowed with consequential relief(s), if any to the appellant."
3.9 Ld. Advocate also referred to the decision of Hon'ble Bombay High Court in case of IDFC First Bank Ltd. reported in (2023) 10 Centax 256f (Bom) wherein similar proposition was laid down.
22 ST/10189-10190/2018-DB 3.10 However, since we have decided the present appeal filed by Appellant firm on merits of the case as discussed above we keep this legal issue open.
3.11 So far as appeal No. ST/10190/2018 is concerned, a penalty of Rs.1,00,000/- is imposed on Shri Dharmvirsingh Rajpurohit, partner of the Appellant firm under Section 78A of the Finance Act, 1994. We find that penalty under Section 78A is imposable on the Director of the Company and not on the partner of the partnership firm. For ease of reference, Section 78A of the Finance Act, 1994 (inserted with effect from 10.05.2013) is reproduced below:
"Penalty for offences by director, etc., of company. 78A. Where a company has committed any of the following contraventions, namely:--
(a) evasion of service tax; or
(b) issuance of invoice, bill or, as the case may be, a challan without provision
of taxable service in violation of the rules made under the provisions of this Chapter; or
(c) availment and utilisation of credit of taxes or duty without actual receipt of taxable service or excisable goods either fully or partially in violation of the rules made under the provisions of this Chapter; or
(d) failure to pay any amount collected as service tax to the credit of the Central Government beyond a period of six months from the date on which such payment becomes due, then any director, manager, secretary or other officer of such company, who at the time of such contravention was in charge of, and was responsible to, the company for the conduct of business of such company and was knowingly concerned with such contravention, shall be liable to a penalty which may extend to one lakh rupees.] [Explanation. - - For the removal of doubts, it is hereby clarified that where any service tax has not been levied or paid or has been short-levied or short-
paid or erroneously refunded, and the proceedings with respect to a notice issued under sub-section (1) of section 73 or the proviso to sub-section (1) of section 73 is concluded in accordance with the provisions of clause (i) of the first proviso to section 76 or clause (i) of the second proviso to section 78, as the case may be, the proceedings pending against any person under this section shall also be deemed to have been concluded.]"
3.12 A bare perusal of the above provisions would reveal that it is applicable only in case of offences committed by the Company. The main Appellant in the present case is a partnership firm and therefore, the provisions of Section 78A of the Finance Act, 1994 is not applicable and therefore, the penalty under Section 78A of the Finance Act, 1994 on Shri Dharmvirsingh Rajpurohit partner of main Appellant firm is also not sustainable. 23 ST/10189-10190/2018-DB 3.13 Further, since the demand of service tax on the main Appellant firm itself has been set aside there is no question of penalty on the partner of the Appellant firm.
5. In view of the above discussion and finding, we set aside the impugned order and allow the appeals with consequential relief, if any.
(Pronounced in the open court on 06.12.2024) (RAMESH NAIR) MEMBER (JUDICIAL) (C L MAHAR) MEMBER (TECHNICAL) Bharvi