Gujarat High Court
Jmc Projects (India) Limited vs Commissioner Of Service ... on 24 April, 2014
Author: Akil Kureshi
Bench: Akil Kureshi, Sonia Gokani
O/TAXAP/385/2014 ORDER
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
TAX APPEAL NO. 385 of 2014
With
CIVIL APPLICATION NO. 256 of 2014
In
TAX APPEAL NO. 385 of 2014
With
TAX APPEAL NO. 386 of 2014
With
CIVIL APPLICATION NO. 257 of 2014
In
TAX APPEAL NO. 386 of 2014
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JMC PROJECTS (INDIA) LIMITED....Appellant(s)
Versus
COMMISSIONER OF SERVICE TAX....Opponent(s)
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Appearance:
MR PRAKASH SHAH WITH MR DHAVAL SHAH, ADVOCATES for the
Appellant(s) No. 1
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CORAM: HONOURABLE MR.JUSTICE AKIL KURESHI
and
HONOURABLE MS JUSTICE SONIA GOKANI
Date : 24/04/2014
ORAL ORDER
(PER : HONOURABLE MR.JUSTICE AKIL KURESHI) These appeals arise in similar background with minor factual difference. Both the appeals involve similar facts and therefore, they are being disposed of by this common order.
Page 1 of 16O/TAXAP/385/2014 ORDER We may briefly refer the facts as arising in Tax Appeal No.385 of 2014.
Appellant is engaged in construction and construction related activities. Before 1.6.2007, the appellant's services were categorized as commercial or industrial construction service or complex service. After 1.6.2007, in view of introduction of a new entry of 'works contract service' the assessee changed the classification and also availed of a composition scheme.
The Commissioner of Service Tax, Ahmedabad, issued a show cause notice on 23.10.09 alleging inter alia that :
"The Service Tax short paid by them on all the projects wherein service tax was paid by them under Commercial or Industrial Construction Service or under Construction of Complex Service but subsequently, switched over to Works Contract Service w.e.f. 01.06.2007, a chart is annexed with this notice containing such details for the period from 1.8.2008 to 28.2.2009 & 1.3.2009 to 31.7.2009. Accordingly, the total taxable value collected by them on the 9 ongoing projects from 1.8.2008 to 28.2.2009 comes to Rs.37,42,70,933/ and for the period from 1.3.2009 to 31.7.2009 comes to Rs.18,39,05,451/. In other words, the taxable value collected by them during the period from 01.08.2008 to 31.07.2009 comes Page 2 of 16 O/TAXAP/385/2014 ORDER to Rs.55,81,76,444/ on which they had paid Service Tax 2,29,96,870 with Ed. Cess @ 4.12% after deducting the Sales Tax/VAT."
xxxx xxxx "The department vide a letter dated 20.10.2009 called for the details pertaining to completion and finishing services in relation to building or civil structures as referred to in subclause (c) of clause (25b) of Section 65 of the Finance Act and as per Circular issued by CBEC vide F. No.345/6/2007TRU dated 4.1.2008 with subject
- Amendment to Circular No.96/7/2007ST dated 23.8.2007 - clarification in respect of renting of immovable property service and works contract service regarding and reference code No.097.03 / 4.1.2008. As per this Circular they cannot switch over from Industrial or Commercial Construction Service category to Works Contract Service Category. But M/s.JMC has not submitted any documentary evidence till date with reference to letter dated 20.10.2009. Hence, it is clear that M/s.JMC is liable to pay the Service Tax under the category of Construction of Residential Complex / Construction Service - Commercial or Industrial and they are not eligible to get the abatement scheme."
xxxx xxxx "It also appears that the value of the aforesaid taxable service rendered, charged and recovered have escaped from assessment and levy of service tax by reason of wrong availment of benefit of notification No.32/2007ST dated 22.5.2007 on the part of M/s.JMC. Penalty for failure to collect and Page 3 of 16 O/TAXAP/385/2014 ORDER pay the services tax as per section 76 and a penalty for suppressing the value of taxable service under section 78 of the said Act also appear to be imposable on M/s.JMC for the reasons recorded hereinabove."
On the basis of such allegations, the Commissioner asked the assessee to show cause in following manner:
"In light of the facts discussed in foregoing paras, it appears that the M/s.JMC have short paid service tax. Therefore, the Service Tax short paid by them is recoverable from them under Section 73 of the Finance Act, 1994. Further, interest on delayed payment of service tax as per section75 also appears chargeable and recoverable from them. They are also liable for penal action under the appropriate provisions of the Act ibid.
Now, therefore, M/s. JMC Projects (India) Ltd. having their Registered and Corporate office at A104, Shapath4, Opp. Karnavati Club, S.G.Road, Ahmedabad380051 are hereby called upon to show cause to the Commissioner of Service Tax, Ahmedabad having his office at 7th Floor, Central Excise Bhawan, Ambawadi, Ahmedabad380000, as to why:
1. The Service Tax amounting to Rs.4,22,05,286/ Rupees Four Crores Twenty Two Lacs Five Thousand Two Hundred Eighty Six only), as detailed in AnnexureB to this Show cause Notice, should not be demanded and recovered from them under section 73 of the Finance Act, 1994.
2. Interest at appropriate rate for delayed payment of Service Tax, should not be demanded and recovered from them under section 75 of the Finance Act, 1994;Page 4 of 16
O/TAXAP/385/2014 ORDER
3. Penalty should not be imposed upon them
under sections 76 & 78 of the Finance Act, 1994, for contraventions mentioned in foregoing paras."
After hearing the appellant, the Commissioner passed an order dated 29.10.2010. In such order, he framed the following two issues:
"3.2 The issue to be decided in the case before me is:
(i) Whether the action of M/s.JMC in switching over from "Commercial or Industrial Construction Service" and "Construction of complex service" to "Works contract service" for those projects which were already under execution as on 1.6.2007 and a part service tax was paid before switching over to "Works contract service" was in accordance with the Act and the rules made there under?
(ii) And whether the benefit of payment of service tax at concessional rate of 2% w.e.f.
1.6.2007 (4% from 28.2.2008) under "Work Contract (Composition scheme of payment of Service Tax) Rules, 2007, on the said ongoing projects as opted by them was in accordance with the Act and the rules made thereunder?"
He held and observed as under:
"3.4 I find that the Works Contract Composition Scheme came into effect from 1.6.2007, and therefore, in respect of any works contract received on or after 1.6.2007, one can opt for the composition scheme. However, with regard to opting for composition scheme in respect of running contracts, which stood partly executed as on 1.6.2007, I find that recourse should be taken to sub rule 3 of Rule 3 the Works Contract (Composition Scheme for payment of Service Tax) Rules, 2007, which clarifies that once the provider of taxable service opts to pay service tax under these rules, Page 5 of 16 O/TAXAP/385/2014 ORDER he shall exercise such option prior to payment of service tax in respect of such works contract and option so exercised shall not be allowed to be withdrawn till completion of the works contract.
3.5 I find from the language of the said rule that the intention of legislature is very clear that those running on ongoing work contracts where payment of service tax had already started prior to 1.6.2007, under any taxable service, the service tax liability will continue to be discharged at normal rate under section 66 read with section 67 of the Finance Act, 1994 and benefit of "Work Contract (Composition scheme of payment of Service Tax) Rules, 2007 will not be available.
3.6 I find that in the case before me, it is not disputed that in all the 9 ongoing projects, payment of service tax had begun prior to 1.6.2007. This being the fact of the matter, the case is now an open and shut case. All such 9 ongoing projects by virtue of the fact that service tax payment began prior to 1.6.2007 have disqualified themselves for being eligible to be taxed under "Work Contract (Composition scheme of payment of Service Tax) Rules, 2007 at concessional rate of 2% w.e.f. 1.6.2007 (4% from 28.2.2008) in view of the provisions of Rule 3(3) ibid.
3.7 In view of the above discussion, I arrive at the following conclusions:
a) Action of M/s.JMC in switching over from "Commercial or Industrial Construction Service" and Construction of complex service"
to "Works contract service" for those projects which were already under execution as on 1.6.2007 was not in accordance with the Act and the rules made there under. I hold that M/s.JMC were not entitled to revise the classification and they should have continued in the same service category of "Commercial or Industrial Construction Service" and "Construction of complex service". In the same manner as they did prior to enactment of "Works contract service" for the 9 ongoing projects.
Page 6 of 16O/TAXAP/385/2014 ORDER
b) For all the 9 ongoing projects, since payment of service tax had begun prior to 1.6.2007, the benefit of payment of service tax at concessional rate of 2% w.e.f. 1.6.2007 (4% from28.2.2008) under "Work Contract (Composition scheme of payment of Service Tax) Rules, 2007 was not available to M/s.JMC."
On such basis he confirmed the demand of tax, interest and penalty payments as indicated in the show cause notice.
In Tax Appeal No.386 of 2014, with minor variations, facts are similar. In this case, the same assessee for a different period received a show cause notice dated 22.10.2008 from the Commissioner. In such show cause notice, it was conveyed as under:
"6.7 In light of the said facts, it appears that all said 34 contracts of M/s JMC were under execution as on 01.06.07 and service tax on all said contracts was being paid on the consideration received. As per subclause 3 of the rule 3 of Works Contract Composition Scheme for Payment of Service Tax Rules, 2007 benefit of payment of service tax at concessional rate of 2% was not available on such contracts. They were required to pay Service Tax at the normal rate specified in section 66 of the said Act on the value of taxable service determined as per the provisions of rule 2A of the Valuation Rules read with section 67 of the said Act on the consideration received during the period from 01.06.07 to 31.07.08 on services of all said 34 contracts."Page 7 of 16
O/TAXAP/385/2014 ORDER On the basis of such allegations, he proposed to recover the unpaid duty as per the details at Annexure B to the notice which were statements showing the details of service tax shortpaid and recoverable under Works Contract Service for the period from 1.6.2007 to 31.7.2008 on the non availability of benefit of concessional rate under notification No.32/2007 dated 22.5.2007.
An addendum was issued on 14.12.09 to the said show cause notice replacing para 6.7 of the original show cause notice and increasing the service tax demand to Rs.20.53 crores (rounded off).
The Commissioner passed two separate orders in connection with two show cause notices. It is however, not necessary to refer to both orders.
The assessee carried the issue in appeal before the Tribunal. The Tribunal by a common judgment which is impugned in these appeals, substantially agreed with the appellant. The Tribunal reversed the findings of the Commissioner that the assessee was not entitled to revise the classification to work contract service after 1.6.2007. In fact, in the original show cause notice, the demand was made Page 8 of 16 O/TAXAP/385/2014 ORDER on the basis that the assessee is providing works contract services from 1.6.2007. The Tribunal held that it was open for the assessee to switch over to such classification which was also clarified by the CBEC by circular dated 24.8.2010. The action of the authorities therefore, demanding duty of Rs.20.53 crores on the basis that the assessee was providing commercial or industrial construction services or construction of complex services and denying the benefit of notification was on the basis of a totally new and different ground than what was being taken in the original show cause notice.
However, with respect to the assessee availing of the composition scheme under a notification applicable to the works contract service, the Tribunal held that the same was not permissible on the ongoing contracts as on 1.6.2007 by virtue of the decision of the Supreme Court in the case of Nagarjuna Construction Company Ltd v. GOI, 2012 (28) STR 561 (SC). On the basis that such decision was not available before the adjudicating authority at the time of passing of the orders and also on the ground that the said authority had not considered para 2 of the circular of the Board dated 24.8.2010, which was binding on him, and further that the issue of free supply of goods or sale of goods in a Page 9 of 16 O/TAXAP/385/2014 ORDER works contract and its inclusion in the assessable value is required to be examined in light of the judicial pronouncements, the Tribunal remanded the proceedings for de novo consideration after affording an opportunity of personal hearing to the appellants. We may reproduce the relevant part of the Tribunal's judgment as under:
"6.1 In view of the above clarification the view taken by the Adjudicating authority is not correct that appellant was not entitled to revise the classification to 'Works Contract Services'. The first show cause notice dated 22.10.2008 and its corrigendum dated 29.09.2009, were mainly targeted to deny the benefit of Composition Scheme to the appellant land to determine the taxable value as per Rule 2A of the Service Tax (Determination of Value) Rules, 2006 read with section 67 of the Finance Act, 1994. The provisions of Rule 2A and Composition Scheme deal only with the Works Contract Service under Section 65 (105) (zzzza). There was thus no doubt in the authority issuing show cause notice dated 22.10.2008 and its corrigendum dated 29.09.2009 that the classification of the services being dealt was 'Works Contract Services' with effect from 01.7.2006. This fact was confirmed by CBEC by issuing circular dated 24.08.2010. Therefore, demanding a duty of Rs.20,53,91.309 on 'Commercial or Industrial Construction Services'/'Construction of Complex Services' and denying the benefit of Notification No.1/2006ST dated 01.3.2006 is totally a new and different ground than what was being taken in the original show cause notice dated 22.10.2008, where classification of the service provided was not doubted at all. The judgments relied upon by the Revenue that the changes proposed were only mathematical corrections or facts available at Page 10 of 16 O/TAXAP/385/2014 ORDER the time of issue of show cause notice dated 22.10.2008, are thus not applicable to the facts of the present proceedings. The Addendum dated 29.09.2009 and its further corrigendum dated 17.05.2010, therefore, falls as the same has changed the entire basis of the first show casue notice dated 22.10.2008. Having said that it is further observed that Addendum dated 14.12.2009 has not been issued in suppression of the first show cause notice dated 22.10.2008, therefore the first show cause notice dated 22.10.2008 and its corrigendum dated 29.09.2009 survive.
6.2 The issue of admissibility of composition scheme for ongoing Works Contracts as on 01.6.2007 has since been decided by Hon'ble Apex Court in the case of Nagarjuna Construction Company Limited vs. GOI, 2012 (28) STR 561 (SC) which was not available before the Adjudicating authority at the time of passing the adjudication order in 2010. Secondly Adjudicating authority has not considered para 2 of the CBEC Circular NO.128/10/2010ST dated 24.08.2010 which is binding on the filed formations. Further the issue of free supply of goods/sale of goods in a works contract and its inclusion in the assessable value, is required to be examined in the light of judicial pronouncement of Delhi High Court in the case of G.D.Builders v. UOI (2013 (32) STR 673 (Del.)), read with Rule 2A of the Service Tax (Determination of Value) Rules, 2006.
In the light of these observations and in the interest of justice, therefore, the matter is required to be remanded back to the Adjudicating authority to decide the cases afresh in denovo proceedings by affording an opportunity of personal hearing to the appellant to explain their stand.
7. In view of the above observations, appeals filed by the appellants are allowed, to the extent indicated hereinabove, by way of remand to the Adjudicating authority."
It is this judgment which the assessee has Page 11 of 16 O/TAXAP/385/2014 ORDER challenged before us.
Learned counsel for the appellant vehemently contended that the Tribunal committed a serious error in remanding the proceedings to the Commissioner. The show cause notice proposed to levy tax only considering the service provided by the assessee as commercial or industrial construction services or complex services. When the Tribunal held that no such tax could be levied, thereafter no question of remanding the proceedings arise. He submitted that the question of denying the benefit of composition was not involved at all. The department not having made it part of the show cause notice, no tax could be levied on such basis. He submitted that the department cannot travel beyond the show cause notice. In support of such contentions, he relied on the following decisions of the Supreme Court.
1. In the case of Commissioner of Central Excise v. Gas Authority of India Ltd., 2008 (2392) ELT 7 (SC).
2. In the case of Commissioner of C.Ex., Nagpur v. Ballarpur Industries Ltd., 2007 (215) ELT 489 (SC).
3. In the case of Rackitt & Colman of India Page 12 of 16 O/TAXAP/385/2014 ORDER Ltd. v. Collector of Central Excise, 1996 (88) ELT 641 (SC).
Having heard the learned counsel for the appellant, we may notice that in the Board's circular dated 24.8.2010, certain issues pertaining to change of classification after 1.6.2007 came up consideration. In this context, it was clarified as under:
"It has been brought to the notice of the Board that the following confusions/disputes prevail with respect to long term works contracts which were entered into prior to 01.06.2007 (when the taxable service, namely, Works contract came into effect) and were continued beyond that date:
(i) While prior to the said date services like Construction, Erection, commissioning or installation, Repair services were classifiable under respective taxable services even if they were in the nature of works contract, whether the classification of these activities would undergo a change?
(ii) Whether in such cases of continuing contracts, the Works Contracts (Composition Scheme for payment of Service Tax) Rules, 2007 under Notification No.32/2007ST dated 22/05/2007 would be applicable?
2. The matter has been examined. As regards the classification, with effect from 01.06.2007 when the new service 'Works Contract' service was made effective, classification of aforesaid services would undergo a change in case of long term contracts even though part of the service was classified under the respective taxable service prior to 01.06.2007. This is because 'works contract' describes the nature of the Page 13 of 16 O/TAXAP/385/2014 ORDER activity more specifically and, therefore, as per the provisions of section 65A of the Finance Act, 1994, it would be the appropriate classification for the part of the service provided after that date.
3. As regards applicability of composition scheme, the material fact would be whether such a contract satisfies rule 3(3) of the Works Contract (Composition Scheme for payment of Service Tax) Rules, 2007. this provision casts an obligation for exercising an option to choose the scheme prior to payment of service tax in respect of a particular works contract. Once such an option is made, it is applicable for the entire contract and cannot be altered. Therefore, in case a contract where the provision of service commenced prior to 01.06.2007 and any payment of service tax was made under the respective taxable service before 01.06.2007, the said condition under rule 3(3) was not satisfied and thus no portion of that contract would be eligible for composition scheme. On the other hand, even if the provision of service commenced before 01.06.2007 but no payment of service tax was made till the taxpayer opted for the composition scheme after its coming into effect from 01.06.2007, such contracts would be eligible for opting of the composition scheme."
The combined effect of the said classification is that after 1.6.2007, with introduction of the new entry of works contract service, it would be open for an assessee to change the classification provided he satisfied the requirements. However, for the ongoing projects as on 1.6.2007, if any payment of service tax was made under the respective taxable service before the said date, qua such contract, Page 14 of 16 O/TAXAP/385/2014 ORDER composition scheme would not be available. Such a view has also been upheld by the Supreme Court in the case of Nagarjuna Construction Co. Ltd. (supra).
In the present case, when the Tribunal has merely remanded the proceedings for fresh consideration for the reasons noted, we are not inclined to interfere. At this stage, we are not making any conclusive observations that if the proposal of the department to tax the assessee on the basis that the assessee provided commercial or industrial construction services or complex services fails, benefit of composite tax could or could not be denied. The same would depend on very minute reading of the show cause notice and in one of the cases, the addendum issued by the department. We may recall that the Commissioner in his order dated 29.10.10, raised both the issues. First issue pertains to appropriate classification of the service provided by the assessee. Second issue pertains to the availability of the benefit of paying at concessional rate after 1.6.2007 under the Works Contract (Composition Scheme for payment of Service Tax) Rules, 2007 on the ongoing projects of the assessee. The latter question framed has thus a direct bearing on the issue of availability of composition of tax. However, as Page 15 of 16 O/TAXAP/385/2014 ORDER noted above, the Tribunal having remanded the proceedings for fresh consideration, we do not see any question of law arising. All contentions, including that looking to the contents of the show cause notice it is not open to deny such benefits, are kept open to be raised before the Commissioner.
Subject to the above observations, Tax Appeals are dismissed.
In view of the order passed in Tax Appeals, Civil Applications do not survive. Disposed of accordingly.
(AKIL KURESHI, J.) (MS SONIA GOKANI, J.) (vjn) Page 16 of 16