Custom, Excise & Service Tax Tribunal
Sunil Hi-Tech Engineers Ltd vs Commissioner Of Central Excise, Nagpur on 28 August, 2009
IN THE CUSTOMS EXCISE & SERVICE TAX APPELLATE TRIBUNAL WEST ZONAL BENCH AT MUMBAI Appeal No. ST/83/08 (Arising out Order-in-Original No. 08/ST/2008/C dated 14.3.08 passed by the Commissioner of Central Excise, Nagpur) For approval and signature: Honble Mr. P.G. Chacko, Member (Judicial) Honble Mr. A.K. Srivastava, Member (Technical) ====================================================
1. Whether Press Reporters may be allowed to see No
the Order for publication as per Rule 27 of the
CESTAT (Procedure) Rules, 1982?
2. Whether it should be released under Rule 27 of the Yes CESTAT (Procedure) Rules, 1982 for publication
in any authoritative report or not?
3. Whether Their Lordships wish to see the fair copy Seen
of the Order?
4. Whether Order is to be circulated to the Departmental Yes
authorities?
Sunil Hi-Tech Engineers Ltd.
Appellant
Vs.
Commissioner of Central Excise, Nagpur
Respondent
Appearance:
Shri G. Natarajan, Advocate with Shri Amit S. Agarwal, CA for the appellant
Shri S.S. Katiyar, SDR for the respondent
CORAM:
Honble Mr. P.G. Chacko, Member (Judicial)
Honble Mr. A.K. Srivastava , Member (Technical)
Date of hearing : 28.8.2009
Date of decision : 28.8.2009
O R D E R No:..
Per: P.G. Chacko
In this appeal filed by the assessee, the challenge is mainly against demand of Rs.63,28,217/- comprising service tax of Rs.62,04,135/- and education cess of Rs.1,24,082/- confirmed against them by the Commissioner in adjudication of a show-cause notice dated 23.3.2007 for the period 10.9.2004 to 31.12.2006. Penalties imposed on the assessee are also under challenge. The service tax demand is under the head construction service [Section 65 (30a) of the Finance Act, 1994] upto 15.6.2005 and under commercial or industrial construction service [Section 65(25b) of the Act] from 16.6.2005. A part of the demand relates to the activity done by the assessee directly for the benefit of National Thermal Power Corporation Ltd. (NTPC for short) for the period from 10.9.2004 to 31.3.2006. The rest of the demand is in respect of similar activity performed by the assessee under a sub-contract awarded by M/s. Punj Lloyd Ltd. who was a contractor appointed by M/s. Jindal Power Ltd. for setting up a power plant. This part of the demand pertains to the period from 1.3.2006 to 31.12.2006. Obviously, in the first case, the assessee was directly executing a contract for NTPC, wherein they undertook the construction activities resulting in the setting up of a power plant. Those activities were undertaken during 10.9.2004 to 31.3.2006. In the second case, the assessee undertook similar activities as sub-contractor of M/s. Punj Lloyd Ltd., who were the contractors appointed by M/s. Jindal Power Ltd. Such activities were performed during 1.3.2006 to 31.12.2006. The Commissioner charged service tax, in the first case, on the gross amount paid to the assessee by NTPC, while, in the second case, service tax was charged on the gross amount paid to the assessee by the main contractor namely M/s. Punj Lloyd Ltd. When these demands were raised by the department through the show-cause notice, the assessee contested the same on numerous grounds. The main ground raised by them was that the contract executed by them in either of the two cases was a works contract covered by the definition of this term given under Explanation to clause (zzzza) of Section 65(105) of the Finance Act, 1994. It was contended that the taxable service relating to works contract was introduced with effect from 1.6.2007 only and therefore, prior to that date, they were not liable to pay service tax on such service. Alternatively, it was contended that, if service tax was sought to be levied for the period of dispute (prior to 1.6.2007) under the head commercial or industrial construction service, the benefit of exemption under Notification 12/03-ST dated 20.6.2003 should be extended. In respect of the demand raised in relation to the service rendered by the assessee to M/s. Punj Lloyd Ltd. under the sub-contract, it was contended that there was no liability to pay such tax inasmuch as the main contractor (M/s. Punj Lloyd Ltd.) was paying service tax in respect of the same service rendered to M/s. Jindal Power Ltd. In this connection, the assessee relied on a few circulars issued by CBEC. Against a part of the demand of service tax, the plea of limitation was also raised. But the ld. Commissioner did not accept these arguments. Hence the impugned order.
2. The ld. counsel for the appellant has reiterated the aforesaid contentions of the assessee and has also elaborated some of the points. He submitted that it was never the intention of the Government to levy service tax on a works contract until Clause (zzzza) was inserted under Section 65(105) of the Act (with effect from 1.6.2007). In his bid to buttress this point, the ld. counsel referred to the Finance Ministers budget speech. Para 154 of the budget speech (2007) was quoted emphatically, and the same reads thus:
154. State Governments levy a tax on the transfer of property in goods involved in the execution of a works contract. The value of services in a works contract should attract service tax. Hence, I propose to levy service tax on services involved in the execution of a works contract. However, I also propose an optional composition scheme under which service tax will be levied at only 2 percent of the total value of the works contract.
3. The ld. counsel also referred to certain decisions viz. Diebold Systems P. Ltd. vs. CCE 2008 (9) STR 546 (Tri-Chennai), Air Liquide Engineering India P. Ltd. vs. CCE 2008 (9) STR 486 (Tri-Bang) and Soma Enterprise Ltd. vs. CCE 2009-TIOL-1086-CESTAT-BANG. The ld. counsel has particularly mentioned that, in the case of Soma Enterprise, a similar activity undertaken by the assessee for the benefit of NTPC was held to be an activity in execution of works contract and hence not taxable for the period of dispute (prior to 1.6.2007). It has also been pointed out that the relevant provision of the works contract awarded to the assessee by NTPC in the present case is pari materia with the corresponding provision of the works contract awarded by NTPC to M/s. Soma Enterprise. On this basis, it has been argued that the issue under consideration is already covered in favour of the appellant by the Tribunals decision in Soma Enterprise case. The counsel has also given a brief account of the Constitutional history of works contracts. Parliament by the 46th amendment to the Constitution of India enabled State governments to levy sale tax on the sale component of works contract and the State Governments took advantage of the same. The appellant also paid sale tax on the cost of materials used in the execution of the works in question. It was only from 1.6.2007 that the Central Government started levying service tax on the service component of works contract. This was a new levy and therefore the taxable value derived from a works contract could not have been charged to service tax under any other heading falling under Section 65 (105) of the Finance Act, 1994 prior to 1.6.07.
4. The ld. SDR has opposed these arguments by pointing out that the assessee never disputed the fact that the activity undertaken by them fell within the scope of construction service from 10.9.2004 to 15.6.2005 and within the ambit of commercial or industrial construction service from 16.6.2005. Both the services were taxable services during the respective periods. Therefore, according to the ld. SDR, the assessee was liable to pay service tax under the head construction service for the period 10.9.2004 to 15.6.2005 and under the head commercial or industrial construction service for the period from 16.6.2005 to 31.12.2006. It is argued that this liability was not in any way affected by the introduction of works contract as a new taxable service. In this context, it is also submitted that the case law cited by the ld. counsel is not applicable inasmuch as, in those cases, the parties had contested the Revenues claim that the activities undertaken by them were covered by the definition of one or the other taxable service which existed prior to the introduction of the new taxable service. With regard to the transactions between the assessee and M/s. Punj Lloyd Ltd., the ld. SDR has opposed the claim that the former as a sub-contractor was not liable to pay service tax. It is submitted that there was neither any provision of law nor any circular of the Board which made the assessee entitled to claim such immunity. In his rejoinder, the ld. counsel points out that the Board for the first time came out with a clarification on 23.8.2007 that sub-contractors of taxable services were also as much liable to pay service tax as the main contractors themselves. Reference is made to the Boards circular no. 96/7/2007 ST dated 23.8.2007. This circular superseded all circulars, clarifications and communications other than orders issued under Section 37B of the Central Excise Act (as made applicable to service tax by Section 83 of the Finance Act, 1994) issued from time to time by CBEC, DG (ST) and various field formations on all technical issues including the scope and classification of taxable services, valuation of taxable services, export of services. This circular inter alia observes thus: views stated in the circular reflect the interpretation of the law and the current practice of the department. This circular is not to be treated as part of law and does not override the legal provisions. The relevant statutory provisions must be referred to and they will prevail. The operative part of the circular, relevant to the present case reads as under :-
999.03/23-8-07 A taxable service provider outsources a part of the work by engaging another service provider, generally known as sub-contractor. Service tax is paid by the service provider for the total work. In such cases, whether service tax is liable to be paid by the service provider known as sub-contractor who undertakes only part of the whole work.
A sub-contractor is essentially a taxable service provider. The fact that services provided by such sub-contractors are used by the main service provider for completion of his work does not in any way alter the fact of provision of taxable service by the sub-contractor.
Services provided by sub-contractors are in the nature of input services. Service tax is, therefore, leviable on any taxable services provided, whether or not the services are provided by a person in his capacity as a sub-contractor and whether or not such services are used as input services. The fact that a given taxable service is intended for use as input service by another service provider does not alter the taxability of the service provided.
The ld. counsel has submitted that the previous circulars which had clarified that, where the main contractor of a taxable service paid service tax, his sub-contractor was not liable to pay such tax, were superseded with effect from 23.8.2007 only and therefore the assessee is entitled to the benefit of the previous circulars for the period of dispute. Contextually, it is pointed out that the new circular dated 23.8.2007, being an oppressive circular insofar as the sub-contractors are concerned, should not be given retrospective effect as held by the Apex court in Suchitra Components Ltd. vs. CCE 2007 (208) ELT 321 (SC). The ld. counsel has however hastened to add that the earlier payments made by the assessee towards service tax under other headings shall not preclude them from challenging the tax liability. The ld. counsel thus rules out the applicability of the doctrine of estoppel. It is pointed out that there is no estoppel in taxation matters as held by the Honble Supreme Court in Dunlop India Ltd. & Madras Rubber Factory Ltd. vs. UOI & others 1983 (13) ELT 1566 (SC) and in several other cases. The ld. SDR is of the view that the Boards circular dated 23.8.2007 cannot override the mandatory provisions of law as this circular itself says. It is submitted that the law does not discriminate between contractors and sub-contractors insofar as service tax liability is concerned, and that no circular of the Board can alter this legal position. In his rejoinder, the ld. counsel submits, without prejudice to his earlier arguments, that the appellant as a sub-contractor is entitled to abatement to the extent of 67% of the taxable value in the event of levy of service tax under the head commercial or industrial construction service. It is submitted that, given an opportunity, the appellant can satisfy the conditions attached to Notification 1/2006-ST dated 1.3.2006 for the benefit of abatement. Contextually, it is pointed out that, before 1.3.2006, the appellant was paying service tax on the entire amount of taxable value and that they stopped paying on 1.3.2006 and also refrained from taking CENVAT credit on inputs, capital goods or input services. It is in this situation that the appellant is exuding confidence of being able to satisfy the conditions for abatement under the Notification (1/2006 ST).
5. We have given careful consideration to the submissions. Insofar as the service rendered by the appellant to NTPC during the period from 10.9.2004 to 31.3.2006 is concerned, we find that it is not in dispute that such service was covered by the definition of construction service upto 15.6.2005 and then by the definition of commercial or industrial construction service from 16.6.2005 to 31.3.2006. They were also registered with the Department in these categories during the respective periods. They were paying service tax, during the said periods, on the labour component of the works. The demand of service tax now is on the cost of materials used in rendering the service. According to the assessee, on this value, sale tax was paid, which fact is said to be evidenced by the relevant assessment orders. By invoking the doctrine of works contract, the assessee has claimed. through counsel, that nothing remains to be paid as service tax on any part of the taxable value. It is said that service tax was paid on the service component and sale tax on the sale component. This argument of the assessee may be good for the period from 1.6.2007 when the works contract concept made its way into the domain of service tax for the first time. Prior to 1.6.2007, the assessee was rendering a service which squarely fell within the ambit of construction service upto 15.6.2005 and commercial or industrial construction services thereafter upto 31.3.2006. The assessee has never disputed this fact. We are not impressed with their present attempt to escape tax liability for the period upto 31.3.2006 on the strength of a doctrine which was introduced on 1.6.2007 with prospective effect. In this view of the matter, we find that the decisions cited by the ld. counsel are of no aid to the appellant.
6. For instance, in the case of Soma Enterprise (supra), the party had provided a taxable service to NTPC during a period prior to 1.6.2007. The department sought to levy service tax under the head commercial or industrial construction service which was resisted by the assessee who maintained that theirs was a works contract which was not taxable prior to 1.6.2007. It is clear from the text of the judgment that the assessee never admitted that the activity undertaken by them was covered by commercial or industrial construction service. In this factual situation, the Tribunal proceeded to decide on the issue. Such a decision may not be applicable to the present case inasmuch as, in this case, the assessee never denied the fact that the services rendered by them to NTPC and M/s. Punj Lloyd Ltd. fell within the ambit of construction service upto 15.6.2005 and commercial or industrial construction service thereafter. They were also paying service tax under these headings on a part of the taxable value. It is this conduct of the appellant which distinguishes their case from that of Soma Enterprise, Diebold Systems P. Ltd. and Air Liquide Engineering (supra). We are of the considered view that the appellant should pay service tax under the above heads for the respective periods. We have also considered the counsels argument that the assessee is not precluded from disowning tax liability notwithstanding their conduct. It has been argued that there is no estoppel in tax matters. Certain decisions have also been cited in support of this point. We have gone through the decisions (Dunlop India Ltd. etc.). In those cases, the plea of estoppel was raised by the Revenue in various situations, but we have not found a parallel between the present and those situations. Here is a case where a given activity/service was classified as construction service for the period upto 15.6.2005 and as commercial or industrial construction service for the subsequent period, by both the assessee and the Revenue. service tax was voluntarily paid, accordingly. As we have already noted, works contract was introduced as taxable service for the first time with effect from 1.6.2007, something which was done by parliament by following the principle embodied under Article 366 (29A) of the Constitution. Had this not happened, obviously, the appellant would have continued to pay service tax under the head commercial or industrial construction service beyond 31.5.2007. In such scenario, the plea against estoppel would not hold good.
7. At this juncture, the question arises whether the appellant could validly claim exemption from payment of service tax or any part thereof. Notification 12/03-ST exempted so much of the value of taxable service as was equal to the value of goods and materials sold by the service provider to the recipient of service. The ld. SDR argued that there was no sale of materials in this case. He pointed out that all the materials were used up in the execution of contract and did not reach the service recipients hands. We are unable to accept this argument. It is true that several materials were used in the execution of work, but these materials were actually sold by the service-provider to the service recipient as evidenced by the relevant invoices wherein the cost of materials was separately shown. The Revenue has no case that on the sale value, the appellant did not pay sale tax. On their part, the appellant has asserted that they paid sale tax on the cost of materials used in the execution of works. If that be so, nothing stands in the way of granting the benefit of the Notification to the assessee. We have examined some of the relevant invoices and we find that the appellant separately collected the value of the materials used in the execution of the work, from the service-recipient. They also paid sale tax, which fact has not been disputed by the Revenue. In any case, in the impugned order, there is no rebuttal of the assessees claim of having paid sale tax. In the circumstances, the assessee has to be given the benefit of Notification 12/03-ST. We are told that, if this benefit is given, there would be no surviving demand in respect of the service rendered by the assessee to NTPC.
8. As regards the service rendered to M/s. Punj Lloyd Ltd., we find that the same was done by the assessee as a sub-contractor. M/s. Jindal Power Ltd. had appointed M/s. Punj Lloyd Ltd. for executing the work of setting up power plant, which work was, in turn, awarded by the contractor to the appellant (sub-contractor). It is submitted that the main contractor paid service tax. The appellant, therefore, is not liable to pay service tax, according to them. In this connection, the ld. counsel has relied on a few circulars. In circular no. B-11/3/98 TRU dated 7.10.1998, CBEC clarified that, where a work was sub-contracted by one architect to another architect, the sub-contractor was not required to pay service tax if the principal contractor paid such tax on the service. In circular no. B-43/1/97/TRU dated 6.6.97, the Board rendered a similar clarification in respect of CHA service. In circular no. B-43/5/97 TRU dated 2.7.97, a similar clarification was given in respect of consulting engineers service. In circular no. B-43/7/97 TRU dated 11.7.97 a similar clarification was given in respect of rent-a-cab service. It has been submitted that all these circulars were in force till they were superseded on 23.8.2007. We have already extracted the relevant portion of the circular dated 23.8.2007 wherein sub-contractors of taxable services were also held to be liable to pay service tax in the same manner as the main contractors. Obviously, insofar as the sub-contractors of taxable services are concerned, the circular dated 23.8.2007 is an oppressive one in the parlance used by the Honble Supreme Court in the case of Suchitra Components Ltd. Their Lordships held that an oppressive circular should be given only prospective effect and that the benefit of a previous beneficial circular must be given to the assessee. It appears, this ruling of the apex court is squarely applicable to the present case. The old circulars cited by the counsel, although relating to other taxable services, disclose the fact that the department did not want to levy service tax from a sub-contractor of taxable service where service tax on such service was levied from the main contractor. Therefore, we have found merit in the contention that the assessee should not be asked to pay service tax if they can prove that the main contractor (M/s. Punj Lloyd Ltd.) paid service tax on the same service for the same period. We are of the view that, for this purpose, the assessee should be given an opportunity.
9. Accordingly, the demand of service tax and the associated penalties in relation to the service rendered by the appellant as sub-contractor to M/s. Punj Lloyd Ltd. (main contractor) during the period 1.3.2006 to 31.12.2006 are set aside and the case is remanded to the adjudicating authority for fresh adjudication in accordance with law after giving the assessee a reasonable opportunity of adducing evidence and of being personally heard. If it is found that the main contractor paid service tax on the same service for the same period, there would be no tax liability for the assessee (sub-contractor). On the other hand, if the assessee fails to prove payment of service tax by the main contractor, the former would be liable to pay service tax on the service for the period of dispute in accordance with law. In this event, however, their claim for abatement under Notification 1/2006 ST dated 1.3.2006 should be considered. It goes without saying that the assessee should be given a reasonable opportunity of being heard on this aspect also.
10. We have already decided on the issue pertaining to the assessees transaction with NTPC. Accordingly, the demand of service tax and the connected penalties will stand set aside with consequential relief as per law.
11. The appeal is disposed of in the above terms.
(Dictated in Court) (A.K. Srivastava) (P.G. Chacko) Member (Technical) Member (Judicial) SR 16