Custom, Excise & Service Tax Tribunal
Ce & Cgst Lucknow vs Tiranga Construction Co on 27 February, 2024
CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL
ALLAHABAD
REGIONAL BENCH - COURT NO.I
Service Tax Appeal No.50883 of 2015
With
Service Tax Cross Application No.51145 of 2015
(Arising out of Order-in-Original No.26/Commissioner/LKO/ST/2014-15 dated
17/11/2014 passed by Commissioner of Central Excise & Service Tax,
Lucknow)
Commissioner of Central Excise, Lucknow .....Appellant
(7-A, Ashoka Marg, Lucknow)
VERSUS
M/s Tiranga Construction Co., ....Respondent
(4/9 Vibhav Khand, Gomti Nagar, Lucknow)
APPEARANCE:
Shri Manish Raj, Authorised Representative for the Appellant
Shri Dharmendra Kumar, Chartered Accountant for the Respondent
CORAM: HON'BLE MR. P.K. CHOUDHARY, MEMBER (JUDICIAL)
HON'BLE MR. SANJIV SRIVASTAVA, MEMBER (TECHNICAL)
FINAL ORDER NO.70091/2024
DATE OF HEARING : 02 November, 2023
DATE OF PRONOUNCEMENT : 27 February, 2024
SANJIV SRIVASTAVA:
This appeal is filed by the revenue against Order-in-
Original No.26/Commissioner/LKO/ST/2014-15 dated
17/11/2014 passed by Commissioner of Central Excise & Service
Tax, Lucknow. By the impugned order, Commissioner has held
as follows:-
ORDER
1.1 confirm the demand of Rs. 165545/-(Rs one lack sixty- five thousand five hundred forty five only) under proviso to section 73 (1) of the Finance Act, 1994 along-with interest u/sec 75 of the Act for violation of section 68 read-with Rule 6 of the Rules and the rest of the demand, proposed Service Tax Appeal No.50883 of 2015 2 With Service Tax Cross Application No.51145 of 2015 in SCN, is dropped as per detailed discussion of this order in preceeding paras.
2. I impose penalty of Rs. 165545/- (Rs one lack sixty-five thousand five hundred forty five only) under section 78 of the Act.
3. I impose penalty of Rs.5000 under section 77(1)(c) (i) of Finance Act 1994."
2.1 On an intelligence, investigations were undertaken against the respondent. As a result of investigation undertaken it was observed that during the period 2006-07 to 2010-11, respondent has received total amount of Rs.40,69,91,803/- against the services rendered to their client and paid service tax only to the tune of Rs.46,24,915/- instead of Rs.4,85,79,942/- which is short by Rs.4,39,55,027/-. The details of such computation are as indicated in the table bellow:-
Sl. Period Taxable Sundry Next Gross Valuee on Rate Service Serivce Service No value as Debtors taxable Receipt which of Tax Tax Tax per Deductibl value as as per ST- service Servic payable paid short Financial e value per 3 return tax to be e Tax paid as Records Financial calculate per record d Financial records 1 2 3 4 5 6 7 8 9 10 11 1 2006-07 128874166 128874166 128874166 12.24% 15774198 15774198 2 2007-08 151341871 151341871 5517404 151341871 12.36% 18705855 116614 18589241 3 2008-09 73398869 22817094 50581775 42817789 50581775 12.36% 6251907 1721979 4529928 4 2009-10 59628583 59628583 62799261 62799261 10.30% 6468324 2292837 4175487 5 2010-11 7233692 7233692 13394730 13394730 10.30% 1379658 493485 886172 420477181 22817094 397360087 124529184 406991803 48579942 4624915 43955077 2.2 Show cause notice dated 20 April, 2012 was issued to the respondent, asking them to show cause as to why-
a. An amount of Rs.4,39,55,027/- (Rs. Four Crore Thirty Nine Lacs Fifty Five Thousand twenty seven only) being. service Tax, Education cess and Secondary & higher Education cess short paid during the period from 01.1,0.2006 to 31.03.2011 should not be demanded and recovered form them under proviso to sub Section 1 of Section 73 of the Finance Act 1994 and Interest on this amount under section Service Tax Appeal No.50883 of 2015 3 With Service Tax Cross Application No.51145 of 2015 75 of the Finance Act 1994 should not be recovered/demanded form them.
b. Penalty should not be imposed on them under section 76 of the Finance Ari 1994 for non payment of Service Tax.
C. Penalty should not be imposed on them under section 78 of the Finance Act, 1994 for suppression of taxable value with intention to evade payment of Service tax.
d. Penalty should not be imposed on them under section 77(1)(a)of the Finance Act 1994 for non registration of service provided for the period of 370 days. (non registration from 01/1012006 to 05/10/2007) e. Penalty should not be imposed on them under section 77(1)(c)(iii) for non- compliance/ dishonouring the Summons issued to them.
f. Late fee should not be recovered from the imposed on them under Rule 7C of Service Tax Rules, 1994 read with section 70 of the Finance Act 1994 for not furnishing of ST-3 returns as prescribed under the Service Tax Laws."
2.3 This show cause notice has been adjudicated as per the impugned order referred in para-1 above. Aggrieved by the impugned order, revenue has filed the present appeal, after taking authorization by the Committee of Chief Commissioners, on the following grounds:-
4.1 Taking into consideration the documents issued by Lucknow Development Authority (viz. Work Order, Form-
16A, Ledger Copy of LDA & Details of Trade Tax / VAT deducted by LDA) and submitted by the party with their defence submission and in the light of judgments pronounced by Courts/CESTAT { Indian Hume Pipe Co. Ltd. v CCE, Trichy 2008 (12) STR 363 (Tri-Chennai) & Nagarjuna Constructions v CCE, Hyderabad 2010 (19) STR Service Tax Appeal No.50883 of 2015 4 With Service Tax Cross Application No.51145 of 2015 259 (Tri-Bang.)) and Board Circular No.80/10/2004, dated 17.09.2004, the Adjudicating Authority has concluded that it is established beyond doubt that party was engaged in construction of drains, construction of footpath and boundary wall on Raibareli maidan, etc which are in the nature of civic amenities and are outside the scope of 'Commercial or industrial construction service' and hence, not liable for service tax.
4.2 The party had submitted some of the Work orders and the same are barely legible photocopies of attested copies and are detailed as under:-
S. File Description Estimated Date of Date of No No./Date Cost Starting completio . of work n of work
1. 55/AA-II/06- शारदा नगर योजना के 39,97,300/- 27.01.2007 26.06.2007 07 dt. व्यावसाययक ऩॉकेट में 03.01.2007 ममटटी भराई का कायय
2. 08/AA- गोमती नगर योजना पेज- 8,06,221/- 12.05.2007 11.09.2007 11/07-08 dt. २ के अंतगयत ववकल्ऩ खंड 03.01.2007 स्थथत रे ऱवे कॉऱोनी के ककनारे जोनऱ रोड ऩर नाऱे का यनमायण कायय
3. 632/08/07 शारदा नगर योजना रतन 39,97,224/-
dt. खंड में प्राइमरी थकूऱ।
24.01.2007 इन्टर कॉऱेज तथा
सुववधाोोों की भूमम ऩर
ममटटी भराई
4. 338A/AAZ- गोमती नगर ववथतार 1,99,05,107/- 03.03.2009 03.09.2009
3/09 dt. योजना में प्रवेश द्वार ऩर
21.03.2009 हसररया नाऱा का यनमायण
कायय
4.3 It may be pointed out that Lucknow Development Authority is mainly engaged in development of residential colonies and commercial areas and also construction in this regard, which involve acquiring the land, building basic infrastructure and adding further amenities like drainage, sewerage, roads, parks etc. and also construction activities, which are not done as isolated tasks but as an ancillary and indispensible part of any new area developed by them, cost of which is ultimately charged in the name of development fees etc., from their ultimate consumers.
4.4 In the instant case, it is evident from the description of the work orders as enumerated above, that the services provided by the party are not isolated activities for Service Tax Appeal No.50883 of 2015 5 With Service Tax Cross Application No.51145 of 2015 providing civil amenities with no commercial attributes, but instead are in respect of areas being developed by Lucknow Development Authority for commercial purposes.
4.5 Accordingly, the Adjudicating Authority has erred by way of treating the services provided to Lucknow Development Authority as not being Commercial and dropping the demand of Service Tax perfaining thereto.
4.6 The Adjudicating Authority has re-assessed the tax liability on the amount received by the party during financial year 2006-07 & 2007-08 from Rs 12,88,74,166 to Rs nil for FY 2006-7 & from Rs 15,13,41,871 to Rs 64,06,348/-) for the financial year 2007-08, taking into consideration the Party's contention whereby they have challenged the Profit & Loss accounts of F.Y. 2006-07 and 2007-08, on the basis of, which demand has been calculated and claimed that they have not provided any services related to 'Commercial or industrial construction service' during financial year 2006-07 and were not in possession of financial record i.e. audited balance sheet or profit and loss account.
4.7 The Adjudicating Authority also took into consideration, the affidavit dated 05.11.2014 submitted by the party, deposing that No work was executed by M/s Tiranga Construction during the financial year 2006-07 and submitted for not considering the unaudited documents such as Balance Sheet and Profit & Loss accountant signed by chartered accountant other than his auditors such as M/s Y Gupta & Co. and M/s Dharmendra Kumar & Co., for calculation of service tax, 4.8 It may be pointed out that the party submitted affidavit dated 05.11.2014, wherein they deposed that Tiranga Construction Co. did not execute any taxable work during F.Y. 2006-07, while the party themselves submitted Work Order File No. 55/AA-II/06-07 dt. 03.01.2007 (ref.
S.No. I issued by Lucknow Development Authority, wherein they were granted the contract with Date of Service Tax Appeal No.50883 of 2015 6 With Service Tax Cross Application No.51145 of 2015 starting the work being 27.01.2007 and Date of completion of work being 26.06.20071.c. starting in F.Y. 2006-07). Thus, the party's submission that M/s Tiranga Construction Co. has not executed any taxable work during F.Y. 2006- 07 does not appear to be a factual statement.
4.9 Further, vide the said affidavit, the party themselves have admitted that they got financial statements prepared from a Chartered Accountant other than his auditors such M/s Y. Gupta & Co. and M/s Dharmendra Kumar & Co., Chartered accountant, for the purpose of seeking bank credit only and that financial statement prepared for the purpose of seeking bank credit for the period under dispute is not correct financial statement. The turnover, net profit etc. were shown in the in aforesaid financial statements are not the actual financial results and is not audited, whereas, these statements are simply prepared for the purpose of getting bank credit.
4.10 Thus, while the party has not disputed the existence of the P.L. A/c statements for 2006-07 and 2007-08 which were relied upon by the Department at the time of raising demand and instead had audacity to admit that separate set of Profit and Loss Account were got prepared (fabricated) for the purpose of seeking bank Credit."
3.1 We have heard Shri Manish Raj, learned Authorised Representative appearing for the appellant-revenue and Shri Dharmendra Kumar learned Chartered Accountant appearing the respondent-assessee.
3.2 Arguing for the revenue learned Authorised Representative reiterates the grounds taken in the appeal filed and submits that Commissioner has relied upon the documents which were subsequently granted the relief to respondent without causing proper verification of the said documents. 3.3 Arguing for the respondent learned Chartered Accountant submits that-
Respondent had fully cooperated with the revenue during the investigation.
Service Tax Appeal No.50883 of 2015 7 With Service Tax Cross Application No.51145 of 2015 All documents that they were presented before the investigating authorities evidencing from various correspondences. By referring to letter dated 27.12.2012 he submits that respondent has challenged the allegation of non-cooperation and by referring to all the earlier correspondences submits that the charge of non- cooperation is infact illegal and without any rule.
Adjudicating Authority has passed detailed speaking order considering various evidences and after verification from records, income tax returns, ST-3 returns, VAT returns, audit reports, bank entries, customers authentication including government records and statements.
Respondent had filed as many as 14 submissions before the Department, apart from 14 personal appearance, he produced various documents including Income Tax, Service Tax Returns and VAT returns department and repeatedly submitted that service tax calculated and imposed in show cause notice was incorrect and baseless.
Show cause notice was time barred. Sundry debtor includes sales, service, deductions, earnest money, security deposit etc. the decrease or increase in the amount of taxable value is not solely results in the amount received against taxable value of service for the financial year 2008-09 to 2010-11 is incorrect, illegal and unjustified.
Adjudicating Authority has imposed penalty under Section 78 without appreciating the fact. Respondent has relied upon the decision of Courts and Tribunals, filed ST-3 returns and paid entire service tax liability much before issuance of SCN.
4.1 We have considered the impugned orders along with the submissions made in appeal and during the course of argument.
4.2 Impugned order records as follows:-
"15. The following broad issues, in order to decide upon the charges leveled in the SCN, merit consideration:
Service Tax Appeal No.50883 of 2015 8 With Service Tax Cross Application No.51145 of 2015 i. Whether he nature of service provided by party falls under category of works contract and is chargeable to service tax from 0 1-06-2007 or not ii. Whether Services provided to LD.A related to civic amenities and infrastructure work are not taxable iii. Whether the amount considered by revenue for computation of lax is incorrect.
iv. Whether party was eligible for abatement on gross receipt reccived by them against nature of services provided by them v. Whether Service tax was leviable on receipt basis and therefore no tax can be demanded on outstanding debtors, vi. Whether Extended period of limitation is not invokable vii. Whether miscellaneous Penalties are imposable upon party In support of their contentions,. they have relied upon/quoted different documents/financial records/Returns/case laws and placed it on records which have already been summarized here- in-before I deal with the above submissions of the party vis.-a - vis. charges made out in the SCN and evidences adduced in the SCN, point wise one by one 16 . On the first issue party has submitted that Execution of work contract services came into service-tax net since 01-06- 2007.The services provided by them were work contract in nature. In aforesaid contract work, party has to consume material and provide labour to complete the work.
The work contract services came into service-tax net since 01- 06-2007. As per the definition of "work contract" within the meaning of section 65(105)(zzzza) of Finance Act, 1994. two main ingredient are:-
Transfer of property in goods involved ;In the execution of such contrast is leviable to tax as sale of goods, and Such contract is for the purpose of carrying out of work as mentioned in (a) to
(e) of Explanation of section of Finance Act, 1994.
Service Tax Appeal No.50883 of 2015 9 With Service Tax Cross Application No.51145 of 2015 Party further added that they satisfied the aforesaid two essential features as mentioned above, i.e., there was transfer of property in goods involved in the execution of his contract with its customers and the contract was for carrying out the work fell in (a) to (c) of Explanation of section 65(105)(zzzza) of Finance Act, 1994. And "levy of service tax on „work contract‟ came into effect from 01-06-2007 and no service tax liability arose prior to that period under any other category of service, does not arise, at the same time the services provided works contract is chargeable to service tax from 01-06-2007, accordingly, receipts/income in respect of period prior to 01.06.2007 are outside the scope of Finance Act, 1994.The party has also relied upon some case laws on this issue
17. On this issue, - am of the opinion that there levy of service tax on the was commercial or industrial construction under a separate category of taxable services prior to 01.06.2007 and the issue raised by the party has been dealt in detail by the Government in its Master Circular No. 96/7/2007, dated 23.08.2007, as amended by Circular No. 98/1/2008-ST, dated 04.01.2008. the relevant portion of said circular says that a service provider who paid service tax prior to 01.06.2007 for the taxable service, namely, erection, commissioning or installation service, commercial or industrial construction service or construction of complex service, as the case may be, is not entitled to change the classification of the single composite service for the purpose of payment of service tax on or after 01.06.2007 and hence, is mot entitled to avail the Composition Scheme, which means that the services provided by party was taxable under a separate category of taxable services i.e. commercial or industrial construction service
18. Further ,board has clarified this issue again vide Circular No. 123/10/2010-ST Dated 24/8/2010, the relevant para of said circular is as under-
"Subject: Service tax on on-going works contracts entered into prior to 01.06.2007 - regarding -
Service Tax Appeal No.50883 of 2015 10 With Service Tax Cross Application No.51145 of 2015 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 Contract (Composition Scheme for payment of Service Tax) Rules, 2007 under Notification No. 32/2007-ST 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 activity more specifically and, therefore, as per the provisions of section65A 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) Service Tax Appeal No.50883 of 2015 11 With Service Tax Cross Application No.51145 of 2015 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 from01.06.2007, such contracts would be eligible for opting of the composition scheme."
19. From above circular, board has again reiterated that the services namely, erection, commissioning or installation service, commercial or industrial construction service or construction of complex service, service was classified under the respective taxable service prior to 01.06.2007. The new entry of service „Works Contract‟ service was made to describe the nature of the activity more specifically but prior to that service was classified under respective entries.
Further on the scrutiny of records i.e. Form ST-3 and registration certificate, It is on the record that party was registered with the department only for providing " Commercial and Industrial Construction" services till 05.122010 and were availing the benefit of notification 1/2006 dated till 05. 10.2010. They have applied for amendment in their registration certificate for providing "Work Contract Services" only on 05.10.20 were as the option to opt of such service was available with the party from 01.06.2007 Hence party‟s claim for classification of their services in category of "Works Contract Service" and leviability of service tax from 01.06.2007 is not tenable in light of board‟s circular as well as facts on, record and in result of that the service provided by the party was liable to service tax prior to 01.06.2007 under category of "Commercial or Industrial Construction`
20. On second issue party has contended that during relevant period party had also executed certain contract works for Lucknow Development Authority which is an organisation of Uttar Pradesh Government, who are responsible for certain civic amenities such as construction and maintenance of park, drain etc. Aforesaid work of LDA are not commercial in nature, therefore, contract work undertaken by them in respect of Service Tax Appeal No.50883 of 2015 12 With Service Tax Cross Application No.51145 of 2015 aforesaid works are not taxable within the meaning of Finance Act, 1994. Party has made reliance on following case laws In case of The Indian Hume Pipe Co. Ltd v.CCE [2008] TIOL 1689 (CESTAT-MAD), it was held that water supply project is an infrastructure facility and a civic amenity that a State provides in public interest and not an activity of commerce or industry.
21. I have examined the contention of party as well as the following documents submitted by the party in their support evidencing construction of drainage work, park development etc, issued by Lucknow Development Authority for the disputed period
a) Work-order
b) Form-16A
c) Ledger copy of LDA
d) Details of Trade Tax/VAT deducted by LDA From above documents, it is established beyond doubt that party was engaged in construction of drains, construction of footpath and boundary wall on Raibareli maidan, etc for the LDA. It is a fact on record that Lucknow Development Authority is a organisation of Uttar Pradesh Government, who is responsible, inter-alia, for development of certain civic amenities in Lucknow city.
22. Now the limited issue has to be decided that whether the above referred services provided by the party to L.D.A. would fall under category of "commercial and industrial construction services" and would be liable for service tax.
On this issue, I am of opinion that, as per definition of "Commercial or industrial construction" service tax is to be levied on construction or repair of building or civil structure primarily used/occupied/engaged for commerce or industry, excluding road, airport, railway, transport terminal, bridge, tunnel and dam. The words "commerce or industry" have not been defined; therefore, it has to be understood in the context of its commonly understood meaning and scope.
Service Tax Appeal No.50883 of 2015 13 With Service Tax Cross Application No.51145 of 2015 In short, the construction of a new building is taxable when it is used only for the purpose of commerce or industry. Therefore, constructions of buildings which are not used for the purpose of commerce or industry are not taxable.
Thus, the leviability of service tax would depend primarily upon whether the building or civil structure is "used, or to be used" for commerce or industry. The Government in its Circular/ letter F. No B2/8/2004-TRU, dated 10th September 2004; Circular No.80/10/2004. dated 17.09.2004 has clarified that the information about this has to be gathered from the approved plan of the building or civil construction. Such constructions which are for the use of organizations or institutions being established solely for educational, religious, charitable, health, sanitation or philanthropic purposes and not for the purposes of profit are not taxable, being non-commercial in nature. Generally, government buildings or civil constructions are used for residential, office purposes or for providing civic amenities. Thus, normally government constructions would mot be taxable. However, if such constructions are for commercial purposes like local government bodies getting shops constructed for letting them out. such activity would be commercial and builders would be subjected to service tax.
23. The tribunal in the case of the Indian Hume Pipe Co. Ltd. v CCE Trichy 2008 TIOL-1689-CESTAT-MAD. : 2008 (12) STr 363 (Tri.- Chennai) held that water supply project is an infrastructure facility and a civic amenity that a State provides in public interest and not an activity of commerce and industry In the case of Nagarjuna Constructions v CCE, Hyderabad 2010 (19) STR 259 (Tri Bang.): 2010-TIOL-789-CESTAT-BANG, the Appellant undertook the activity of laying of pipeline system for GWSSB for supplying of drinking water to Gram Panchayat. The Department demanded the tax under the commercial or industrial construction services. The Tribunal held that the said activity does not fall within the expression "industry" used in the definition of taxable service as the water is supplied at a highly subsidized rate, therefore, no tax liability arises. The Tribunal in Service Tax Appeal No.50883 of 2015 14 With Service Tax Cross Application No.51145 of 2015 the case of Dinesh Chandra Agarwal Infracon Pvt. Ltd. v CCE, Ahmedabad 2011 (21) STR 41 (Tri.-AHmd.): 2010-TIOL-1413- CESTAT-AHM following the ratio in Nagarjuna Construction case (supra) held that laying of pipeline for supply of water and sewerage is not taxable, as the second limb of commercial or industrial construction service do not stand satisfied. The ratio of this case is followed in the case of Larsen & Toubro Ltd. v CST, Ahmedabad 2011-TIOL-218-CESTAT-AHM.
In the light of judgments pronounced by Courts/CESTAT and board circular construction which are in the nature of civic amenities outside the scope of "Commercial or industrial construction service and not liable for service tax. In the instant case also party has made construction of civic amenities for Lucknow Development Authority, a government organization and these services provided by the party to L.D.A. would not fall under category of commercial and industrial services and therefore would not be liable for service tax
24. The party in their written submission has submitted that during relevant period total Billing in respect of Civic Amenities of the work of LDA and Billing against sales was Rs1,78,50,289/- and this amount is not liable for service tax and should be deducted from gross receipt. In their support party has submitted certain documents related to service provided to L.D.A I have examined the documents submitted by the party and observed that finance controller of L.D.A has given a certificate to the party that they had provided services related to civic amenities i.e. construction of drain, nala and footpath, of Rs 1522584 in the financial year 2008-9 & of Rs 11407187 in the financial year 2009-10. The party has failed to produce any other documents in their support to prove that other than the said amounts is related-with construction of civic amenities for L.D.A. it is worth mentioning here that LDA is engaged 1n providing some basic amenities as well as also engaged in some commercial venture in Lucknow city, Thus the party is only eligible to get benfit of said amount i.e. Rs 1522584 in financial Service Tax Appeal No.50883 of 2015 15 With Service Tax Cross Application No.51145 of 2015 year 2008-9. & Rs 11407187 in financial yea 2009-10 received by them against providing services related to civic amenities and they are not liable to pay service tax on said amount in corresponding financial years.
25. On the third issue, I have to examine that whether the amount considered by revenue for computation of tax is correct or not. The party has strongly contended that there is a huge difference in actual billing of party and amount calculated in S.C.N. Observations of party against the aforesaid allegation are as under:-
i. The party has not provided any taxable services in financial year 2006-7 ii. Total amount considered by revenue against service rendered by party as aforesaid is incorrect. iii. The basis of calculation of alleged total amount received by assessee is not stated in SCN.
iv. There is a huge difference in actual billing of assessee and amount calculated by the Department:
26 have examined the contention of party vis. a vis. as calculation chart of S.C.N, in calculation chart, the following documents were relied upon by the Revenue to determine the taxable value for computing tax liability Period Taxable value taken in S.C.N. Documents relied upon by revenue 2006-07 Rs. 12,88,74,166/- Profit & Loss account (3 pages) 2007-08 Rs.15,13,41,871/- Profit & Loss account (3 pages) 2008-09 Rs 73398869 Audited Balance Sheet (19 pages) 2009-10 Rs 59628583 Audited Balance Sheet (19 pages) 2010-11 Rs 7233692 Audited Balance Sheet (19 pages)
27. Mainly the party has challenged the Profit & Loss accounts of F.Y2006-7 and 2007-8, on the basis of, which demand has been calculated. The submission of the party is that they have not provided any services related to "Commercial or industrial construction service" during financial year 2006-7 and therefore were not in possession of financial record i.e. audited balance Service Tax Appeal No.50883 of 2015 16 With Service Tax Cross Application No.51145 of 2015 sheet or profit and loss account, in this regard they have also submitted an affidavit to this effect in continuation of their earlier submissions dated 14-05-2012, 06-06-2012, 13-03-2014, 20-03-2014 and 03-04-2014,deposing that No work was executed by M/s Tiranga Construction during the financial year 2006 07.
Further party has submitted for not considering the unaudited documents such as Balance Sheet and Profit & Loss accountant signed by chartered accountant other than his auditors such as M/s Y Gupta & Co. and M/s Dharmendra Kumar & Co., for calculation of service tax.
Party have also added that when they have submitted the audited Balance sheet for the financial year 2007-08 during investigation, why the correct amount shown in said balance sheet i.e. Rs 64,06,348/- was not considered and on what ground and on the basis of which records, not known to the party, Rs 15,13,41,871/- has been taken for calculation of tax liability
28. As the figure shown against financial year 2006-7 & 2007-8 in calculation chart of S.C.N. has been disputed by the party, to determine the actual receipt by the party during șaid financial year, a correspondence was made to jurisdictional Assistant Commissioner, who investigated the case vide this office letter dated 28.10.14, seeking clarification on the following points -
i. If the party had submitted the audited balance sheet for the financial year 2007-08 during investigation, why the amount shown in audited balance sheet was not relied upon. A copy of audited balance sheet for the financial year 2007-08 was called for.
ii. If there was any discrepancy in profit & loss account and in balance sheet, whether any clarification in this regard was sought from the party / any authorized representative. iii. RUD 26 of SCN is balance sheet of the party for the year 2009-10. In annexure I to 3 CB of the balance sheet the gross turnover for the preceding year i.e.2008-09 has Service Tax Appeal No.50883 of 2015 17 With Service Tax Cross Application No.51145 of 2015 been shown as Rs. 6,40,4359/ why this amount was not taken into consideration while computing the tax liability iv. Whether during investigation any effort was made from third party‟s record to substantiate that party had actually received Rs. 12,88,74,166 & Rs 15,13,41,871/- against services provided by them during the financial year 2006- 07 & 2007-08 In reply of letter, the divisional officer have submitted their reply vide their letter dated 11.11.2014 that Parawise reply of above queries are as follows;
Para-(i). Balance sheet and profit & loss account for the year 2006-07 and 2007. 08, which have made RUD in SCN were signed by the party and prepared by M/s U Singh and Co., charted Accountants. Gross receipts of Rs. 12,88,74,166/ in 2006-07 and Rs.15,13,41,871/- in 2007-08 were shown in these profit & loss account of the party. Also during the scrutiny of records it was found that the party had submitted the Audited Balance sheet and profit & loss account for the year 2007-08 (Copy enclosed).In the said balance sheet the turnover of financial year is shown Rs 6406348 Para-(ii). No such records or communication available, in the file Para-(iii). Since the figures in P/L Account had been taken on the basis of documents as mentioned in Para-1. The figures in respect of the year 2007-08 as in annexure-1 to 3CB of the Balance Sheet had not been taken.
Para-(iv). No such records or communication available in the file Now I proceed to examine and evaluate the alleged figures of gross receipts of the 29. party for financial year 2006-07 and 2007-08 For FY 2006-07- The party has filed before undersigned the acknowledgement receipt of I.T.R filed for the assessment year 2007-08, pertaining to financial year 2006-7 , of Shri Vinod Kumar Rai, proprietor of the party, having PAN-no ADQPR 8553C, on the same PAN No. Service Tax Appeal No.50883 of 2015 18 With Service Tax Cross Application No.51145 of 2015 service tax registration no. of the party has been provided. Needless to say that income tax return on that particular PAN No. related to Shri Vinod Kumar Rai, reflects the details of all the transaction in his individual capacity and by the firms owned or having relation with him as a stake holder. The party has also filed an affidavit swearing there that M/s Tiranga construction (Party) has not executed any taxable work during financial year 2006-7.
For the financial year 2006-07 as wherein gross total income of Shri Vinod Kumar Rai has been shown as Rs. 12,26,222/- and this income has been shown only for M/s Tiranga Vigyapan Agency, (another firm of Shri Vinod Rai disclosed by Shri Santosh Kumar Rai to the department in his statement dated 27.09.2010). This amount is also verifiable from audited balance sheet of M/s Tiranga Vigyapan Agency, which proves that income of Shri Vinod Kumar Rai, proprietor of party was only from one firm i.e M/e Tiranga Vigapan Agency, which implies that the company Namely M/s Tiranga constructions was not in operation during financial year 2006-07. Thus the amount of Rs. 128874166/ shown in calculation chart of S.C.N as receipt in financial year 2006-07 is not corroborated by documentary evidences, Whereas party has succeeded to prove by credible documentary evidences (balance sheet of M/s Tiranga Vigyapan Agency & income tax return of Shri Vinod Kumar Rai , proprietor of party) that Ms Tiranga constructions was not operational in financial year 2006-07 Similarly for the financial year 2007-08 the income tax return filed by Shri Vinod Kumar Rai, shown gross total income of Rs. 19,49,926/- earned by him from the said two firms namely M/s Tiranga Vigapan Agency and M/s Tiranga constructions. Thus it again shows that M/s Tiranga constructions came in to operation only from Financial Year 2007-08 For FY 2007-08 Here is a situation where two amounts for FY 2007-8 (one amount i.e. from profit & Loss account, relied upon by revenue, which has been challenged by the party and another is from Service Tax Appeal No.50883 of 2015 19 With Service Tax Cross Application No.51145 of 2015 Audited Balance Sheet, submitted by the party during investigation) are available. Now the issue has to be determined that out of two amounts, which ate acceptable as per law.
Thus-on the one hand there is a figure reflected in Profit and Loss Account relied upon by the Department, as such, and it cannot be faulted with as long as its credibility is beyond doubt. The party having produced an audited balance sheet have pleaded that figures reflected in the Audited Balance sheet be taken as correct figure. As an Adjudicating Authority I have no option but to appreciate the evidences placed on record in its totality, relevance and authenticity as occasion is not ripe for me for going to circumstances of conflicting figures which should have been addressed , if at all during investigation. At this stage, I am constrained to evaluate the figures with reference to source and its authenticity. The figures relied upon by the department comes from pages of what has been termed as Profit Loss account which are three pages in total and do not carry any sign of being a part of audited balance sheet while the party has produced complete audited balance sheet conducted by Y Gupta & Co with preamble and all parts i.e. annexures and enclosure for the financial year 2007-08. The three pages of Profit and Loss Account relied upon by the department bears the name of the Chartered accountant as U singh & co: Chartered accountant. I am at a loss to understand as to why the Investigation did not make any efforts to trace the complete Balance Sheet and the Chartered Accountant to set at rest any doubt about its credibility .Now a complete, balance sheet is before me which was submitted by the party during investigation. The investigation overlooked and ignored this contradiction and did not strive for clarity Rather, a higher figure, though unsubstantiated was relied upon without any rational On the other hand, the amount which is being authenticated by chartered accountant in Audited balance sheet appears to be more genuine documents as the balance sheet is a statutory documents filed under the Company‟s Act which is also audited Service Tax Appeal No.50883 of 2015 20 With Service Tax Cross Application No.51145 of 2015 before authentication made by a qualified chartered accountant. Which is a credible document as well as accepted as per law, until and unless the audited balance sheet is challenged otherwise on the basis of documentary evidences, which is not the case of revenue. On this issue party has requested for not considering the unaudited documents such as Balance Sheet and Profit & Loss accountant signed by chartered accountant other than his auditors such as M/s Y Gupta & Co. and M/s Dharmendra Kumar & Co., for calculation of service tax.
Thus for the FY 2007-08 I find that it would be in the fitness of things if the figures reflected in the audited balance sheet of the FY 2007-08 as Rs 64,06,348/ be taken as authentic figure representing the gross receipts of the firm a account or the works undertaken by it , instead of Rs 151341871/- as adduced by the department as, the later fails the test of authenticity and relevance, as discussed here-in-before.
Secondly, when the Authorized representative of the party given written submission and appeared 8 times before investigating officer from 4.10.10 to 27.02,12 during investigation, clarifications should have been sought from them on this issue. Apart from it, Revenue should have tried to authenticate their claim and tried to substantiate the actual receipt of the party for disputed period for collecting the evidence from third party records i.e. income tax return of the party, bank statement of party verification at the end of service recipient & such type of attempts have not been done by the Revenue during investigation which is proved by the divisional letter dt 11.11.2014. It is settled law that onus is on the revenue to prove their allegation in S.C.N on the basis of concrete material evidences. Investigation is expected to use every instruments of law to collect evidences on the basis of which a charge is to be made. Unability to do so results in supplanting of clear evidences with unsubstantiated inferences and wild conjectures, which apparently howsoever grave, fail to lend credence to allegation. It1s seen that the entire allegation of S.C.N. for the financial year 2007-8 is based upon the figures as reflected in profit and Service Tax Appeal No.50883 of 2015 21 With Service Tax Cross Application No.51145 of 2015 loss account which is challenged by the party on the basis of genuine authenticated documents. There is neither any statement of any authorized person of the party to show that what was actual receipt of the party during disputed period i.e. 2006-7 &2007-8, nor there is any other independent evidence on record to corroborate the charge of actual receipt shown in profit and loss account relied upon by the Revenue. It does not need the help of any authority to say that such a serious allegation of tax evasion is required to be established by the Revenue by production of satisfactory or positive evidence and not on the basis of assumption and presumption.
Under such circumstance, 1 am left with no option but to accept the claim of party which is based on Audited balance sheet as well as supported by third party‟s documents i.e. income tax return of the proprietor of the firm Now therefore, the tax liability on the amount received by the party during financial year 2006-7 &2007-8 undergoes a charge from Rs 12,88,74,166 to Rs nil ( The party was not operational ) for FY 2006-7 & from Rs 15,13,41,871 to Rs 64,06,348/- (Amount shown in audited balance sheet) for the financial year 2007-08.
30. Now Coming to issue of abatement- party has submitted that they are doing civil construction, which involves material and labour and No deduction/ abatement in respect of material used by them for providing service were granted to them. The party has filed the Balance Sheets along Profit &e Loss a/c and Annexures of fy.2007 -08,2008-09,2009 10 and 2010-11. On this issue in the S.C.N. It was alleged that a letter dated 10.02.2012 was written to the party that whether they have included the cost of material for determination of taxable value but neither party replied to the letter nor provided the documents, which could confirm the fulfillment of the condition for availing benefit of notification no 1/2006 and accordingly the benefit of said notification was denied.
31. In case of commercial or industrial construction, abatement of 67% of the gross amount has been provided by Service Tax Appeal No.50883 of 2015 22 With Service Tax Cross Application No.51145 of 2015 Notification No. 1/2006-ST dated 1.3.2006 , subject to one of the condition that cenvat credit on inputs, input services and capital goods is not availed. In other words, in case of commercial construction, the value of taxable services shall be limited to 33% of the gross amount charged.
Explanation- For the purpose of this notification(1/2006),the "gross amount charged" shall include the value of goods and material supplied provided or used by the provider of the commercial and industrial construction service for providing such service.
From above, it is quite clear that if party have fulfilled two condition i.e. has included the, cost of material consumed during construction in their gross amount and simultaneously have not availed Cenvat Credit on inputs, input services and capital goods, they are eligible for abatement of 67% on gross value charged under notification no 1/2006 dated 1.03.2006
32. Now, I examine that whether above two condition has been fulfilled in the instant case by the party or not.
To examine the first condition, I refer to the balance sheet of the party of the relevant years and the following facts are noticeable and is on the record, which are tabulated as under, Financial Total income from Total amount shown Total amount shown year work contract in expenditure account in expenditure shown in profit & of profit &loss account of profit loss account in account in balance &loss account in balance sheet ( in sheet against purchase balance sheet against Rs) of material.(in Rs) labour expenses.(in Rs) 2007-8 64,04.359 4,14,71,290 1,75,45,327 2008-9 40,03,035 1,94,04,455 67,69,143 2009-10 15,13,003 5,91,17,813 36.05,809 2010-11 7,33.98,869 4,09,42,007 16,40,533 From above , it is abundantly clear that party is clearly mentioning the labour expenses as well as cost of material consumed during commercial or industrial construction separately in their balance sheet in the financial year 2007-3 to Service Tax Appeal No.50883 of 2015 23 With Service Tax Cross Application No.51145 of 2015 2010-2011 Thus, from scrutiny of balance sheet it is proved beyond doubt that party has consumed material, while providing the services of commercial or industrial construction to their clients.
In addition of above party has also submitted their ledger account of work contact of the relevant period, which clearly shows that the party was discharging VAT liability against material purchased and consumed during execution of commercial or industrial Construction.
The party has also submitted the certificate of L.D.A, a government organization regarding trade-tax/ vat deducted on material consumed during construction by L.D.A at source from party. This certificate also strengthens the contention of party that they were providing the services to L.D.A, with material.
Further, Scrutiny of ST-3 return of the party of the relevant period, clearly reveals that party was mentioning in their return from very beginning that they would avail the benefit of notification no 1/2006 dated 1.03.2006.
Thus from balance sheet, ledger account of work contract of the party ,certificate issued by L.D.A to the party and ST-3 submitted by the party, it is proved beyond doubt that party had included the: cost of material consumed during construction in their gross amount.
As regards availment of Cenvat Credit on inputs, input services and capital goods, is concerned, it has not been alleged in the S.C.N. that party bas availed Cenvat Credit against the service provided by the party. However, it is also verifiable from ST-3 returns of the party that they had not availed cenvat credit on inputs, input services and capital goods during disputed period From above, it is proved that party had included the cost of material consumed during construction in their gross amount and have not availed Cenvat Credit on inputs, input services and capital goods, thus fulfilled the condition laid down under notification no 1/2006 dated 1.3.2006 and therefore are eligible for abatement of 67% on gross value charged by them for Service Tax Appeal No.50883 of 2015 24 With Service Tax Cross Application No.51145 of 2015 having substantially complied with the requisite conditions laid down vide the aforesaid Notification.
33. On the issue of Sundry Debtors the party have claimed that the tax is not demandable on the amount shown as sundry debtors in the balance sheet of 2009-10 & 2010-11. The amount of debtors is the amount yet to be realized from customers, Hence the said amount would be required to be excluded from the taxable value.
34. I have scrutinized the tax calculation chart vis. a vis. Amount of sundry debtors shown in balance sheet. It is on the record that the following amounts have been shown in Balance sheet against sundry debtors-
F.Y Amount as per Balance Sheet
2008-9 2,28,17,094
2009-10 1,02,37,656.58
2010-11 48,69,817.58
While computing the ax liability an amount of Rs. 2,28,17,094/- which was shown in sundry debtor account for the financial year 2008-09 has been deducted from total taxable amount. The amount of sundry debtors is on decline side from Rs 22,81,70.94 for the financial year 2008-09 to Rs. 10,237657 in financial year 2009 10,which proves that financial year 2009-10 party has realized Rs. 1,25,79,437(22817094-10237657) from outstanding sundry debtors account of 2008-9 in addition of, turnover shown in Balance sheet for the financial year 2009-10. Thus this amount should be included in gross amount to arrive at a correct realization figure and is liable for taxation. Similarly in financial year 2010-11 the amount of sundry debtor reduced to Rs, 48,69,818 form Rs. 1,02,37,657, which again proves that during financial year 2010-11 the party have realized Rs. 5$367839 in addition of receipt shown in Balance sheet for financial year 2010-11 and liable for service tax can conclude that the amount of sundry debtor, which was Re. In short, ( 2,28,17,094/- in financial year 2008-09 and has been excluded form total taxable amount and the amount of sundry debtors has been reduced to Service Tax Appeal No.50883 of 2015 25 With Service Tax Cross Application No.51145 of 2015 Rs 48,69,318 in next two financial year. This implies that party has received Rs. 1,79,47,276 in two financial year (2,28,17,094- .4869819/-)Rs. 12579437 in financial year 2009-10 and Rs 5367899 in financial year 201 1-11. Thus above two amounts which have been realized by party, is liable for service tax which was outstanding sundry debtor amount for previous year and have been realized in corresponding financial year. Therefore, the above sundry amount, which has been realized in subsequent years should be added in the gross turnover of respective years.
35. On the issue of extended period, I have gone through the allegations and contentions made by the department as well as the party for the invocation of extended period. The fact is on record that during the course of investigation the party made every effort to escape the investigation and submit clarifications whenever asked for. The ST-3 returns submitted by the party did not reflect the actual figures of gross receipt and lacked in material information. It was only when a raid was conducted and incrementing evidences were recovered, the investigation could proceed. Therefore, it is clearly established that the party has willfully suppressed all the material facts deliberately and intentionally in order to evade the payment of Service Tax. Hence, I find that this is a fit case under Section-73(1) of the Finance Act, 1994 for invocation of extended period of limitation.
TAX CALCULATION:
36. Now, 1 find that the amount on which demand has been raised in the instant case, needs to be revised to the extent of discussions and findings mentioned here in-above. Accordingly, the revised calculations have been done in following manner and are as under:
In receipt column of Profit and loss account, of balance sheet the party is showing, income from different sources i.e. income from contract work, income from sale of goods, income against services provided by them and miscellaneous receipt. The tax calculation on above referred activities as per law is as under
Service Tax Appeal No.50883 of 2015 26 With Service Tax Cross Application No.51145 of 2015
(a) Tax on receipt amount against contract work i.e. Commercial or Industrial construction service -service tax is applicable after providing the abatement of 67%
(b) Sale of goods- this amount would not liable for service tax rather it attracts trade tax
(c) Income from services, service tax is leviable on full amount.
(d) Miscellaneous income- service tax is not leviable, as per rule 6(1) of the service tax rules 1944, service tax is required to be paid only on the value of taxable services realized in a particular month, thus income from gross profit ,interest and other income do not fall under any category of service and not liable for service tax.
Bifurcation of miscellaneous heads in balance sheet is as under
Year Total Receipt Heads Rs Remarks Turnover 2006- NiL NiL Nil Party was not operational 07 2007- 6406348 A. Income from 6404359 S.T is leviable after 08 contract providing the abatement B.Interest 1990 S.T Not applicable as per Rule 6(1) of S.Tax rules 2008- 73398869 Income from 73398869 S.Tax leviable after 09 contract work providing the abatement 2009- 63577251 Sale of goods 3948668 Not leviable to S.Tax ,trade 10 tax is applicable Received from 591 S.Tax leviable after contract 17813 providing abatement Received from 510770 S. Tax leviable on whole Service amount 2010- 7324566 Sale of goods 489846 Service tax not applicable 11 ,Trade tax applicable Profit 90866 S. Tax Not leviable as per Rule 6(1) of the service tax rules 1944 Work Contract 6769143 S.Tax leviable after providing abatement Service Tax Appeal No.50883 of 2015 27 With Service Tax Cross Application No.51145 of 2015 Mis Receipt 305860 S Tax Not leviable as per Rule 6(1) of the service tax rules 1944 Received from 158690 S.Tax leviable on whole Service amount Small amount 7 S.Tax Not leviable as per write off Rule 6(1) of the service tax rules 1944 From above chart, it is clear that while computing the tax liability, lax has to be calculated on amount of construction services after providing abatement and on the amount of services provided by the party on full amount Calculation chart for construction services S Per Gross Adjustm Value Taxabl Net Taxabl Rate S Tax S Tax S N iod Value ent on of e taxabl e of S. paya Paid Tax o as per account servic Receip e Receip Tax ble Shor Balanc of e t Value t t e sundry provid after Paid Sheet debtors ed to provid LDA ing deduc abate tible ment from of Gross 67% Receip or on t 33% of the Gross amou nt 1 2 3 4 5 6=3+ 7 8 9 10 11 12 4-5 1 20 6404 00 0 6404 2113 2113 12. 258 1166 -
07- 14 1420
08 359 359 438 438 24 685 71
%
2 20 7339 - 1522 4905 1618 1618 12. 200 172 -
08-
09 8869 228170 584 9191 9533 9533 36 102 197 279
94 % 6 9 047
3 20 5911 +1257 1140 6029 1989 1989 10. 204 229 +24
09- 3578
10 7813 9437 7187 0063 5721 5721 3% 925 983
(on 9 7
accoun
t of
realiza
tion
during
f.y)
Service Tax Appeal No.50883 of 2015
28 With
Service Tax Cross Application No.51145 of 2015 4 20 67691 +5367 0 1213 4005 2299 10.3 4125 4934 +80 10- 43 % 36 85 949 11 839(on 6982 204 837 accoun t of realiza tion during f.y) 4721 4624 +96 506 915 591 Calculation chart for services provided by party SI. Period Taxable Rate of S.Tax S.Tax S.Tax short No Receipt S.Tax Payable Paid paid 1 2 3 4 5 6 7 1 2009- 510770 10.3% 52609 0 52609 10 2 2010- 158690 10.3% 16345 0 16345 11 68954 Thus from above two charts, it is clear that party has short paid service lax amounting to Rs 96591 on construction services and Rs 68954/ on the services provided by them. Thus total service tax short paid by party is amounting to Rs 165545 PENALTY:
37. The last issue is related to imposition of penalties under different sections i.e. 70 read-with rule 7C of Service Tax Rules 1994, 76, 77 (i) (a), 77 (i) (c) &78 of the Finance Act. I discuss the proposals of penalties section-wise:
i. As I have held that party has suppressed the fact with intention to evade payment of service tax, equal penalty under section 78 is also imposable. I therefore impose: penalty of Rs. 165545 under section 78 of Finance Act 1994 ii. The revenue has proposed penalty under sections 76 & 78 of the Finance Act for short payment or nonpayment of service tax. Since provision of imposition of penalty under section 76 & 78 is mutually exclusive, I do not impose penalty under section 76 Service Tax Appeal No.50883 of 2015 29 With Service Tax Cross Application No.51145 of 2015 iii. Penalty under section 77(1)(a) is proposed for not obtaining the registration from 01/10/2006 to 05/10/2007 under "Commercial or Industrial Construction" services. As It is proved on the record that party has not executed any taxable services in financial year 2006-7. Thus party was not required to take service tax registration. I therefore drop the penalty proposed under section 77(!X(a) of Finance Act 1994.
iv. Penalty under section 77 Section 77(1)(c)(ii) is proposed for for-party‟s failure to appear before the Central Excise Officers on summons dated 27.09-10, 14-01- 11, 31-03-11 & 31-10-11 (Total 4 Summons) to give evidence or to produce documents in the present case enquiry. This fact is on the record, I therefore impose penalty of Rs.5000 under section 77(1)(c) (iii) of Finance Act 1994for non compliance of summon issued to them.
v. Show cause notice alto proposes to demand late filing fee under Rule 7(c) of Service Tax Rules 1994 read with section 70(1) of Finance Act 1994 and for not filing of ST-3 returns.
As it is proved on the record that party has not executed any taxable services in financial year 2006-7. Thus party was neither required to take service tax registration nor supposed to file service tax returns during, the period. In later- period it is seen from scrutiny of ST-3 returns that whenever party have filed ST-3 return late than the stipulated time period, they have also deposited late fee amount of Rs 2000/- every time. I therefore drop the penalty proposed under-section section 70(1) of Finance Act 1994"
4.3 From the above observations of the reproduced from the impugned order it is evident that the demand has been confirmed against the respondent by treating the services provided by the respondent under the category of "Commercial and Industrial Construction Services" for the reasons stated in Service Tax Appeal No.50883 of 2015 30 With Service Tax Cross Application No.51145 of 2015 therein. The finding has been given after recording the fact that the services provided by the respondent were not services simpliciter but were along with supply of material and transfer of property in the material. Though having taken registration under the category of "Commercial and Industrial Construction Services", respondent had claimed before the adjudicating authority the classification of their services under the category "Works Contract Services". We find that the services provided by the respondent were correctly classifiable under the category of "Work Contract Services", and the respondent was eligible to claim the benefit of Composition Scheme as per Rule 2A of Service Tax Valuation Rules, 2007. In case of Larsen & Toubro Ltd. [2015 (39) S.T.R. 913 (S.C.)] Hon'ble Supreme Court has held as follows:
"17. We find that the assessees are correct in their submission that a works contract is a separate species of contract distinct from contracts for services simpliciter recognized by the world of commerce and law as such, and has to be taxed separately as such. In Gannon Dunkerley, 1959 SCR 379, this Court recognized works contracts as a separate species of contract as follows :-
"To avoid misconception, it must be stated that the above conclusion has reference to works contracts, which are entire and indivisible, as the contracts of the respondents have been held by the learned Judges of the Court below to be. The several forms which such kinds of contracts can assume are set out in Hudson on Building Contracts, at p.
165. It is possible that the parties might enter into distinct and separate contracts, one for the transfer of materials for money consideration, and the other for payment of remuneration for services and for work done. In such a case, there are really two agreements, though there is a single instrument embodying them, and the power of the State to separate the agreement to sell, from the agreement to do work and render service and to impose a Service Tax Appeal No.50883 of 2015 31 With Service Tax Cross Application No.51145 of 2015 tax thereon cannot be questioned, and will stand untouched by the present judgment." (at page 427)
18. Similarly, in Kone Elevator India (P) Ltd. v. State of T.N. - (2014) 7 SCC 1 = 2014 (34) S.T.R. 641 (S.C.) = 2014 (304) E.L.T. 3 (S.C.), this Court held :-
"Coming to the stand and stance of the State of Haryana, as put forth by Mr. Mishra, the same suffers from two basic fallacies, first, the supply and installation of lift treating it as a contract for sale on the basis of the overwhelming component test, because there is a stipulation in the contract that the customer is obliged to undertake the work of civil construction and the bulk of the material used in construction belongs to the manufacturer, is not correct, as the subsequent discussion would show; and second, the Notification dated 17-5-2010 issued by the Government of Haryana, Excise and Taxation Department, whereby certain rules of the Haryana Value Added Tax Rules, 2003 have been amended and a table has been annexed providing for "Percentages for Works Contract and Job Works" under the heading "Labour, service and other like charges as percentage of total value of the contract"
specifying 15% for fabrication and installation of elevators (lifts) and escalators, is self-contradictory, for once it is treated as a composite contract invoking labour and service, as a natural corollary, it would be works contract and not a contract for sale. To elaborate, the submission that the element of labour and service can be deducted from the total contract value without treating the composite contract as a works contract is absolutely fallacious. In fact, it is an innovative subterfuge. We are inclined to think so as it would be frustrating the constitutional provision and, accordingly, we unhesitatingly repel the same." (at para 60)
19. In Larsen & Toubro Ltd. v. State of Karnataka, (2014) 1 SCC 708 = 2014 (34) S.T.R. 481 (S.C.) = 2014 (303) E.L.T. 3 (S.C.), this Court stated :-
Service Tax Appeal No.50883 of 2015 32 With Service Tax Cross Application No.51145 of 2015 "In our opinion, the term "works contract" in Article 366(29-A)(b) is amply wide and cannot be confined to a particular understanding of the term or to a particular form. The term encompasses a wide range and many varieties of contract. Parliament had such wide meaning of "works contract" in its view at the time of the Forty-sixth Amendment. The object of insertion of clause (29-A) in Article 366 was to enlarge the scope of the expression "tax on sale or purchase of goods" and overcome Gannon Dunkerley (1) [State of Madras v. Gannon Dunkerley and Co. (Madras) Ltd., AIR 1958 SC 560 : 1959 SCR 379].
Seen thus, even if in a contract, besides the obligations of supply of goods and materials and performance of labour and services, some additional obligations are imposed, such contract does not cease to be works contract. The additional obligations in the contract would not alter the nature of contract so long as the contract provides for a contract for works and satisfies the primary description of works contract. Once the characteristics or elements of works contract are satisfied in a contract then irrespective of additional obligations, such contract would be covered by the term "works contract". Nothing in Article 366(29- A)(b) limits the term "works contract" to contract for labour and service only. The learned Advocate General for Maharashtra was right in his submission that the term "works contract" cannot be confined to a contract to provide labour and services but is a contract for undertaking or bringing into existence some "works". We are also in agreement with the submission of Mr. K.N. Bhat that the term "works contract" in Article 366(29-A)(b) takes within its fold all genre of works contract and is not restricted to one specie of contract to provide for labour and services alone. Parliament had all genre of works contract in view when clause (29-A) was inserted in Article
366." (at para 72) Service Tax Appeal No.50883 of 2015 33 With Service Tax Cross Application No.51145 of 2015
20. We also find that the assessees‟ argument that there is no charge to tax of works contracts in the Finance Act, 1994 is correct in view of what has been stated above.
21. This Court in Mathuram Agrawal v. State of M.P., (1999) 8 SCC 667, held :-
"Another question that arises for consideration in this connection is whether sub-section (1) of Section 127-A and the proviso to sub-section (2)(b) should be construed together and the annual letting values of all the buildings owned by a person to be taken together for determining the amount to be paid as tax in respect of each building. In our considered view this position cannot be accepted. The intention of the legislature in a taxation statute is to be gathered from the language of the provisions particularly where the language is plain and unambiguous. 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.
This construction, in our considered view, amounts to supplementing the charging section by including something which the provision does not state. The construction placed on the said provision does not flow from the plain language of the provision. The proviso requires the exempted Service Tax Appeal No.50883 of 2015 34 With Service Tax Cross Application No.51145 of 2015 property to be subjected to tax and for the purpose of valuing that property alone the value of the other properties is to be taken into consideration. But, if in doing so, the said property becomes taxable, the Act does not provide at what rate it would be taxable. One cannot determine the rateable value of the small property by aggregating and adding the value of other properties, and arrive at a figure which is more than possibly the value of the property itself. Moreover, what rate of tax is to be applied to such a property is also not indicated." (at paras 12 and 16)
22. Equally, this Court in Govind Saran Ganga Saran v. CST, 1985 Supp SCC 205, held :-
"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 in the legislative scheme defining any of those components of the levy will be fatal to its validity." (at para 6)
23. To similar effect is this Court‟s judgment in CIT v. B.C. Srinivasa Setty, (1981) 2 SCC 460, held :-
"Section 45 charges the profits or gains arising from the transfer of a capital asset to income tax. The asset must be one which falls within the contemplation of the section. It must bear that quality which brings Section 45 into play. To determine whether the goodwill of a new business is such an asset, it is permissible, as we shall presently show, to refer to certain other sections of the head, "Capital gains". Section 45 is a charging section. For the Service Tax Appeal No.50883 of 2015 35 With Service Tax Cross Application No.51145 of 2015 purpose of imposing the charge. Parliament has enacted detailed provisions in order to compute the profits or gains under that head. No existing principle or provision at variance with them can be applied for determining the chargeable profits and gains. All transactions encompassed by Section 45 must fall under the governance of its computation provisions. A transaction to which those provisions cannot be applied must be regarded as never intended by Section 45 to be the subject of the charge. This inference flows from the general arrangement of the provisions in the Income Tax Act, where under each head of income the charging provision is accompanied by a set of provisions for computing the income subject to that charge. The character of the computation provisions in each case bears a relationship to the nature of the charge. Thus the charging section and the computation provisions together constitute an integrated code. When there is a case to which the computation provisions cannot apply at all, it is evident that such a case was not intended to fall within the charging section. Otherwise one would be driven to conclude that while a certain income seems to fall within the charging section there is no scheme of computation for quantifying it. The legislative pattern discernible in the Act is against such a conclusion. It must be borne in mind that the legislative intent is presumed to run uniformly through the entire conspectus of provisions pertaining to each head of income. No doubt there is a qualitative difference between the charging provision and a computation provision. And ordinarily the operation of the charging provision cannot be affected by the construction of a particular computation provision. But the question here is whether it is possible to apply the computation provision at all if a certain interpretation is pressed on the charging provision. That pertains to the fundamental integrality of the statutory scheme provided for each head." (at para 10) Service Tax Appeal No.50883 of 2015 36 With Service Tax Cross Application No.51145 of 2015
24. A close look at the Finance Act, 1994 would show that the five taxable services referred to in the charging Section 65(105) would refer only to service contracts simpliciter and not to composite works contracts. This is clear from the very language of Section 65(105) which defines "taxable service" as "any service provided". All the services referred to in the said sub-clauses are service contracts simpliciter without any other element in them, such as for example, a service contract which is a commissioning and installation, or erection, commissioning and installation contract. Further, under Section 67, as has been pointed out above, the value of a taxable service is the gross amount charged by the service provider for such service rendered by him. This would unmistakably show that what is referred to in the charging provision is the taxation of service contracts simpliciter and not composite works contracts, such as are contained on the facts of the present cases. It will also be noticed that no attempt to remove the non-service elements from the composite works contracts has been made by any of the aforesaid Sections by deducting from the gross value of the works contract the value of property in goods transferred in the execution of a works contract.
25. In fact, by way of contrast, Section 67 post amendment (by the Finance Act, 2006) for the first time prescribes, in cases like the present, where the provision of service is for a consideration which is not ascertainable, to be the amount as may be determined in the prescribed manner.
27. In fact, the speech made by the Hon‟ble Finance Minister in moving the Bill to tax Composite Indivisible Works Contracts specifically stated :-
"State Governments levy a tax on the transfer of property in goods involved in the execution of a works contract. The value of services in a works contract should attract service tax. Hence, I propose to levy service tax on services Service Tax Appeal No.50883 of 2015 37 With Service Tax Cross Application No.51145 of 2015 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 per cent of the total value of the works contract."
28. Pursuant to the aforesaid speech, not only was the statute amended and rules framed, but a Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007 was also notified in which service providers could opt to pay service tax at percentages ranging from 2 to 4 of the gross value of the works contract.
29. It is interesting to note that while introducing the concept of service tax on indivisible works contracts various exclusions are also made such as works contracts in respect of roads, airports, airways transport, bridges, tunnels, and dams. These infrastructure projects have been excluded and continue to be excluded presumably because they are conceived in the national interest. If learned counsel for the revenue were right, each of these excluded works contracts could be taxed under the five sub-heads of Section 65(105) contained in the Finance Act, 1994. For example, a works contract involving the construction of a bridge or dam or tunnel would presumably fall within Section 65(105)(zzd) as a contract which relates to erection, commissioning or installation. It is clear that such contracts were never intended to be the subject matter of service tax. Yet, if learned counsel for the revenue is right, such contracts, not being exempt under the Finance Act, 1994, would fall within its tentacles, which was never the intention of Parliament."
However that does not alter the material facts, as the impugned order allows the benefit of abatement as per Notification No 1/2006-ST.
4.4 As we hold that the services provided by the respondent were correctly classifiable under the category of "Work Contract Services" the entire argument advanced by the revenue to the effect that the activities under taken by respondent in respect of Service Tax Appeal No.50883 of 2015 38 With Service Tax Cross Application No.51145 of 2015 Lucknow Development Authority would not survive. In para 24, by referring to the certificate given by the Finance Controller of Lucknow Development Authority, observed that respondent has provided services related to civic amenities i.e. construction of drain nala and footpath, for Rs 15,22,584/- (2008-09) + Rs 1,14,07,187/- (2009-10). He has extended the benefit of exemption only in respect of this amount received and has not held that exemption shall be available in respect of all the services provided by respondent to LDA. Examining the definition of the work contract services, Hon'ble Supreme Court has in decision of Larsen & Tubro, supra in para 29 observed that these services are kept outside the purview of taxation under this category.
4.5 Revenue has in the appeal challenged the computations made in the value of taxable services, for the year 2006-07 and 2007-08. For the year 2006-07 the issue becomes irrelevant for the reason of observations made by the Hon'ble Apex Court in case of Larsen & Toubro that no mechanism for determination of the value of service simpliciter had been provided in respect of the "Construction of Commercial and Industrial Construction Services" hence the levy itself was not maintainable in case of indivisible contracts. Hon'ble Supreme Court observed as follows:
"41. We are afraid that there are several errors in this paragraph. The High Court first correctly holds that in the case of composite works contracts, the service elements should be bifurcated, ascertained and then taxed. The finding that this has, in fact, been done by the Finance Act, 1994 Act is wholly incorrect as it ignores the second Gannon Dunkerley decision of this Court. Further, the finding that Section 67 of the Finance Act, which speaks of "gross amount charged", only speaks of the "gross amount charged" for service provided and not the gross amount of the works contract as a whole from which various deductions have to be made to arrive at the service element in the said contract. We find therefore that this judgment is wholly incorrect in its conclusion that the Service Tax Appeal No.50883 of 2015 39 With Service Tax Cross Application No.51145 of 2015 Finance Act, 1994 contains both the charge and machinery for levy and assessment of service tax on indivisible works contracts.
42. It remains to consider the argument of Shri Radhakrishnan that post 1994 all indivisible works contracts would be contrary to public policy, being hit by Section 23 of the Indian Contract Act, and hit by Mcdowell‟s case.
43. We need only state that in view of our finding that the said Finance Act lays down no charge or machinery to levy and assess service tax on indivisible composite works contracts, such argument must fail. This is also for the simple reason that there is no subterfuge in entering into composite works contracts containing elements both of transfer of property in goods as well as labour and services.
44. We have been informed by counsel for the revenue that several exemption notifications have been granted qua service tax "levied" by the 1994 Finance Act. We may only state that whichever judgments which are in appeal before us and have referred to and dealt with such notifications will have to be disregarded. Since the levy itself of service tax has been found to be non-existent, no question of any exemption would arise. With these observations, these appeals are disposed of."
Thus for the period prior to 01.06.2007, the activities of the respondent if any in respect of indivisible work contracts could not have been levied to service tax under category of Commercial Industrial or Construction Services. Thus the grounds taken in the appeal of the revenue for this period do not merit any further consideration.
4.6 Thus the appeal of the revenue is limited to the period 2007-08. In para 25 of the impugned order it is recorded after examination of the documents that there is a huge difference in actual billing of party and amount calculated in the SCN. In para 27, he has recorded that respondent has challenged the basis on Service Tax Appeal No.50883 of 2015 40 With Service Tax Cross Application No.51145 of 2015 which the demand for the year 2007-08, has been calculated. In para 28 he records that all the correspondences received by him were forwarded to the jurisdictional Assistant Commissioner, who have investigated their case by letter dated 28.10.2014. The audited balance sheet on the basis of which Commissioner has proceeded was part of the relied upon documents in the show cause notice. He has specifically sought the view of the investigating Assistant Commissioner as to why these figures have been ignored.
4.7 In fact all the documents were produced and adjudicating authority has sought clarification come from the jurisdictional authorities. After considering the clarification given by the investigating officer impugned order proceeds to determine the value of taxable service provided on the basis of audited balance sheet of the respondent for the year 2007-08. 4.8 There are no other grounds taken in the appeal filed by the revenue for challenging the impugned. In the impugned order at para no.36, adjudicating authority has made a detailed calculation determining the service tax liability and calculated that the respondent has short paid the service tax of Rs.1,65,545/-. Respondent has stated in the cross objection that service tax demand of Rs.1,65,545/- including interest of Rs.1,65,110/- imposed in Order-in-Original, is against the facts, incorrect and without any basis. This statement made in the cross objection do not carry the case of the respondent any further as against a detailed calculation made in Order-in- Original. No computation error has been pointed by the respondent.
4.9 Accordingly, the cross objection challenging the confirmation of this demand along with interest cannot be upheld. It is also settled law that once the tax has been short paid for which extended period of limitation has been invoked in view of the decision of Hon'ble Supreme Court in the case of Rajasthan Spinning & Weaving Mills Ltd. [2009 (238) ELT 3 (SC)]. Accordingly, we do not find any merits in this account stated in the Cross Objection.
Service Tax Appeal No.50883 of 2015 41 With Service Tax Cross Application No.51145 of 2015 4.10 In view of the above, we do not find any merits in this appeal filed by the revenue or the cross objection filed by the respondent.
5.1 Appeal filed by the revenue along with the Cross Objection filed by the respondent is dismissed.
(Pronounced in open court on- 27 February, 2024) Sd/-
(P.K. CHOUDHARY) MEMBER (JUDICIAL) Sd/-
(SANJIV SRIVASTAVA) MEMBER (TECHNICAL) akp