NEW DELHI, MAY 18, 2013: THE issue involved in the present case was whether the applicable rate of service tax would be the rate in force at the time of realisation of the consideration in respect of the taxable service or would it be the rate of tax which was in force at the time of the rendition of the taxable service.

The Tribunal noted that recently it had decided that the appropriate rate of tax would be the rate which was in force at the time when the service was rendered and not the rate which was in force on the date in which the payments were received. Accordingly, the Tribunal dismissed the Revenue's appeal.

The revenue is aggrieved and is before the High Court.

The entire controversy arose out of the show cause notice dated 21.04.2009 wherein the main allegation against the respondent was as under:-

“2. Whereas on scrutiny of the ST-3 return of Works Contract Service for the period Oct. 07 March 08, it has been observed that the noticee had paid the service tax in the month of March 1998 @ 2% instead of 4%. As per Ministry of Finance, Department of Revenue (Tax Research Unit) F.No . 345/6/2007-TRU dated 28.04.2008, the service tax shall become chargeable on receipt of payment and on the amount so received for the service provided or to be provided, whether or not services are performed. The rate applicable to taxable transaction shall be the rate in force at the time the service tax becomes chargeable. This is a well settled legal position. The date on which the services on record be provided has no relevance to examine the applicable tax rate the service is already taxable at the time of revision on rate. In view of the above, it is clarified that the rate of 4% is applicable for the Works contract service where the payment for the service is received on or after 01.03.2008.”

In the present case, it is an admitted position that the service in execution of Works Contract had been rendered by the respondent during the period October 2007 to the end of February 2008. It is also an admitted position that all invoices in respect of the said services had been raised by the end of February 2008. However, the payments in respect of the said services were received only after 01.03.2008. It is also an admitted position that rate of service tax applicable prior to 01.03.2008 was 2% and after 01.03.2008 was 4% under the Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007. It is the case of the appellant that since the payments for the services rendered were received only after 01.03.2008, the applicable rate would be 4% and not 2%. Reliance was placed by the revenue on the Ministry of Finance, Department of Revenue instruction dated 28.04.2008.

Recently a similar issue had arisen in another set of cases before the High Court. in Vistar Construction Pvt. Ltd. v. Union of India & Others - (2013-TIOL-73-HC-DEL-ST), the main controversy was with regard to the applicable rate of service tax in respect of works contract service. There also, the service had been rendered prior to 01.03.2008, but the payments were received after 01.03.2008. The revenue had placed reliance on the very same instruction dated 28.04.2008 and, after going through the same, the court held that the view expressed in the instruction was wrong. The court had placed reliance on the Supreme Court decision in the case of Association of Leasing & Financial Service Companies v. Union of India- (2010-TIOL-87-SC-ST-LB) , wherein the Supreme Court clearly held that the service tax was levied on service and that it was not a tax on materials or sale. The taxable event was the rendition of the service. Consequently, the court held that the rendition of the service had been completed prior to 01.03.2008 and, therefore, the taxable event had occurred prior to 01.03.2008. Consequently, the applicable rate of tax would be the rate which was prevalent prior to 01.03.2008.

Since the entire foundation of the argument of the revenue is based on the instruction dated 28.04.2008 which has been found to be invalid by virtue of our decision in the case of Vistar Construction , the High Court held that the present appeal is also liable to be dismissed.

Thus, following the decision in the case of Vistar Construction , the present appeal does not raise any substantial questions of law and is therefore dismissed.

(See 2013-TIOL-403-HC-DEL-ST)