By TIOL News Service

MUMBAI, AUG 23, 2016: THE appellant received an amount of Rs 13.20 crore as mobilization advance in March 2007 for the project "Chemplast Cuddalore" but had not discharged the service tax liability on the said advance.

Out of the amount of Rs.13.20crore, the appellant adjusted an amount of Rs.8,57,69,568/- in running account bills and paid the Service Tax thereon under the category of Works Contract Service by opting for the composite scheme and the balance amount of Rs.4,62,30,432/- remained to be adjusted on which service tax liability worked out to Rs.18,67,340/-.

Pursuant to the Audit bringing this to the notice of the appellant, they paid the amount of Rs.18,67,340/- along with interest (as on 20/03/2007) amounting to Rs.8,64,987/- on 26/02/2009.

Alleging that the appellant had suppressed the value of Rs.4,62,30,432/- received as advance for the said project by not including the same in ST-3 returns and thus failed to discharge the service tax liability thereon under the category of Commercial or Industrial Construction Service in terms of Rule 6(1) of STR, 1994, with an intent to evade payment of service tax, a SCN was issued on 19/06/2009.

In adjudication, the demand was confirmed along with an equal penalty & the amounts paid were appropriated.

The Commissioner (Appeals)modified the o-in-o by extending the benefit of reduced penalty of 25% of the service tax demanded subject to the payment within 30 days from the date of receipt of the order-in-appeal.

The appellants are before the CESTAT aggrieved with the penalty imposition.

It is submitted that the appellant had disclosed receipt of advance to the Audit team; that the advance was received in the month of March 2007 but the project actually commenced in the month of July 2007; that at the material time it was not clear whether the said mobilization advance was towards rendition of service or towards goods and, therefore, the appellants paid service tax at the time of raising of running bills; that with the introduction of composition scheme under works contract services on 01/06/2007 there was lot of confusion regarding the eligibility and the Apex Court in Nagarjuna Construction Co. Ltd. – 2012-TIOL-107-SC-ST held that when the assessee has already paid tax, they could not change classification of composite service to avail option under works contract service; that CBEC Circular No. 98/1/2008-ST also clarified that ongoing projects are not eligible for composition scheme; that there is no fraud or willful mis-statement or suppression of facts; that the tax and interest was paid before issuance of SCN; that a good case exists for invoking the provisions of Section 80 and waiving penalty.

The AR reiterated the stand of the department that since the amount of advance was not shown in the ST-3 return it is a case of suppression and, therefore, provisions of Section 73(3) of the FA, 1994 are not applicable.

The Bench observed –

"5. … I find that the dispute pertains to the period immediately after February 2007 when levy of Service tax on the service components of the works contract was notified. The appellant had received an advance in respect of a project, which was a works contract. At the material time there was a confusion regarding applicability of the tax and the mechanism. In these circumstances, the appellant failed to show the advance amount in their ST-3 return and failed to discharge tax on the same. On being pointed out the appellant paid the disputed service tax along with interest. While I find that there is a column for advances in the ST-3 return but the same was not declared by the appellant. I also find that there was a confusion at the material time with regard to the manner of payment of service tax in respect of newly introduced service of works contract. I find this is a fit case for invocation of Section 80 of the Finance Act. In terms of Section 80 of the Finance Act, I waive the penalty imposed on the appellant…."

The appeal was allowed.

(See 2016-TIOL-2159-CESTAT-MUM)