By TIOL News Service

MUMBAI, DEC 15, 2014: THE appellants are engaged in providing services namely "Works Contract Services" (WCS), Erection, Commissioning and Installation" [ECI].

In respect of the services provided to three customers, the department has raised service tax demands as under -

++ In the case of M/s. Air Liquide North India Pvt. Ltd. the allegation is that after paying service tax under ECI service on full value at full rate of 12.36% they later changed the classification to WCS service which is not permissible as per Rule 3(3) of Composition Scheme and paid service tax only on abated value of 33% of the gross amount received, under Notification No. 1/06-ST. It was also alleged that the abatement cannot be availed as the appellant had availed input service credit of Rs.2,69,580/-.

++ In respect of second and third customers the allegation is that the contracts undertaken are specifically covered under ECI and hence are not classifiable under WCS service as done by the appellant. Further, the contracts stipulate the "supply" and "installation" components of the total services rendered but tax is paid only on the "supply" part, that, too after availing abatement of 67% under Notification 1/06. It was alleged that the appellants violated the condition of the Notification by availing CENVAT credit which is not permissible.

Against the order of CCE, Pune III confirming the demand of Rs.1,80,10,453/- and imposition of penalties etc. the appellant is before the CESTAT.

After considering the submissions made by both sides, the Bench observed -

++ In the first contractwe find that revenue has not been able to justify why abatement of 67% under Notification 1/06 should not be made available for the period April 2008 onwards. Merely because the benefit of Notification could not be availed earlier is no justification to deny the same for the later period. Revenue has not examined the facts properly. The appellants have nowhere stated that they opted for the WCS scheme.

++ Revenue has raised an objection that CENVAT credit of Rs.2,69,580/ was availed on input services and this is not permissible for availing abatement under Notification 1/06. In this matter there are several judgements of the Tribunal such as Khyati Tours & Travels (supra), B.G. Shirke Technology (supra) and Ramkrishna Travels (supra) which have relied upon the Supreme Court judgment in the case of Chandrapur Magnet Wires - 2002-TIOL-41-SC-CX all holding that once the credit has been reversed the benefit of Notification would be available. It would also a travesty of justice if service tax of Rs.85 lakhs approx. is demanded only because a small amount of credit was first taken and thereafter reversed. In view of the above, we hold that the demand of service tax is not sustainable.

++ In the remaining two contracts the main allegation is that the contract is a separate work order for supply and, therefore, the appellant cannot take benefit of the WCS service. It is not understood how revenue has come to say that material supplied is incidental. In any case, there is no provision in law which defines the incidence of material supplied in a works contract.

++ In this case the goods involved as part of Service Contract are subjected to payment of Sales Tax/VAT. In respect of both contracts the appellant have submitted documents evidencing payment of works contract tax under the West Bengal Value Added Tax Act, 2003. Thus, appellants' case is supported by the Board CircularB1/16/2007-TRU dt. 22.5.2007. Therefore, we are of the view that the Service contracts entered into by the appellants are covered under Works contract category.

++ Works Contract Service came into force vide Section 65(105)(zzzza) w.e.f. 01.06.2007. The appellants have rightly relied on the Board circular no. 98/1/08-ST dated 04.01.2008 to contend that both the contracts in question came into force after 1.06.2007 and, therefore, they are eligible to work under the WCS service. Further, they also correctly relied on Board circular no. 128/10/2010-ST dated 24.08.2010 to say that they are eligible for the Works Contract Composite Scheme if they have opted for it after 01.06.2007 and no service tax was paid till that date.

++ We find from the Order-in-Original para 36 & 37 that the Adjudicating Authority has clearly mentioned that the appellant have availed input service credit amounting to Rs.20,48,970/- and Rs.15,55,107/- respectively. Therefore, the statement of ld. AR in the written submissions that the CENVAT Credit has been availed on materials is not a correct statement. The Composition Scheme as mentioned above only requires that the provider of service must not have taken CENVAT Credit on inputs. Therefore, there is no reason to deny the option of Composition Scheme to the appellant.

In fine, it was held that the demand of Service Tax in respect of all three contracts is not sustainable.

The Bench also held that suppression cannot be alleged as in respect of the first contract ST was paid under ECI service and in respect of the remaining two contracts wrong classification cannot lead to the conclusion of suppression of facts etc. when no mensrea is established.

By setting aside the order of CCE, Pune-III , the appeals were allowed.

(See 2014-TIOL-2527-CESTAT-MUM)