ST - Since contract for construction of Mall was terminated on May 31, 2007 & new contract was entered into on June 5, 2007, therefore, there is no infirmity in appellant having paid ST under Composition Scheme - fact of paying ST is enough indication to show that they have opted for payment: CESTAT
By TIOL News Service
MUMBAI, FEB 19, 2015: THE appellant was registered in the category of Commercial or Industrial Construction Service. They obtained the contract for construction of City Centre Mall, Nashik for M/s City Centre Mall (Pvt) Ltd under an Agreement executed on 8.12.2006. The material such as cement and steel was to be supplied by M/s City Centre Mall Pvt. Ltd.
Due to certain disputes, the contract was terminated on 31.5.2007 and separate invoice was raised for works completed prior to 31.5.2007. Thereafter, when M/s City Centre Mall Pvt. Ltd. invited bids again for completing the construction of the mall, the appellant participated in the tender process and were again awarded the contract.
Based on opinion from consultants, they started paying Service Tax under Works contract Service for which registration was obtained on 26.9.2007. They started paying tax 2.06% under the Works Contract Composition Scheme.
The department alleged that the appellants were not entitled to change the classification from 'Commercial or Industrial Construction Service' to 'Works Contract Service' for the same work undertaken by them i.e. to construct the City Centre Mall.
Resultantly, SCNs came to be issued for the period June'07 to Sept'08. Another allegation is that the appellant neither obtained registration under 'Works Contract Service' till 26.9.2007 nor exercised the option as required under Rule 3(3) of the Works Contract (Composition Scheme) for payment of Service Tax.
The demands totalling in excess of Rs.1.25 crore came to be confirmed with the usual accessories of penalty and interest.
The appellant is before the CESTAT.
It is inter alia submitted that the earlier contract entered into by them with M/s City Centre Mall Pvt. Ltd. was terminated and the termination is valid in law in terms of the Indian Contract Act, 1872 and after introduction of Works Contract Service, they were legally entitled to classify their activity in this service being the more specific classification. Documents in the matter of termination of earlier contract were also produced. Further, the Board Circular 98/1/2008-ST & the judgment in Nagarjuna Construction Company Ltd. Vs. Govt. of India - 2010-TIOL-403-HC-AP-ST is not applicable since in that case the work continued under the same contract; since they had executed a fresh contract on 05.06.2007 & paid ST under the Composition Scheme they had satisfied the condition of exercising of option prior to payment of Service Tax in terms of Rule 3 of the Works Contract (Composition Scheme for payment of Service Tax) Rules, 2007 [Bridge & Roof Co. (India) Ltd. Vs. Commissioner of Central Excise, Jaipur - 2012-TIOL-539-CESTAT-DEL refers].
The AR stuck to the stand taken by the lower authorities.
The Bench observed that the appellant had placed before it a large number of documents to establish that the whole sequence of events took place in a natural way and there was no cover up only to show that a fresh contract was executed w.e.f. 5.6.2007; therefore, the Bench arrived at the conclusion that the old contract was terminated w.e.f. 31.5.2007 and a fresh contract was executed w.e.f. 5.6.2007 and there cannot be any objection to classify the service rendered in this contract as a Works Contract Service, which was introduced w.e.f. 1.6.2007.
In the matter of eligibility for classification as a Works Contract Service, the CESTAT extracted Rule 3 of the Works Contract (Composition Scheme for payment of Service Tax) Rule, 2007 and observed -
"The above rule requires that the provider who opts to pay tax under the Rule shall exercise such option prior to payment of Service Tax. We find force in the appellant's contention that the fact that they had started paying tax under the Works Contract Composition Scheme is quite evident from the rate of tax reflected in the ST-3 returns. In any case, they had exercised option on 26.9.2007, the substantial benefit cannot be denied for procedural deficiency of delay in opting for Works Contract Service by a specific declaration under Rule 3. More so, when no format has been prescribed for making/exercising an option nor has it been specified as to whom the option must be addressed. We agree that the fact of paying Service Tax at the composition rate in the returns filed by them, is enough indication to show that they have opted for payment under the Works Contract Composition Scheme."
The case law cited by the appellant was agreed to and those by the AR were distinguished as being factually different.
Holding that the appellant was executing work under a new contract from 5.6.2007 and was, therefore, eligible to pay ST under the category of Works Contract Service, the demand was set aside and the appeal was allowed with consequential relief.
(See 2015-TIOL-360-CESTAT-MUM)
