MFAR Construction Private Limited Vs C.C.E & C.S.T. (CESTAT Bangalore)
In the instant case, the appellants have been paying service tax under Construction of Complex Services etc. before 01.06.2007. On introduction of service tax on “Works Contract”, the appellants had written to the Department for clarification. They have submitted a letter on 14.06.2007 that they will be opting for Composition Scheme. The Department has demanded the duty denying the opportunity.
It is clear from the Rule 3 (1) of Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007 that the person providing Works Contract can pay service tax under Composition Scheme if he opts for the same before payment of service tax. The appellants have exercised the option to go under Compensation Scheme vide letter dated 14.06.2007, the same is not disputed by the Department who sought to deny the benefit in view of the Circular discussed above and the Circular loses its relevance after the judgment in the case of L&T. We find that Tribunal has gone into very same issue in the case of B.R. Kohli Construction Pvt. Ltd. Vs CST, Delhi, 2017 (5) GSTL 182 (Tri. Delhi) and held that Composition Scheme cannot be denied to the appellants merely on the ground of discharge of service tax under different Head prior to 01.06.2007.
In view of the above, we are of the considered opinion that the benefit cannot be denied to the appellants. We find that Tribunal and Courts have been setting aside the demands raised in respect of Composite Works Contracts after the judgment in the case of L&T. The appellants have been paying duty albeit under a different Head before 01.06.2007. It would be miscarriage of justice if the appellants are denied the compounded scheme of payment of duty under Works Contract after 01.06.2007 which could have been easily exercised by those who were not paying duty before 01.06.2007. The appellants cannot be put to jeopardy for the reason that they have been paying service tax before 01.06.2007 though they were not legally required to pay in view of the judgment in the case of L&T.
FULL TEXT OF THE CESTAT BANGALORE ORDER
MFAR Construction Private Limited, the appellants are engaged in construction of complexes and have obtained registration for rendering „Commercial or Industrial Construction‟ and „Construction of Complex Services‟; with the introduction of levy of Service Tax on „Works Contract Service‟ w.e.f. 01.06.2007, the appellant sought classification, of the composite contract of „Construction of Residential Complex’ under Works Contract, vide letter dated 14.06.2007 and opted for composition scheme under Rule 3(3) of the Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007 and started paying duty as applicable. During the conduct of audit in the year 2008, Revenue observed that in terms of Circular No.98/1/2008-ST dated 04.01.2008 a service provider who paid service tax prior to 01.06.2007 for the taxable services like Erection, Commissioning and Installation Service, Commercial or Industrial Construction Service or Construction of Complex Service is not entitled to change the classification of the Single Composite Service for the purposes of payment of service tax on or after 01.06.2007 and therefore, the appellants are not entitled to avail the Composition Scheme. A show cause notice dated 20.04.2010 was issued to the appellants denying the classification of the services rendered by the appellants under Works Contract Service and demanding a service tax of Rs.28,08,44,455/-; the show cause notice also demanded service tax on client’s disputed amount before 01.06.2007 and mobilization advance Cess after 01.06.2007; the show cause notice further demanded service tax on the services rendered by the appellant as a subcontractor during the period April 2006 to March 2007. The proposals in the show cause notice were confirmed by Order-in-Original No.98/2011 dated 29.04.2011. Hence, this appeal.
2. Shri M.S. Nagaraja, learned Advocate appearing for the appellants submits that the appellants were executing „Construction of Residential Complex’ as a Composite Contract; the appellants had obtained VAT Registration discharged the applicable VAT on the value of the goods or material involved and paid service tax on the balance amounts. He extracts Section 65 (105) (zzzza) of the Finance Act, 1994 and submits that it is a settled legal position that the construction of residential complex being a works contract is liable to service tax only from 01.06.2007 as held by the Apex Court in the case of Larsen & Toubro Limited 2015 (39) STR 913 (SC). He submits that the contention of the Department that the execution of composite contracts/ projects classified earlier under Commercial and Industrial Construction Service/ Construction of Complex Service cannot be classified under Works Contract is contrary to the law enunciated by the Hon’ble Supreme Court.
3. Learned Advocate submits that Commissioner’s contention, in the impugned order, that in a few cases, the clients had supplied certain materials and the value of the same was deducted from the gross value and hence, the contract cannot be treated as Works Contract, is not correct; there is no dispute that the appellant was registered in various trades and was paying VAT on the value of the goods and material involved in execution of Works Contract; the supply of material by the clients in respect of two RA Bills cannot be the sole basis to conclude that the construction of residential complexes was not a Composite Contract as the fact of payment of VAT on the value of the goods involved is not in dispute. He submits that Tribunal in the case of ABL Infrastructure Limited Vs CCE & C & S.T., Nashik 2018 (11) GSTL 106 (Tribunal Mumbai) held that for the purpose of value of goods used in or in relation to the execution of the Works Contract value of all supplies for a consideration or otherwise should be added; Apex Court has affirmed this judgment 2018 (19) GSTL J161 (SC).
4. Learned Advocate submits that the finding that the appellants had taken service tax registration on 13.10.2004 and have been paying service tax under Construction of Commercial/ Industrial Complexes Service as defined under Section 65 (30a) and therefore, they cannot switch over to Works Contract Scheme is clearly in contradiction of the legal provisions. He extracts Rule 3(1) of the Works Contract Rules and submits that the said Rule specifically refers to “the person liable to pay service tax in relation to Works Contract Service” has an option to pay service tax under the Composite Scheme; w.e.f. 01.06.2007 the person liable to pay service tax on Works Contract become entitled to exercise the option before payment of service tax in respect of the said Works Contract; in the instant case, the appellants sought re-classification of the Composite Contracts of „Construction of Complex‟ under Works Contract and exercise the option on 14.06.2007 prior to payment of service tax. He submits that payment of service tax on composite contracts executed before 01.06.2007 cannot be construed as payment of tax on taxable service as the said composite contracts were not liable to pay service tax before 01.06.2007 in view of the L&T judgment. He further relies on the following case laws and submits that denial of option to pay service tax under Composite Scheme is not legal and proper:
