Interarch Building Products Pvt. Ltd. Vs Commissioner of Service Tax (CESTAT Allahabad)
CESTAT Allahabad held that invocation of extended period of limitation under proviso to section 73(1) of the Finance Act unjustified in absence of any willful suppression of facts with an intent to evade the payment of tax.
Facts- The appellant had a centralized registration under the Finance Act under ‘commercial or industrial construction services’ and ‘construction services’. It entered into contracts with consumers for execution of contracts in respect of pre-engineered or prefabricated buildings/structures and paid service tax on the gross amount of the contract under the category ‘commercial or industrial constructions service’ made taxable u/s. 65 (105)(zzq) of the Finance Act 1994.
The department was, however, of the view that the services rendered by the appellant would fall under „works contract‟, chargeable to service tax u/s. 65(105)(zzzza) of the Finance Act.
Conclusion- Held that the allegation of willful suppression of facts with an intent to evade the payment of tax by availing wrongful CENVAT credit is not correct and the invocation of the extended period of limitation for denial of CENVAT credit could not have been resorted to under the proviso to section 73(1) of the Finance Act.
Further, also held that the appellant would be entitled to refund if the taxable value of the works contracts executed by the appellant for the period from 01.06.2007 to 31.03.2014 is calculated in terms of rule 2A of the 2006 Rules.
FULL TEXT OF THE CESTAT ALLAHABAD ORDER
M/s. Interarch Building Products Pvt. Ltd.1 has filed this appeal to assail the order dated 31.03.2017 passed by the Commissioner of Service Tax, Noida2.
2. Earlier, this appeal was allowed by the Tribunal by order dated 09.11.2017, which order was assailed by the department before the Supreme Court in Civil Appeal No. 11330 of 2018. This Civil Appeal has been allowed by the Supreme Court by judgment dated 2.05.2023 and the matter has been remitted to the Tribunal to compute the service tax in terms of rule 2A of the Service Tax (Determination of Value) Rules 20063 as the appellant had not opted for the composition scheme under the Works Contract (Composition Scheme for Payment of Service Tax) Rules 20074. The Supreme Court also directed the Tribunal to decide whether the extended period of limitation could have been invoked by the department.
3. The appellant had a centralized registration under the Finance Act under „commercial or industrial constructions‟ services and „construction services‟. It entered into contracts with consumers for execution of contracts in respect of pre-engineered or pre-fabricated buildings/structures and paid service tax on the gross amount of the contract under the category „commercial or industrial constructions‟ service made taxable under section 65 (105)(zzq) of the Finance Act 19945.
4. The department was, however, of the view that the services rendered by the appellant would fall under „works contract‟, chargeable to service tax under 65(105)(zzzza) of the Finance Act.
5. A show cause notice dated 23.10.2012 was, accordingly, issued to the appellant for the period January 2007 to March 2012 alleging that the appellant had utilized CENVAT credit of Rs. 112.61 crores on building material, which was inadmissible. The appellant filed a reply to the show cause notice. A second show cause notice dated 22.05.2014 was issued to the appellant for the period April 2012 to June 2012 raising the same allegations. This was followed by a third show cause notice dated 27.10.2014 for the period July 2012 to December 2013 and a Statement of Demand dated 23.10.2015 for the period January 2014 to March 2014.
6. The Commissioner, by order dated 31.03.2017, confirmed the demands raised in all the three show cause notices and the Statement of Demand holding that the services rendered by the appellant would be classifiable under works contract service and rejected the availability of CENVAT credit and directed for its recovery.
7. The Tribunal, by decision dated 09.11.2017, allowed the appeal observing that the Composition Scheme was optional and the provisions of rule 2A of the 2006 Rules were subject to the provisions of section 67 of the Finance Act. The Tribunal, therefore, held that there was no question of applicability of rule 2A, nor could the Composition Scheme be forcibly applied.
8. The Supreme Court, by the judgment rendered on May 2023, while allowing the Appeal filed by the department filed against the aforesaid order of the Tribunal, observed as follows:
“8. The short question which is posed for consideration before this Court is as to whether an assessee who is liable to pay service tax under works contract service has the legal right not to follow Rule 2A for the Service Tax (Determination of Value) Rules 2006 nor the Composition Scheme on the ground that in terms of Section 67 of the Finance Act, 1994 an assessee is entitled to take the total contract value which includes both goods and services and remit service tax on the entire value as works contract service and in the process also entitled to avail the CENVAT Credit?
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8.9 With respect to the „works contract service‟ and/or the Composition Works Contract the valuation has to be made as per Rule 2A of the Valuation Rules, 2006. Even as per the Composition Scheme vide Notification 32/2007 dated 22.04.2007 an assessee has an option to discharge the service tax liability on the works contract service provided or to be provided, instead of paying service tax at the rate specified in Section 66 of the Act by paying equivalent to 2% of the gross amount charged for the works contract. It is to be noted that Rule 3(1) provides notwithstanding anything contained in Section 67 of the Act and Rule 2A of the Service (Determination of Value) Rules, 2006. Therefore, as per the Scheme of the Act the determination of value of service portion in the execution of the works contract is to be made as per Rule 2A, however with an option to the assessee to avail the benefit of Composition Scheme. Therefore, either the assessee has to go for Composition Scheme or go for Determination of Value as per Rule 2A and the assessee has to pay service tax on the service element and can claim CENVAT Credit on the said amount only.
9. In view of the above the impugned judgment and order passed by the CESTAT taking the contrary view is unsustainable by which it is held that the assessee is entitled to take the total contract value which includes both goods and services and remit service tax on the entire value as „works contract‟ and the assessee is also entitled to avail the CENVAT Credit on the same.
9.1 However, at the same time the service tax needs to be paid in terms of Rule 2A of Service Tax (Determination of Value) Rules, 2006 and since the assessee has not opted for composition scheme, the matter is to be remitted back for recomputation of the demands in terms of Rule 2A. As the issue with respect to the extended period of limitation has also not been decided by CESTAT the matter is to be remanded to the CESTAT to decide the issue of limitation.
10. In view of the above and for the reason stated above, the present appeal succeeds. The impugned judgment and order passed by the CESTAT is hereby quashed and set aside and it is held that the assessee is not entitled to take the total contract value which includes both goods and services and remit service tax on the value as works contract service and, in the process, also entitled to avail the CENVAT Credit on the entire amount. It is observed and held that the assessee has to pay the service tax on the value of services as per Rule 2A of the (Determination of Value) Rules, 2006 and thereafter to avail the CENVAT Credit accordingly. However, it is also observed and held that demand for the period January 2007 to May 2007 is unsustainable.
10.1 In that view of the matter now the service tax needs to be computed in terms of Rule 2A of the (Determination of Value) Rules, 2006 and as the assessee has not opted for the composition scheme, the matter is remitted back to the CESTAT for recomputation of the demands in terms of Rule 2A. As observed hereinabove the Tribunal has also not decided the issue of extended period of limitation. Therefore, while quashing and setting aside the impugned judgment and order passed by the CESTAT, the matter is remitted back to the CESTAT limited only to decide the issue of limitation and re-computation of demand in terms of Rule 2A. The aforesaid exercise be completed by the CESTAT on remand within a period of three months from the date of the present order. Present appeal is accordingly allowed. However, in the facts and circumstances of the case there shall be no order as to costs.”
(emphasis supplied)
9. Shri V. Raghuraman, learned senior counsel for the appellant assisted by the Shri Shailesh P. Sheth made the following submissions:
(i) From a perusal of rule 2A of the 2006 Rules, as was in force prior to 30.06.2012 and after 01.07.2012, it will be evident that in respect of the „works contracts‟, the rule provides for determination of the assessable value i.e. the value of taxable service, by excluding –
(i) the value of transfer of property in goods involved in the execution of the said works contract.
(ii) Value Added Tax (VAT) or Sales Tax, as the case may be, paid, if any, on transfer of property in goods involved in the execution of the works contract.
Clause (ii) of the Explanation to rule 2A (as it stood for the period up to 30.06.2012) further provided that where Value Added Tax or Sales Tax, as the case may be, has been paid on the actual value of transfer of property in goods involved in the execution of the works contract, then such value adopted for the purposes of payment of Value Added Tax or Sales Tax, as the case may be, shall be taken as the value of transfer of property in goods involved in the execution of said works contract for determining the value of works contract service under clause;
(ii) The appellant was clearing the pre-fabricated/pre-engineered steel buildings/structures and the parts thereof from its plants on payment of excise duty as applicable and under the cover of the statutory prescribed invoices. This duty paid goods were cleared to the designated sites where erection, installation and commissioning were to be undertaken;
(iii) In terms of directions issued by Supreme Court in its judgment dated 02.05.2023, the appellant has to pay service tax on the value of services as per rule 2A of the 2006 Rules and thereafter avail the CENVAT credit; and
(iv) In regard to the first show cause notice dated 23.10.2012 issued to the appellant for the period from January 2007 to March 2012, the extended period of limitation could not have been invoked for the period prior to October 2010.
10. Shri Santosh Kumar learned authorised representative appearing for the department supported the impugned order, both on merits as well as on limitation.
11. The submissions advanced by the learned senior counsel for the appellant and the learned authorized representative appearing for the department have been considered.
12. The Supreme Court has remitted the matter to the Tribunal to examine two issues, namely the issue of limitation and re-computation of the demands in terms of rule 2A of the 2006 Rules. These two issues are being dealt with.
Limitation
13. Section 73(1) of the Finance Act with the proviso, as stood at the relevant time prior to 01.07.2012, is reproduced below:
“73.(1) Where any service tax has not been levied or paid or has been short-levied or short-paid or erroneously refunded, the Central Excise Officer may, within one year from the relevant date, serve notice on the person chargeable with the service tax which has not been levied or paid or which has been short-levied or short-paid or the person to whom such tax refund has erroneously been made, requiring him to show cause why he should not pay the amount specified in the notice:
PROVIDED that where any service tax has not been levied or paid or has been short-levied or short-paid or erroneously refunded by reason of-
(a) fraud; or
(b) collusion; or
(c) wilful mis-statement; or
(d) suppression of facts; or
(e) contravention of any of the provisions of this Chapter or of the rules made thereunder with intent to evade payment of service tax,
by the person chargeable with the service tax or his agent, the provisions of this sub-section shall have effect, as if, for the words “one year”, the words “five years” had been substituted.”
14. It would be seen from a perusal of sub-section (1) of section 73 of the Finance Act that where any service tax has not been levied or paid, the Central Excise Officer may, within one year from the relevant date, serve a notice on the person chargeable with the service tax which has not been levied or paid, requiring him to show cause why he should not pay amount specified in the notice.
15. The “relevant date‟ has been defined in section 73 (6) of the Finance Act as follows;
“73(6) For the purposes of this section, “relevant date” means,-
(i) In the case of taxable service in respect of which service tax has not been levied or paid or has been short-levied or short paid-
(a) where under the rules made under this Chapter, a periodical return, showing particulars of service tax paid during the period to which the said return relates, is to be filed by an assessee, the date on which such return is so filed;
(b) where no periodical return as aforesaid is filed, the last date on which such return is to be filed under the said rules;
(c) in any other case, the date on which the service tax is to be paid under this Chapter or the rules made thereunder;”
16. The proviso to section 73(1) of the Finance Act stipulates that where any service tax has not been levied or paid by reason of fraud or collusion or wilful mis-statement or suppression of facts or contravention of any of the provisions of the Chapter or the Rules made there under with intent to evade payment of service tax, by the person chargeable with the service tax, the provisions of the said section shall have effect as if, for the word “one year”, the word “five years” has been substituted.
17. Learned senior counsel appearing for the appellant, in so far as the limitation is concerned, confined his submission to the first show cause notice dated 23.10.2012 covering the demand for the period June 2007 to March 2012. The normal period for issuing the notice at the relevant time was one year. The notice that was issued invoked the extended period of limitation contemplated under the proviso to section 73(1) of the Finance Act.
18. The allegations made in the show cause notice for invoking the extended period of limitation are as follows:
“43. In view of foregoing, it appears that M/s IBPPL had wrongly classified their service in the category of Commercial or industrial construction service in lieu of work contract service despite such lucid and explicit provisions. Even after issuance of numbers of the wrong circulars and clarifications M/s IBPPL resorted classification deliberately, with intent to evade payment of service tax in cash and to avail the inadmissible Cenvat credit of goods used in transfer of property to recover it in form of cash. The short payment of service tax, availment of the inadmissible Cenvat credit of goods used in transfer of property and collection of amount in excess of the service tax assessed or determined and paid as representing service tax not credited to the government was unearthed by department by causing investigation against them, hence, the provisions of Section 73(1) of Finance Act, 1994 for extended period of limitation appears to be invokable and the service tax amount and inadmissible credit as detailed in para appears to be recoverable from party. Further, interest at appropriate rate on the said amount of service tax and education cess also appears to be recoverable from M/s IBPPL, under the provisions of section 73-B & 75 of Finance Act, 1994.”
(emphasis supplied)
19. The appellant filed a reply to the aforesaid show cause notice and in respect of the invocation of the extended period of limitation stated as follows:
“5.1. It is submitted that we were registered for Commercial and Industrial construction service and discharging service tax on the full value including material prior to 01.06.2007. We have disclosed this fact to the department. Thus the department was fully aware that we were availing credit on the duty paid on material in providing commercial of industrial construction service. Department was thus having complete knowledge of the facts. Only because from 01.06.2007 works contract service was introduced the department cannot be allowed to raise the issue of suppression of facts with intention to evade payment of tax as late as in October 2012 that is nearly after expiry of 51/2 years after the introduction of works contract service. Our service tax records were audited by the Excise Department during various period, even MLU Audit by Delhi Zonal has been done (details as below). Apart from this our regular AG Audits are also been conducted from time to time.
Audit Period April 2008 to March 2010 conducted by Audit Team No IX which also declares the Audit for the prior period upto March 2008 (Annexure – II)
Audit Period (April 2010 To June 2010) conducted by Audit Group No VII. (Annexure – II)
In none of the audits so conducted the issue of non availability of the CENVAT Credit on the materials used was raised by the audit team. Thus the audit teams were also fully aware of all the facts. It is submitted that the Hon’ble Supreme Court has held in a number of cases that where facts have been disclosed or the facts were in the knowledge of the department. Extended period of limitation cannot be invoked.
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Similarly it is settled law where audit have been conducted of the records of the company and no objection was taken in regard to non availability of credit, it cannot be said that there is any suppression of facts with intention to evade payment of tax.
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5.2 Appellants have been filing their half-yearly returns showing, CENVAT credit availed on inputs/input services. There is thus a clear disclosure in the returns filed. In respect of such disclosure made in the returns filed, there cannot be any allegation of suppression of facts with intention to evade tax.
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5.3 It is further submitted that the department itself was aware that from 01.06.2007 works contract service was introduced in the statute book. Therefore, the department should have automatically checked up whether our company was paying service tax correctly under the erst-while category namely Commercial or Industrial construction service and should have advised the company to shift to Works contract service. But the department did not do anything nor the department issued any show cause notice within the normal period of limitation that is with in one year of the date of the introduction of works contract service in the statute book. The allegations which are contained in the show cause notice certain facts are not new and these facts were within the knowledge of the department in 2007 itself, if the department kept silence and accepted the tax is discharged under the commercial or industrial construction service, the same cannot be questioned by invoking extended period of limitation. The department thus having worked under the assumption that our company was right in law in discharging the service tax liability under commercial and industrial construction service and accepted the tax so paid including the value of the material and after availing the CENVAT Credit of excise duty so paid on the goods used in providing the service. It is not possible for the department to turn around in October 2012 nearly alter 51/2 years after the introduction of works contract service and choose to allege suppression of facts with intention to evade payment of tax.”
(emphasis supplied)
20. The order impugned records the following findings on the extended period of limitation:
“(B). I find that the SCN issued on 23.10.2012 covers the period from 01.06.2007 to 31.03.2012. The assessee had wrongly classified their service in the category of Commercial or industrial construction service instead of Works Contract Service despite such lucid and explicit provisions. Even after introduction of the works contract service w.e.f. 01.06.2007 vide Notification No. 23/2007-ST dated 22.05.2007, insertion of Rule 2A to the Service Tax (Determination of Value) Rules, 2006 vide Notification No. 29/2007-ST dated 22.05.2007, issuance of Rule 3 of the Work Contract (Composition Scheme for Payment of Service Tax) Rules, 2007 vide Notification No. 32/2007-ST dated 22.05.2007 as amended vide Notification No. 23/2009-ST dated 07.07.2009 and issuance of Master Circular No. 96/7/2007-ST dated 23.08.2007, the assessee resorted the wrong classification deliberately, with intent to evade payment of the service tax in cash and to avail the inadmissible CENVAT credit of goods used in transfer of property to recover it in form of cash. The short payment of service tax availment of the inadmissible CENVAT credit of goods used in transfer of property and collection of amount in excess of the service tax assessed or determined and paid as representing service tax not credited to the government was unearthed by department by causing investigation against them.
(C). The fact is that the present dispute has arisen on the basis of the enquiry undertaken by the department. Hence it is clear that the said wrong availment would have gone unnoticed but the enquiry and consequently there would have been a huge loss of revenue to the Department. It is observed that the assessee has claimed the filing of ST-3 return & visit of the audit team on a regular basis to justify that there was no suppression of facts on their part as the availment of credit was known to the dept. In this connection it is a fact that the nature & eligibility of the service was known only to the assessee. The assessee has not produced any evidence to the effect that the nature of service & its eligibility was well within the knowledge of the department. The assessee being a reputed organization with fully equipped staff well versed with the excise formalities would have known that the CENVAT credit so availed was ineligible, but made a deliberate attempt to conceal the fact of the ineligibility of the CENVAT credit from the department with the intent to avail the ineligible credit.”
(emphasis supplied)
21. The contention of the learned senior counsel for the appellant is that the appellant had been regularly filing the half yearly returns in form ST-3 and the demand is based only on the information declared in the ST-3 returns and the other statutory prescribed records maintained by the appellant. The contention is that the appellant had not resorted to non-declaration of facts or information in the returns, nor there was any failure on the part of the appellant to furnish any information required to be disclosed in the returns. Thus, there was no suppression of facts, much less willful suppression with an intent to wrongly avail CENVAT credit. According to learned senior counsel for the appellant, the levy of service tax on works contract service attained clarity only in the year 2015 when the Supreme Court pronounced the judgment in Commissioner of Central Excise vs. Larsen and Toubro6 wherein it was held that indivisible contracts are liable to service tax under „works contract‟ which was introduced w.e.f. 01.06.2007. Learned senior counsel also pointed out that the Supreme Court in Total Environment Building Systems Pvt. Ltd. vs. Deputy Commissioner of Commercial Taxes7 affirmed the aforesaid judgment of the Supreme Court in Larsen and Toubro and held that this judgment was not required to be referred to a Larger Bench of the Supreme Court. According to the learned senior counsel, continuation of discharging the service tax liability under the taxable category namely, commercial or industrial construction services at the full applicable rate on the gross amount charged in terms of section 67 of Finance Act, as was being done prior to the introduction of the works contract service w.e.f. 01.07.2007, was resorted to by the appellant bona fide and based on the prevailing practice. The appellant, therefore, justifiably held a belief regarding the valuation of works contract services as well as availment of CENVAT credit on „inputs‟ and „input services‟. Thus, the allegation of willful suppression of facts with an intent to evade the payment of tax by availing wrongful CENVAT credit is not correct and the invocation of the extended period of limitation for denial of CENVAT credit could not have been resorted to under the proviso to section 73(1) of the Finance Act. Learned senior counsel for the appellant also pointed out that the records were regularly subjected to comprehensive audits and, therefore, it cannot be alleged that there was suppression of facts. To support this contention learned senior counsel placed reliance upon the decision of the Tribunal in Incredible Unique Buildcon Pvt. Ltd. vs. CCE & ST, Alwar8. It is for these reasons that the learned senior counsel for the appellant submitted that the demand for the period from June 2007 to September 2010 is barred by limitation.
22. Learned authorised representative appearing for the department, however, submitted that in the facts and circumstances of the case the Commissioner was justified in holding that the extended period of limitation was correctly invoked. Elaborating this submission, learned authorised representative submitted that the appellant wrongly classified the service under the category of commercial or industrial construction service whereas the service actually rendered by the appellant was works contract service. The Supreme Court also, while remanding the matter, observed that the services rendered by the appellant w.e.f. 01.06.2007 would fall under works contract service. Thus, according to the learned authorised representative of the department, the Commissioner committed no illegality in invoking the extended period of limitation.
23. The submissions advanced by the learned senior counsel for the appellant and the learned authorized representative appearing for the department on the issue of limitation have been considered.
24. In the present case the appellant had been regularly filing ST-3 returns and as noted above, audits of the records of the appellant were regularly undertaken. The details of the audit are as follows:
