Case Law Details
Bhaskar Contractors Vs Additional Commissioner Central Excise & Service Tax (Delhi High Court)
Delhi High court held that in case there is supply or deemed supply of goods and rendering service, the same will fall within the ambit of works contract service regardless of whether or not VAT or service tax is payable.
Facts- Based on the statements of the appellant and the information received from the clients, the department found that the appellant had provided repair and maintenance services, erection commissioning and installation service and manpower recruitment and supply service during the period. As the appellant stated that he had collected service tax and not deposited and had not maintained any ledgers or balance sheets and had also not maintained the invoices, based on the Forms 26As provided by the appellant and the Forms 16A and other details obtained from the clients of the appellant, a Show Cause Notice dated 4.2.2013 was issued to the appellant demanding service tax invoking extended period of limitation and proposing to impose penalties.
This SCN was adjudicated upon by the Additional Commissioner who passed the OIO dated 25.5.2015 which was affirmed in the impugned order.
Conclusion- No VAT may be payable on some goods under the state laws but that does not convert the Works Contract Service into a pure service contract. Conversely, if no service tax is payable on the service portion of some types of works contracts, they do not automatically become contracts for sale of goods. The nature of the contract has to be examined and if it involves supply or deemed supply of goods and rendering service, it will be a Works Contract Service regardless of whether or not VAT or Service tax is payable. The appellant‘s contention that some of the contracts were Works Contracts must be examined by the original authority.
FULL TEXT OF THE CESTAT DELHI ORDER
M/s. Bhaskar Contractors1 filed this appeal to assail the Order in Appeal2 dated 10.3.2016 passed by the Commissioner (Appeals), Raipur whereby he dismissed the appellant‘s appeal and upheld the Order in Original3 dated 20.5.2015 passed by the Additional Commissioner.
2. The appellant is a proprietorship firm of Shri Rameshwar Rao registered with the Service Tax department. Intelligence gathered by the department indicated that while the appellant had obtained registration only on 23rd April 2010, it had been providing taxable services much before. It was found that the appellant was not filing the ST-3 Returns also. The jurisdictional superintendent sent a letter dated 21.09.2012 requesting the appellant to file the ST-3 return but the appellant did not respond. A reminder was sent on 6.8.2013 and then a summons dated 20.11.2013 was issued by the superintendent to the appellant. Shri Rao, the proprietor, appeared and gave a statement on 15.5.2014 in which he stated that they have been providing repair and maintenance service since 2009 and have also been providing manpower for repair and maintenance. He also confirmed that they collected over Rs. 15 lakhs as service tax from the clients and had not deposited this amount with the Government. He claimed that he was ignorant of service tax rules and when he realized his mistake, he wanted to deposit the amount but could not do so because his family met with an accident and was hospitalized and that he will pay be service tax within four months. He also said that he would file ST 3 returns within a week.
3. However, he neither deposited the service tax nor submitted the details of the payments which he had received for the services. So, Shri Rao was again summoned on 12.9.2014 and another statement was recorded. He submitted that he had deposited Rs. 5,40,000/- only by that date and said that he would deposit the rest shortly. He stated that they provided services to several firms such as SAIL, Beekay Engineering Corporation, S K Jain Constructions and several other firms. When asked to submit the ledgers and balance sheets, he said that they did not maintain them and had not even maintained the invoices/bills or contract agreements. However, he submitted Form 26AS of the Income Tax Department for the period 2009- 2010 to 2013-2014 in which the amounts received by the appellant were indicated. Form 26AS is generated by the Income tax system as a summation of the amounts paid by various persons to a PAN holder from which taxes have been deducted at Each deductor issues a Form 16A. Thus, the form 26AS is a summation of all the Forms 16A. It indicates the amounts paid by various persons to the PAN holder and the tax deducted.
4. The department wrote to all the clients to whom the appellant provided services for the details and all but one provided Forms 16A issued by them for the period 2009-2010 to 2013-2014.
5. Based on the statements of the appellant and the information received from the clients, the department found that the appellant had provided repair and maintenance services4, erection commissioning and installation service5 and manpower recruitment and supply service6 during the period. As the appellant stated that he had collected service tax and not deposited and had not maintained any ledgers or balance sheets and had also not maintained the invoices, based on the Forms 26As provided by the appellant and the Forms 16A and other details obtained from the clients of the appellant, a Show Cause Notice dated 4.2.2013 was issued to the appellant demanding service tax invoking extended period of limitation and proposing to impose penalties.
6.This SCN was adjudicated upon by the Additional Commissioner who passed the OIO dated 25.5.2015 which was affirmed in the impugned order. The operative part of the OIO is as follows:
“(i) I confirm the demand of Rs. 37,88,890/- (Rupees thirty seven lakhs eighty eight thousand eight hundred ninety only) [Service Tax of Rs. 36,78,534/-, Education Cess of Rs. 73,571/- and SHE Cess of Rs. 36,785/- on ‗Management, Maintenance & Repair Service‘ and order for its recovery from the Noticee under proviso to Section 73 (1) of the Finance Act, 1994. The service tax amounting to Rs. 5,40,000/- already paid by the Noticee is ordered to be appropriated against the demand of service tax confirmed.
(ii) I order recovery of interest at appropriate rate from the Noticee on amount of Rs. 37,88,890/- not paid/late paid under Section 75 of the Finance Act, 1994,
(iii) I impose a penalty of Rs. 10,000/- under Section 77 (2) of the Finance Act, 1994 for failure to file the ST-3 Returns.
(iv) I impose a penalty of Rs. 37,88,890/- under Section 78 of the Finance Act 1994 for suppressing the value of taxable services provided by them with intent to evade the payment of service tax.
(v) I impose a late fee of amount not exceeding Rs. 20,000/- for failure to file each of the Statutory ST-3 Return for the period 2009- 2010 to 2013-2014 under Section 70 of the Finance Act, 1994 read with rule 7 of the Service Tax Rules 1994
(vi) I impose a penalty under Section 77 (1) (c) (i) & (ii) of the Finance Act, 1994 for failure to furnish the information/documents @ 200/- for every day during the period 20.11.2013 to 10.10.2014 (i.e., the period during which failure continued) or penalty upto Rs. 10,000/- whichever is higher‖.
7. This appeal is on the following grounds:
a) The impugned order must be quashed. The SCN fails to justify the demand and has not classified the services which were rendered under MRS, ECIS and MMS. The demand made without specifying which of the services were rendered is vague and needs to be quashed on this ground.
b) The adjudicating authority confirmed the demand under MRS citing Board‘s circular No. B1/16/2007-TRU dated 5.2007. The circulars are not binding on the assessee. The appellant‘s submission that the service which it provided was a Works Contract Service was rejected by the adjudicating authority arbitrarily.
c) The adjudicating authority failed to provide reasons for confirming service tax with effect from 1.7.2012.
d) The department failed to carry out its obligation to classify the service. There were several work orders in which replacement of parts was the nature of service and therefore, they were certainly works contracts services.
e) Works contracts service was not chargeable to service tax till 30.6.2012.
f) The appellant was entitled to the benefit of exemption notification No. 1.3.2006
8. Learned counsel for the appellant reiterated the above submissions and prayed that the impugned order may be Learned authorized representative for the Revenue reiterates the impugned order.
9. We have considered the submissions on both sides and perused the records.
10. The appellant‘s first contention is that the department could not have charged service tax without first identifying which services were rendered and if they were taxable during the relevant period. It is the appellant‘s submission that the SCN failed to classify the services and therefore, the entire demand needs to be set aside. A perusal of the SCN and the background to the case indicates that it was issued based on whatever best information was available. It is undisputed that the appellant provided services in the nature of maintenance and repair services and manpower supply services to various clients (as per the statements of the proprietor Shri Rao) and had not even obtained the registration during the period. The appellant claimed that he was not aware of the service tax provisions. Nevertheless, according to his own statement he collected about Rs. 15 lakhs and had not deposited in the exchequer. He did not file the ST-3 returns as well. After sending a letter and a reminder, the jurisdictional Superintendent issued summons to record his statements. In the statements, he admitted that he had collected amounts as Service tax and not deposited them in the Government exchequer. In his second statement, he said that he had deposited part of the amount which he had collected in the Government account. Ignorance of law is not an excuse and the appellant seems to be selectively ignorant of law. He collected service tax from the clients but was ignorant that it had to be deposited with the Government and that he had to file ST-3 Returns. If he was ignorant, he should have at least filed the returns after receiving a letter from the superintendent. He did not and waited until he was compelled by summons to appear. When the appellant was asked for details of his business activity, he said that he did not have any ledger or balance sheets and that his invoices were destroyed. He, however, provided Form 26AS issued by the Income tax department. Since most of his clients were large, organized firms, they would deduct tax at source and issue Forms 16A with the income tax which shows how much amount has been paid and how much was deducted as tax. The data from these Forms is consolidated by the income tax system in Form 26AS. The Superintendent, then wrote to the clients and all but one provided Forms 16A which showed how much they had paid to the appellant. In this situation, when the appellant had not done anything which he was required to under service tax law, collected service tax of Rs. 15 lakhs from its clients and had not deposited it in the Government exchequer, had not provided the details of the services provided by him, claimed that the invoices were destroyed and that he had no balance sheet or ledger, the Superintendent did what could best be done based on the available information- viz., the Form 26AS provided by the appellant and the Forms 16A provided by the clients of the appellant. The appellant cannot now cry foul and claim that the department failed to classify the service. The department could classify the services if the appellant had provided the details of the services that it had provided. He cannot claim that he had no ledger, no invoices and had only collected Rs. 15 lakhs as service tax from the clients and pocketed it and then claim that the onus is on the department to classify the services. Section 72 of the Finance Act, 1994 deals with situations such as this and it reads as follows:
SECTION 72. Best judgment assessment. — If any person, liable to pay service tax, —
(a) fails to furnish the return under section 70;
(b) having made a return, fails to assess the tax in accordance with the provisions of this Chapter or rules made thereunder, the Central Excise Officer, may require the person to produce such accounts, documents or other evidence as he may deem necessary and after taking into account all the relevant material which is available or which he has gathered, shall by an order in writing, after giving the person an opportunity of being heard, make the assessment of the value of taxable service to the best of his judgment and determine the sum payable by the assessee or refundable to the assessee on the basis of such assessment.
11. Even if the appellant was not required to pay service tax on any service which it rendered, if it had collected any amount as representing service tax, it was duty bound to have deposited it in the Government exchequer as per section 73 A which reads as follows.
SECTION 73A. Service tax collected from any person to be deposited with Central Government. — (1) Any person who is liable to pay service tax under the provisions of this Chapter or the rules made thereunder, and has collected any amount in excess of the service tax assessed or determined and paid on any taxable service under the provisions of this Chapter or the rules made thereunder from the recipient of taxable service in any manner as representing service tax, shall forthwith pay the amount so collected to the credit of the Central Government.
(2) Where any person who has collected any amount, which is not required to be collected, from any other person, in any manner as representing service tax, such person shall forthwith pay the amount so collected to the credit of the Central Government.
(3) Where any amount is required to be paid to the credit of the Central Government under sub- section (1) or sub-section (2) and the same has not been so paid, the Central Excise Officer shall serve, on the person liable to pay such amount, a notice requiring him to show cause why the said amount, as specified in the notice, should not be paid by him to the credit of the Central Government.
(4) The Central Excise Officer shall, after considering the representation, if any, made by the person on whom the notice is served under sub-section (3), determine the amount due from such person, not being in excess of the amount specified in the notice, and thereupon such person shall pay the amount so determined.
(5) The amount paid to the credit of the Central Government under sub-section (1) or sub- section (2) or sub-section (4), shall be adjusted against the service tax payable by the person on finalisation of assessment or any other proceeding for determination of service tax relating to the taxable service referred to in sub-section (1).
(6) Where any surplus amount is left after the adjustment under subsection (5), such amount shall either be credited to the Consumer Welfare Fund referred to in section 12C of the Central Excise Act, 1944 (1 of 1944) or, as the case may be, refunded to the person who has borne the incidence of such amount, in accordance with the provisions of section 11B of the said Act and such person may make an application under that section in such cases within six months from the date of the public notice to be issued by the Central Excise Officer for the refund of such surplus amount.
12. The second contention of the appellant is that some of the services rendered were in the nature of Works Contract Service and its claim for classification under Works Contract Service was rejected. We find that this plea was taken by the appellant in respect of some contracts before the adjudicating authority. However, the adjudicating authority did not agree with this contention holding that unless VAT was paid on the goods which were transferred, it will not amount to Works Contract Service. Paragraphs 17.10 and 17.11 of the OIO are reproduced below.
17.10 Thus, the effect of the ‗Works Contract Service‘ is, if the specified contract is ‗work contract‘ on which VAT/Sales tax is payable, the service will be taxable under Works Contract Service. If the contract is a simple service contract (i.e., either no material is involved or even if some material is involved, VAT/Sales tax is not payable), the service will go under respective heads of taxable service.
17.11 I construe from the copy of the Commercial invoices issued by the notice to M/s. SAIL, BSP that there is no evidence to show that the transfer of property in good were involved in the execution of the contract. Further, VAT/Sales tax element is also absent in the invoices, which statutorily categorise the services renderd by the Noticee under respective heads of taxable services as standalone services. As such these services cannot be accommodated under ‗Composite Work Contract Service‘. (emphasis supplied)
13. The lower authorities have erred in holding that to qualify as the Works Contract Service, VAT or Sales tax must have been paid and even if some material is involved, if no VAT is payable, the contract will not be a Works Contract Service. There are (a) contracts for supply of goods; (b) contracts for providing services; and (c) contracts which involve both, i.e., provide services along with the goods required to provide such services. The third category of contracts are a separate species of contracts known to trade and are called ‗Works Contract Service‘. There is no actual sale of goods but there is deemed sale of the goods which have been used while rendering the service. The deemed sale of the goods is exigible to VAT but it is not necessary that VAT has to be charged or must be chargeable in every such transaction. No VAT may be payable on some goods under the state laws but that does not convert the Works Contract Service into a pure service contract. Conversely, if no service tax is payable on the service portion of some types of works contracts, they do not automatically become contracts for sale of goods. The nature of the contract has to be examined and if it involves supply or deemed supply of goods and rendering service, it will be a Works Contract Service regardless of whether or not VAT or Service tax is payable. The appellant‘s contention that some of the contracts were Works Contracts must be examined by the original authority.
14. The third main contention of the appellant is that no reason has been given for confirming demand after 1.7.2012. We find that all services were taxable from 1.7.2012 except those that fall in the negative list. If the appellant can show that its service fall under the negative list, it will be eligible to the exemption and not otherwise.
15. The appellant‘s other contentions regarding the eligibility to exemption notification also needs to be examined and decided by the original authority.
16. In view of the above, we set aside the impugned order and remand the matter to the original authority to re-adjudicate the case as follows.
a) Any amounts collected by the appellant as representing service tax must be deposited in the Government exchequer whether or not the services which were rendered were actually exigible to service tax.
b) The appellant‘s services may be classified as far as possible based on the work orders, invoices or other information which the appellant may provide. To the extent they are not provided, the adjudicating authority should exercise his/her best judgment.
c) Works contracts are all such contracts where there was either actual or deemed transfer of goods- whether or not any VAT or sales tax is paid or is payable on the goods component of such contracts. Taxability of such contracts should be decided accordingly.
17. The appeal is allowed by way of remand to the original authority.
(Order pronounced in open court on 17/04/2023.)
Notes ;-
1. Appellant
2. Impugned order
3. OIO
4. MRS
5. ECIS
6. MSS
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