Case Law Details
Johnson Lifts Private Limited Vs Commissioner of G.S.T. and Central Excise (CESTAT Chennai)
CESTAT Chennai held that where the value has already been split as per the state law and VAT has been paid on the goods component of the composite works contract, no service tax can be levied on such component again taking recourse to Rule 2A(ii) of Service Tax (Determination of Value) Rules, 2006.
Facts- The appellant is providing works contract services of manufacture, erection, commissioning and installation of lifts. On verification of records of the appellant, the Revenue appeared to have noticed the appellant’s payment of Service Tax only on 15% of the total value of works contract which, upon enquiry, revealed that on the balance 85% of the works contract value, they are paying VAT. It was thus claimed by the appellant that the balance 85% of the value of contract was not amenable to Service Tax.
The only issue involved here is whether the Revenue was justified in demanding Service Tax on the allegation that the valuation adopted by the appellant was not in accordance with Rule 2A of the Service Tax (Determination of Value) Rules, 2006.
Conclusion- CESTAT in assessee own case has held that Since the appellant has paid service tax on 15% of the contract value and has discharged VAT on the remaining portion, we are of the view that any differential service tax demand beyond that already discharged for the period 1.6.2007 to 31.7.2007 is unsustainable.
Hon’ble Supreme Court in Safety Retreading Co. (P) Ltd. has held that where the value has already been split as per the state law and VAT has been paid on the goods component of the composite works contract, no service tax can be levied on such component again taking recourse to Rule 2A(ii) of Service Tax (Determination of Value) Rules, 2006.
Held that we are of the view that the impugned demand cannot sustain, for which reason the impugned orders deserve to be set aside, which we hereby do.
FULL TEXT OF THE CESTAT CHENNAI ORDER
The admitted facts that are emerging from the impugned Orders-in-Original are that the appellant is providing works contract services of manufacture, erection, commissioning and installation of lifts. On verification of records of the appellant, the Revenue appeared to have noticed the appellant’s payment of Service Tax only on 15% of the total value of works contract which, upon enquiry, revealed that on the balance 85% of the works contract value, they are paying VAT. It was thus claimed by the appellant that the balance 85% of the value of contract was not amenable to Service Tax.
1.2 It appears that during further verification, the appellant revealed that the payment of VAT for works contract was made as per the prevailing / respective State VAT law, States allowed standard deduction as 15% except the State of Andhra Pradesh wherein such standard deduction was 30%. By this, the Revenue entertained a doubt that the payment of Service Tax by the appellant was not as per Rule 2A of the Service Tax (Determination of Value) Rules, 2006, subsequent to which it appears that there were few exchanges of communication, but however, the Revenue chose to further investigate into the matter.
2. Subsequently, it appears that Show Cause Notices dated 15.10.2014 and 10.04.2015 came to be issued proposing, inter alia, proposing recovery of Service Tax for the periods April 2012 to March 2013 and April 2013 to March 2014, as detailed in the annexures thereto, along with appropriate interest under Section 75 and penalty under Sections 76, 77 and 78 of the Finance Act, 1994.
3.1 It appears that the appellant filed detailed replies rebutting each of the allegations as to the non-payment of Service Tax and also justifying the same, but however, the adjudicating authority vide impugned Orders-in-Original dated 31.03.2016 and 29.04.2016 chose to confirm the demands as proposed in the Show Cause Notices.
3.2 It is a matter of record that the appellant approached the Hon’ble High Court of Madras and thereafter filed rectification applications before original authority, but however, the original authority having not accepted the claims of the appellant as to any mistake apparent in the original orders, has filed the present appeals before this forum.
4. When the matter was taken up for hearing, Shri S. Durairaj, Ld. Advocate, appeared for the appellant. He would contend at the outset that the issue of works contract having not been denied by the Revenue and also there being no denial as to the payment of VAT as per the respective VAT Acts at the prevailing rates, the issue of demanding Service Tax under the pretext of the valuation being not in accordance with Rule 2A of the Service Tax Valuation Rules is already settled by the Hon’ble Supreme Court in its decision in the case of M/s. Safety Retreading Co. (P) Ltd. v. Commissioner of C.Ex., Salem [2017 (48) S.T.R. 97 (S.C.)]. He would also rely on the following orders of this Bench of the Tribunal in the appellant’s own cases for different periods: –
i. Johnson Lifts Pvt. Ltd. v. Commissioner of Service Tax, Chennai [Final Order No. 41790 of 2017 dated 21.08.2017 in Service Tax Appeal No. 67 of 2009 – CESTAT, Chennai]
ii. Johnson Lifts Pvt. Ltd. v. Commissioner of Central Excise (ST), Chennai-IV [Final Order No. 40922 of 2018 dated 22.03.2018 in Service Tax Appeal No. 766 of 2010 – CESTAT, Chennai]
4.2 The Ld. Advocate would also refer to one another order of this very Bench in the case of M/s. Touchstone Infrastructure and Solutions Pvt. Ltd. v. Commissioner of Central Taxes and Central Excise, Chennai North [2021 (11) TMI 695 – CESTAT, Chennai] (Final Order No. 42436 of 2021 dated 18.11.2021 in Service Tax Appeal No. 42599 of 2018) wherein again the decision in the case of M/s. Safety Retreading Co. (P) Ltd. (supra) has been followed.
4.3 He would thus request that the demand raised against the appellant is not proper and therefore the same is required to be set aside.
5. On the other hand, Shri M. Ambe, Ld. Departmental Representative, supported the findings of the lower authority.
6. We have considered the rival contentions and we have also gone through the documents placed on record. We have also gone through the decision of Hon’ble Apex Court in M/s. Safety Retreading Co. (P) Ltd. (supra).
7. After hearing both sides, we find that the only issue to be decided by us is: whether the Revenue was justified in demanding Service Tax on the allegation that the valuation adopted by the appellant was not in accordance with Rule 2A of the Service Tax (Determination of Value) Rules, 2006?
8.1 The undisputed fact is that the appellant provided works contract; it also discharged VAT at a certain percentage, admittedly as prescribed by the relevant States. In order to ascertain the correctness of the appellant’s claim, it appears that even the Chief Commissioner authorised a cost accountant to verify the same. We find that reports of the said cost accountant are placed on record at page numbers 123 to 127 and 93 to 97 of the respective appeal memoranda, wherein even the said cost accountant has clearly specified the State-wise details of the percentage of material portion and the service portion on which the respective VAT and service tax to be paid for the years 2012–13 and 2013–14. This, according to the appellant, has been followed by them.
8.2 We also find from the record that in the appellant’s own case (supra), although for a different period, even the original authority had accepted the value of service portion as 15% only, which the appellant claimed to have followed in the year under challenge. It was also argued that the Revenue had accepted the above Commissioner’s adjudication order dated 07.02.2013, which was for the period from April 2008 to March 2012, by not filing any further appeal.
9.1 In its decision in the case of M/s. Safety Retreading Co. (P) Ltd. (supra), the Hon’ble Apex Court has held as under: –
“10. The exigibility of the component of the gross turnover of the assessee to service tax in respect of which the assessee had paid taxes under the local Act whereunder it was registered as a Works Contractor, would no longer be in doubt in view of the clear provisions of Section 67 of the Finance Act, 1994, as amended, which deals with the valuation of taxable services for charging service tax and specifically excludes the costs of parts or other material, if any, sold (deemed sale) to the customer while providing maintenance or repair service. This, in fact, is what is provided by the Notification dated 20th June, 2003 and CBEC Circular dated 7th April, 2004, extracted above, subject, however, to the condition that adequate and satisfactory proof in this regard is forthcoming from the assessee. On the very face of the language used in Section 67 of the Finance Act, 1994 we cannot subscribe to the view held by the Majority in the Appellate Tribunal that in a contract of the kind under consideration there is no sale or deemed sale of the parts or other materials used in the execution of the contract of repairs and maintenance. The finding of the Appellate Tribunal that it is the entire of the gross value of the service rendered that is liable to service tax, in our considered view, does not lay down the correct proposition of law which, according to us, is that an assessee is liable to pay tax only on the service component which under the State Act has been quantified at 30%.”
9.2 The above view has been followed by this Bench of the CESTAT in the assessee’s own case for a different period vide Final Order No. 41790 of 2017 dated 21.08.2017 (supra), the relevant paragraph of which reads as under: –
“10. As per the Table given above, a small portion of the demand pertains to 1.6.2007 to 31.7.2007. It is not disputed that the appellant have discharged service tax on 15% of the value of the contract and also that they have paid VAT/Sales Tax on 85% of the value of the contract. Thus, the entire contract has been subjected to VAT/Service Tax. It is the contention of the department that appellants ought to discharge service tax on 33% of the gross amount charged being the liability under the service tax law. Rule 2A(ii) of the Service Tax (Determination of Value) Rules, 2006 as reproduced above, shows that the value adopted for the purpose of payment of VAT shall be taken as the value of transfer of proper in goods involved in the section of works contract for determining eth value of works contract service. Since the appellant has paid service tax on 15% of the contract value and has discharged VAT on the remaining portion, we are of the view that any differential service tax demand beyond that already discharged for the period 1.6.2007 to 31.7.2007 is unsustainable and requires to be set aside, which we hereby do. Similarly, the demand of CENVAT credit to the tune of Rs.2,51,202/- also is seen to have been utilized by the appellant for payment of service tax prior to March 2007, during which period works contract service was held not to be liable to service tax. In the event, we do not find any grounds for sustaining the demand of Rs.2,51,202/- and the same is set aside. The demands for differential tax liability / recovery of credit having been set aside, the penalties imposed will also not sustain.”
(Emphasis supplied)
A similar view was also expressed by this Bench in the assessee’s own case vide Final Order No. 40922 of 2018 dated 22.03.2018 (supra).
9.3 Further, in the case of M/s. Touchstone Infrastructure and Solutions Pvt. Ltd. (supra), the Bench had observed as under: –
“2. The facts of the case, after filtering out unnecessary details, are that the appellant provides finishing services on works contract basis to various parties. This work includes providing false ceiling, flooring, glazing, fixing up of partition, electrical work etc. The appellant charges a single amount for the entire contract without invoicing separately for the goods and the services. It is undisputed that the appellant is liable to pay service tax on these services under the head of works contract service and the appellant is also liable to pay VAT on the goods component of these contracts. The appellant paid VAT on the goods component reckoning 70% of the total contract of the value of the goods as per the provisions of Tamil Nadu Value Added Tax Act and Rules and paid service tax on 30% of the total contract value. The case of the Revenue is that since the appellant could not ascertain the actual value of goods transferred, it should have paid service tax under composition scheme. After calling for information from the appellant and examining the records, a show cause notice dated 21.12.2016 was issued to the appellant demanding differential service tax of Rs. 1,51,82,658/- as follows :-
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4. The appellant paid VAT as per Section 5 of the Tamil Nadu VAT Act, read with Rule 8 (5) (d) of Tamil Nadu VAT Rules which prescribe that in case of works contracts 30% of the total amount charged would be treated as the service component and VAT shall be paid on the remaining 70%. The appellant discharged VAT accordingly and paid service tax on the 30% of the total amount reckoning it as the service component. The case of the Revenue is that service tax on works contract is chargeable on the consideration received for service portion of works contract if such consideration is available in the contract/invoice separately, otherwise service tax must be paid under the “Works Contract (Composition Scheme for payment of Service Tax) Rules, 2007 upto 30.06.2012. For the period after 01.07.2012, the value of service portion of works contract of composite nature has to be arrived at as specified in Rule 2A (ii) of Service Tax (Determination of Value) Rules, 2006, as amended. Thus, there are two periods in question upto 30.06.2012 and thereafter.
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6. The case of the appellant is that the composition scheme is an option given to the appellant and it cannot be forced upon it. Revenue also cannot choose any option for the appellant who is free to choose to pay as per Composition Scheme or otherwise in case of works contracts. It has paid service tax on the service component of the works contract and paid VAT on the goods component of it. To bifurcate the amount charged for ‘works contract’ between goods and services, it is bound to follow the law laid down in the Tamil Nadu VAT Act which specifies the 30% of the value can only be taken as service component. Once VAT is paid on the remaining 70% service tax cannot also be charged on that amount for this period.
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14. Respectfully following ratio of the Supreme Court in Safety Retreading Co. (P) Ltd. (supra), we hold that where the value has already been split as per the state law and VAT has been paid on the goods component of the composite works contract, no service tax can be levied on such component again taking recourse to Rule 2A(ii) of Service Tax (Determination of Value) Rules, 2006. The demand for the period post 01.07.2012 also needs to be set aside on this ground. Since the demand of service tax does not sustain, the demand of interest under Section 75 and imposition of penalty under Section 76, 77 and 78 do not also survive.”
(Emphasis supplied)
9.4 In view of the above clear decision of the Hon’ble Supreme Court, which has been consistently followed, we are of the view that the impugned demand cannot sustain, for which reason the impugned orders deserve to be set aside, which we hereby do.
10. Resultantly, the appeals are allowed with consequential benefits, if any, as per law.
(Order pronounced in the open court on 01.09.2023)
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