Case Law Details
Ahluwalia Contracts (I) Limited Vs Commissioner of Central Excise And Service Tax (CESTAT Chandigarh)
Introduction: In a recent judgment by the CESTAT Chandigarh, a significant clarification was provided regarding the calculation of service tax in the construction sector. The matter revolved around whether the value of free supply items can be included in the assessable value for the purpose of calculation of service tax. The case, Ahluwalia Contracts (India) Limited vs Commissioner of Central Excise And Service Tax, presents a pivotal turning point in the interpretation of the Finance Act.
Analysis: Ahluwalia Contracts (India) Limited, a civil contractor, was alleged by the Department to have evaded a significant amount of service tax by not including the value of free supply material in their tax liability calculations. The heart of the argument brought forth by Ahluwalia’s counsel was a precedent set by the Supreme Court in the L&T case, where indivisible composite contracts were liable for service tax only post 01.06.2007. Additionally, the value of freely supplied items, as per the Bhayana Builders case, should not be included in the assessable value. Furthermore, Ahluwalia argued against the extended period being invoked in the show-cause notices based on their settlements under SVLDRS.
On the other hand, the Department’s representative emphasized on previous cases, like Neminath Fabrics and King Bell Apparels, to assert their stance.
Upon examining the arguments and the precedents mentioned, the CESTAT highlighted the integral point that the services rendered by Ahluwalia were indeed taxable only from 01.06.2007. More critically, repeated show-cause notices on the same issue were deemed impermissible, leaning on the judgment in the Nizam Sugars Factory case.
Conclusion: The judgment by CESTAT Chandigarh in favor of Ahluwalia Contracts (India) Limited reinforces the principle that the value of free supply items should not be considered in the assessable value for calculating service tax. This ruling, influenced by preceding cases, emphasizes the importance of a clear and consistent interpretation of the Finance Act, ensuring justice and clarity in tax liabilities for businesses in the construction sector.
FULL TEXT OF THE CESTAT CHANDIGARH ORDER
The appellants, M/s Ahluwalia Contracts (India) Limited are engaged in construction services as a civil contractor. On going through the accounts of the appellants, the Department opined that the appellants have not included service tax in respect of the advance received from M/s Areans and M/s A.K.M (MBD) and that they have not included the value of free supply material while calculating the tax liability and thus have evaded service tax of Rs.4,38,20,680/- in violation of the provisions of Sections 67, 68 & 70 of the Finance Act, 1994 and Rules 6 & 7 of Service Tax Rules, 1994. A show-cause notice dated 24.10.2011 was issued to the appellants covering the period June 2006 to March 2008; the said show-cause notice was adjudicated by the Commissioner vide order dated 10.01.2014 vide which service tax of Rs.3,82,30,870/- was confirmed along with equal penalty under Section 78 of the Finance Act and penalty, of Rs.200 per day or 2% of service tax, under Section 76 and a penalty of Rs.5000/- under Section 77 ibid. Hence, this appeal.
2. Learned Counsel for the appellants submits that the Department has issued a total of seven show-cause notices, dated 18.03.2009, 24.03.2009, 14.03.2011 (three SCNs), 24.10.2011 and 27.09.2011; all the show-cause notices were issued on the basis of an audit objection raised by AG, Audit; the appellants have supplied all the necessary information to the Department on 3rd April, 2008; the SCNs cover overlapping period. He submits that the appellants basically entered into Works Contract and as per the Hon’ble Supreme Court judgment in the case of L&T- 2015 (39) STR 913 (SC), indivisible composite contracts can be subjected to service tax levy only after 01.06.2007; the Department, however, continued to demand duty under “Commercial or Industrial Construction Service”; in view of the decision in the case of Bhayana Builders, the value of freely supplied items cannot be included in the assessable value of the service tax payable. Moreover, he submits that they have settled the six show-cause notices dated 18.03.2009, 24.03.2009 and 14.03.2011 (three) and 27.09.2011 under SVLDRS; the Department cannot invoke the extended period in the subsequent show-cause notices.
3. Learned Authorized Representative reiterates the findings of OIO and submits that the contention that extended period cannot be invoked as the Department has the knowledge of the affairs of the company, is incorrect in view of the decision in the cases of Neminath Fabrics Pvt. Ltd. 2010 (256) ELT 369 (Guj.) and King Bell Apparels-2019 (365) ELT 681 (Mad.).
4. Heard both sides and perused the records of the case. We find that it is not in dispute in the impugned case that the contracts entered into by the appellants involve material as well as service component. As such, the service rendered by the appellants is taxable only from 01.06.2007. Moreover, in view of the decision in Bhayana Builders, the value of free supply items cannot be included in the assessable value for the purpose of calculation of service tax. Merits apart, we find that the show-cause notice and thus, the impugned order are not sustainable on the question of limitation. It is not disputed that repeated show-cause notices have been issued to the appellants on the very same issue and on the basis of very same objections raised by the Audit. It is not permissible in view of the Hon’ble Supreme Court judgment in the case of Nizam Sugars Factory- 2006 (197) ELT 465 (SC). It was followed in a number of decisions by the Hon’ble High Courts and the Tribunal. For these reasons, we find that the impugned order is not sustainable and is liable to be set aside.
5. In the result, we set aside the impugned order and allow the appeal.
(Pronounced on 17/08/2023)
