Brief facts of the case
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- 24. DISCUSSION FINDINGS
- “ Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007”
- Construction Services — Amendment to Notification No. 15/2004-S.T.
- Service tax — Amendments to Notification Nos. 13/2003-S.T., 14/2004-S.T., 15/2004-S.T., 24/2004-S.T. and 8/2005-S.T.
- 2.This notification shall come into force on the 16th day of June, 2005. [Notification No. 19/2005-S.T., dated 7-6-2005]
- Effective rate of Service tax for specified services — Percentage of abatements
- Optional Composition Scheme for Works Contract
PERSONAL HEARING 23. Vide this office letter dated 13.05.2010, the service provider was requested to appear for personal hearing on 16.06.2010, but the service provider did not appear for personal hearing and requested for adjournment. The next date of personal hearing was extended on 13.05.2011. They again requested for adjournment. Again personal hearing was fixed on 13.07.2011 and Shri Sanjay Dwivedi, Advocate on behalf of the said service provider appeared for personal hearing and reiterated the argument communicated vide their letter dated 13.07.2011 & requested vide letter dated 03.08.2011 to grant some time to file one more defence reply. Further hearing was granted on 23.11.2011. Shri S.L.Bhatt, Executive of the company appeared for personal hearing and reiterated the argument communicated vide their letter dated 13.07.2011 and submitted the value of material duly certified by the Chartered Accountant. 24. DISCUSSION & FINDINGS 24.1 I have carefully gone through the records of the case, written submission of the said service provider in respect of the show cause notice as well as submission made during the course of personal hearing. 24.2 Before any decision on the individual allegations made in the impugned show cause notice is taken, following issues are required to be decided:- (i) Whether the said service provider exclusively provided completion and finishing services as defined under clause (c) of the definition of Commercial or Industrial Construction service as defined under section 65(25a) of the Finance Act, 1994 or otherwise. If it is so whether they are ineligible to avail benefit of abatement of 67% of the taxable value as per Notification No.15/2004-ST dated 10.09.2004 and Notification No. 01/2006-ST dated 01.03.2006? (ii) Whether, they are entitled to discharge service tax under “work contract ” service though they did not exercise a option as stipulated in rule (3) of “Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007” introduced w.e.f.1.6.2007 vide Notification No. 32/2007 ST dated 22.05.2007 or not? (iii) In case, none of the benefit as mentioned at (i) and (ii) above are considered, whether their claim under Notification No.12/2003 ST dated 20.06.2003 is admissible to them or not? 24.3.1 To examine the issue involves exclusion to the services covered under provided under sub-clause (c) of the definition of “Commercial or Industrial Construction” service for the purpose of abatement under Notification No.15/2004-ST dated 10.09.2004 and Notification No. 01/2006-ST dated 01.03.2006, I would like to refer the text of Notification No. 15/2004 ST- dated 10.09.2004 and Notification No. 01/2006 ST dated 01.06.2006. The same are as under. Service tax — Effective rate of duty for construction service In exercise of the powers conferred by sub-section (1) of section 93 of the Finance Act, 1994 (32 of 1994), the Central Government, being satisfied that it is necessary in the public interest so to do, hereby exempts the taxable service provided by a commercial concern to any person, in relation to construction service, from so much of the service tax leviable thereon under section 66 of the said Act, as is in excess of the service tax calculated on a value which is equivalent to thirty-three per cent. of the gross amount charged from any person by such commercial concern for providing the said taxable service : Provided that this exemption shall not apply in such cases where - (i) the credit of duty paid on inputs or capital goods has been taken under the provisions of the Cenvat Credit Rules, 2004; or (ii) the commercial concern has availed the benefit under the notification of the Government of India, in the Ministry of Finance, (Department of Revenue) No. 12/2003-Service Tax, dated the 20th June, 2003 [G.S.R. 503(E), dated the 20th June, 2003]. [Notification No. 15/2004-S.T., dated 10-9-2004] Construction Services — Amendment to Notification No. 15/2004-S.T. In exercise of the powers conferred by sub-section (1) of section 93 of the Finance Act, 1994 (32 of 1994), the Central Government, on being satisfied that it is necessary in the public interest so to do, hereby makes the following amendment in notification of the Government of India in the Ministry of Finance (Department of Revenue) No. 15/2004-Service Tax, dated the 10th September, 2004 which was published in the Gazette of India, Extraordinary, vide number G.S.R. 589 (E), dated the 10th September, 2004, namely :- In the said notification, the following Explanation shall be added at the end, namely : - ‘Explanation. - For the purposes of this notification, the “gross amount charged” shall include the value of goods and materials supplied or provided or used by the provider of the construction service for providing such service.’. [Notification No. 4/2005-S.T., dated 1-3-2005] Service tax — Amendments to Notification Nos. 13/2003-S.T., 14/2004-S.T., 15/2004-S.T., 24/2004-S.T. and 8/2005-S.T. In exercise of the powers conferred by sub-section (1) of section 93 of the Finance Act, 1994 (32 of 1994), the Central Government, on being satisfied that it is necessary in the public interest so to do, hereby directs that the following notifications of the Government of India in the Ministry of Finance (Department of Revenue) as specified in column (2) of the Table below, shall be amended or further amended, as the case may be, in the manner specified in the corresponding entry in column (3) of the said Table, namely :-
2.This notification shall come into force on the 16th day of June, 2005. [Notification No. 19/2005-S.T., dated 7-6-2005] 24.3.2 The notification No. 15/2004 ST dated 10-9-2004 was rescinded vide Sr.No. 12 of Notification No. 2/2006 ST- dated 01.03.2006 and was superseded vide notification No. 1/2006. Its text is as under. Effective rate of Service tax for specified services — Percentage of abatements In exercise of the powers conferred by sub-section (1) of section 93 of the Finance Act, 1994 (32 of 1994) (hereinafter referred to as the Finance Act), the Central Government, on being satisfied that it is necessary in the public interest so to do, hereby exempts the taxable service of the description specified in column (3) of the Table below and specified in the relevant sub-clauses of clause (105) of section 65 of the Finance Act, specified in the corresponding entry in column (2) of the said Table, from so much of the service tax leviable thereon under section 66 of the said Finance Act, as is in excess of the service tax calculated on a value which is equivalent to a percentage specified in the corresponding entry in column (5) of the said Table, of the gross amount charged by such service provider for providing the said taxable service, subject to the relevant conditions specified in the corresponding entry in column (4) of the Table aforesaid :
24.3.3 With effect from 16.06.2005 vide the Finance Act, 2005, the definition of “Commercial or Industrial Construction Service” defined vide clause 65(25b) of the Finance act, 1994 read as under. Section 65(25b) inserted in the Finance Act, 2005 w.e.f. 16.6.2005 defined the “Commercial or Industrial Construction Service” as ----
which is—
commerce or industry, or work intended for commerce or industry, but does not include such services provided in respect of roads, airports, railways, transport terminals, bridges, tunnels and dams. 24.3.4 The period of demand covered in the case on hand pertains to 16.06.2005 to 30.09.2007. Therefore, the said period covered under the definition of “Commercial or Industrial Construction Service” available in the statue w.e.f. 16.06.2005 is relevant. Further, Notification No.15/2004 under which abatement of 67% from the gross amount charged by the service provider was given was amended vide Notification No.19/2005-S.T., dated 7-6-2005 giving effect of the amendment from 16.06.2005. Under Notification No.19/2006 ST, following three conditions was stipulated in the Notification No. 15/2004 ST.
24.3.5 In addition to aforesaid conditions in the original notification No.15/2004-ST it was also stipulated that the benefit under Notification is not available if the credit of duty paid on inputs or capital goods has been taken under the provisions of the Cenvat Credit Rules, 2004; or the commercial concern has availed the benefit under the notification of the Government of India, in the Ministry of Finance, (Department of Revenue) No. 12/2003-Service Tax, dated the 20th June, 2003.In addition to the same vide notification no. 4/2005 St dated 01.03.2005 the “Explanation. - For the purposes of this notification, the “gross amount charged” shall include the value of goods and materials supplied or provided or used by the provider of the construction service for providing such service.’’ was also introduced. 24.3.6 Therefore, from 16.6.2005 if any service provider providing “Commercial or Industrial Construction service” intend to avail benefit under Notification No. 15/2004 ST and under substituted notification No. 1/2006 In the following circumstances no benefit of abatement of 67% is available. (i) If the service provider have availed Cenvat Credit under Cenvat Credit Rules, 2004. (ii) If the service provider have availed benefit under Notification No.12/2003 ST dated 20.06.2003. (iii) If the service provider have not included value of all the material and services in the gross amount charged for providing taxable service (iv) the taxable services provided are only completion and finishing services in relation to building or civil structure, referred to in sub-clause (c) of clause (25b) of section 65 of the Finance Act, 1994.”. 24.3.7 In this regard it is the submission of the said service provider that while providing the service they erecting facade/curtain waits/structural glazing etc., in the buildings, that contracts are in nature of works contract in as much as that it involves supply of material and erection of the facade, that the property in the material gets transferred to the client in the process of executing the work, that the trend in the industry is that now the facade itself acts as the external wall for the building and it is not backed by a wall of brick and cement. However, they neither produced a copy of “works contract” nor they have produced any documentary evidence such as invoice etc., which indicates that they have carried out the aforesaid activities. On the contrary I find from their letter dated 15.02.2008 wherein they have, inter alia, replied; that they are executing works contract i.e. they are supplying & fixing the material; that their services are at the stage of post construction of any residential or commercial building/ complex; that they are actually doing completion & finishing services mainly glass & aluminum fitting & fixing, structural glazing etc.; that in all these services the contract is with material & labour; that they were charging Service Tax on 33% on total contract till 31st May, 2007 & Vat on 67%; Therefore, it is very much evident that they were rendering service of completion & finishing services mainly glass & aluminum fitting & fixing, structural glazing etc., in connection with construction of Complex service classifiable under clause ( c ) of the “Construction of Complex” Service as defined under sub section (25b) of 65 of the Finance Act, 1994, and accordingly the said service is taxable service. Further, in view of aforesaid discussion they are not entitled to abatement of 67% from the taxable value as provided in notification No. 15/2004ST dated 10.09.2007 or under Notification No.1/2006 ST dated 1.03.2006. Accordingly I hold that show cause notice survives on merit in as much as in disallowing benefit of abatement of 67% from the taxable value and demand on this ground is liable to be confirmed. 24.4.1 Now I examine Whether, they are entitled to discharge service tax under “work contract ” service though they did not exercise a option as stipulated in rule (3) of “Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007” introduced w.e.f.1.6.2007 vide Notification No. 32/2007 ST dated 22.05.2007 or not? 24.4.2 In this regard it is their contention in the letter dated 15.02.2008 that w.e.f. 01.06.2007 Service Tax has been imposed on Execution of Works contracts services as separate taxable service; that the term works contract has been defined in Finance Act, 1994 (as amended); that as per the definition of works contract their service falls under the category of works contract; that they requested to change their category to execution of works contract w.e.f. 01.06.2007 and they had charged service tax on gross amount of contract @ 2% & paid as and when amount received from the contractee. In this regard I find that their contention is not correct in as much as they failed to brought on record that the service rendered by them on or after 01.06.2007 was pertaining to the earlier contract or were under other contract entered on or after 01.06.2007. Therefore, in view of CBEC’s circular No. 128/10/2010 ST dated 24.08.2010 issued from F.No. 354/141/2010-TRU their contention is not acceptable. The text of the said circular is as under. Subject :Service tax on on-going works contracts entered into prior to 1-6-2007 - Regarding. It has been brought to the notice of the Board that the following confusions/disputes prevail with respect to long term works contracts which were entered into prior to 1-6-2007 (when the taxable service, namely, Works contract came into effect) and were continued beyond that date : (i) While prior to the said date services like Construction; Erection, commissioning or installation; Repair services were classifiable under respective taxable services even if they were in the nature of works contract, whether the classification of these activities would undergo a change? (ii) Whether in such cases of continuing contracts, the Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007 under Notification No. 32/2007-S.T., dated 22-5-2007 would be applicable? 2. The matter has been examined. As regards the classification, with effect from 1-6-2007 when the new service ‘Works Contract service’ was made effective, classification of aforesaid services would undergo a change in case of long term contracts even though part of the service was classified under the respective taxable service prior to 1-6-2007. This is because ‘works contract’ describes the nature of the activity more specifically and, therefore, as per the provisions of Section 65A of the Finance Act, 1994, it would be the appropriate classification for the part of the service provided after that date. 3. As regards applicability of composition scheme, the material fact would be whether such a contract satisfies rule 3(3) of the Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007. This provision casts an obligation for exercising an option to choose the scheme prior to payment of service tax in respect of a particular works contract. Once such an option is made, it is applicable for the entire contract and cannot be altered. Therefore, in case a contract where the provision of service commenced prior to 1-6-2007 and any payment of service tax was made under the respective taxable service before 1-6-2007, the said condition under rule 3(3) was not satisfied and thus no portion of that contract would be eligible for composition scheme. On the other hand, even if the provision of service commenced before 1-6-2007 but no payment of service tax was made till the taxpayer opted for the composition scheme after its coming into effect from 1-6-2007, such contracts would be eligible for opting of the composition scheme. 4. The Board’s previous Circular No. 98/1/2008-S.T., dated 4-1-2008 and the ratio of judgment of the High Court of Andhra Pradesh in the matter of M/s. Nagarjuna Construction Company Limited v. Government of India [2010 (19) S.T.R. 321 (A.P.) = 2010 TIOL 403 HC AP ST] are in line with the above interpretation. 5. Trade Notice/Public Notice may be issued accordingly.
24.4.3 The aforesaid circular was also based on the decision of High court of Andhra Pradesh in the matter of M/s Nagarjuna Construction Company Limited Vs Govt. of India cited as 2010(19)STR 321(AP). Therefore their contention in this regard can not be accepted. 24.4.4 I have also gone through their contention as regard to option for availing Work Contract Service however, their contention is not in conformity with the clarifications given by CBEC’ in their letter No. B1/16/2007-TRU, dated 22-5-2007 where in the procedure for availing of Works Contract service is prescribed which read as under. Optional Composition Scheme for Works Contract : 9. Services provided in relation to the execution of a works contract [section 65(105)(zzzza)] is a taxable service. Works contract for the purposes of levy of service tax has been defined to mean a contract wherein : (i) transfer of property in goods involved in the execution of such contract is leviable to tax as sale of goods, and (ii) such contract is for the purposes of carrying out, - (a) erection, commissioning or installation, (b) commercial or residential construction and related completion and finishing services, and (c) turnkey projects including engineering, procurement and construction or commissioning (EPC) projects. 9.1 Works contract is a composite contract for supply of goods and services. A composite works contract is vivisected and, - (i) VAT/sales tax is leviable on transfer of property in goods involved in the execution of works contract [Art. 366(29A)(b) of the Constitution of India], and (ii) service tax will be leviable on services provided in relation to the execution of works contract. 9.2 Service tax is chargeable on the gross amount charged by the service provider for the taxable services provided (section 67). In the case of works contract, the taxable value of services is to be determined by vivisecting the composite works contract. Rule 2A of Service Tax (Determination of Value) Rules, 2006 [Notification No. 29/2007-Service Tax, dated 22-5-07], provides that value of works contract service shall be equivalent to the gross amount charged for the works contract less the value of transfer of property in goods involved in the execution of the said works contract. Thus, wherever the service provider maintains records, the value of services shall be the gross amount charged for the works contract less the value of transfer of property in goods involved in the execution of the works contract. 9.3 Wherever VAT/sales tax on transfer of property in goods involved in the execution of works contract is paid on actual value, the same value is also taken for the purpose of determining the value of works contract service. In other cases, value of works contract service shall be determined based on the actuals. It has also been explained that value of works contract service shall include : (i) labour charges for execution of the works; (ii) amount paid to a sub-contractor for labour and services; (iii) charges for planning, designing and architect’s fees; (iv) charges for obtaining on hire or otherwise, machinery and tools used for the execution of the works contract; (v) cost of consumables such as water, electricity, fuel, used in the execution of the works contract, the property in which is not transferred in the course of execution of a works contract; (vi) cost of establishment of the contractor relatable to supply of labour and services; (vii) other similar expenses relatable to supply of labour and services; and (viii) profit earned by the service provider relatable to supply of labour and services; 9.4 If the gross amount charged for the works contract is inclusive of VAT or sales tax, the value for the purposes of service tax shall be computed as follows : [Gross amount charged - (Value of transfer of property in goods involved in the execution of works contract and VAT or sales tax paid, if any, on the said transfer of property in goods involved in the execution of the said works contract)]. 9.5 As a trade facilitation measure and also for ease of administrative convenience, the service provider has been given an option to adopt the composition scheme for payment of service tax on works contract service. The Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007 has accordingly been notified vide Notification No. 32/2007-Service Tax, dated 22-5-07. 9.6 The scheme provides that the service provider shall have an option to pay an amount equivalent to two per cent. of the gross amount charged for the works contract instead of paying service tax at the rate specified in Section 66. Gross amount charged for the works contract shall not include VAT or sales tax paid on transfer of property in goods involved in the execution of the said works contract. The provider of taxable service opting to pay service tax under the said composition scheme is not entitled to take Cenvat credit of duty on inputs, used in or in relation to the said works contract, under the provisions of Cenvat Credit Rules, 2004. 9.7 The provider of taxable service who opts to pay service tax under these rules shall exercise such option in respect of a works contract prior to payment of service tax in respect of the said works contract and the option so exercised shall be applicable for the entire works contract and cannot be withdrawn until the completion of the said works contract. 9.8 Presently, erection, commissioning or installation service [section 65(105)(zzd)], commercial or industrial construction service [section 65(105)(zzq)] and construction of complex service [section 65(105)(zzzh)] are separate taxable services. 9.9 Various trade and industry associations have raised apprehension in respect of classification of a contract either under the newly introduced works contract service or under erection, commissioning or installation and commercial or residential construction services. 9.10 Contracts which are treated as works contract for the purpose of levy of VAT/sales tax shall also be treated as works contract for the purpose of levy of service tax. This is clear from the definition under Section 65(105)(zzzza). 10. Changes explained above are not exhaustive and are only for the purpose of providing guidance. Explanations are not to be treated as part of the statutory provisions and do not override them. The statutory provisions and the relevant notifications have to be read carefully for interpreting the law. 24.4.5 I have also gone through the text of Notification No. 32/2007 ST which read as under. Yüklə 161,82 Kb. Dostları ilə paylaş:
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