Brief facts of the case
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- Bu səhifədəki naviqasiya:
- Annexure-A
- DEFENCE REPLY
- activities are not merely completion and finishing service
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BRIEF FACTS OF THE CASE 1. M/s Crystal Metals Private Limited situated at 706, Satkar Building, B/h. Swagat Building, Nr. Lal Bunglow, C.G. Road, Navarangpura, Ahmedabad (hereinafter referred to as "the said service provider") are engaged in providing service of glass & aluminum fitting and fixing, structural glazing etc., which is mainly completion & finishing service falling under the category of Commercial or Industrial Construction service as defined under Clause (25b) of Section 65 of the Finance Act, 1994 (hereinafter referred to as "the act"). The said service provider is registered under the category of Commercial or Industrial Construction Service vide Service Tax Registration No. AAACC7736QST001. 2. During the primary scrutiny of the ST-3 Return filed by the said service provider it was noticed that they had short paid the service tax of Rs. 87,740/-. A letter was issued to the said service provider on 17.01.2008 from F. No. STC/AR-15/ST-3/139/07-08. The said service provider vide letter dated 15.02.2008 had, 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%; 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. 3. It appeared from the above clarification given by the said service provider that they are actually doing completion & finishing services mainly glass & aluminum fitting & fixing, structural glazing etc. Therefore, in view of the above reply given by the said service provider all the ST-3 Returns had been checked. 4. It was noticed that the said service provider has obtained Service Tax Registration on 10.05.2005 and the completion & finishing service in respect of Commercial or Industrial Construction service was brought under the service tax net w.e.f. 16.06.2005. 5. It further appeared that the said service provider has not obtained registration for Works Contract Service brought under the service tax net w.e.f. 01.06.2007. It further appeared that the said service provider has not given any option to switch over the payment of service tax from Commercial or Industrial Construction service to Works Contract service as provided under sub-rule (3) of Rule 3 of Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007. 6. Further, it was clarified under Circular No. 98/1/2008-ST issued from F. No. 345/6/2007-TRU dated 4th January, 2008, in respect of the revision of classification to works contract service from the respective classification and payment of service tax for the amount received on or after 01.06.2007 under the composition scheme, that vivisecting a single composite service and classifying the same under two different taxable services depending upon the time of receipt of the consideration is not legally sustainable. 7. The said service provider had filed ST-3 Returns from 16.06.2005 to 30.09.2007. It is further noticed that the said service provider is availing benefits of abatement @ 67% on the gross amount charged from any person for providing the said taxable service, in the erstwhile Notf. No.15/2004-ST dated 10.09.2004 as amended by Notf. No.l9/2005-ST dated 16.06.2005 till 01.03.2006 and after that a new Notf.No. 01/2006-ST dated 01.03.2006 came into force allowing the same exemption as contained in Notf. No. 15/2004-ST dated 10.09.2004, as amended. 8. A common condition for allowing the abatement @ 67% on both the above stated notifications reads as under:
9. The definition of Commercial or Industrial Construction service as given under Clause (25b) of Section 65 of the act read as under: "Commercial or Industrial construction service" means -
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. 10. It appeared from the above definition of Commercial or Industrial Construction Service read with Notf. No. 15/2004 & 01/2006 that the abatement @67% is not available for the service providers who provides completion and finishing services as described under sub clause ( c ) of Clause (25b) of Section 65 of the Act. It appears that the service provided by the said service provider clearly falls under sub clause ( c ) ibid. 11. The said service provider had confirmed under his letter dated 15.02.2008 that they are providing only completion and finishing service and charging service tax on the 33% of the total contract. It appeared in light of the condition prescribed under the said two notifications read with clause (25b) of Section 65 of the act that the abatement @ 67% is not available to the said service provider and hence, they require to pay service tax on the gross amount received for providing taxable service. It further appeared that the benefit of paying service tax @ 2% as Works Contract service is also not available to the said service provider in view of para 6 above. The said service provider had never approached the department for any amendment in his service tax registration and constitution till such time, the department had inquired them. Even in their above mentioned reply, the service provider has merely asked the department to make necessary changes in their constitution i.e. after their service category from Commercial Construction Services. They had not made any formal application in the prescribed format for making amendments in their service tax certificate. In case that amendment was to be done, it was from 1-06-07 onwards and not for services provided prior to that period. 12. A detailed calculation of service tax paid by the said service provider after availing benefits of the said notifications and actual amount of service tax payable is attached as 'Annexure-A' to this Show Cause Notice. According to the said calculation it appeared that the said service provider had short paid the Service Tax (including Ed. Cess & H.Ed. Cess) to the tune of Rs. 14,80,525/-. Thus it appeared that, the said service provider was liable to pay service tax during the period 16.06.2005 to 30.09.2007 to the tune of Rs.20,79,896/-, whereas, they had only discharged service tax liability to the tune of Rs.5,99,371/- and thereby short paid service tax to the tune of Rs.14,80,525/-.
15. Under Section 69 (1) of the act, it is provided that "every person liable to pay the service tax under this chapter or the rules made there under shall, within such time and in such manner and in such form as may be prescribed, make an application for registration to the Superintendent of Central Excise’. The time, manner and form prescribed under Rule 4 of the Service Tax Rules, 1994. 16. Under Section 70(1) of the act, it is provided that "every person liable to pay service tax shall himself assess the tax due on the services provided by him and shall furnish to the Superintendent of Central Excise, a return in such form and in such manner and at such frequency. 17. In view of the above discussion and reply of the said service provider, it appeared that the said service provider was very well aware of the service tax law and hence intentionally evaded the service tax by suppressing the actual activities carried out by them and by availing incorrect benefits of the Not. No. 15/2004 & 1/2006 and Works Contract Service without reading/following the notification in to-to and without caring for exclusion clauses. 18. In this case the said service provider had not obtained Service Tax Registration under the category of Works Contract service without following proper procedure, had deposited tax availing the benefit of the new nomenclature and thereby contravened the provisions of Section 69(1) of the act read with Rule 4 of the Service Tax Rules, 1994. 19. In this case the said service provider had not assessed the service tax due correctly, on the services provided by them, and thereby contravened the provisions of the Section 70 and evaded Service Tax of Rs. 14,80,525/-.by wrongly availing benefits of notification No. 19/2005-ST dated16-6-2005 as amended by Noti. No. 01/2006-ST dated 1- 3 -2006 20. All the contraventions, as discussed above, made by the said service provider are punishable under Section 76, 77 & 78 of the act and the Service Tax amounting to Rs.14,80,525/- recoverable under Section 73 of the act. Also the said service provider had willfully suppressed the activities carried out by them, proviso to Section 73 (1) in respect of larger period, is also invoked. 21. Therefore, M/s Crystal Metals Private Limited, situated at 706, Satkar Building, B/h. Swagat Building, Nr. Lal Bunglow, C.G. Road, Navrangpura, Ahmedabad 380009, was issued a to show cause bearing F.No. STC-80/O&A/SCN/JC/CM/08-09 dated 02.03.2010 asking them as to why:-
DEFENCE REPLY:- 22.1 The said service provider filed their defence reply vide their letter dated 13.07.2011 wherein they, inter-alia, submitted that, the captioned notice proposes to demand Service Tax for the period 16/06/2005 to 30/09/2007 by disallowing the abatement availed on 'Commercial or Industrial Construction Services' till 31.05.2007 and by further asserting that they were not entitled to pay tax under the category 'Works Contact' thereafter @ 2% since they did not opt for the scheme, that the notice further proposes to impose penalty under sections 76, 77 and 78 of the Finance Act, 1994. 22.2 They further submitted that they are engaged in 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 façade; 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. 22.3 They further submitted that Service tax was imposed on Commercial or Industrial Construction Service with effect from 16.06.2005; that they applied for and were granted registration on 10.05.2005, that as per advice of experts, they were required to pay tax only on 33% of the contract value; that they took the advice in good faith and started paying tax on that value; that Returns were filed accordingly; that they continued this practice till 31st May 2007 when 'Works Contract' itself was made a taxable service, that since their activities were ab initio works contract, with effect from 01st June 2007, they started paying tax under that category; that they opted to pay tax under the composition scheme, that the law did not provide for any formal mechanism to opt for the composition scheme, that they accordingly started paying tax @ 2% + Ed. Cess + Sec. Ed. Cess, under the composition scheme; that this fact was also reflected in the returns. 22.4 They further submitted that due to oversight, inclusion of 'works contract' in registration certificate remained to be done; that subsequently, on receipt of the letter dated 17.01.2008 from the Range Superintendent, they requested to include the said category in registration certificate with effect from 01.06.2007. 22.5 They further clarified that captioned show cause notice demands tax on the following two grounds viz.,:
22.6 In this regard they made further submissions as under for consideration.
22.7 They further submitted that their activities were always execution of works contract, that for the purposes of VAT their activities have always been classified as 'works contract' (even prior to 01.06.2007), that by its nature, the works contract is neither a pure sale of goods nor provision of service, that It is only by way a deeming provision in the constitution that the transfer in property is deemed to be a sale. 22.8 They further make clear that prior to 01.06.2007 there was no tax on works contract, that it is submitted that a service could be taxed under the heading 'construction service' only if it was a 'service' and not a works contract, that only if a 'works contract' is vivisected, a deemed service could emerge, that such vivisection had not be been authorized under the law, that It is only with effect from 01.06.2007 that the tax came to be levied on 'works contract'. 22.9 They further submitted that it is well settled that where a new levy comes into existence, it is a confirmation of the position that the activity was not taxable before the new levy took effect, that legislation of a new entry to cover any activity necessarily implies that the activity was not liable to tax prior to the insertion, unless the new entry is clearly set out as a carve-out, from a pre-existing entry; that they rely on the following decisions in this regard: Glaxo Smithkline Pharmaceuticals Ltd. - 2006 (003) STR 0711(Tribunal) = 2005 (188) ELT 0017 (Tri.), Board of Control for Cricket in India, 2007 (007) STR 0384 (Tri), Gujarat Chemical Port Terminal Co. Ltd., 2008 (009) STR 0386 (Tri.) Diebold Systems (P) Ltd. - 2007(11)LCXOI37 Eq 2008 (009) STR O546 (Tri.). 22.10 They further submitted that relying on the decision in Diebold Systems, supra, the Hon'ble Tribunal held in Prince Foundations (P) Ltd. v. CST, Chennai - 2009 (016) STR 0149 (Tri. - Chennai) that Service Tax cannot be charged on 'works contracts' prior to 01.06.2007. 22.11 They further rely in the case of Indian National Ship owners Association v. D.O.I. [2009 (014) STR 0289 (Bom.) = 2009 (092) RL T 06S1 (Born.)], the Hon'ble High Court observed at para 38 that: 38. If the Department's contention is accepted that would mean that the activities of the members of the 1st petitioner are covered by entry (zzzy)and entry (zzzzj). Such a result is difficult to comprehend because entry(zzzzj) is not a specie of what is covered by entry (zzzy). Introduction of new entry and inclusion of certain services in that entry would presuppose that there was no earlier entry covering the said services. Therefore, prior to introduction of entry (zzzzj), the services rendered by the members of the 1st petitioner were not taxable. Creation of new entry is not by way of amending the earlier entry. It is not a carve out of the earlier entry. Therefore, the services rendered by the members of the 1 st petitioner cannot be brought to tax under that entry. 22.12 They Further submitted that , in CCE, Raigad v. Indian Oil Tanking Ltd. - 2010 (018) STR 0577 (Tri. - Mumbai), the Hon'ble Tribunal held by majority decision that Service tax leviable on service portion involved in works contract only after 1-6-2007, that Service tax not leviable on value of material sold during works contract, that Hon'ble Tribunal observed that: 46. The second question is whether service tax could be levied on the service component of the works contract in this case. The works contract was executed long before 1-6-2007, during which period such contracts were not exigible to service tax. Works contract came to be taxable only w.e.f 1-6-2007. The 46th Amendment to the Constitution was made with intent to enable the States to levy sale tax on the sale component of a works contract. It had a direct bearing on entry 54 of State List of the V 11th Schedule to the Constitution. It has no such bearing either on Entry 97 (residuary entry) or on Entry 92C (service tax) of the Union List. The 46th Constitutional Amendment did not purport to enable the Central Excise authorities to levy any tax on the service component of a works contract. After considering the judgments of the apex Court cited by both sides, I find that there, is no direct decision in favour of the Revenue for levy of service tax on the service component of a works contract prior to 1-6-2007. On the other hand, the judgment of the Hon'ble High Court in Indian National Shipowners Association case is directly against the Revenue and the same is binding on this Bench of the Tribunal. In the result, the second point of difference is also held against the Revenue. 22.13 They further contested that their activities are not merely completion and finishing service: 22.14 It is firstly submitted that the activity in question was not merely completion/finishing but it involved substantial work viz. erection of facades/ curtain wall/structural glazing. 22.15 The trend in the construction industry is that the glazed curtain wall itself constitutes wall for the building i.e. it is not supported on an inner brick/cement wall. In absence of the facade, the building will only be a structure of beams and pillars without outer walls. The building would not come into existence without the outer wall - even if such wall is of glass or aluminum. Therefore, where the glazing is not supported by an inner wall, the glazing cannot be said to be completion or finishing but it has to be considered as part of the construction of the building. 22.16 Their activity is simultaneous to construction of the building and does not commence after construction of the building is completed. It part of the construction work. The building will not come into existence if the outer wall is not constructed. Therefore, where the outer wall comprises of the glazing alone, the glazing work is not a completion or finishing work. 22.17 They further submitted that alternatively benefit of notification 12/2003-ST may please be allowed. 22.18 They further submitted that even if the activity is considered as 'completion and finishing' and consequently abatement is denied, they remain entitled to benefit of notification 12/2003-ST whereby value of the material should be allowed to be deducted from the gross contract value. 22.19 They further explained that in a 'works contract' the property in the goods is transferred during the course of execution of the contract. Such transfer is 'deemed sale' under constitution .The value of sale is deductible from the gross value, in terms of the notification 12/2003-ST. 22.20 They further submitted that value of the material would be equal to sum of the cost of material and profit on sale, that Cost of the material consumed by them during 16.06.2005 to 31.05.2007 roughly works out to Rs.82 lakh, that a notional profit has to be added to it to arrive at the sale value of the goods and material used for execution of the contracts. 22.21 They further submitted that they have requested a Chartered Accountant to determine the correct value of the goods involved in execution of the contracts separately for the period from 16.06.2005 to 31.05.2007 and from 01.06.2007 to 30.09.2007, that they request that they may be granted a time of about one month to complete the working and to furnish the complete details. 22.22 They further submitted that classification of Service not dependent upon registration category, 22.23 They further submitted that classification of a service cannot be dependent upon inclusion of the service in registration certificate, that Classification has to be necessarily determined by application of law, that a person has to obtain registration under the classification determined on the basis of application of law, that it cannot be the other way round, that category in registration certificate cannot dictate classification of the activity. 22.24 They further submitted that while inclusion of a service in the registration certificate is a procedural matter, classification of a service is substantive, that in fact even if a person is not registered with the department, the liability on him to pay tax is by reference to appropriate classification, that 'Works Contract' would remain 'Works Contract' even if the category was not included in the registration certificate, that Therefore, they were eligible to pay tax under the category 'works contract' w.e.f. 01.06.2007 notwithstanding that the registration certificate had not been amended on that date. 22.25 They further submitted that an incorrect classification cannot be perpetuated, that the services were ab - initio 'works contract', that they were new to the service tax compliance and had opted to pay tax as advised. 22.26 They further explained regarding Option to pay tax under composition scheme,
22.28 They further submitted that the law does not prescribe any formal procedure for exercising option to avail composition scheme under works contract, that Paying tax @ 2% itself amounts to exercise of the option. 22.29 They further crystallizes their view that when one notes that such option can be exercised from contract to contract, that thus, a service provider can choose to pay tax under composition scheme for one contract and can simultaneously choose to avail valuation under rule 2A for another contract, that The only prohibition is that he cannot have different options for different portions of a single contract, that had the law makers envisaged any formal procedure such as intimation to, or permission from the department or any other formal mode of exercising the option, it would have spelt out the same, that a procedure cannot be inferred merely by interpretation, that Plain reading of the law makes it clear that 'exercising option' merely means paying tax under the scheme, that thus, where a service provider pays tax for a contract under composition scheme, it amounts to exercising his option to avail the scheme. 22.30 They further submitted that observation at para 6 of the notice made without verification, 22.31 That, at para 6 of the notice the clarification issued under Circular No. 98/l/2008-ST dated 04.01.2008 have been noted and it has been observed that a single composite service cannot be vivisected and classified under two taxable services depending upon time of receipt of consideration, that based on this observation, the notice proposes to deny benefit of composition scheme (para 11 of the notice refers). 22.32 They further submitted that the observations are presumptuous and have been made without verification of facts, that they request that the facts be verified, that they are in process of gathering the details and shall submit in a short duration. 22.33 They further contested that value of material is deductible irrespective of whether the service is classified under Construction Service or under Works Contract, 22.34 That they have already submitted that in case of construction service, value of the material is deductible in view of notification 12/2003-ST. 22.35 They further submitted that in view of Rule 2A (l ) (i) of the Service Tax (Determination of Value) Rules, 2006 the value of the goods value of transfer of property in goods involved in the execution of the works contract, that text of the relevant portion of the rule is reproduced hereunder:
22.36 Therefore, even if the benefit of composition scheme is disallowed to certain contracts, value of the goods consumed for the contract needs to be deducted from the gross value. Tax would be payable only on the value arrived after such deduction. The notice is barred by limitation. 22.37 The impugned notice has invoked larger period of limitation by alleging intentional evasion of tax. 22.38 They further submitted that they never intended to evade tax ,that the service tax on construction work was a new levy and there was lot of confusion among service providers as well as the department, that they believed bonafide that the tax was payable only at 33% of the contract value; and complete information was provided in the returns. 22.39 They further concluded that sum of the contentions and allegations made at paragraphs 13 to 17 of the notice is that law required us to pay tax at a particular rate and in a particular manner and that our failure to do so tantamount to intentional evasion of tax. 22.40 They further submitted that such an interpretation would render every short payment of tax as intentional evasion, that it would mean that there can never be a case of mistake, error, ignorance of law, unintentional short payment, that such an interpretation is contrary to well settled position, that One must distinguish ignorance of law from deliberate evasion. 22.41 They further contested that penalty under both Section 76 and 78 cannot be imposed simultaneously, 22.42 That provisions of Sections 76 and 78 of the Finance Act, 1994 are mutually exclusive, that While Section 78 operates where the elements of fraud, collusion, any willful mis-statement, suppression of facts etc. are present; the Section 76 operates where these elements are absent, that penalty cannot be simultaneously imposed under both the provisions. 22.43 The further rely on the issue already settled in Suganthi Travels v. CCE, Trichy - 2011 (022)STR 0072 (Tri. - Chennai) where the Hon'ble Tribunal has held that the provisions are mutually exclusive and penalty cannot be levied under both of them simultaneously. 22.44 They further requested to invoking provisions of Section 80 of the Finance Act, 1994.
22.46 They further submitted value of material consumed for execution of contract by them with Chartered Accountant certificate on 23.11.2011. Yüklə 161,82 Kb. Dostları ilə paylaş:
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