2
BRIEF FACTS OF THE CASE
M/s K. B. Mehta Construction Pvt. Ltd., 509, Milestone, Drive-in-cinema Road, Thaltej,
Ahmedabad (hereinafter referred to as ‘the said assessee’) are registered with the Service Tax
department vide service tax registration No. AABCK6922HST001, under the category of
Consulting Engineer, Construction services in respect of commercial or industrial buildings and
civil structures, Supply of tangible goods for use service, Transport of goods by road & Works
contract service as defined under Section 65(105) of the Finance Act, 1994 (hereinafter referred
to as ‘the Act’).
2.
The said assessee had filed ST-3 Returns for the period April’ 2010 to September’ 2010
on 24-10-2010, and for the period October, 2010 to on 24-04-2011 with the Range office.
2.1
During the scrutiny of the above ST-3 returns for the period April’ 2010 to March, 2011,
it was observed that:
2.1.1 the said assessee had availed cenvat credit of common input services such as
telecommunications service (mobiles phone and landline telephone), security services, CA
services, courier service, insurance service, IT software services, Advertising services etc.
Further, it was noticed that they had availed benefit of abatement for the projects of Astral
Polytechnic Ltd Santej, Kairav Chemicals Ltd. and Adhyatama Vidya Mandir during the period
April, 2010 to November, 2010 and for the project Adhyatama Vidya Mandir during the period
December, 2010 to March, 2011. Thus, it appeared that they have wrongly availed the benefit of
abatement in as much as the exemption under Notification no. 01/2006-ST dated 01.03.2006
shall not apply in cases where:(i)
The CENVAT credit of duty on inputs or capital goods or the CENVAT credit of service
tax on input services, used for providing such taxable service, has been taken under the
provisions of the CENVAT Credit Rules,2004; or
(ii)
The service provider 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 [GSR 503(E), dated the 20th June, 2003]
2.1.2 The said assessee was paying service tax on their ongoing project namely M/s Astral
Polytechnic Ltd, Santej under Commercial or Industrial Construction Service at the effective rate
specified in section 66 of the Finance Act, 1994. However, later on they switched over to the
works contracts service and made payment at concessional rate which is not available to them as
per Board’s Circular No. 98/1/2008/-ST dated 04.01.2008.It appeared that the said assessee had
not fulfilled the condition (2) & (3) as prescribed in the Notification no:32/2007 dated 22-5-2007
and they had also switched over from commercial or industrial construction service to works
contract service, therefore, they were not eligible for paying service tax @ 4.12%8.
3.
of:
In view of the above it was found that the said assessee had contravened the provisions
i) Section 68 of the Finance Act, 1994 read with Rule 6 of the Service Tax Rules, 1994
in as-much-as they had short paid the Service Tax amounting to Rs.37,90,126/(Rs.14,71,525/- under Commercial or industrial construction service and
Rs.23,18,601/- under Works contract service) including Ed. Cess as explained in
foregoing para for the year 2010-11 to the credit of the Government within the
stipulated time limit;
ii) Section 70 of the Finance Act, 1994 (32 of 1994) read with Rule 7 of the Service Tax
Rules, 1994 in as-much-as they have failed to self assess the correct rate of service
tax payable by them.
4.
M/s K. B. Mehta Construction Pvt. Ltd., 509, Milestone, Drive-in-cinema Road, Thaltej,
Ahmedabad was issued a show cause no. STC/4-96/O&A/D-II/11-12 dated 19.10.2011 by the
3
Additional Commissioner, Service Tax, Ahmedabad, asking them to show cause as to why the
benefit of abatement claimed by the said assessee under Notification No.01/2006 dated
01.03.2006 should not be disallowed under the category of commercial or industrial construction
service and Service tax of Rs.14,71,525/- short paid by the assessee under the category of
commercial or industrial construction service should not be demanded and recovered from them
under Section 73 of the Finance Act 1994. The SCN also proposed recovery of Service Tax of
Rs.23,18,601/- short paid by the assessee under the category of works contract service under
Section 73 of the Finance Act, 1994. Apart from this the SCN also proposed recovery of interest
under Section 75 of the Finance Act, 1994 and imposition of penalty under section 76 and
section 77 of the Finance Act, 1994.
5.
The show cause no. STC/4-96/O&A/D-II/11-12 dated 19.10.2011 was later on
adjudicated by the Additional Commissioner, Service Tax, Ahmedabad vide OIO No.
50/STC/AHD(JSN)/12-13 dated 13.3.2013 wherein the adjudicating authority disallowed the
benefit of abatement claimed by the said assessee under Notification No.01/2006 dated
01.03.2006 under the category of commercial or industrial construction service and also
confirmed the demand Rs.37,90,126 /- (Rs.14,71,525/- + Rs.23,18,601/-) alongwith interest.
Penalty was also imposed on the said assessee under Section 76 and 77 of the Finance Act, 1994.
6.
Being agrived with the order passed by the Additional Commissioner, the said assessee
filed an appeal against the said order with the Commissioner (Appeal-IV), Ahmedabad. The said
appeal was rejected by the Commissioner (Appeals) vide OIA No. AHM-SVTAX-000-APP-01214-15 dated 21.4.2014.
7.
Scrutiny of the documents submitted by the assessee vide letter dated 6.9.2012 revealed
that they continue to follow the same practice of wrong availment of benefit under noti. No.
1/2006-ST dated 1.3.2006 and notification No. 32/2007 dated 25.2.2007. Thus a periodical
showcause notice was issued in terms of Section 73(1A) of the Finance Act, 1994.
8.
Show Cause Notice F.No. STC/4-61/O&A/2012- 13 dated 3.5.2013 was issued to them
asking them to show cause to the Commissioner, Service Tax, Ahmedabad as to why:
(i)
Benefit of abatement claimed by the said assessee under Notification No.01/2006
dated 01.03.2006 should not be disallowed under the category of commercial or
industrial construction service and value of Rs.4382291/- should not be considered
as taxable value under the category of commercial or industrial construction service
(ii)
Service tax of Rs.302422/- short paid by the assessee under the category of
commercial or industrial construction service should not be demanded and
recovered from them under Section 73 of the Finance Act 1994;
(iii) Amount of Service Tax of Rs.6303213/- short paid by the assessee under the
category of ‘works contract service’, should not be demanded and recovered from
them under Section 73 of the Finance Act, 1994;
(iv) Interest at the appropriate rate should not be charged and recovered from them
under Section 75 of the Finance Act, 1994 from the due date on which the Service
Tax was liable to be paid till the date on which the said Service Tax is paid;
(v)
penalty should not be imposed upon them under Section 76 of the Finance Act
1994, for contravention of Section 68(1) of the Finance Act, 1994 read with Rule 6
of the Service Tax Rules, 1994; and
(vi) Penalty should not be imposed upon them under Section 77 of the Finance Act,
1994 for the failure to include the taxable value in their relevant ST-3 returns for the
above services with the Service Tax Department within the stipulated time.
4
DEFENCE REPLY
9.
The said assessee filed their reply dated 9.5.2014 wherein they submitted as under :









They are registered in the service of Commercial and Industrial Construction Service for the
existing projects in the year 2011-12. During the year they have been in receipt of the new work
order in which they have opted for the “work contract service” .
They have scrupulously followed conditions under notification 1/2006 and 33/2007 –ST
respectively.
They are submitting C A Certificate specifying that the service tax payable under the commercial
and industrial construction service has been paid in cash only. Thus, they have not availed any
cenvat credit and thus have not contravened the provisions of notification 1/2006.
Since there was no separate column to separately show the cenvat credit for the commercial
construction service and works contract service they had no other option.
They had not availed cenvat credit on some input service which was utilised against the discharge
of astral project.
They had got another work order from Astral Ltd. For another site and had for that project opted
for the works contract service and avail credit of service against the payment of such service tax.
They got work order in the month of Oct’2010 and accordingly opted for WCT service.
They have fulfilled the condition under Notification 32/2007 dated 22.5.2007 and have paid
service tax accordingly.
That they want to rely on following case law in support of their contention.
(i)
(ii)
(iii)


2007 (6) S.T.R. 180 (Tri. - Mumbai) COMMISSIONER OF C. EX., SURAT
Versus UNIFLEX CABLE LTD.
2009 (16) S.T.R. 685 (Tri. - Del.) COMMISSIONER OF C. EX., GHAZIABAD
Versus MAJESTIC AUTO LTD.
2008 (12) S.T.R. 247 (Commr. Appl.) IN RE : PRAYAS CASTINGS LTD.
That penalty cannot be imposed under Section 76 & 77 of the Finance Act, 1994 in the
present case. In support of the above view, reliance was placed by them on the decision
of the Hon'ble Supreme Court in the case of Hindustan Steel Ltd. v The State of Orissa
reported in AIR 1970 (SC) 253. The above decision of the Apex Court, was followed by
the Tribunal in the case of Kellner Pharmaceuticals Ltd. Vs CCE, reported in 1985
(20) ELT 80, and it was held that proceedings under Rule 173Q are quasi-criminal in
nature and as there was no intention on their part to evade payment of duty the imposition
of penalty cannot be justified. The ratio of these decisions squarely applies in all force to
the present case. In the present case, there was neither any mala fide intention nor any
intention to evade payment of tax. In view of the foregoing, no penalty was imposable.
even if any contravention of provisions the same was solely on account of their bonafide
belief and such bonafide belief was based on the reasons stated above. The
contraventions, if any, were not with the intention to willfully evade payment of service
tax. Reliance was placed on the judgment of the Hon’ble Supreme Court in the case of
Pushpam Pharmaceuticals Company v CCE 1995 (78) ELT 401 (SC) wherein it was
held as follows:
4. Section 11A empowers the Department to re-open proceedings if the levy has
been short levied or not levied within six months from the relevant date. But the
proviso carves out an exception and permits the authority to exercise this power
within five years from the relevant date in the circumstances mentioned in the
proviso, one of it being suppression of facts. The meaning of the word both in law
and even otherwise is well known. In normal understanding it is not different then
what is explained in various dictionaries unless of course the context in which it
has been used indicates otherwise. A perusal of the proviso indicates that it has
been used in company of such strong words as fraud, collusion or wilful default.
In fact it is the mildest expression used in the proviso. Yet the surroundings in
which it has been used it has to be construed strictly. It does not mean any
omission. The act must be deliberate. In taxation, it can have only one meaning
5
that the correct information was not disclosed deliberately to escape from
payment of duty. Where facts are known to both the parties the omission by one to
do what he might have done and not that he must have done, does not render it
suppression.






[Emphasis Supplied]
Similar was the view of the Hon’ble Supreme Court in the case in CCE Vs. Chemphar
Drugs and Liniments 1989 (40) ELT 276 (SC), (Supra).
The rationale of both the above-cited cases was squarely applicable to their case . Hence
no penalty under section 76 of the Act was sustainable in the present case.
The present case is a fit case to be covered under section 80 of the Act, which expressly
provides that no penalty shall be imposed under section 76 and 77 if a Noticee has a
reasonable cause for default.
That without prejudice to the above submissions, it was submitted that no case had been
made out by the Department that the present demand of service tax was on account of
fraud, collusion, willful mis-statement, suppression of facts or contravention of any of the
provisions of Act or rules made thereunder with intention to evade the payment of service
tax. Hence no interest or penalty under section 76 and 78 of the Act can be imposed on
this ground itself. The Show Cause Notice is liable to be dropped on this ground also.
penalties under section 76 and 77 of the Act cannot be simultaneously imposed. Penalties
under section 76 and 77 are mutually exclusive. Section 77 is applicable if the nonpayment of service tax is due to reasons specified therein with an intention to evade
payment of service tax. Section 76 is applicable in cases other than those covered under
section 78 of the Act. Reliance was placed by the assessee on the following cases:
i. The Financers v. CCE, Jaipur - 2007 (8) STR 7 (Tri. Del)
ii. Commissioner of Central Excise, Ludhiana v. Pannu Property Dealer – 2009 (14)
S.T.R. 687 (Tri. - Del.).
iii. COMMISSIONER OF C. EX., CHANDIGARH Vs CITY MOTORS 2010 (19)
S.T.R. 486 (P & H)
iv. CCEC, Chandigarh Vs M/s Cool Tech. Corporation (Service Tax Appeal No 47 of
2010) (P & H)
v. C C E, Commissionerate Vs M/s FIRST FLIGHT COURIER LTD 2011(22) STR 622
(P&H)
The above view was reinforced by the proviso to Section 78 as is extracted below:
“Provided also that if the penalty is payable under this section, the provisions of
section 76 shall not apply. [Inserted vide Finance Bill 2008, w.e.f. 16th May,
2008]”
(Emphasis supplied)

it was a settled principle of law that if a dispute was arising out of interpretation of the
provisions of statute or exemption notification, no penalty can be levied. If at all it is
held that the service tax was payable as demanded by the Show Cause Notice, then also it
can be said that it was a dispute arising out of interpretation of the provisions of the law
and not because of any intentional avoidance of tax. They placed reliance on the
following case laws in this regard:
a)
Bharat Wagon & Engg. Co. Ltd. v. Commissioner of C. Ex., Patna, (146) ELT
118 (Tri. – Kolkata),
b)
Goenka Woollen Mills Ltd. v. Commissioner of C. Ex., Shillong, 2001 (135) ELT
873 (Tri. – Kolkata).
c)
Bhilwara Spinners Ltd. v. Commissioner of Central Excise, Jaipur, 2001 (129)
ELT 458 (Tri. – Del.),
6
For this reason also, the present show cause notice was liable to be dropped.

Moreover, Section 80 of the Act provides that no penalty shall be imposed on a Noticee
for any failure referred to in sections 76, 77 or 78 of the Act, if the Noticee proves that
there was reasonable cause for the said failure. Thus, the Act statutorily provides for
waiver of penalty. In the present case, there was a bonafide belief on their part that the
activities carried out by them were not taxable. Therefore, there was reasonable cause for
failure, if any, on their part to pay service tax and to file service tax return. Hence, in
terms of section 80 of the Act, penalties cannot be imposed under Sections 76, 77 and 78
of the Act. In this regard, reliance was placed on the following judgments:
(i)
(ii)
(iii)
ETA Engineering Ltd. vs. CCE, Chennai, 2004 (174) E.L.T 19 (T-LB)
Flyingman Air Courier Pvt. Ltd. vs. CCE 2004 (170) ELT 417 (T)
Star Neon Singh vs. CCE, Chandigarh, 2002 (141) ELT 770 (T)
For this reason also, the said assessee submitted that show cause notice was liable to be
dropped.
PERSONAL HEARING:
10.
The assessee was granted personal hearing on 25.2.2014, 25.3.2014 and 9.5.2014. In the
first two dates, the assessee requested for one months time. The personal hearing on 9.5.2014
was attended by Shri Vipul Kandhar, CA., advocate for the assessee, who argued the case on
behalf of the assessee and submitted a written reply dated 9.5.2014 and requested the case to be
dropped based on factual verification of their cenvat records by the department viz: Range
Office.
VERIFICATION OF CENVAT RECORDS BY THE JURISDICTION RANGE AND
DIVISION OFFICE:
11.
The verification of the Cenvat records of the assessee and the certificate issued by the
chartered accountant was carried out by the jurisdictional range and division office as requested
during the personal hearing. The verification report was submitted by the Jurisdictional Assistant
Commissioner vide letter F.No. SD-02/SCN-55/K B Mehta/12-13 dated 30.7.2014. The said
report is produced herein below:
Point-1:- Verification of C.A. Certificate:
On verification of C. A. Certificate, it is found that the figures of Construction Services in respect
of Commercial or Industrial Buildings and Civil Structures (with Abatement) and Commercial or
Industrial Buildings and Civil Structures (without Abatement) do not tally with figures shown in the ST-3
Returns (Copy of the ST-3 Returns are enclosed herewith). A work-sheet has been prepared on duty
payable and paid on the above service (copy enclosed). From the work-sheet, following discrepancies
have been found.
1.
It is observed that the assessee has to pay service tax liability of Rs. 76,10,168/- for the F.Y.
2011-12. However, on verification of the Challan submitted by the assessee, they have paid only Rs.
71,42,646/- in Construction Services in respect of Commercial or Industrial Buildings and Civil
Structures (with Abatement) and Commercial or Industrial Buildings and Civil Structures (without
Abatement). It appears that they had short paid the service tax liability of Rs. 4,67,522/-.
2.
Further, the assessee has stated that in the F.Y. 2011-12 they had paid excess payment of Rs.
4,43,086/- from Work contract Service and GTA Service (Work sheet along with copies of challans are
enclosed herewith) which was adjusted for Construction Services in respect of Commercial or Industrial
Buildings and Civil Structures (with Abatement) and Commercial or Industrial Buildings and Civil
Structures (without Abatement). Hence, the total differential service tax liability is of Rs. 24,436/- (Rs.
4,67,522.00- Rs. 4,43,086.00). The assessee was required to pay differential service tax liability of Rs.
24,436/-. The assessee agreed and paid S.T. liability of Rs. 24,436/- vide e-payment Challan No. 00105
dated 24.07.2014.
7
Further, the assessee has made late payment of service tax liability but they had not paid
interest on them. The assessee vide letter dated 24.07.2014 informed that they are ready to pay interest
within week.
3.
Further the assessee had provided copy of the ledger of Commercial or Industrial Buildings and
Civil Structures (with Abatement) to M/s. Adhyatma Vidhya Mandir where they had availed benefit of
Noti. No. 1/2006. On verification of the ledger, it is observed that they have maintained separate records
for cenvatable project and abated project. However, the assessee had taken cenvat credit on common
input services also i.e. Telephone bill, GTA, Consultancy fees of C.A. etc. Hence they are not eligible for
benefit of Notification No. 01/2006.
Point -2:- C. A. Certificate shows table with Abatement & without Abatement reasons thereof:
1.
In this regards on verification from assessee, they informed that there are two types of contracts,
out of this one project or contract they have opted with Abatement which was in the project of M/s.
Adhyatma Vidhya Mandir where project have worked with material and this project started since 20102011 & completed in 2011-2012.
2.
Reason for project without Abatement: As stated by assessee they have opted for full rate contract
in the project where major material has been supplied by principal and they have to execute contract with
labour & consumable material.
Point -3:- As per Para-1.
Point-4:- Verification of Cenvat Credit taken. The assessee has furnished Cenvat invoices. On
verification of the cenvat invoices it is observed that they have followed procedure as per Rule 6(1) of
CCR, 2004 and they have maintained separate records for cenvatable project and abated project.
However, the assessee has taken cenvat credit on common input services also i.e. Telephone bill, GTA,
Consultancy fees of C.A. etc. and hence they are not eligible for benefit of Notification No. 01/2006.
Further, the assessee vide letter dated 24.07.2014 informed that they had taken cenvat credit on
input services only which was already reflected in ST-3 return for the F.Y. 2010-11 & 2011-12 and not on
input and capital goods.
Point-5:- As assessee stated that they have not switched over from C I to WCT in any project as both
project were separate & independent. They have produced copy of contract, ledger & S. T. paid on such
project in year 2011-2012 herewith. (Copy enclosed)
DISCUSSIONS AND FINDINGS
12.
I have carefully gone through the contents of the Show Cause Notice and defence replies,
relevant documents of the case, and written submissions of the said assessee along with all the
relevant documents submitted in the course of personal hearing.
13.
I find that the main issues to be decided in this case are:
(i)
whether the said assessee is eligible for availing the benefit of Notification No.
01/2006 dated 01.03.2006 specified under the category of Commercial or
Industrial Construction Service , and
(ii)
whether the said assessee is eligible for availing the benefit of composition
scheme specified under the category of ‘Works Contracts Service’.
13.1 AVAILMENT OF THE BENEFIT OF NOTIFICATION NO. 01/2006 DATED
01.03.2006 SPECIFIED UNDER THE CATEGORY OF
COMMERCIAL OR
INDUSTRIAL CONSTRUCTION SERVICE
13.1.1 The assessee has availed the benefit of Notification no. 01/2006-ST dated 01.03.2006 and
paid service tax by availing the benefit of abatement. The assessee has argued that since they
8
had paid service tax after taking abatement in cash without availment of cenvat credit, they had
rightly availed the benefit under Notification no. 01/2006-ST dated 01.03.2006.
13.1.2 On going through Notification no. 01/2006-ST dated 01.03.2006 , I find that exemption
shall not apply in cases where:(i) The CENVAT credit of duty on inputs or capital goods or the CENVAT credit of service
tax on input services, used for providing such taxable service, has been taken under the
provisions of the CENVAT Credit Rules,2004; or
(ii) The service provider 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 [GSR 503(E), dated the 20th June, 2003]
13.1.3 On scrutiny of the records, it was found that they had taken cenvat credit of common
input services such as telecommunications service (mobiles phone and landline telephone),
security services, CA services, courier service, insurance service, IT software services,
Advertising services etc. On further verification of the invoices submitted by the said assessee, it
was noticed that they had also availed Cenvat credit of input services directly used in providing
taxable service to the project of Astral Polytechnic Limited, Santej.
The basic condition of Notification No. 1/2006-ST is that an assessee cannot take cenvat
credit, and only when no cenvat credit is taken, an assessee is eligible for abatement of service
tax. In this case, I find that there is no doubt that assessee has taken cenvat credit on input
services and therefore there is a breach of the conditions of the said notification.
I find that the assessee has submitted a chartered accountants certificate dated 30.5.2013
issued by Milind Shah & Co. In the said certificate, it has been certified that the appellant had
discharged service tax in respect of ‘Commercial or Industrial Construction Service’ in cash
without utilizing Cenvat Credit . However, the issue involved is wrong availment of Cenvat
credit of input service and not utilization thereof. Hence, the said certificate is of no use to the
cause of the assessee. Also the assessee’s contention that they had not availed cenvat credit is
also incorrect as the documents clearly show that they have taken cenvat credit on common input
services.
Further, I find that the lawmakers have put forth the notification to ensure that an
assessee can either avail cenvat credit and pay duty on the unabated gross value, or that they do
not avail cenvat credit and thus pay duty on the abated value. The availment of cenvat credit by
the assessee, thus destroys the very fabric of the notification.
Further, the said notification also spells that the assessee also cannot avail the benefit
under the notification No. 12/2003-Service Tax, dated the 20th June, 2003, which states that :
“In exercise of the powers conferred by 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 so much of the value of all the taxable services, as is equal to the value of
goods and materials sold by the service provider to the recipient of service, from the
service tax leviable thereon under section (66) of the said Act, subject to condition that
there is documentary proof specifically indicating the value of the said goods and
materials.”
I find that the said assessee is silent on the above clause also.
13.1.4 Further, as regards the assessee’s claim that they had not utilized the cenvat credit, I find
that an assessee who has either taken or utilized cenvat credit wrongly, the same is recoverable
9
under Rule 14 of CCR, 2004, which has also been upheld by the Apex Court, as spelt out by
Board’s circular No. 942/03/2011-CX dated 14.03.2011, and is reproduced as under :
Subject: Liability of interest where CENVAT credit was wrongly taken but reversed by
assessee before utilization-reg.
Attention is invited to the Board’s Circular No. 897/17/2009-CX dated 03.09.09,
wherein it was clarified that in light of clear and unambiguous provisions of Rule 14 of
the CENVAT Credit Rules, 2004, the interest shall be recoverable when credit has been
wrongly “taken”, even if it has not been utilized.
2. References have been received to re-examine the issue in light of judgement of P&H
High Court in the case of Ind-Swift Labs. V/s UOI [2009(240)ELT328(P&H)]. The said
judgement of P&H High Court held that under provisions of Rule 14 of CENVAT Credit
Rules, 2004, interest cannot be claimed from the date of wrong availment of credit. It is
required to be paid from the date it is wrongly utlilized.
3. The matter has been examined. It is observed that the issue has now been
conclusively settled by the Apex Court in the departmental appeal against the above
mentioned judgement of P&H High Court. The Apex Court vide its judgement dated
21.02.11 in Civil Appeal No. 1976 of 2011 has set aside the aforesaid order of Hon’ble
High Court. The Apex Court has ruled that “If the aforesaid provision is read as a whole
we find no reason to read the word “OR” in between the expressions ‘taken or utilized
wrongly or has been erroneously refunded’ as the word “AND”. On the happening of
any of the three circumstances such credit becomes recoverable along with interest.” In
effect, therefore, the view taken by the Board in circular dated 03.09.09 has now been
endorsed by the Apex Court.
13.1.5 Therefore, I find that wrong ‘availment’ of credit attracts the same penalty i.e recovery
of interest, as that of ‘utilization’ of the said credit . Thus availing the credit wrongly but not
utilizing it, is as wrong or bad in law, as availing the credit and utilizing it. Therefore, the said
assessee’s contention in this regard is not tenable, in the sense that they have committed the error
by availing the credit in the first place, even though not utilized.
13.1.6 Thus I come to the conclusion, that the assessee has wrongly availed the benefit of
Notification No. 1/2006-ST , and thus have to pay service tax on the gross value only. Therefore,
the benefit of abatement claimed by the said assessee under Notification No.01/2006 dated
01.03.2006 is disallowed under the category of commercial or industrial construction service and
value of Rs.43,82,291/- is to be considered as taxable value under the category of Commercial
Or Industrial Construction Service. Thus the Service tax of Rs.3,02,422/- short paid by the
assessee under the category of Commercial Or Industrial Construction Service is to be recovered
from them under Section 73 of the Finance Act 1994.
13.2 AVAILMENT OF BENEFIT OF COMPOSITION SCHEME
SPECIFIED UNDER THE CATEGORY OF ‘WORKS CONTRACTS
SERVICE’
13.2.1 Now I come to the other issue i.e. whether the assessee is the eligible for availing the
benefit of composition scheme specified under the category of ‘Works contracts service’.
13.2.2 The documents submitted by the assessee reveals that M/s Astral Poly Technik Limited
issued work orders for construction of new factory building and other structures for Astral
Polytechnik Ltd., Village-dholka, Near Ahmedabad, Gujarat on 26.2.2010. Also, on the same
day another order for construction of New Storage godwon, extension of imported goods storage
at Astral plant, Santej was also given to the assessee. Later on different LOIs were issued by M/s
10
Astral Poly Technik Limited to the assessee for construction of Lab, Canteen building etc. The
said letter contained the following clause:
“the rates and other terms and conditions will be same as applicable to main factory building
constructed at our Dholka plant”
13.2.2.1
Thus, the letter of intents issued by M/s Astral Poly Technik Limited clearly
indicate that they pertained to building/ structures which were only a part of the main contract
given by them to the assessee for construction of new factory building and other structures for
Astral Polytechnik Ltd., Village-dholka, Near Ahmedabad, Gujarat on 26.2.2010.
13.2.2.2
Further, the ST-2 (registration certificate) of the assessee shows
initially got registered on 16.6.2004 for the following services :
that they
a. Consulting Engineer,
b. Construction services in respect of commercial or industrial
buildings and civil structures,
c.
Transport of goods by road
Later, on 25.05.2010, following two more services were added by them
a. Supply of tangible goods for use service, &
b. Works contract service
13.2.2.3
It is thus evident that prior to classifying the services provided by them under
‘Works Contract Service’ they had classified the services under ‘Construction services in
respect of commercial or industrial buildings and civil structures’ and had accordingly paid
service tax on the same. However, at a later stage, the assessee started to pay service tax @ 4.12
% under ‘Work Contracts Service’ by availing the benefit of ‘Works Contract Composition
Scheme’ in respect of projects of M/s Astral Poly Technik Limited M/s Astral Poly Technik
Limited, Santej and M/s Astral Poly Technik Limited, Dhoka.
13.2.2.4
On verification of details and invoices produced by the assessee, it was noticed
that they had switched over from the category of ‘Commercial or Industrial Construction
Service’ to Works contract service in respect of ongoing project of M/s Astral Poly Technik
Limited, Santej and that they had availed cenvat credit on Inputs in respect of both the above
projects. This fact is confirmed by Commissioner (Appeals-IV) in his order OIA No. AHMSVTAX-000-APP-012-14-15 dated 21.4.2014.
13.2.3
Now coming to the contention of the assessee that they had fulfilled the
conditions as laid down under notification No. 32/2007 dated 22.5.2007 and had rightly opted for
‘WCT’ option and paid tax accordingly. In this connection, I find it relevant to produce the Work
Contract (Composition Scheme for payment of Service Tax) Rules, 2007 which has been notified
vide Notification No. 32/2007 dated 22.5.2007 which reads as under:
“3. (1)
Notwithstanding anything contained in section 67 of the Act and rule 2A of
the Service (Determination of Value) Rules, 2006, the person liable to pay service tax in
relation to works contract service shall have the option to discharge his service tax
liability on the works contract service provided or to be provided, instead of paying
service tax at the rate specified in section 66 of the Act, by paying an amount equivalent
to two per cent. of the gross amount charged for the works contract.
Explanation.- For the purposes of this rule, gross amount charged for the works contract
shall not include Value Added Tax (VAT) or sales tax, as the case may be, paid on
transfer of property in goods involved in the execution of the said works contract.
11
(2)
The provider of taxable service shall not take CENVAT credit of duties or cess
paid on any inputs, used in or in relation to the said works contract, under the provisions
of CENVAT Credit Rules, 2004.
(3)
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 shall not be withdrawn until the completion of the said
works contract.”
13.2.3.1
It is thus evident from the above that the composition scheme under “Works
Contract Service” was an optional scheme. Any person wishing to opt for payment of service tax
under the said scheme has to exercise option before making payment of service tax in respect of
a particular works contract. Further the use of word ‘shall’ in the said rule made it mandatory for
exercising of option before making payment of service tax. In the present case, the assessee has
argued that have already exercised their option of the time of application for Service Tax no. in
form ST-1 & obtained registration under ‘Works Contract Service’ only and that since no form
was prescribed for the option, so option given in the ST-1 form, suffice the purpose for the
option. However, the real fact is that the assessee was registered and paying service tax under the
category of ‘Commercial or Industrial Construction Service’ in respect of ongoing project of M/s
Astral Poly Technik Limited, Santej. Therefore, they are not entitled to opt for ‘Works Contract
Composition Scheme’ in respect of the ongoing project on which service tax was admittedly
discharged by them under the ‘Commercial or Industrial Construction Service’.
13.2.3.2 Also para 3(2) the above notification mentions that the provider of taxable service shall
not take CENVAT credit of duties or cess paid on any inputs, used in or in relation to the said
works contract, under the provisions of CENVAT Credit Rules, 2004. However, in the present
case I find that the assessee has taken cenvat credit on inputs in the projects carried out by them
at M/s Astral Poly Technik Limited Santej and at M/s Astral Poly Technik Limited Dholka. The
assessee’s contention that they have not availed Cenvat Credit is baseless since it is proved from
the records that they have taken the same. Thus, I find that not only has the assessee not
exercised any option, they have also taken cenvat credit on such work contracts. Further, the
assessee’s contention that they had as well exercised the option at the time of registration is
perplexing and baseless, as no such thing has been done by them.
13.2.3.3
In this connection, I refer to the case of NAGARJUNA CONSTRUCTION
COMPANY LTD. Versus GOVERNMENT OF INDIA as reported at 2010 (19) S.T.R. 321
(A.P.). The Hon’ble High Court of Andhra Pradesh while delving on the issue clearly spelt out
the following:
Works Contract service - Composition Scheme - Entitlement to benefits of composition
scheme arises only after exercise of option as per rules - Option cannot be exercised for
composition scheme after payment of Service tax paid on particular works contract Rule 3 of Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007.
[para 22 Works Contract service - Composition Scheme - Entitlement to benefits of
composition scheme arises only after exercise of option as per rules - Option cannot be
exercised for composition scheme after payment of Service tax paid on particular works
contract - Rule 3 of Works Contract (Composition Scheme for Payment of Service Tax)
Rules, 2007. [para 22
24. …..The benefit of the composition scheme under the 2007 Rules is available [subject
to the exercise of option and the conditions of eligibility for exercise of such option as
spelt out in Rule 3(3)] only in relation to “works contract service”, as defined in Rule
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2(c) as meaning service provided in relation to execution of the works contract referred
to in sub-clause (zzzza) of Clause 105 of Section 65 of the Act.
Works Contract service - Composition Scheme - Entitlement to benefits of composition
scheme arises only after exercise of option as per rules - Option cannot be exercised for
composition scheme after payment of Service tax paid on particular works contract Rule 3 of Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007.
[para 22]
13.2.5 Thus, in view of the above, I find that amount of Service Tax of Rs.63,03,213/- short paid
by the assessee under the category of Works Contract Service, is to be recovered with interest
from them under Section 73 of the Finance Act, 1994 read with Section 75 of the Act ibid..
14.
I find that the show cause notice invokes Section 76 and 77 of the Finance Act, 1994. I
find that the said assessee had not taken into account the service tax rate payable by them for
rendering taxable services i.e both the ‘Commercial or Industrial Construction Service’ and
‘Works Contract Service’, for the purpose of self assessment and payment of applicable service
tax and thereby not complied their tax liabilities. It was a deliberate efforts on their part to misdeclare the rate of taxable service in ST-3 Returns and thus not paying the correct amount of
service tax which is an utter disregard to the requirements of law and breach of trust deposed on
them and is certainly not in tune with Governments efforts in the direction to create a voluntary
tax compliance regime. Such outright act in defiance of law have been rendered by them, making
them liable for stringent penal action under various provisions of the Finance Act, 1994. As per
the Section 68 of Finance Act, 1994 read with Rule 6 of Service Tax Rules, 1994 as amended
time to time, the assessee was required to pay the Service Tax 10.30% for the year 2011-12
towards Commercial and Industrial Construction service & Works contract service. However the
assessee had not paid the service tax @ 10.30% for providing services regarding ‘Commercial
and Industrial Construction service’ & ‘Works contract service ‘as mentioned above and
therefore they were required to pay up the amount of service tax short paid and therefore penalty
under Section 76 of the Finance Act, 1994 is attracted.
14.1
I further observe that the Hon’ble CESTAT in the case of M/s Gujarat Industrial
Security Force Society Vs CST, Ahmedabad, vide order No. A/1110/WZB/AHD/2010 dated
05.08.2010, has held that no lenient view can be taken under section 76 of the Finance Act, 1994.
The relevant paras are reproduced below;
“2.
After hearing both the sides, I find that in this case, the assessee was registered
more than 6 years back and no explanation has been given by them for delayed filing of
return and delayed payment of service tax. Under these circumstances, I am not finding
fault in stand taken by the lower authority that penalty is imposable under section 76 and
once it is held that penalty is imposable under section 76, the amount fixed as per the
provision of section 76 is required to be imposed. Under these circumstances, even though
the Ld. Advocate submitted that the appellant is a non profit organization, no lenient view
can be taken in view of the provisions of law.
3.
Accordingly, the appeal is rejected.”
14.2 Hon’ble High Court of Gujarat in the case of CCE & Cus. Vs Port Officer, reported at
2010 (19) STR 641 (Guj) has now settled the issue of penalty under Section 76. The relevant
para is reproduced below ;
“10. A plain reading of Section 76 of the Act indicates that a person who is liable to pay
service tax and who has failed to pay such tax is under an obligation to pay, in addition
to the tax so payable and interest on such tax, a penalty for such failure. The quantum of
13
penalty has been specified in the provision by laying down the minimum and the
maximum limits with a further cap in so far as the maximum limit is concerned. The
provision stipulates that the person, who has failed to pay service tax, shall pay, in
addition to the tax and interest, a penalty which shall not be less than one hundred
rupees per day but which may extend to two hundred rupees for everyday during which
the failure continues, subject to the maximum penalty not exceeding the amount of service
tax which was not paid. So far as Section 76 of the Act is concerned, it is not possible to
read any further discretion, further than the discretion provided by the legislature when
legislature has prescribed the minimum and the maximum limits. The discretion vested in
the authority is to levy minimum penalty commencing from one hundred rupees per day
on default, which is extendable to two hundred rupees per day, subject to a cap of not
exceeding the amount of service tax payable. From this discretion it is not possible to
read a further discretion being vested in the authority so as to entitle the authority to levy
a penalty below the stipulated limit of one hundred rupees per day. The moment one
reads such further discretion in the provision it would amount to re-writing the provision
which, as per settled canon of interpretation, is not permissible. It is not as if the
provision is couched in a manner so as to lead to absurdity if it is read in a plain manner.
Nor is it possible to state that the provision does not further the object of the Statute or
violates the legislative intent when read as it stands. Hence, Section 76 of the Act as it
stands does not give any discretion to the authority to reduce the penalty below the
minimum prescribed.”
14.3 The Hon’ble High Court of Gujarat has further confirmed the above view in the case of
CCE Vs S J Mehta & Co., reported at 2011 (21) STR 105 (Guj.) and CCE Vs Bhavani
Enterprises reported at 2011 (21) STR 107 (Guj.).
15
I further find that it is a matter of fact that the said assessee had neither included the
taxable values, as discussed in the foregoing paras, in their relevant ST-3 returns nor paid the
service tax payable thereof, for such services for the period from April 2011 to March 2012.
Therefore, I hold them liable to penalty under Section 77 of the Finance Act, 1994.
16.
The assessee has sought benefit of Section 80. I find that the assessee have not produced
any reasonable cause for failure to pay service tax except suggesting that it was their bonafide
belief that service tax was not payable by them and it was an interpretational issue. This does not
merit invoking Section 80 of the Finance Act, 1994 for waiver of penalty. I have already
discussed the issue of classification and taxability in the foregoing paras. Therefore, I consider it
appropriate to hold the said assessee liable to penalty under Section 76 and 77 of the Finance
Act, 1994.
17.
The ratio of the judgement relied upon by the assessee have no relevance to the present
case and hence are not considered.
18.
In light of the aforesaid discussions and findings I hold that the service tax amount of Rs.
6605635/- { Rs. 302422/- + Rs. 6303213/-} alongwith interest is liable to be confirmed under
Section 73 of the Finance Act,1994 read with Section 75 of the Act ibid and they are also liable
to penalty under the provisions of Section 76 and 77 of the Finance Act,1994.
55.
Accordingly, I pass the following order:ORDER
(i)
I disallow the benefit of abatement claimed by the said assessee under Notification
No.01/2006 dated 01.03.2006 under the category of commercial or industrial
construction service and order that the value of Rs.43,82,291/- be considered as
taxable value under the category of ‘commercial or industrial construction service’.
14
(ii)
I order that the Service tax of Rs. 302422/- short paid by the assessee under the
category of ‘Commercial or industrial construction service’ be recovered from
them under Section 73 of the Finance Act 1994;
(iii) I order that the amount of Service Tax of Rs. 6303213/- short paid by the assessee
under the category of ‘Works Contract Service’ be recovered from them under
Section 73 of the Finance Act, 1994;
(iv) I order that the Interest at the appropriate rate be charged and recovered from them
under Section 75 of the Finance Act, 1994 from the due date on which the Service
Tax was liable to be paid till the date on which the said Service Tax is paid on the
amounts mentioned at (ii) and (iii) above;
(v)
I impose a penalty of Rs. 100/- (Rupees One Hundred Only) per day or at the rate
of 1% of the service tax amount per month, whichever is higher, starting with the
first day after the due date till the date of actual payment of the outstanding amount
of service tax, provided that the total amount of the penalty payable in terms of this
section shall not exceed fifty per cent of the service tax payable, under the
provisions of Section 76 of the Finance Act, 1994, as amended, for failure to pay
Service Tax within the stipulated period as required under the provisions of Section
68 (1) of the Finance Act, 1994 read with Rule 6 of the Service Tax Rules, 1994, as
amended.
(vi) I impose a penalty of Rs. 10,000 /- (Rupees Ten Thousand Only) under Section 77
of the Finance Act, 1994.
[Tejasvini P Kumar)
Commissioner
Service Tax : Ahmedabad
F.No. STC/4-61/O&A/12-13
Date : 27.8.2014
By R.P.A.D/Hand Delivery
To,
M/s K. B. Mehta Construction Pvt. Ltd.,
509, Milestone, Drive-in-cinema Road, Thaltej,
Ahmedabad
Copy to:1. The Chief Commissioner, Service tax, Ahmedabad
2. The Deputy Commissioner, Service Tax, Division-II, Ahmedabad
3. The Superintendent, Range-VI, Division-II, Service Tax, Ahmedabad with an extra copy of
OIO to be delivered to the assessee and send an acknowledgement to this office.
4. Guard File