Cce, Lucknow vs M/S Raj & Co

Service Tax Appeal Nos. 659-660 of 2009 and 661 of 2009 with Cross Objection No. 11 of 2010 and Appeal Nos. 815-816 of 2009

(Arising out of the Order-in-Appeal No. 103-ST/APPL/LKO/2009 dated 11/05/06 passed by the Commissioner (Appeals), Customs & Central Excise, Lucknow).

For approval and signature:

Honble Mr. Justice G. Raghuram, President

Honble Mr. H.K. Thakur, Technical Member

1 Whether Press Reporter may be allowed to see the Order for publication as per Rule 26 of the CESTAT (Procedure) Rules, 1982?

2 Whether it should be released under Rule 26 of CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not?

3 Whether their Lordships wish to see the fair copy of the Order?

4 Whether Order is to be circulated to the Departmental authorities?

CCE, Lucknow . Appellant

vs.

M/s P.C. Construction ]

M/s Raj & Co. ] . Respondent

and vice-versa

alongwith

M/s Saraswati Traders ]

Appearance:

Shri R.K. Mishra, A.R. - for the appellant/respondent.

Shri Kapil Vaish, C.A. for the Respondent/appellant.

Coram: Honble Mr. Justice G. Raghuram, President

Honble Mr. H.K. Thakur, Technical Member

Final Order No. 52176-52180/2015 dated 06/07/2015

Per. H.K. Thakur :-

These appeals have been filed by the appellants and the Revenue against OIA No. 110-112-ST/LKO dated 11/05/2006. Appeal No. ST/815/2009 and ST/816/2009 have been filed by appellants M/s P.C. Construction, Lucknow and M/s Raj and Co., Lucknow respectively. Appeals No. ST/659/2009, ST/660/2009 and ST/661/2009 have been filed by the Revenue against the same OIA dated 11/05/2006. Cross Objection ST/11/2010 has been filed by M/s Saraswati Traders with respect to appeal No. ST/661/2009 filed by the Revenue.

2. Shri Kapil Vaish (C.A.), appearing on behalf of the appellant M/s P.C. Construction and M/s Raj & Co., learned C.A. argued that his clients are providing services of Erection, Commissioning or Installation Service (ECIS) to M/s Bharat Sanchar Nigam Limited (BSNL) in the form of erection of towers for which certain items are supplied free of charge by BSNL and certain other items are used by the appellants. That Commissioner (Appeals) allowed them the benefit of 67% abatement as per Notification No. 19/2003-ST dated 21/8/2003, as amended by Notification No. 12/2004-ST dated 10/09/2004, and Notification No. 1/2006-ST dated 01/3/2006. That First Appellate Authority upheld penalty imposable only under Section 78 of the Finance Act, 1999 and no penalty under Section 76 of the Act was held imposable. That services provided by appellants have been wrongly classified as erection, commissioning and installation service when the same are chargeable to service tax only as works contract service w.e.f. 1/6/07 and appellants were not required to discharge any service tax upto 31/5/2007. That for the period prior to 01/6/2007, even if held to be classifiable as ECIS, value of free supplies of materials of BSNL are not required to be included in the value as per the law laid down by Delhi High Court in the case of Bhayana Builders (P) Ltd. Vs. CST, Delhi reported in 2013 (32) S.T.R.

49 (Tri.  LB). That for the period after 31/5/2007 no demand can be confirmed as show cause notice has not been issued under works contract service. It was also strongly argued that extended period is not invokable as appellant was under the bonafide belief that the activities undertaken were under works contract which became taxable as works contracts service only w.e.f. 1/6/2007. That even sales/trade tax authorities are assessing activities of the appellants as works contract. That BSNL were eligible to Cenvat credit under Cenvat Credit Rules and service tax paid by appellants would have been available as Cenvat credit and intention to evade payment cannot be attributed to the appellants. It was thus his case that extended period and penalty under Section 78 of the Finance Act, 1994 cannot be invoked. That due to interpretational dispute and harbouring a bonafide opinion that appellant activity is not taxable, there was a reasonable cause for which benefit of Section 80 of the Finance Act, 1994 will be available. He relies upon the case law of Jai Jawan Coal Carriers Pvt. Ltd. vs. CST, New Delhi reported in 2015 (37) S.T.R.

509 (Tri.  Del.). It was also argued by the learned CA that benefit of cum-tax payment has not been made available as per Section 67 (2) of the Finance Act, 1994.

3. Shri Govind Dixit and Shri B.B. Sharma, learned ARs appeared on behalf of the Revenue. It is the case of Revenue that Commissioner (Appeals) has wrongly allowed the benefit of 67% abatement under Notification No. 1/2006-ST dated 01/3/2006 because of Sr. No. 5 of this Notification. That service tax was required to be paid on the gross amount including the value of free supplies of goods received from BSNL. Regarding imposition of simultaneous penalties under Section 76 and 78 it was argued that both the penalties were distinct and could be imposed simultaneously at the material time. Regarding taxability of service as erection, commissioning or installation service after 31/5/07, it was argued that in a continuous agreement for the period prior to and after 31/5/2007 service tax was required to be paid as ECIS and appellants cannot claim classification under works contract service as no such option was exercised. Learned Authorised Representative strongly emphasised that appeals and cross of the appellant may be rejected and Revenues appeals may be allowed.

3.1 None appeared on behalf of M/s Saraswati Traders in appeal No. ST/661/2009 filed by the Revenue. Shri A.K. Dwivedi, Proprietor of M/s Saraswati Traders vide letter dated 06/7/2015 requested for adjournment as he himself, his wife and Advocate were not feeling well. From the cross objection filed by M/s Saraswati Traders it is observed that more or less same arguments taken by other appellants, are taken in the cross objection. Adjournment request of the respondent in appeal No. ST/661/2009 is rejected and their matter is also taken up for disposed alongwith other appeals.

4. Heard both sides and perused the case records.

5. Main issue involved in all these appeals is as to what should be the classification of the activities undertaken by the appellants, whether the same should be considered Erection, Commissioning or Installation Service (ECIS) or as works contract service. Period of dispute in all these appeals is 1/5/2006 to 17/3/2008. Works contract service came into existence w.e.f. 01/6/2007 and was carved out of earlier services of Commercial or Industrial Construction Service (CICS), Construction of Complex Service (COCS) and Erection, Commissioning or Installation Service (ECIS). It is the case of the learned CA that his clients have provided works contract service all through the period involved which became taxable only with effect from 01/6/2007 and, therefore, no service tax is payable by them before 01/6/2007 as no works contract service was existing. We do not agree with the argument of the appellant that no service tax was attracted on the activities done by them prior to 01/6/2007 as the works contract service was carved out of Services of CICS, COCS and ECIS which were subject to service tax even prior to 01/6/2007. Works contract service was specifically born w.e.f. 01/6/2007. As per the provisions contained in Section 66F (2) of the Finance Act, 1994 a specific heading has to be the appropriate classification of a service. The activities of works contract undertaken by the appellant is therefore classifiable under works contract service w.e.f. 01/6/2007. The same service even if provided under a works contract before 01/6/2007, will be classifiable under Erection, Commissioning or Installation Service (ECIS). A similar view was expressed by five Member Larger Bench in the case of Larsen & Toubro Ltd. vs. CST, Delhi reported in 2015 (38) S.T.R. 266 (Tri.  LB).

5.1 For the demand period April 2001 to 31/06/2007 learned CA argued that extended period is not applicable as his clients were under the bonafide belief that before 01/6/2007 no service tax on works contract activities was payable as the Sale/Trade Tax authorities has taken his clients activities as works contract. Looking to the factual matrix of the present proceedings it is observed that there could be a bonafide belief on the part of the appellant that their activities do not attract service tax before 01/6/2007. Service tax if any paid by the appellant under ECIS could have been admissible as Cenvat credit to BSNL. It is also not the case of the Revenue that service tax payable was collected by the appellants from BSNL and not paid to the Department. Accordingly, it is held that extended period is not invokable in these appeals. However, the demand on ECIS with respect to normal period of limitation is sustainable. It is also the case of the appellant that value of free supplies made by BSNL is not required to be added while discharging service tax. We find that this issue has been settled by CESTAT Larger Bench in the case of Bhayana Builders (P) Ltd. vs. CST, Delhi (supra) wherein it is held that free supplies made by service recipient to the service provider for providing construction service are not includable in gross amount charged as per Section 67 of the Finance Act, 1994. It is observed from case records that appellants are using materials like cement, sand, bricks etc. in providing Erection, Commissioning or Installation Service, therefore, benefit of 67% abatement under Notification No. 1/2006-ST dated 01/3/2006 will be admissible for demand for the normal period of limitation. Further benefit of cum-duty has to be allowed to the appellant under Section 67 (2) of the Finance Act, 1994. For quantification of the duty demand, for the normal period of limitation on the basis of above observations, the matter is remanded to the Adjudicating Authority. Needless to say that Adjudicating Authority should give an opportunity of personal hearing to the appellants before deciding the issue in denovo proceedings.

5.2 So far as imposition of penalties is concerned, we have already observed in para 5.1 above that extended period was not invokable. Further appellant has claimed the benefit of Section 80 benefit as per their grounds of appeal. As appellants had a bonafide belief that no service tax was payable by them before 01/6/2007, as works contract service, there is a reasonable cause for non-payment of tax and benefit of Section 80 of the Finance Act, 1994 is admissible. Accordingly, it is held that no penalites under Section 76, 77 and 78 are imposable upon the appellants in these proceedings.

6. So far as demand of service tax after 01/6/2007 is concerned, it was argued by the appellants that no show cause notice was issued to them for demanding duty under Works Contract Service and on perusal of records we find it so. In the absence of any demands under Works Contract Service for the period after 01/6/2007, appeals filed by the appellants to that extent are required to be allowed.

7. In view of the above observation, appeals filed by the appellants M/s P.C. Construction, Lucknow and M/s Raj & Co., Lucknow are allowed to the extent indicated here-in-above. Appeals filed by the Revenue are dismissed. Cross Objection filed by M/s Saraswati Traders is also disposed off.

(Operative part of the order pronounced in the open court.)

andl

(Justice G. Raghuram)

President

(H.K. Thakur)

Technical Member

PK

??

??

??

??

7