OFFICE of the COMMISSIONER of SERVICE TAX, 7Th FLOOR, EXCISE BHAVAN, AMBAWADI, PANJRAPOLE

OIO NO. 19 /STC-AHD/ADC(AS)/2012-13 Page 1 of 34

BRIEF FACTS OF THE CASE:

M/s BPC Projects, 92, ‘TITANIUM’ 9th Floor, Corporate Road, Opp. Ashwaraj Bunglows, Nr. Prahaladnagar AUDA Garden, Ahmedabad-380015 (here-in- after referred to as “the said assessee” for the sake of brevity) engaged in providing taxable services under the categories of Commercial Construction Services (CCS), Construction of Residential Complex (CON), Transport of Goods by Road (GTA), Works Contract Services (WCS), are registered with Service Tax department vide Registration No. AEIPP1449JST003.

2. During Central Excise Revenue Audit [CERA audit] conducted by the office of the C & AG, Ahmedabad, scrutiny of the records of the said assessee for the period 2006-07 to 2008-2009 revealed that prior to the introduction of “Works Contract Service w. e. f. 01-06-2007”, the said assessee was providing construction services to their clients as listed in Annexure “A” to the show cause notice, under the category of “Commercial and Industrial Construction Service”. On introduction of Works Contract Service, w. e. f. 1.6.2007, the said assessee opted to classify the Construction Service rendered by them under category of “Work Contract Service” instead of “Commercial and industrial construction service” for on going projects. Further, during the scrutiny of the records of the above- mentioned period by CERA, it was also noticed that the said assessee was availing exemption under Notification No.1/2006-ST dated 01.03.2006. As per the said Notification, the assessee was not eligible for cenvat credit for inputs or capital goods or input services, and was required to pay service tax at 33 percent of the gross amount received which shall include the value of goods and materials supplied or provided or used. However, the assessee switched over to pay service tax under composition scheme of works contract and paid service tax @ 2.06 percent.

3. Works Contract Service was brought under the service tax net w. e. f. 01-06-2007 vide Notification No. 32/2007-Service Tax dated 22.05.2007. As per the Central Board of Excise and Customs (CBEC) Circular No.345/6/2007-TRU dated 04.01.2008, service provider for the ongoing projects cannot switchover to any other service, i.e. he is not entitled to change the classification of the single composite service for the purpose of payment of service tax on or after 1-6-07 and hence, is not entitled to avail composite scheme (Works Contract Service). OIO NO. 19/STC-AHD/ADC(AS)/2012-13 Page 2 of 34

4. As per the Notification No. 01/2006-ST dated 01.03.2006, the service provider was entitled to claim abatement of 67 percent of the gross amount charged, provided that he has not availed cenvat credit for inputs or capital goods or input services and the gross amount charged shall include the value of goods and materials supplied or provided or used. During the scrutiny of records for the years 2006-07 & 2007-08, the CERA-audit noticed that the assessee was availing exemption under Notification No. 1/2006-ST dtd. 1 March 2006. Hence, as per the condition stipulated under the notification, the assessee was ineligible for Cenvat credit for inputs or capital goods or input services, and was required to pay service tax at 33 percent of the gross amount received, which would include the value of goods and materials supplied or provided or used. But, the said assessee switched over to pay service tax under composition scheme of works contract instead of paying Service Tax under the category of “Commercial and Industrial Construction Service”, and paid service tax @ 2.06 percent. Such switching over was not permissible as per the CBEC Circular cited above. This resulted in short payment of Service Tax to the tune of Rs. 41.21 Lakh on 33 per cent of gross value of Rs. 2041 Lakh as shown in Annexure ‘A’ of CERA Audit report enclosed to the show cause notice.

5. A letter F. No. STC/AR-15/CERA-BPC/390/09-10 dt. 20/07/2010 was issued by the Range Superintendent to the said assessee requiring them to pay up the said short-paid service tax of Rs. 41.21.lakhs along with interest. The said assessee vide letter dtd. 01.02.2010 submitted that they had opted for Work contract service for which they had collected and deposited Service Tax as per Work contract composition scheme and so there was no short payment payable by them as pointed by the CERA auditor.

6. As per Rule 3 of the composition scheme under Works Contract Service, the service provider can exercise option to pay service tax under the composition scheme anytime before payment of service tax. Once such option is exercised, the option cannot be withdrawn until completion of the works contract. The said rule has the following implications:- a) Option can be exercised for each contract separately, b) No specific provision has been made for intimation of such option to the department. Presumably, such intimation can be given at the time of filing of return. 7. The said assessee opted for the composition scheme during the period 2007-08 from July, 2007 onwards. The returns for the half-year April-

2 OIO NO. 19/STC-AHD/ADC(AS)/2012-13 Page 3 of 34

September 2007 were filed by the said assessee on 25.10.2007. It was noticed that the said assessee had not filed any intimation either before filing the return or during filing the return for the said half-year regarding exercising option for discharging service tax liability under the composition scheme.

8. A summon was issued to the assessee on 02.08.2011 vide F. No. STC/AR-15/CERA-BPC/390/09-10 dtd. 01.08.2011 for recording of statement with reference to the CERA Audit Report, which was not honored by the said assessee. Another summons to witness on 05.08.2011 was issued on 04.08.2011. Shri Dilip Kantibhai Suthar, Accountant and authorized person of the said assessee appeared before the Superintendent of Service Tax, Range-15, Division-III, Ahmedabad on 05.08.2011, and submitted copy of Authority Letter dtd 1.8.2011, issued by the proprietor of M/s BPC Projects, Shri P. S. Patel, for giving statement on behalf of the assessee. His statement under Section 14 of the Central Excise Act,1944 (made applicable to service tax matter vide section 83 of Finance Act, 1994) was recorded wherein he, inter-alia, stated that he is Accountant and authorized person of M/s BPC Projects, Ahmedabad; that he had been shown a copy of CERA Audit Report LAR/ST/203/09-10, and the copy of Show cause Notice No STC/42/O&A/SCN/BPC/JC/rangeXV/D.III/09 dated 07.09.09 issued by the Joint Commissioner, Service Tax, Ahmedabad, through Preventive section Service Tax Ahmedabad; that with reference to the said CERA objection related to one of the client M/s Navratna S G Highway Properties Pvt Ltd, the said objection had already been covered under above mentioned Show Cause Notice by Preventive Section; that during 2007-08, there was only one project of M/s Navratna S G Highway Properties Pvt Ltd, for which he submitted the ledger of the said client; that no other project for M/s Navratna S G Highway Properties Pvt. Ltd., was operational by them during that period.

8.1 On being asked regarding the CERA objection of switching over, he stated that regarding the project mentioned in the said objection’s switching over (change in classification from Commercial Construction Service to Works Contract service), they were not aware of the Boards Circular No 345/6/2007 TRU dated 04.01.08, where in it is clearly mentioned that switching over (change in classification from Commercial Construction Service) to Works Contract service is not allowed for the projects already under process. On being asked further specifically regarding intimating to the Department with respect to the switching over (change in

3 OIO NO. 19/STC-AHD/ADC(AS)/2012-13 Page 4 of 34 classification from Commercial Construction Service to Works Contract service), he stated that no such specific intimation was given to the Department.

9. For further inquiry, another summon to witness on 26.08.2011 was issued to the said assessee vide F. No. STC/AR-15/CERA-BPC/390/09-10 dtd. 25.08.2011 for recording his further statement with reference to the CERA Audit Report. Shri Dilip Kantibhai Suthar, Accountant and authorized person of the said assessee appeared before the Superintendent of Service Tax, Range-15, Division-III, Ahmedabad on 26.08.2011. His further statement under Section 14 of Central Excise Act, 1944 (as made applicable to service tax matter vide section 83 of the Finance Act, 1994) was recorded wherein he, inter-alia, stated that he is Accountant and authorized person of M/s BPC Projects, Ahmedabad. On being asked regarding the difference of Rs.5183/- in the CERA objection than that of Preventive show cause notice, with reference to M/s Navratna S. G. Highway Properties Pvt. Ltd, he stated that the Preventive section had taken figures for subsequent period also, and have subtracted the excess payment made by them in the subsequent period, and demanded Net service tax payable, where as the CERA has taken period in which there was only short payment. On being further asked why the details of service tax payment by shifting to works contract service in respect of projects as mentioned in CERA objection, other than M/s Navratna S. G. Highway Properties Pvt. Ltd. were not brought to the notice while recording the earlier statement of Shri Prahaladbhai Shivrambhai Patel recorded on 26.05.2009 by Preventive Section, he stated that during that statement preventive section had specifically asked only for the details of M/s Navratna S. G. Highway Properties Pvt. Ltd only, so they had not produced details for the other projects.

10. It appeared that such switchover by the said assessee during the period under audit resulted in short-payment of service tax amounting to Rs. 32,46,201/- as detailed in Annexure ‘A’ to the show cause notice.

11. According to Section 70 of the Finance Act, 1994 (hereinafter referred to as “the said Act”),

“every person liable to pay service tax is required to self assess the tax due on the services provided by him and thereafter furnish a return to the jurisdictional Superintendent of Service Tax by disclosing wholly and truly all material facts in the ST-3 returns.”

Whereas, the said assessee had not disclosed full and correct information about value of the services provided, by them. Thus, it appeared that, there was deliberate withholding of essential information from the department about service provided and value realized by them. It appears that all these material information had been concealed from the department deliberately, consciously and purposefully with intent to evade payment of service tax. Therefore, in this case all essential ingredients existed to invoke the extended period in terms of proviso to Section 73(1) of the Finance Act, 1994 to demand the service tax short paid.

12. The said assessee appeared to have contravened the provisions of Section 67 of the Finance Act, 1994 in as much as, they had failed to determine the correct value of taxable services provided by them; Section 68 of the Finance Act, 1994 read with Rule 6 of the Service Tax Rules, 1994, in as much as, they had failed to determine and pay the correct amount of service tax.

13. The government from the very beginning placed full trust on the service providers, as far as service tax is concerned and accordingly measures like self assessment etc., based on mutual trust and confidence are in place. Further, a taxable service provider is required to maintain any statutory or separate records under the provisions of Service Tax Rules as considerable amount of trust is placed on the service provider and private records maintained by them for normal business purposes are accepted, practically for all the purpose of service tax. All these operates on the basis of honesty of the service provider; therefore, the governing statutory provisions create an absolute liability when any provision is contravened as there is a breach of trust placed on the service provider, no matter how innocently. The deliberate efforts by not paying the correct amount of service tax is utter dis-regard to the requirements of law and breach of trust deposed on them, such outright act in defiance of law appears to have rendered them liable for stringent penal action as per the provisions of Section 78 of Finance Act, 1994 for suppression and concealment of information and facts with intent to evade payment of service tax as discussed in afore said paragraphs.

14. In view of the above, it appeared that the said assessee were service providers providing taxable Services of “Commercial & Industrial construction” falling under the category of “Commercial or Industrial Construction Service” with effect from 16.06.2005. “Commercial or

Industrial Construction Service” has been defined in Clause (25b) of Section 65 of the Finance Act, 1994 as under: “Commercial or Industrial Construction Service means: a) Construction of a new building or a civil structure or a part thereof; or b) Construction of pipeline or conduit; or c) Completion or finishing services such as glazing, plastering, painting, floor and wall tiling, wall covering and wall papering, wood and metal joinery and carpentry, fencing and railing, construction of swimming pools, acoustic applications or fittings and other similar services, in relation to building or civil structure; or d) Repair, alteration, renovation of, or similar services in relation to building or civil structure, pipeline or conduit, which is: i) Used, or to be used, primarily for; or ii) Occupied, or to be occupied, primarily with; or iii) Engaged, or to be engaged, primarily in, 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”.

15. Further, as per sub-clause (zzq) of Clause (105) of Section 65 of the said Act, the taxable service means:

“ any service provided or to be provided to any person, by a commercial concern, in relation to commercial or industrial construction service. Further it is inter-alia provided under Section 67(1)(i) of the Finance Act, 1994 that where service tax is chargeable on any taxable service with reference to its value, then such value shall be the gross amount charged by the service provider for such service provided or to be provided by him.”

16. The value of the taxable service provided by a Service Provider to a person is:

“the gross amount charged by such Service Provider from the Service receiver for the services rendered in connection with the “Commercial or Industrial Construction Service”.

Therefore, the said assessee were required to pay Service Tax and Education Cess at appropriate rates on the gross amounts collected by them from their clients for providing “Commercial or Industrial Construction Service”.

17. During the period under CERA-audit, the said assessee had provided taxable service of “Commercial or Industrial Construction Service” to their clients. For the said services of construction, they had opted to avail the benefit of abatement under Sr. No. 7 of Notification No. 01/2006-ST

6 OIO NO. 19/STC-AHD/ADC(AS)/2012-13 Page 7 of 34 dated 01.03.2006 during the period April-June, 2007, but had failed to fulfill the conditions of the said Notification. The condition of said notification barred the said assessee from availing cenvat credit on inputs, input services and capital goods. The assessee had sought to switchover to the composition scheme on their ongoing contracts and had also failed to intimate the department about exercising option to pay service tax under the composition scheme. Such switchover was not permissible under the clarification issued by the CBEC vide Circular No. 345/6/2007-TRU dated 04.01.2008. It appeared that the said assessee had, therefore, during the period of audit and the half-year 01.06.2007 to 29.02.2008 short paid Service Tax to the tune of Rs. 32,46,201/- which was required to be recovered from them under proviso to Section 73(1) of the said Act.

18. The said assessee appeared to have committed willfully the said acts of contravention with intent to evade payment of service tax rendering them liable for penalty under Section 78 of the said Act.

19. It also appeared that the said assessee had contravened the provisions of Section 68 of the said Act in as much as they had failed to pay service tax at the rate specified under Section 66 of the said Act and thereby rendered themselves liable for penalty under section 76 of the said Act.

20. The acts of contravention of any of the provision of the said Act, or of the rules made there under with intent to evade payment of service tax on part of the said assessee amounts to offence as described under Section 73(1)(e) of the said Act, thereby rendering the said assessee liable for invoking the extended period of 5 years.

21. As per Section 75 of the said Act,

“every person liable to pay the tax in accordance with the provisions of Section 68, or rules made there-under, who fails to credit the tax or any part thereof to the account of the Central Government within the period prescribed is liable to pay simple interest (as such rate not below ten per cent and not exceeding thirty six per cent per annum, as is for the time being fixed by the Central Government, by Notification in the Official Gazette) for the period by which such crediting of the tax or any part thereof is delayed.”

The said assessee was also liable to pay interest at the appropriate rate for the period from due date of payment of Service Tax till the date of actual payment as per the provisions of Section 75 of the said Act.

22. Therefore, the said assessee were called upon to show cause to the Additional Commissioner of Service Tax, Ahmedabad as to why: i). The benefit of switchover to the composition scheme for the ongoing projects should not be disallowed and the Service Tax amounting to Rs. 32,46,201/- short paid/ not paid on “Commercial or Industrial Construction Service”, should not be demanded and recovered from them under proviso to Section 73(1) of the said Act; ii). Interest applicable under Section 75 of the said Act should not be charged and recovered from them; iii). Penalty under Sections 76 of the said Act should not be imposed upon them for the failure to make the payment of Service Tax in prescribed time limit; and iv). Penalty under section 78 of the said Act as amended, should not be imposed upon them for contravention of provisions of the said Act and rules made there under with intent to evade payment of service tax.

Record of Personal Hearing:

23. The personal hearing in the matter was fixed on 21.08.2012 and the said assessee was requested vide letter dated 09.08.2012 to appear at the time fixed. However, the personal hearing was postponed to 23.08.2012 and the said assessee was informed accordingly. Shri Vipaul Khandhar, Chartered Accountant, appeared on behalf of the said assessee and furnished written submission dated 21.08.2012 and requested a time till 27.08.2012 4 pm to submit the evidence for having charged the Service Tax from their clients @ 2.06% from 1.06.07 to 27.02.08.

Defence Reply :

24. The said assessee filed defence reply on 23.08.2012 vide their letter dated 21.08.2012 wherein they submitted that:

 they vehemently object to the proposal of demand of service tax and interest as stated in the Show Cause Notice.

 no such service tax or interest is payable by them and the penalty cannot be imposed on them as they have not violated any of the provisions of the Act or the rules made there under.

 The SCN is based on presumptions and assumptions and is issued in sheer disregard of facts on record, legal provisions, decided case laws and departmental instructions.

 the SCN is issued in sheer disregard of facts on record which clearly show that they have rendered their services as ‘Works Contract service’.

 they have discharged service tax properly & rightly opted for the classification of service & discharge service tax liabilities & only by any stretch of imagination and accordingly the demand under the SCN is not sustainable on merit.

 there is no fraud, or collusion or willful misstatement or suppression of facts or contravention of any of the provisions of the Act, or the rules made there under with intent to evade payment of service tax on their part and hence the demand is not sustainable on the ground of limitation also as the SCN is issued after a limitation period of one year from the relevant date. SCN is issued to them on 05.09.2011 covering period 01.07.2007 to 29.2.2008. which clearly shows that the same is issued beyond a period of one year from the relevant date.

 Further they are registered with dept. under “‘Work Contract service’”. They have also filed ST-3 return & via letter regularly with the dept. Despite these facts being clearly have in knowledge of dept since 01.06.2007 & onwards, saddling with the SCN issued in the year 2011 alleging suppression of the fact is itself a ground on which the SCN is illegal, unfair and uncalled for. Confirmation of having knowledge about the practice of the assesses since 2007 & onwards and issuing SCN on the same issue in 2011 alleging suppression proves clear contradiction of the stand taken in the SCN and thus the SCN is capricious. In the light of above they have requested to drop the proceedings under SCN on the ground of being vague and capricious.

 Now the salient issue to be addressed here are as under :- (i) Construction value received towards commercial construction with material whether classifiable under commercial construction service or WCT service. (ii) If it was WCT service whether service provided prior 01-06-2007 & concurrence project were liable for service tax under WCT service. (iii) Whether demand for extended period u/s. 73(1)(a) invoked or not.

 The company is involved in undertaking composite contracts for supply, & Construction of and for the said purpose, the company obtains an order from the customer, takes measurements at site,

procure the construction material and other materials from the market, construct the site.

 For the said composite contract, a lump sum consideration is charged from the customer. This was treated as a part & parcel of new civil structure. So it is fall under clause of part of new building structure.

 Where there activities were covered under Works Contract Service Or Construction of Industrial & commercial service.

 The company is involved in undertaking composite contracts for Construction For the said purpose, the company obtains an order from the customer, takes measurements at site, procure the Construction material the site. For the said composite contract, a lump sum consideration is charged from the customer.

 The company is duly registered with the Gujarat VAT authorities and discharges the applicable VAT on the transactions undertaken by it. It has opted for the composition scheme for discharge of VAT on such works contracts, if applicable.

 So service rendered by them, fulfilling the condition of applicability of works contract service & falls under works contract service only. This was effective w.e.f. 1.06.2007. So During the impugned period they have paid the service tax, which they have rightly classified suo motu under the Construction of commercial & industrial service up to 30.06.2007 & under works contract service w.e.f.01.06.2007 & onwards and paid the duty properly.  There has been considerable confusion regarding the applicability of service tax on such composite contracts.

 There have been various judicial pronouncements which have consistently held that the service tax authorities cannot vivisect a composite contract to levy a service tax on the service component of the said composite contact. A few important decisions are highlighted below for our ready reference.

 Daelim Industrial Co. Vs. CCE 2003 (155) ELT 457 (Tri.Del)  Fire Pro Systems Pvt Ltd Vs. Commissioner of Service tax 2008 (10)STR36 (Tri.Bang)  Commissioner of Central Excise Vs. Indian Oil Tanking Ltd 2008 (10)STR 11 (Tri.LB)

 S.P.Sharma Vs. Commissioner of Central Excise 2008 (9) STR572 (Tri.Del)  Emerson Process Management Power & Water Solution Inc. Vs. Commissioner of Central Excise 2006 (3) STR 508 (Tri. Del)  Commissioner of Central Excise Vs. Flex Engineering Ltd 2006 (1)STR208(Tri.Del).  Commissioner of Central Excise Vs. Shapporji Pallonji & Co. Ltd. 2006(1)164 (Tri.Del).

 The company is involved in undertaking composite contracts for civil construction. For the said purpose, the companies obtains an order from the customer, takes measurements at site, procure the materials from the market, carried out civil work at NODPL site. For the said composite contract, a lump sum consideration is charged from the customer.

 from the above it is clear that service provided by them are composite one & it is not vivisected as explained above (which is also confirm from the SCN it self), so they were not falling under the category of service under the commercial construction service, once separate service has been notified by the Govt..So they have opted for the WCT service rightly. So demand of duty & penalty has to be dropped in the interest of justice.

 Despite the above decisions suggesting that there can be no vivisection of a composite contract, the Government went ahead to notify “Commercial Construction Services “and issued Notification 15/2004- ST dated 10.09.2004 granting an abatement of 67% towards the material component. The said notification was later towards the material component. The said Notification was later consolidated into Notification 1/2006-ST dated 01.03.2006.

 The above conflicting positions of the judiciary and the Government resulted in substantial confusion. However, as honest tax paying citizen, the company decided to adopt a conservation approach and registered itself under “Commercial Construction services”.

 Viewing the entire issue in hind-sight, it is very evident that the company was indeed not liable for payment of service tax under “Commercial Construction service” at all. This is because, effective from 01.06.2007, the Government introduced one more category of service called “Works Contracts Services” to tax the ‘service’ component of such composite works contracts.

 At the same time, the Government also introduced Rule 2A of service tax (Determination of value) rules, 2006 to allow a reduction for the material component from the value of taxable services. In facts, the speech of the finance minister at the time of introduced of Budget and the explanatory memorandum all go to suggest that the service component of a works contract became liable for payment of service tax only with effect from 01.06.2007.

 Since our transactions are admittedly “works contracts” during the period under review (April 2005 to March 2007), there was actually no liability to discharge service tax at all. This view has also been judicially accepted in the following cases.

(i) Diebold Systems (P) Ltd Vs. Commissioner of service tax 2008(9) STR546 (Tri.Mad) (ii) BSBK Pvt Ltd vs. Com of C.ex. 2009(013) STR-026 Tri-Del. (iii) Air Liquide Engg. India Pvt Ltd Vs. C.C. & C.E. 2008 (9) STR 486 (Tri.Bang) (iv) Jyoti Ltd vs. Commissioner of Central Excise 2008(9) STR 373 (Tri. A’ bad) (v) L&T Ltd Vs. Commissioner of Central Excise 2007 (7)STR224 (Tri.A”bad) (vi) 2009 (13) S.T.R. 525 (Tri. - Del.) IN THE CESTAT, PRINCIPAL BENCH, NEW DELHI S/Shri M. Veeraiyan, Member (T) and P.K. Das, Member (J) ALSTOM PROJECTS INDIA LTD. Versus COMMISSIONER OF SERVICE TAX, DELHI Stay Order No. ST/207/2008-(PB), dated 19-6-2008 in Application No. ST/Stay/316/ (CST)-Branch in Appeal No. ST/87/2008. Stay/Dispensation of pre-deposit - Demand and penalty - Composite works contract - Divisibility into different identifiable activities - Revenue’s contention that after 46th amendment of Constitution of India, works contract is divisible, would be looked into at the time of hearing of appeal - Prima facie case made out by applicant - Pre-deposit of entire amount of Service tax and penalties waived and recovery thereof stayed - Sections 73, 75 and 76 of Finance Act, 1994 - Section 35F of Central Excise Act, 1944 as applicable to Service tax vide Section 83 of Finance Act, 1994. [paras 5, 6] Application allowed (vii) 2009 (15) S.T.R. 303 (Tri. - Ahmd.) IN THE CESTAT, WEST ZONAL BENCH, AHMEDABAD [COURT NO. II] Ms. Archana Wadhwa, Member (J) and Shri B.S.V. Murthy, Member (T) NEWTON ENGG. & CHEM. LTD. Versus COMMR. OF C. EX. & CUS, VADODARA-II Stay Order No. S/1471/2008-WZB/AHD, dated 27-11-2008 in Application No. ST/S/1188/2008 in Appeal No. ST/140/2008 Stay/Dispensation of pre-deposit - Erection, Commissioning and Installation service - Composite works contract - Service tax confirmed under erection service after extending abatement as per relevant notification - Impugned issue settled in Tribunal decisions rendered before - Prima facie issue in favour of appellant - Pre-deposit waived - Recovery stayed - Section 35F of

Central Excise Act, 1944 as applicable to Service tax vide Section 83 of Finance Act, 1994. Stay granted (viii) 2009 (15) S.T.R. 239 (Tri. - Del.) IN THE CESTAT, PRINCIPAL BENCH, NEW DELHI [COURT NO. III] S/Shri M. Veeraiyan, Member (T) and P.K. Das, Member (J) BHARAT HEAVY ELECTRICALS LTD. versus COMMR. OF C. EX., BHOPAL Stay Order Nos. ST/491-492/2008, dated 3-12-2008 in Application Nos. ST/Stay/1400-1401/2007 in Appeal Nos. ST/338-339 Stay/Dispensation of pre-deposit - Erection, Commissioning and Installation service - Erection of sub-stations undertaken and construction also carried out in relation to such service - Abatement availed separately under Commercial or Industrial Construction service sought to be denied treating construction as part of Erection service - Issue of vivisection of composite contract for Service tax purpose stands referred to Tribunal Larger Bench - Case made out for waiver of pre-deposit - Pre-deposit waived - Recovery of dues stayed - Section 35F of Central Excise Act, 1944 as applicable to Service tax vide Section 83 of Finance Act, 1994. [Paras 2, 5, 6] Stay granted (ix) 2009 (13) S.T.R. 26 (Tri. - Del.) IN THE CESTAT, PRINCIPAL BENCH, NEW DELHI [COURT NO. I] Justice S.N. Jha, President and Shri M. Veeraiyan, Member (T) COMMISSIONER OF CENTRAL EXCISE, RAIPUR versus BSBK PVT. LTD. Misc. Order No. ST/118/2008-(PB), dated 24-10-2008 in Appeal No. ST/100/2005 Consulting Engineer service - Works contract - Turnkey project whether can be vivisected and Service tax levied on service part - Dominant nature test not applicable for works contract falling under clause (b) of Article 366(29A) of Constitution of India - Turnkey contract not treatable differently when works contract can be split into sale contract and service contract - Tribunal decision in Daelim Industrial Co. Ltd. [2006 (3) S.T.R. 124] not in accordance with Supreme Court ruling in 2006 (2) S.T.R. 161 (S.C.) and prima facie, not correctly decided - Finding that turnkey works contract cannot be vivisected requires reconsideration - Question whether turnkey can be vivisected, referred to Larger Bench - Sections 65(31) and 68 of Finance Act, 1994. - Theoretically, Service tax can be levied on service part and at the same time, sales tax can be levied on the sale part of the contract. In the case of ’turnkey contract’, if Noticee are not split only on the ground that the contract is on turnkey project basis, a question may arise as to whether the entire contract will be sale contract. The answer apparently would be in the negative. Only that part of the contract which falls under clause (b) of Article 366(29A) - amounting to deemed sale will constitute sale contract on which sales tax can be levied. What will happen to the rest of the contract? Whether it will go out of the net of the Service tax? Answer again, will be in the negative. [Paras 2, 5, 8, 9, 10, 11] Order - Supreme Court order - Dismissal of Special Leave Petition (SLP) or appeal - Summary rejection of SLP or appeal not means affirmation, on merits, of order under challenge - Summary rejection means Supreme Court declining to interfere with the impugned order - Reconsideration of impugned decision not barred by summary dismissal of

appeal - Section 35L of Central Excise Act, 1944 as applicable to Service tax vide Section 83 of Finance Act, 1994. [Para 9] Referred to Larger Bench

 Since the transactions were not liable for payment of service tax at all, the question of applicability of notification 1/2006-ST does not come into picture. Of course, the service tax actually collected on a conservative footing needs to be (and is) discharged. Having discharged the tax so collected, there is no further liability to discharge anything more and accordingly, the service tax demanded in the notice cannot be recovered from the assesses.

 Entire demand is time barred The show cause notice covers the period of 01.06.2007 to 28.02.2008. The show cause notice has been issued on 05.09.2011& where as fact in knowledge of the dept’s w.e.f. 01.06.2007, which noticee has already submitted via letter to the dept’s. Thus, the show cause notice has invoked the extended period of limitation. The show cause has baldly alleged that the Noticees have suppressed the information from the department.

 the extended period of limitation cannot be invoked in the present case since there is no suppression, wilful misstatement on the part of the Noticees.

 The Noticee clearly indicated in ST-3 returns furnished by them clearly that Noticee were opted for the WCT service w.e.f.01.06.2007 where as fact in knowledge of the dept’s w.e.f. 26.05.2009, which noticee has already submitted via letter to the dept’s.. Therefore, question of any suppression, wilful misstatement on the part of the Noticees does not arise. The show cause notice has entirely failed to make out any case of suppression, wilful misstatement on the part of the Noticees.

 Further, the department has issued circulars/ service tax rule / cenvat credit rule clarifying the allowability of excess service tax against the subsequent period liability. In all the circulars, it is specifically mentioned that the option for the WCT service. Therefore, the question of any wilful suppression, misstatement does not arise in the present case. The show cause notice is liable to be dropped on this ground also.

 Penalty cannot be imposed under Section 78 of the Finance Act, 1994 in the present case.

 The show cause notice has proposed to impose penalty under Section 78 of the Finance Act, 1994. The Noticee has demonstrated above that Noticee has not suppressed any information from the department and there was no wilful misstatement on the part of the Noticee.

 It is therefore clear from the statutory provisions that for imposing penalty under section 78 of the Act it has to be established that there is a short payment of service tax by reason of fraud, collusion, wilful mis-statement, suppression of facts or contravention of any provisions of the Act or rules made there under with intent to evade payment of service tax.

 the Show Cause Notice has not given any reason whatsoever for imposing the penalty under Section 78 of the Act. The show cause notice merely alleging baldly that there is suppression on the part of the Noticees. The present show cause notice has not brought any evidence/ fact which can establish that the Noticees have suppressed anything from the department. Hence no case has been made out on the ground of suppression of facts or wilful misstatement of facts with the intention to evade the payment of service tax. Hence the present case is not the case of fraud, suppression, wilful misstatement of facts, etc. Hence penalty under section 78 of the Act cannot be imposed. The show cause notice is liable to be dropped on this ground also.

 the Noticee is entitled to entertain the belief that their activities were not taxable. That cannot be treated as suppression from the department. The Noticee rely on Hon’ble Gujarat High Court decision in case of Steel Cast Ltd. 2011 (21) STR 500 (Guj).

 Penalty cannot be imposed under Section 76 of Finance Act, 1994 the penalty under Section 76 is not imposable since there is no short payment of service tax. As per the merits of the case, the Noticees are not liable for payment of Service tax.

 It is submitted that for imposing penalty, there should be an intention to evade payment of service tax on their part . The penal provisions are only a tool to safeguard against contravention of the rules. They

submit that they have always been and are still under the bonafide belief that they are not liable for payment of service tax. Such bonafide belief was based on the grounds given above. There was no intention to evade payment of service tax as mentioned in the ground above. Therefore, no penalty is imposable in the present case.

 In support of the above view, reliance is placed 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 is imposable.

 They submit that 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 is 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 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 is squarely applicable to their case also. Hence no penalty under section 76 of the Act is 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 78 if they have a reasonable cause for default.

 Without prejudice to the above submissions, it is submitted that no case has been made out by the Department that the present demand of service tax is on account of fraud, collusion, willful mis-statement, suppression of facts or contravention of any of the provisions of Act or rules made there under 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.

 Penalty under both the Section 76 and 78 of Finance Act, 1994 cannot be imposed (1) Further, it is submitted that penalties under section 76 and 78 of the Act cannot be simultaneously imposed. Penalties under section 76 and 78 are mutually exclusive. Section 78 is applicable if the non- payment 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 is placed 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) (2) The above view is 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)

 The issue involved in the present case is of interpretation of statutory provisions. For that reason also, penalties cannot be imposed. Without prejudice to the above submissions, it is submitted that it is a settled principle of law that if a dispute is 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 is payable as demanded by the Show Cause Notice, then also it can be said that it is a dispute arising out of interpretation of the provisions of the law and not because of any intentional avoidance of tax. The Noticees place 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.), For this reason also, the present show cause notice is liable to be dropped.

 Section 80 will be applicable in the present case Moreover, Section 80 of the Act provides that no penalty shall be imposed on the 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 part of the Noticees that the activities carried out by the Noticees are not taxable. Therefore, there was reasonable cause for failure, if any, on part of the Noticees 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 is placed on the following judgments: (i) ETA Engineering Ltd. vs. CCE, Chennai, 2004 (174) E.L.T 19 (T-LB) (ii) Flyingman Air Courier Pvt. Ltd. vs. CCE 2004 (170) ELT 417 (T) (iii) Star Neon Singh vs. CCE, Chandigarh, 2002 (141) ELT 770 (T) For this reason also, the show cause notice is liable to be dropped.

At the end, the said assessee prayed that:-

(i) their service cannot be vivisected, so not covered under the commercial & industrial construction service & residential construction service. So the demand under the commercial & industrial construction service & works contract service rightly classifiable , so demand of differential service tax were untenable & unjustifiable, Consequently no penalty may be imposed as proposed vide the subject notice.

(ii) SCN itself barred by the limitation, so demand of duty & penalty may be dropped.

(iii) to give benefit of section 80 ibid to us and condoned.

The said assessee also requested that they may be heard in person before taking any adverse decision in the matter. The said assessee / their consultant did not come forward with any documents which they had promised to submit by 27.08.2012, during the personal hearing.

Discussions and findings :

25. I have carefully gone through the records of the case, written submission made by the said assessee in their defence reply to the show cause notice as well as during the course of personal hearings and the records/documents produced by them. I find that the issues to be decided in this case are:

i) whether the benefit of switchover to the composition scheme for the ongoing projects was available to the said assessee;

ii) whether there was short payment of Service Tax by the said assessee during the period in question or otherwise; and

iii) whether the demand cum show cause notice is time barred or otherwise? iv) whether the issue involved, relates to interpretation of statutory provisions or not.

26. Now I decide all the aforesaid issues one by one.

26.1 Switch over to the composition scheme for the ongoing projects:

It is observed that the said assessee was providing construction service under the category of “Commercial and Industrial Construction Service” to their clients prior to the introduction of “Works Contract Services” w. e. f. 01.06.2007. The Rules framed under the Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007 introduced vide Notification No. 32/2007-Service Tax dated 22.05.2007 are as under:

(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.

(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.

As per the Rule 3(3) above, a service provider had an option to pay service tax under these rules provided such option was exercised 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 had to be applicable for the entire works contract and could not be withdrawn until the completion of the said works contract. This clearly means that the service providers

20 OIO NO. 19/STC-AHD/ADC(AS)/2012-13 Page 21 of 34 opting for payment of service tax under the service category of “Works contract” had to exercise such option prior to payment of service tax and such option would be applicable for the entire works contract and once opted for “Works contract”, the service provider had no option to withdraw until the completion of the said works contract.

In the present case, I find that the ntoicee has been engaged in the business of construction activities, which was duly covered under “ Commercial or Industrial Construction Service” since 10.09.2004. The noticee has been availing the benefit of Noti. No. 1/2006-ST dt. 01.03.2006. and has been paying the service tax @ 33% without using the facility of Cenvat Credit. Such facility has been provided by the Govt. to obviate the need of vivisecting the contracts which are composite in nature. Further said noticee opted to classify the construction services rendered by them under the newly introduced category of “Work Contract Service” for ongoing projects which was not allowed as per the Rule 3(3) of the Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007 framed vide Notification No. 32/2007-Service Tax dated 22.05.2007. I find that in the present case, the said assessee switched over to pay service tax under the Works Contract (Composition Scheme for Payment of Service Tax) for their ongoing projects and paid service tax @ 2.06 percent which was in contravention of the Rule 3(3) of the Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007.

I also find that the act of the said assessee was not in accordance with the Circular No. 98/01/2008-ST, dated 04/01/2008 issued by the Central Board of Excise and Customs (CBEC), New Delhi

In the Circular No.96/7/2007-ST dated the 23rd August, 2007,-

(i) after Reference Code 086.05 / 23.08.07, the following Reference Code and corresponding issue and clarification shall be inserted, namely:-

Reference Issue Clarification Code (1) (2) (3) 096.01 / Commercial or industrial construction Right to use immovable property 04.01.08 service [section 65(105)(zzq)] or works is leviable to service tax under contract service [section 65(105) renting of immovable property (zzzza)] is used for construction of an service. immovable property. Renting of an immovable property is leviable to Commercial or industrial service tax [section 65(105)(zzzz)]. construction service or works contract service is an input Whether or not, commercial or service for the output namely industrial construction service or works immovable property. Immovable contract service used for construction of property is neither subjected to

an immovable property, could be central excise duty nor to service treated as input service for the output tax. service namely renting of immovable property service under the CENVAT Input credit of service tax can be Credit Rules, 2004? taken only if the output is a ‘service’ liable to service tax or a ‘goods’ liable to excise duty. Since immovable property is neither ‘service’ or ‘goods’ as referred to above, input credit cannot be taken.

(ii) after Reference Code 097.01 / 23.08.07, the following Reference Codes and corresponding issues and clarifications shall be inserted, namely:-

097.02 / Services provided in relation to Value for the purposes of levy of 04.01.08 execution of a works contract is service tax under works contract leviable to service tax [section service does not include the value 65(105)(zzzza)]. pertaining to transfer of property in goods involved in the execution of a VAT / sales tax is payable on the works contract leviable to VAT / sales transfer of property in goods involved tax. Works contract service provider in the execution of a works contract. is, therefore, not eligible to take credit of excise duty paid on such Service tax is leviable on the value goods involved in the execution of equivalent to the gross amount works contract. charged for the works contract less value of the transfer of property in goods involved in the execution of the works contract which is leviable to VAT / sales tax [Rule 2A of the Service Tax (Determination of Value) Rules, 2006].

Whether or not, excise duty paid on goods, subjected to levy of VAT / sales tax under works contract service, can be taken as credit under the CENVAT Credit Rules, 2004? 097.03 / Services provided in relation to Prior to 01.06.07, service provider 04.01.08 execution of works contract is leviable classified the taxable service under to service tax w.e.f. 01.06.07 [section erection, commissioning or 65(105)(zzzza)]. installation service [section 65(105) (zzd)], commercial or industrial Works Contract (Composition Scheme construction service [section 65(105) for Payment of Service Tax) Rules, (zzq)] or construction of complex 2007 provides option to pay service service [section 65(105)(zzzh)], as tax @ 2% of the gross amount the case may be, and paid service tax charged for the works contract. accordingly. The contract for the However, the service provider opting service was a single composite for composition scheme for payment contract. Part of service tax liability of service tax should exercise the corresponding to payment received option prior to payment of service tax. was discharged and the balance amount of service tax is required to The issue pertains to,- be paid on or after 01.06.07 depending upon receipt of payment. (i) contracts entered into prior to 01.06.07 for providing erection, Classification of a taxable service is commissioning or installation and determined based on the nature of commercial or residential construction service provided whereas liability to service, and pay service tax is related to receipt of consideration. Vivisecting a single (ii) service tax has already been paid composite service and classifying the for part of the payment received same under two different taxable under the respective taxable service. services depending upon the time of receipt of the consideration is not Whether in such cases, the service legally sustainable. provider can revise the classification to works contract service from the In view of the above, a service

respective classification and pay provider who paid service tax prior to service tax for the amount received 01.06.07 for the taxable service, on or after 01.06.07 under the namely, erection, commissioning or Composition Scheme? installation service, commercial or industrial construction service or construction of complex service, as the case may be, is not entitled to change the classification of the single composite service for the purpose of payment of service tax on or after 01.06.07 and hence, is not entitled to avail the Composition Scheme.

From the aforesaid circular, it can be seen that clarification was given with respect to reference code No. 097.03 / 04.01.08 related to-

(i) contracts entered into prior to 01.06.07 for providing erection, commissioning or installation and commercial or residential construction service, and (ii) service tax has already been paid for part of the payment received under the respective taxable service.

In the said portion of clarification, the question “whether in such cases, the service provider can revise the classification to works contract service from the respective classification and pay service tax for the amount received on or after 01.06.07 under the Composition Scheme” has been answered as under:

“ Prior to 01.06.07, service provider classified the taxable service under erection, commissioning or installation service [section 65(105)(zzd)], commercial or industrial construction service [section 65(105)(zzq)] or construction of complex service [section 65(105)(zzzh)], as the case may be, and paid service tax accordingly. The contract for the service was a single composite contract. Part of service tax liability corresponding to payment received was discharged and the balance amount of service tax is required to be paid on or after 01.06.07 depending upon receipt of payment.”

Thus, classification of a taxable service is determined based on the nature of service provided whereas liability to pay service tax is related to receipt of consideration. 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.”

In addition to the above clarification, the CBEC came out with another clarification vide Circular No. 128/10/2010-ST dated 24.08.2010 (F. No. 354/141/2010-TRU) regarding “Service tax on on-going works contracts entered into prior to 01.06.2007 which specifically states that: “ the condition under rule 3(3) of the Works Contract (Composition Scheme for payment of Service tax) Rules, 2007 casts an obligation for exercising an option to

choose the scheme prior to payment of service tax in respect of a particular works contract.”

It has also been clarified in the said Circular that:

“in case a contract where the provision of service commenced prior to 01.06.2007 and any payment of service tax was made under the respective taxable service before 01.06.2007, the condition under rule 3(3) was not satisfied and thus, no portion of that contract would be eligible for composition scheme.”

I find that in the present case, the said assessee has submitted in his defence reply dated 21.08.2012 that “during the impugned period they have paid the service tax, which they have rightly classified suo moto under the Construction of commercial & industrial service up to 30.06.2007 & under works contract service w. e. f. 01.06.2007 & onwards and paid the duty properly.” This clearly shows that the said assessee was paying service tax under the category of “Construction of commercial & industrial service” up to 30.06.2007 and under the category of “Works contract service” from 01.06.2007 onwards. Therefore, the condition under rule 3(3) was not satisfied and they were not eligible for composition scheme.

In view of the above, a service provider who paid service tax prior to 01.06.07 for the taxable service, namely, erection, commissioning or installation service, commercial or industrial construction service or construction of complex service, as the case may be, was not entitled to change the classification of the single composite service for the purpose of payment of service tax on or after 01.06.07 and hence, was not entitled to avail the Composition Scheme.

Thus, from the aforesaid discussion, I find that the said assessee had entered into a composite works contracts prior to 01.06.2007 with the clients listed in Annexure-“A” to the show cause notice, by classifying their service under the category of “Commercial & Industrial Construction Service” as defined under Section 65(25b) of the Finance Act, 1994, and continued to execute work after 01.06.2007 under the said work contract and also received the payment towards the said services rendered. In view of the aforesaid clarification, I find that the said assessee had wrongly changed the classification of their service from “Commercial & Industrial Construction Service” to “works contract service” for the purpose of discharging service tax on the amount received after 01.06.2007 with intent to avail benefit of the Composition

24 OIO NO. 19/STC-AHD/ADC(AS)/2012-13 Page 25 of 34 scheme which was not available to them.

As per the submission “the service tax was collected by them on a conservative footing classifying their activities as “ Commercial or Industrial Construction Service” and they discharged the S.Tax liability on 33% of the contract value. Actually, their activities were out of the purview of “ Commercial or Industrial Construction Service” as it was only work contract and they should not have collected and paid the S.Tax for the said period accordingly”.

I find the above assertion unacceptable as their activities were correctly classified under “ Commercial or Industrial Construction Service” for 2007-09. The works Contract Service was introduced from 01.06.07 and Govt. had clearly given an option to the service providers to classify their activities either way however, subject to certain conditions. Such option of changing the classification of the service for ongoing projects was expressly barred by Circular No. 345/6/2007-TRU dt. 04.01.2008. The noticee has expressed ignorance of such circular in the material time. Ignorance of Law is no defence and any contraventions would attract the consequential action. Further, they have not submitted any evidence as to at what rate they have collected the service tax from their clients to establish their bona fide.

26.2 whether there was short payment of Service Tax by the said assessee during the period in question:

In view of the discussion in foregoing paras, I find that the said assessee was not entitled to avail the benefit of Composition scheme for their ongoing projects and by availing such undue benefit, the said assessee had made short payment of Service tax of Rs. 32,46,201/- as worked out in Annexure –A to the show cause notice.

26.3. whether the show cause notice was time barred:

I find that the said assessee has also claimed that the demand is not sustainable on the ground of limitation as the show cause notice was issued after a limitation period of one year from the relevant date. They have further argued that they had filed ST-3 returns and were informing about all facts to the department regularly through letters and hence, there was no suppression of facts.

On this issue, I observe that Section 73 of the Finance Act, 1994 reads as under: “Section 73- Recovery of service tax not levied or paid or short-levied or short-paid or erroneously refunded – (1) where any service has not been levied or paid or has been short- levied or short-paid or erroneously refunded, central excise officer may, within one year from the relevant date, serve notice on the person chargeable with the service tax which has not been levied or paid or which has been short-levied or short –paid or the person to whom such tax refunded has erroneously been made, requiring him to show cause why he should not pay the amount specified in the notice.”.

Provided that where any service tax has not been levied or paid or has been short-levied or short-paid or erroneously refunded by reason of — (a) fraud; or (b) collusion; or (c) wilful mis-statement; or (d) suppression of facts; or (e) contravention of any of the provisions of this Chapter or of the rules made there under with intent to evade payment of service tax, by the person chargeable with the service tax or his agent, the provisions of this sub-section shall have effect, as if, for the words “one year”, the words “five years” had been substituted.

Explanation. — Where the service of the notice is stayed by an order of a court, the period of such stay shall be excluded in computing the aforesaid period of one year or five years, as the case may be.

I find that there was short-payment of service tax by the said assessee by inadmissible switch over of service tax classification by way of contravention of the Works Contract (Composition Scheme for payment of Service tax) Rules, 2007 with intent to evade payment of service tax. I also find that the authorized person had suppressed material facts regarding the details of projects undertaken by the said assessee during the period in question at the time of recording of his statement on 05.08.2011. Therefore, in terms of Section 73(1)(e) of the finance Act, 1994, a period five years was invocable to issue show cause notice in the present case. I, therefore, hold that the provisions of Section 73(1)(e) have been appropriately applied in the present case for invoking extended period of five years and the show cause notice is not hit by time bar. I am therefore, not impressed by the argument of the said assessee that the demand-show cause notice was time barred.

I further observe that the notice has intimated vide his letter dated 16.07.2007, to the deptt. Regarding opting for “Works Contract Service” w.r.t 10 projects w.e.f 01.06.07. Nowhere, they have intimated that they have opted to change the classification w.r.t their ongoing projects. The list of 10 projects mentioned in their intimation does not state that at what stage

26 OIO NO. 19/STC-AHD/ADC(AS)/2012-13 Page 27 of 34 the said projects were as on 16.07.07, hence, they have suppressed the material facts from the dept. and invoking of extended period is therefore justified. The facts regarding the said contravention only came to light during the audit by the dept.

26.04 As clear from the foregoing discussion that there was no question of interpretation of any statutory provision. It is only the noticee has availed of a benefit which he is barred to avail by the legal stipulation and there is no bonafide in his action as his intimation to the department dt. 16/7/07 was rather misleading

27. On the basis of discussion and findings in para supra, I hold that;

(i) services rendered by the said assessee to their clients, for the amounts charged and collected is to be considered as “taxable service” under the category of “Commercial & Industrial Construction Service” as defined under Section 65(25b) of the Finance Act 1994, as amended, and the total/gross amount of Rs. 5,30,63,511/- is required to be considered as value of the said taxable services charged by them for the period from 01/06/2007 to 29/02/2008; and

(ii)service tax amounting to Rs. 32,46,201/- short paid by them under the category of ‘Commercial & Industrial Construction Service’ is liable to be confirmed towards Service Tax payable and the said amount of service tax is required to be recovered from them under the provisions of Section 73(2) of the Finance Act, 1994, read with Section 68 of the Finance Act, 1994 as amended; and Rs. 33,12,450/- of Service Tax which has already been paid by them is to be appropriated towards service tax liability of Rs. 63,67,621/- under the category of ‘Commercial & Industrial Construction Service’. Moreover, the service tax amount of Rs. 32,46,201/- short paid by them is required to be recovered from them, alongwith interest at the prescribed rate chargeable under the provisions of Section 75 of the Finance Act, 1994, as amended;

28. I also find that the said assessee has contended in the defence reply that in the present case, there was a bonafide belief on part of the Noticee that the activities carried out by them were not taxable and

27 OIO NO. 19/STC-AHD/ADC(AS)/2012-13 Page 28 of 34 therefore, there was reasonable cause for failure, if any, on part of the Noticee 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, they also placed reliance on various judgments. As regards their contention for invoking Section 80 of the Finance Act, 1994 for waiver of penalty, I find that the said assessee has not produced any reasonable cause for the failure to pay service tax except that it was an issue of interpretation and they were a regular service tax assessee filing the ST-3 returns regularly. I have already discussed the issue of switching over to the Composite Scheme under Works contract w. e. f. 01.06.2007 in the foregoing paras and arrived at the findings that the switch over of Service Tax category so made by the said assessee was not admissible to them. I observe that if the said assessee had any doubt regarding the admissibility of such option under the Composite scheme, then being a registered service tax assessee they should have approached the service tax authorities for clarification of doubt to ascertain the admissibility as well as the procedure to be followed for such switch over. By claiming waiver of penalty under Section 80 of the Finance Act, 1994, they have proved that there was default on their part. Therefore, I consider it appropriate to hold the said assessee liable to penalty under Section 76 and 78 of the Finance Act, 1994.

29. I also find that the said assessee has also argued that penalty under both the Section 76 and 78 of the Finance Act, 1994 cannot be imposed simultaneously. They have also quoted various judgements in support of their arguments.

29.1 Penalty under Section 76:

I further observe that during the relevant period the assessee had defaulted in payment of service tax which has been established as not paid, in accordance with the provisions of section 68 of the Finance Act, 1994 read with Rule 6 of the Service Tax Rules, 1994, and thereby they have rendered themselves liable to pay mandatory penalty under the provisions of Section 76 of the Finance Act, 1994 for default in payment of service tax on time till the final payment. It has come to my notice that till date the assessee has not paid the service tax, hence imposition of mandatory penalty under Section 76 is once again justified. Accordingly, I hold that M/s BPC Projects is liable to imposition of penalty under Section 76 of the Finance Act, 1944. My conclusion is also based on various decisions of Hon’ble High Courts & Tribunals as mentioned below;

 CCE & ST Vs First Flight Couriers Ltd reported at 2007(8) STR 225 (Kar.)  UOI Vs Aakar Advertising, reported at 2008 (11) STR.5 (Raj.)  UOI Vs Shiv Ratan Advertisers reported at 2008 (12) STR 690 (Raj.)  Shiv Network Vs CCE, Daman reported at 2009 (14) STR 680 (Tri-Ahmd)  CCE, Vapi Vs Ajay Sales Agencies reported at 2009 (13) STR 40 (Tri–Ahmd)  Siddhi Motors Vs CCE, Rajkot reported at 2009 (15) STR 422 (Tri-Ahmd)

29.2 I further observe that the Hon’ble CESTAT in a recent judgment in the case of M/s Gujarat Industrial Security Force Society Vs CST, Ahmedabad, vide order No. A/1110/WZB/AHD/2010 dated 05.08.10, 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.”

29.3 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 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.”

29.4 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.).

30. Penalty under Section 78:

30.1 As it is already proved that the service provider had suppressed the facts, the consequences shall automatically follow. Hon’ble Supreme Court has settled this issue in the case of U.O.I Vs Dharmendra Textile Processors reported in 2008 (231) ELT 3 (S.C) and further clarified in the case of U.O.I Vs R S W M reported in 2009 (238) ELT 3 (S.C). Hon’ble Supreme Court has said that the presence of malafide intention is not relevant for imposing penalty and mensrea is not an essential ingredient for penalty for tax delinquency which is a civil obligation.

30.2 As regard the penalty proposed under Section 78 of the Finance Act, 1994, as amended, to be imposed upon the noticee I find that the circular, dated 04.01.2008, was issued well before the filing of returns for the second half of the FY 2007-08, and returns for the two half of FY 2008-09. Therefore, it is clear that the said assessee have failed to adhere the content of the said circular and thereby evaded the payment of Service Tax amounting to Rs. 32,46,201/-. Accordingly, I hold them liable to penalty under Section 78 of the Finance Act.,1994. My above view gets support from below mentioned case laws;

 Shiv Network Vs CCE, Daman reported in 2009 (14) STR 680 (Tri.Ahmd.)  CCE, Vapi Vs Ajay Sales Agencies reported in 2009 (13) STR 40 (Tri. Ahmd.)  Order No. A/754/WZB/AHD/2010 dt. 09.06.2010 / 23.06.2010 in the case of M/s Bajrang Security Services Vs CST, Ahmedabad.

30.3 I further observe that recently hon’ble High Court of Punjab & Haryana, in the case of CCE Vs Haryana Industrial Security Services reported at 2011 (21) STR 210 (P&H), has also upheld the penalty equal to service tax imposed under Section 78 of the Finance Act, 1994. Hon’ble Karnataka High Court has also taken similar view in the case of CCE, Mangalore Vs K Vijaya C Rai reported at 2011 (21) STR 224 (Kar.).

31. Both Penalty under Section 76 & 78 – Justified :

31.1 I also find that penalty under Section 76 ibid is provided for failure to pay service tax whereas penalty under Section 78 ibid is for suppressing value of taxable service. In the instant case, service tax liable to be paid in terms of Section 68 read with Rule 6 of the Service tax Rules, 1994, have not been found paid as well as service tax has not been paid / short paid by suppressing value of taxable service by reason of wilful misstatement and suppression of facts. Of course these two offences may arise in the course of same transaction, or from the same action of the person concerned. But the incidents of imposition of penalty are distinct and separate and even if the offences are committed in the course of same transaction or arises out of the same act the penalty is imposable for ingredients of both offences, this aspect was also considered by the Hon’ble High Court of Kerala in the case of Assistant Commissioner, C.Ex. Vs Krishna Poduval – 2006 (1) STR 185 (Ker). I also find that the Hon’ble Mumbai Tribunal in the case of Golden Horn Container Services Pvt. Ltd. v/s Commr. of C. Ex., Raipur reported at 2009 (16) S.T.R. 422 (Tri.- Mumbai), has held that Section 76 provides for a penalty who commits default simpliciter in payment of the tax whereas section 78 is a more stringent penal provision, which provides harsher penalty who commits default with mens rea. Since in this case also, M/s BPC Project has committed default with mens rea, the decision of the tribunal is squarely applicable.

31.2 Therefore, I am of the view that in the facts and circumstances of the case, it is justifiable, if the penalty is imposed under the provisions of Section 76 and 78 of the Finance Act, 1994, separately, following the decisions of Hon’ble Kerala High Court and Mumbai tribunal (supra). My

31 OIO NO. 19/STC-AHD/ADC(AS)/2012-13 Page 32 of 34 views are also further supported by various decisions of tribunals in the cases of ;

a) Shiv Network v/s Commissioner of Central Excise & Customs, Daman reported at 2009 (14) S.T.R. 680 (Tri.-Ahmd.)

b) Commissioner of Central Excise, Vapi v/s Ajay Sales Agencies reported at 2009 (13) S.T.R. 40 (Tri.-Ahmd.), and

c) Mett Macdonald Ltd. v/s Commissioner of Central Excise, Jaipur reported at 2001 (134) E.L.T. 799 (Tri.-Del.).

d) M S Shah & Co., Vs CST, Ahmedabad – Order No. A/1328/ WZB/ Ahd/ 2010 dated 30.06.2010 / 26.08.2010.

e) Bajarang Security Services Vs CST, Ahmedabad – Order No. A/745/ WZB/Ahd/2010 dated 09.06.2010 / 23.06.2010.

f) CESTAT, Principal Bench, New Delhi in the case of Bajaj Travels Ltd., Vs CCE, Chandigarh – 2009 (16) STR 183 (Tri.Del.)

Further vide Finance Bill 2007 a proviso to Section 78 has been inserted, effective from 10.05.2008, which provides that if the penalty is payable under this Section, the provisions of Section 76 shall not apply. However, since the period covered under the impugned show cause notice is prior to 10.05.2008, the penalties under Section 76 and 78 of the Finance Act, 1994 are justifiable.

32. In view of the above discussions and findings, I pass the following order:

-: O R D E R :-

(1) I consider services rendered by M/s BPC Projects, Ahmedabad to their clients, as listed in the Annexure-A to the show cause notice, for the amounts charged and collected on which service tax was short paid, as “taxable service” under the category of “Commercial & Industrial Construction Service” as defined under Section 65(25b) of the Finance Act 1994, as amended, and I consider the total / gross amount of Rs. 5,30,63,511/- as value of the said taxable services charged by them for the period from 01.06.2007 to 29.02.2008 ;

(2) I confirm service tax amount of Rs. 32,46,201/- (Rupees thirty two Lakh forty six thousand two hundred one only) (S.T. Rs. 31,51,651/- + Rs.63,033/-Edu. Cess + Rs. 31,517/- S. & H. Edu. Cess) short paid by M/s BPC Projects on ‘Commercial & Industrial Construction Service’ under the provisions of Section 73(2) of the Finance Act, 1994, read with Section 68 of the Finance Act, 1994 as amended;

(3) I order to recover interest from M/s BPC Projects, Ahmedabad, at the rate applicable, on the short paid Service Tax of Rs. 32,46,201/- (Rupees thirty two Lakh forty six thousand two hundred one only) under Section 75 of the Finance Act, 1994;

(4) I impose a penalty of Rs.200/- (Rupees Two Hundreds Only) upon M/s BPC Projects, Ahmedabad per day or at the rate of 2% of the service tax amount per month, whichever is higher, under the provisions of Section 76 of the Finance Act, 1994, as amended, for failure to pay Service Tax and Education Cess 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, 1944, as amended. As the actual amount of penalty could be depending on actual date of payment of service tax, however, as per Section 76 of the Finance Act, 1994, penalty will be restricted to the above confirmed amount of service tax liability ; and

(5) I also impose a penalty of Rs. Rs. 32,46,201/- (Rupees thirty two Lakh forty six thousand two hundred one only) upon M/s BPC Projects, Ahmedabad under Section 78 of the Finance Act, 1994 for suppressing the value of taxable services provided by them before the Department with intent to evade payment of service tax. If the service tax amount is paid along with appropriate interest as applicable, within 30 days from the date of receipt of this order, then the amount of penalty under Section 78 shall be reduced to 25% of the service tax amount, provided if such penalty is also

paid within such period of 30 days.

The show cause notice bearing F.No. STC-18/O&A/SCN/ BPC/ ADC/ 10-11 dated 05.09.2011 is disposed off accordingly.

(Amarjeet Singh) Additional Commissioner, Service Tax, Ahmedabad.

F. No. STC-18/O&A/SCN/BPC/ADC/10-11 Dt. 11/10/2012 By Regd. Post A. D.

To M/s BPC Projects, 92,”TITANIUM’, 9th Floor, Corporate Road, Opp: Ashwaraj Bunglows Nr. Prahladnagar AUDA Garden, Ahmedabad-380015.

Copy to :-

1) The Commissioner, Service Tax, Ahmedabad. (Atten. Review Cell). 2) The Deputy Commissioner, Service Tax, Division III, Ahmedabad. 3) The Superintendent Range-XV, Division III, Service Tax, Ahmedabad along with an extra copy of OIO to be delivered to the assessee and submit the acknowledgement to this office. 4) The Guard File.