Appeal for the waiver of pre-deposit of service tax, penalty and the interest

PJ/Case Law /2016-17/3440

Case:- SPML INFRA LTD. Versus COMMISSIONER OF SERVICE TAX, KOLKATA
Citation:- 2015 (38) S.T.R. 826 (Tri. - Kolkata)
Brief facts:- This is an Application filed seeking waiver of pre-deposit of Service Tax of Rs. 3,02,04,089/-; equal amount of penalty imposed on the assessee under Section 78 of the Finance Act, 1994; penalty of Rs. 10,000/- under Section 77 of the said Act; and interest at the applicable rate.
Appellant’s contention:- Ld. CA for the applicant submits that out of the total amount of Service Tax demanded, Rs. 1,85,99,013/- relates to disallowance of the abatement of 67% under Notification No. 1/2006-S.T., dated 1-3-2006 for computing their Service Tax liability in respect of various civil construction activities. It is the submission that the applicant had been awarded a contract valued at Rs. 33.12 crore on Turn-Key Project by M/s. West Bengal Power Development Corporation Ltd., comprising of ‘Erection, Commissioning and Installation Services’ including construction of complex (civil construction). Even though they paid the Service Tax on the gross value of ‘Erection and Commissioning Services’, however, they had availed abatement against civil construction services. It is the submission that on realizing their mistake, they reversed the Credit of Rs. 15.40 lakh (approx.) on pro-rata basis. An amount of Rs. 65,87,218/- relates to non-payment of Service Tax on construction of roads, bridges, residential quarters, etc. It is submitted that the civil part of the contract could be bifurcated into separate units like residential quarters, road-crossing and pipe bridges services, roads, etc. It is the contention that construction of roads, bridges are not taxable. Rs. 50,17,858/- is demanded on mobilization of the advances received by the applicant. It is the submission that the impugned demand was time-barred. As regards the interest, it is submitted that they had already paid Rs. 17,96,046/- relating to the demand being not within the extended period.

Respondent’s contention:-Per contra, the ld. AR for the Revenue submits that the applicant had maintained a common register for the entire project and availed the credit on capital goods and input services used in respect of various services against the entire Project and therefore, availing abatement for calculating Service Tax on ‘Civil Construction Services’, is in violation of the conditions of the Notification No. 1/2006-S.T., dated 1-3-2006. As regards the Service Tax not paid on the construction of roads, bridges, residential quarters, etc., it is the contention that the applicant was awarded a single contract on Turn-Key Project/Package for erection service on Raw Water Make-Up System from Panchet Dam Reservoir to Santaldih TPS (OC-125), vide Contract No. WBPDCL/STPS/WS/E/189/4058, dated 22-9-2004, valued at Rs. 33.12 crore, comprising of various services including the services provided towards the construction of residential quarters, roads, bridges, etc., and therefore, as per the Board’s Circular No. B-1/6/2005-TRU, dated 27-7-2005, the Service Tax would be leviable on the gross amount charged

for the value of the Project. He submitted that the applicant had received Mobilization Advance of Rs. 13.17 crore (including TDS) from M/s. National Power Thermal Corporation on 7-11-2008 and 29-12-2008 respectively, against the services being provided for Bongaigaon Project (Code:”C-204”). However, the applicant did not pay the corresponding Service Tax at the time of receiving the advance amount. Later on, the assessee adjusted the amount of the advance in their consecutive bills, on which they had paid the Service Tax. However, even after adjustment, the amount of advance not yet adjusted, stood at Rs. 12.17 crore, on which the assessee did not pay the Service Tax of Rs. 50,17,858/-.
Reasoning of judgment:- Heard both sides. The tribunal found that in the present case, the applicant had entered into a contract on Turn-Key Project. As per the Notification No. 01/2006-S.T., dated 1-3-2006, as was applicable during the relevant period, the services provided on ‘Erection, Commissioning or Installation Services’ and ‘Commercial or Industrial Construction’, the services were leviable after allowing the abatement of 67% of the taxable value, subject to the condition that no Cenvat credit of Service Tax on Inputs or Capital Goods or Input Services used for providing such taxable service, had been taken under the provisions of Cenvat Credit Rules, 2004. It is not in dispute that the applicant had availed the credit in respect of the entire services. However, it is the submission that the applicant has reversed the credit on pro-rata basis, in respect of those services, where they had availed the abatement, immediately after detection. While as, according to the applicant, the separate break-up value was available in respect of each of the services. Revenue’s contention is that the applicant was awarded a single contract which is evident from the statement of one Mr. Bishwanath Choudhury, Ex-CFO of the said Project, who in his statement, categorically stated that the applicant was awarded a single contract against which, they had taken the Cenvat credit. While in respect of commissioning and installation, they availed the abatement, but in respect of other services, they discharged the Service Tax on the gross value of the taxable services rendered. He also stated that on realizing their non-eligibility of the Cenvat credit taken, they paid the credit of Rs. 11,79,029/-, vide Challan No. 2249, dated 6-3-2013. As regards non-payment of Service Tax on construction of roads, bridges, residential quarters, etc., it is the plea of the applicant, they are having separate break-up of the value against these services and that no Service Tax is leviable of construction of roads and bridges. The Tribunal, however, found that the ld. Commissioner under para 4.3.3 of the impugned Order, has categorically observed that from the contract between the applicant and WPDCL dated 2-11-2004, it was seen that there was no mention of the contract price separately, in respect of each item of the works. A lump-sum price was agreed upon for the total Project pertaining to the work of ‘Commercial or Industrial Construction Service’, he observed that as per Bills of Entry and shipping bills in the contract, it was agreed that the Notice would raise the bill for break-up of the contract price, phasewise and itemwise. The Bills of Entry/shipping bills of the contract did not have the provision for raising bills separately, showing the value for construction of roads, bridges, residential quarters, etc. In view of these facts, prima facie, the tribunal was not

impressed with the contention of the applicant that the contract had a separate break-up for these services. The Tribunal also found force in the contention of the ld. Commissioner that the applicant was required to pay the Service Tax on the advances received by them against the contract to be executed by them against the Bongaigaon Project in Code : ‘C-204’. The applicant has, however, stated that they had paid the Service Tax on such advances on lump-sum basis. In view of the rival claims put forward by the applicant and the Revenue, the Tribunal found that their claim was required to be examined in detail, with reference to the terms of the contract, the books of account maintained by the applicant and the other evidences put forth by both the parties, which could be examined in detail, at the time of disposal of the appeal. However, in view of various facts of this case, enumerated as above, prima facie, at this stage, the Tribunal was of the opinion that the applicant had not been able to make out a case for total waiver of the pre-deposit. Accordingly, the Tribunal directed the applicant to make a pre-deposit of Rs. 20.00 lakh (Rupees twenty lakh) within a period of eight weeks from that day and report compliance on 26-3-2015. Subject to deposit of the said amount, the balance dues adjudged would stand waived and its recovery stayed during the pendency of the appeal. Failure to deposit the above amount would result into dismissal of the appeal without further notice to the applicant.
Decision:- Stay partly granted
Comment:-The gist of the case is that the assessee entered into a contract for errection, commissioning and installation services including construction of complex (civil construction) which were awarded on turnkey basis. The assessee availed abatement against civil construction services under Notification No. 1/2006-S.T. and also availed Cenvat credit. However, on realizing mistake, they reversed credit of Rs. 15.40 lakh on pro-rata basis. It was held that since a single contract was awarded to the assessee, hence, their contention for separate breakup value for each service could not be accepted. Bills of entry/shipping bills of contract did not have provision for raising bills separately. Prima facie the case was not made out for total waiver. The stay was partly granted and the applicant was directed to pre-deposit Rs. 20 lakh in accordance with Sections 73, 76, 77 and 78 of Finance Act, 1994 and Section 35F of Central Excise Act, 1944 as applicable to Service Tax vide Section 83 of Finance Act, 1994.
Prepared by:-Praniti Lalwani

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PJ/Case Law /2016-17/3440

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