In case of change in service tax rate, rate prevalent on the date of provision of service to be considered.

PJ/Case law/2014-15/2209

Case:-COMMISSIONER OF SERVICE TAX VERSUS RATAN SINGH BUILDERS PVT. LTD.

Citation:-2014(33) S.T.R.242 (DEL.)

Brief Facts:-This appeal is directed against the order dated 27-2-2012 passed by the Customs, Excise & Service Tax Appellate Tribunal in service ST Stay No. 1989/2011 and ST Appeal No. 965/2011. The Tribunal observed that the issue involved in the present case was whether the applicable rate of Service Tax would be the rate in force at the time of realization of the consideration in respect of the taxable service or would it be the rate of tax which was in force at the time of the rendition of the taxable service. The Tribunal noted that recently it had decided that the appropriate rate of tax would be the rate which was in force at the time when the service was rendered and not the rate which was in force on the date in which the payments were received. Accordingly, the Tribunal dismissed the Revenue's appeal.

The Revenue is aggrieved by the said order dated 27-2-2012 and has preferred the present appeal before the High Court. It is worth observing that the entire controversy arose out of the show cause notice dated 214-2009 wherein the main allegation against the respondent was as under:-

"2. Whereas on scrutiny of the ST-3 return of Works Contract Service for the period Oct., 07 March 08, it has been observed that the noticee had paid the Service Tax in the month of March 1998 @ [2%] instead of 4%. As per Ministry of Finance, Department of Revenue (Tax Research Unit) F. No. 545/6/2007-TRU, dated 28-4-2008, the Service Tax shall become chargeable on receipt of payment and on the amount so received for the service provided or to be provided, whether or not services are performed. The rate applicable to taxable transaction shall be the rate in force at the time the service tax becomes chargeable. This is a well settled legal position. The date on which the services on record is provided has no relevance to examine the applicable tax rate the service is already taxable at the time of revision on rate. In view of the above, it is clarified that the rate of 4% is applicable for the Works contract service where the payment for the service is received on or after 1-3-2008."

In the present case, it is an admitted position that the service in execution of Works Contract had been rendered by the respondent during the period October, 2007 to the end of February, 2008. It is also an admitted position that all invoices in respect of the said services had been raised by the end of February, 2008. However, the payments in respect of the said services were received only after 1-3-2008. It is also an admitted position that rate of Service Tax applicable prior to 1-3-2008 was 2% and after 1-3-2008 was 4% under the Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007. It is the case of the appellant that since the payments for the services rendered were received only after 1-3-2008, the applicable rate would be 4% and not 2%. Reliance was placed by the Revenue on the Ministry of Finance, Department of Revenue instruction dated 28-4-2008.

Appellant Contention:-The learned counsel for the appellant, submitted that Rule 3(3) of the Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007 had not been examined by this Court in the case of Vistar Construction(supra) and, therefore, that decision was distinguishable. The main contention of revenue is based on the instruction dated 28-04-2008.

Respondent Contention:-The respondent submitted that service was rendered and consequently payment received in lieu of such services. But during the period between rendering of service and receiving payment the rate of service tax was changed. Hence, in similar case of Vistar Construction Pvt. Ltd. v. Union of India & Others and W.P. (C) 3632/2012 entitled Piyare Lal Hari Singh Builders Pvt. Ltd. v. Union of India & Others [2013 (31) S.T.R. 129 (Del)]. In that decision, the main controversy was with regard to the applicable rate of Service Tax in respect of works contract service. There also, the service had been rendered prior to 1-3-2008, but the payments were received after 1-3-2008. The revenue had placed reliance on the very same instruction dated 28-4-2008 and, after going through the same, this Court held that the view expressed in the instruction was wrong. Consequently, the applicable rate of tax would be the rate which was prevalent prior to 1-3-2008. Since the entire foundation of the argument of the revenue is based on the instruction dated 28-4-2008 which has been found to be invalid by virtue of our decision in the case of Vistar Construction(supra), the present appeal would allow to be dismissed.

Reasoning of Judgment:-The Tribunal pointed out that recently a similar issue had arisen in another set of cases before them. Those were decided on 23-1-2013 in W.P. (C) 5636/2010 entitled Vistar Construction Pvt. Ltd. v. Union of India & Others and W.P. (C) 3632/2012 entitled Piyare Lal Hari Singh Builders Pvt. Ltd. v. Union of India & Others [2013 (31) S.T.R. 129 (Del)]. In that decision, the main controversy was with regard to the applicable rate of Service Tax in respect of works contract service. There also, the service had been rendered prior to 1-3-2008, but the payments were received after 1-3-2008. The revenue had placed reliance on the very same instruction dated 28-4-2008 and, after going through the same, this Court held that the view expressed in the instruction was wrong. This Court had placed reliance on the Supreme Court decision in the case of Association of Leasing & Financial Service Companies v. Union of India : 2010 (20) S.T.R. 417 (S.C.), wherein the Supreme Court clearly held that the Service Tax was levied on service and that it was not a tax on materials or sale. The taxable event was the rendition of the service. Consequently, this Court held that the rendition of the service had been completed prior to 1-3-2008 and, therefore, the taxable event had occurred prior to 1-3-2008. Consequently, the applicable rate of tax would be the rate which was prevalent prior to 1-3-2008. Since the entire foundation of the argument of the revenue is based on the instruction dated 28-4-2008 which has been found to be invalid by virtue of our decision in the case of Vistar Construction(supra), the present appeal is also liable to be dismissed.

The learned counsel for the appellant, submitted that Rule 3(3) of the Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007 had not been examined by this Court in the case of Vistar Construction(supra) and, therefore, that decision was distinguishable. First of all, we are not able to agree with the learned counsel for the appellant inasmuch as the instruction dated 28-4-2008 had been dealt with in detail and the paragraph 2 thereof, specifically refers to the said Composition Rules of 2007. Secondly, and more importantly, the show cause notice does not contain any such allegation with regard to the respondent having made an option under the said Rule 3. Since, there is no foundational basis for making the submission and no such submission was made before the appellate authority, the appellant cannot be permitted to take up this plea before this Court for the first time.

In view of the foregoing, following the decision in the case of Vistar Construction(supra) the present appeal does not raise any substantial questions of law and is therefore dismissed. There shall be no order as to costs.

Decision:-Appeal disposed off.

Comment:- The gist of this case is that whenever there is change in the rate of service tax, the rate that is prevalent at the time of provision of service is to be considered for the purpose of calculating the service tax liability in view of the decision given in the case of Vistar Construction.

Prepared by: Hushen Ganodwala

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PJ/Case law/2014-15/2209

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