Service tax on material supplied by Contractee - Works Contract

PJ/Case Laws/2011-12/1297

Service tax on material supplied by Contractee - Works Contract - Classification of Long Term Contracts

Case: VED CONTRACTORS PVT LTD v/s CCE, DELHI-II

Citation: 2011-TIOL-1008-CESTAT-DEL

Issue:- Material provided by contractee – whether to be included in the assessable value and whether service tax leviable on the same – matter pending before Delhi High Court- pre-deposit waived.

Classification of long term service whether under Works contract or under Commercial/Industrial Construction Service & Construction of Complex Service – pre-deposit ordered.

Brief Facts:- Demand against the appellant-assessee has been raised on two issue – the first issue related to levy of service tax on material supplied by the contractee. The second demand was relating to execution of works contract which became taxable w.e.f. 01.06.2007. The matter is before the Tribunal and application for waiver of pre-deposit and grant of stay has been filed.

Appellant’s Contention:- With regard to first demand, appellant submitted that when the material is supplied by the contractee, they shall not form part of assessable value of taxable service since the appellant has no ownership of the material for which he does not retransfer the same by providing the service warranting a demand of service tax.

With regard to second issue, it was contended that the taxability of such a service has been explained by CBEC in its Circular No.128/10/2010-ST, dated 24.08.10. It was submitted that services which are taxable under different entry have suffered tax under the entry commercial or industrial construction service and construction of complex service. Therefore, pre-deposit may not be insisted for wrong classification and taxation.

Reasoning of Judgment:- The Tribunal held that taxability of the value material supplied by contractee in respect of the service provided under Finance Act, 1994, has been decided by Tribunal against assessee in the case Jaihind Projects Ltd. vs. Commissioner of Service Tax, Ahmedabad [2010(18)STR-650(Tri.-Ahmd.)]. But when similar such matters came up before Delhi Bench, members of Bar mentioned that the issue in principle being under challenge before the Delhi High Court and did not insist on pre-deposit on the controversy.

Therefore, in the present case, the Tribunal has waived of requirement of pre-deposit in respect of first demand.

With regard to second demand, the Tribunal have taken the view that when Board has conceived that long term contracts having elements of certain nature of taxable service were intended to be brought to the ambit of the changed classifications to fall in to the entry of works contract, this does not appear to alter the nature of activity carried out by an assessee in the past. The work is recognized by its nature and incidence of tax depends on the nature of activity. The prospectivity and restrospectivity taxation is not the intention of the Board as is apparent from the Circular. Board has deliberately used the word "undergo a change" in the Circular. By such conception, Revenue decided to provide a more convenient classification of the past activity considered to taxable under the frame of works contract. Prima-facie this does not alter the levy by any argument of restropectivity or any prospectivity of application of the law. The Tribunal had noted the Apex Court decisions on the nature of legislation to what extent shall be retrospective and to what extent shall be prospective.

On the facts of the case, it was noticed that the work was executed in 2007-08 and the intention of Board demonstrating taxability of the activity carried out. It was held that prima facie, no reason exists to waive the requirement of pre-deposit. Pre-deposit ordered for the second demand.

Decision:- Stay granted partly.

Comments

PJ/Case Laws/2011-12/1297

Post a Comment

Query