Service Tax on Ongoing Projects under Works Contract

PJ/Case Laws/2011-12/1008

Case: Lanco Infratech Ltd Vs Customs, Excise and Service Tax Appellate Tribunal Bangalore and Another

Citation: 2011-TIOL-173-HC-AP-ST

Brief Facts:- The petitioner is a company registered under the Indian Companies Act, 1956, in Andhra Pradesh. They obtained service tax registration for providing commercial or industrial construction service like erection, commissioning and installation services and construction of residential complex services. They also availed the benefit under the Works Contracts Composition Scheme under Circular in respect of contracts entered. The second respondent issued show cause notice proposing service tax, interest and penalty during the period on the ground that the petitioner was not eligible to avail the benefit under the Composition Scheme, and they had to pay service tax at the full rate of 12.36%. The second respondent confirmed the demand of service tax, and interest and penalty. Being aggrieved, the petitioner went in appeal under section 35B of the Central Excise Act, 1944. The Petitioner also moved an interlocutory application seeking waiver of pre-deposit and stay of recovery of service tax and penalty. BY the impugned order the learned CESTAT, while granting the benefit of abatement from the taxable value of works contract service under Noti. No. 01/2006-ST for the purpose of the interlocutory petition, permitted waiver of pre-deposit and stay of recovery on condition of the petitioner depositing the amount.

Appellants Contention: Appellant submits that the impugned order was passed without considering the prima facie case and, therefore, it is vitiated by improper exercise of power vested in the Tribunal under Section 35F of the Act. And rely on Mehsana Dist. Co. op Milk P.U. Ltd v Union of India. Nextly urged that undue hardship, which is the requirement for waiver of pre-deposit, also includes financial hardship and , having regard to the well known fact that the amounts deposited by the petitioner for availing the remedy to the well know fact that the amounts deposited by the petitioner for availing the remedy of appeal, even after the appeal is allowed, would be returned after several years, if the waiver of pre-deposit is not granted, the petitioner would suffer undue hardship. Learned Counsel would contend that the non-speaking order passed by the learned Tribunal suffers from error and the ratio in Nagarjuna Construction Company Ltd v Government of India was not considered in the proper perspective.

Respondents Contention: - Respondents submits that an order of waiver of pre-deposit, a mandatory condition precedent for availing the appellant remedy, is not a matter of course. While passing any order, the Tribunal is required to safeguard the interest of the Revenue. The impugned order was passed keeping in view the Scheme of Section 35F of the Act and, therefore, no interference is called for.

Reasoning of Judgment: - The issue before the Tribunal, at the interlocutory stage, was whether the petitioner had demonstrated a prima facie case and undue hardship. In so far as abatement, to the taxable value, to the extent of 67% in terms of notification No 01/2006-ST is concerned a clear finding was recorded by the learned Tribunal in favour of the petitioner. In regard to the question whether the service tax provider was entitled to opt for composition in terms of Rule 3(3) of the works Contracts Rules, 2007 is concerned the issue, according to the Tribunal, was the subject matter of Nagarjuna Construction Company and operated against the petitioner. The Tribunal, taking into consideration of the matter with reference to abatement from taxable value, gave relief to the extent of benefit of abatement of taxable value of the works and directed pre-deposit as a condition for grant of an order of waiver, and stay of recovery. The question is whether the order suffers from any grave error apparent on the face of record warranting exercise of certiorari jurisdiction of this Court. In CCE, Guntur V. M/s Sri Chaitanya Educational Committee, Poranki, Vijayawada, CEA No. 301 of 2011, on an analysis of the revelant case law this Bench enumerated the following principles to be kept in mind while considering the applications for stay or waiver of pre-deposit under Section 35F of the Act.

Tested in the background of the above principles, the impugned order does not suffer from any error much less grave error apparent on the face of the record. Commissioner therefore, inclined to interfere with the well considered order of the learned CESTAT. However, request that in case the petitioner complies with the impugned order in Appeal passed by the learned CESTAT, within three weeks from today, the appeal itself be disposed of by the CESTAT within a period of three months thereafter.

Judgment: - Appeal is dismissed.

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PJ/Case Laws/2011-12/1008

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