Whether benefit of abatement and cenvat credit admissible for part period in a single contract?

PJ/CASE LAW/2016-2017/3428

Brief Facts-Brief facts of the case are that M/s. Prasad & Company (Project Works) Ltd. (hereinafter referred to as respondents) are engaged in providing services of construction of Industrial Buildings, Structures and Civil Work. Chhattisgarh State Electricity Board (CSEB in short) undertook expansion of Korba (East) Thermal Power Project for which Bharat Heavy Electrical Ltd. (BHEL) and National Building Construction Co. (NBCC) were awarded the contract for construction activity. BHEL and NBCC in turn engaged the respondents for construction work. Respondents are registered with Service Tax Department in Hyderabad but did not take registration for their Korba activity. Investigations were taken up by Directorate General of Central Excise Intelligence (DGCEI) against the respondents for non-payment of Service Tax and respondents got themselves registered with Korba Range on 12-10-2006. Show Cause Notice dated 16-7-2007 was issued to the respondents demanding Service Tax with interest on services rendered by them as sub-contractors to M/s. BHEL and M/s. NBCC (after inclusion of cost of structural steel-supplied free by NBCC) and also proposing penalties on them. It was also proposed in the Show Cause Notice to reverse the Cenvat credit availed on the strength of invoices which were in the name of other sub-contractors of NBCC. After due process of law, the Commissioner vide his impugned Order-in-Original No. 59/2008, dated 30-7-2008 held that:
(a)        Appellant’s activity was covered by definition of “Commercial and Industrial Construction” service defined under Section 65(105)(zzq) taxable with effect from 10-9-2004.
(b)        Appellant being provider of service was liable to pay Service Tax.
(c)        Rate of Service Tax was 10% up to Mar’06 and the value received from BHEL/NBCC has to be considered as cum-tax value.
Accordingly, he confirmed demand of Service Tax of Rs. 8,76,359/- and interest of Rs. 4,78,097/-. That Rs. 91,94,546/- as Service Tax and Rs. 80,387/- as interest had been paid as against the proposal of Rs. 46,87,165/- in respect of the services rendered to BHEL. Held that Rs. 4,30,956/- had been paid in excess.
Similarly, with regard to the demand of Rs. 9,68,20,122/- in respect of the services rendered to NBCC, Commissioner reduced the demand amount by Rs. 7,69,58,748/- by calculating the demand amount by adopting the rate of service tax at 10% for the period up to March, 2006 and by considering the value received as cum-tax value. Considering the payments made, he held that short payment was to the tune of Rs. 5,48,91,041/- and was ordered to be recoverable.
He allowed the benefit of abatement of 67% under Notification No. 15/2004-Service Tax for the period up to Feb’06 but included the value of free materials of Rs. 7,02,82,890/- issued to the respondent. For the period from Mar’06 to Mar’07 wherein the respondent has opted out of abatement scheme, Commissioner has allowed the benefit of Cenvat credit of Rs. 84,19,688/- on the Cement and Steel received on the input goods, capital goods and input service received and used for providing the output service. Accordingly, the Commissioner confirmed total demand of Rs. 5,99,01,741/- in this regard and held that Rs. 4,27,813/- excess paid is refundable to the respondent.
Lastly, the Commissioner has also disallowed the Cenvat credit of Rs. 34,17,858/- under Rule 14 of the Cenvat Credit Rules. Commissioner has not imposed any penalty under Section 76 and Section 78 of the Finance Act and has imposed a penalty of Rs. 1000/- under Section 77 of the Act, ibid.
Revenue has challenged the impugned order on the following grounds:
(i)         Value of taxable service under a single contract cannot be bifurcated to allow benefit of abatement under Notification No. 15/2004-S.T., dated 10-9-2004 on one part and the benefit of Cenvat Credit on the remaining part.
(ii)        The Commissioner has erred allowing the refund of Service Tax amounting to Rs. 4,27,813/- paid on the construction service provided to M/s. NBCC.
(iii)       The Commissioner has erred in not imposing penalty under Sections 76 & 78 of the Finance Act, 1994.
Appellant’s Contention-Ld. Jt. CDR Shri Pramod Kumar appearing for the Revenue submits that the demand was raised for the period November, 2004 to March, 2006. Commissioner has allowed the benefit of abatement under Notification 15/2004, dated 10-9-2004 for the period November, 2004 to February of and for the period March, 2006 to March, 2007. Commissioner has allowed benefit of Cenvat credit to the respondents. He submits for single contract respondents are eligible either for Cenvat facility or abatement benefit and this finding of the Commissioner is not proper and legal. He further submits that refund of Rs. 4,27,813/- is not admissible to the respondents and doctrine of unjust enrichment has to be applied to any on refund payable to assessee. He also argues that non-imposition of any penalty on the respondent is bad in law and on fact of this case.

Respondent’s Contention- Ld. Advocate appearing for respondents submits that Notification 15/2004 was rescinded on 28-2-2006 therefore there is no question of availment of benefit of this notification after 1-3-2006. Though new Notification 1/2006, dated 1-3-2006 was issued for abatement, but it denied the Cenvat credit in respect of input, capital goods and input services in contrast to denial of credit in respect of inputs and capital goods under Notification 15/2004. In respect of refund he submits that Commissioner has held that amount is refundable but doctrine of unjust enrichment is applicable to this refund as per law. He submits penalty has not rightly been imposed by the Commissioner.

Reasoning Of Judgement-After hearing both sides, the tribunal found that Notification No. 15/2004, dated 10-9-2004 grants benefit of abatement of 67% on taxable value in respect of construction service. This benefit is available if no Cenvat credit has been taken on inputs and capital goods under Cenvat Credit Rules or no benefit under Notification 12/2003, dated 20-6-2003 has been availed. Tribunal founded that this Notification does not put any restriction that benefit under this Notification has to be availed during currency of entire contract. The Tribunal also note that this Notification was rescinded on 28-2-2006 and Notification 1/2006 issued on 1-3-2006 granting the benefit of abatement subject to condition that no Cenvat credit has been taken in respect of input, capital goods and input services or no benefit has been claimed under Notification 12/2003. Contention of respondents that since they were availing credit of tax on input services prior to 1-3-2006, they will not be eligible for abatement under Notification No. 1/2006 and they opted for availing of Cenvat credit, has substantial force and tribunal did not find any infirmity in findings of the Commissioner allowing abatement under Notification 15/2004 prior to 1-3-2006 and Cenvat credit facility with effect from 1-3-2006.
As regards of refund, tribunal founded that Commissioner has held that amount is refundable and respondents also agree that this amount is subject to fulfillment of principle of unjust enrichment under law. Tribunal therefore ordered that any amount of refund arising out of this order will be subject to bar of unjust enrichment.
The issue of imposition of penalties has been discussed by the Commissioner in detail in para 18 of the Order-in-Original. The Commissioner was satisfied that respondents have shown sufficient cause for failure to discharge their liability in time and they have not concealed any information from the Department. He waived the penalty under Sections 76 and 78 of the Act invoking Section 80 of the Finance Act. Tribunal did not found any fault in this action of the Commissioner.
Revenue appeal is rejected and cross-objections are also disposed of.
Decision- Appeal rejected.
Comment- The substance of the case is that it is possible for the assessee to avail benefit of abatement for a particular period while availing cenvat credit for the remaining period with respect to a single contract. This is for the reason that Abatement Notification No. 15/2004-S.T. denied credit of inputs and capital goods only whereas the amended abatement notification no. 1/2006 dated 1-3-2006 denied cenvat credit on input, input services and capital goods. Hence, there is no problem in availing cenvat facility post 01.03.2006 while availing abatement under notification no. 15/2004-ST.

Prepared By- Prateeksha Jain

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PJ/CASE LAW/2016-2017/3428

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