Whether confirming service tax demand on accrual basis rather on receipt basis after disallowing benefit of notification 12/2003 justifiable?

PJ/Case Laws/2012-13/1369

Case:-NAG INTERIORS (P) LTD. VersusCOMMISSIONER OF CENTRAL EXCISE, BANGALORE

Citation:- 2012 (28) S.T.R. 620 (Tri. – Bang.)

Brief Facts:-This application seeks waiver of pre-deposit of service tax amounting to Rs. 2,36,80,916/- relating to the period 16th June 2005 to 31st March 2010 along with interest and penalties imposed under various sections. The appellant were undertaking execution of "interior designs", as designed by different architects. They were executing the work after using bought-out items like wood laminates, pipes, electrical items, plumbing items and glass etc. They were paying service tax under the category of "Commercial and Industrial Construction" services with effect from 16-6-2005 up to 30-6-2007 and thereafter started paying under the category of works contract. A show-cause notice dated 7-9-2010 was issued proposing demand of service tax alleging that the appellants were not eligible for the benefit of Notification No. 12/2003-S.T., dated 20-6-2003 and that they were also not eligible for paying service tax under the category of works contract. Commissioner confirmed the demand along with interest and imposed penalties as mentioned above.

Appellant Contentions:-

The learned advocate of the appellant challenges the order of the Commissioner on the following grounds:
Ø During the relevant period, they have executed the orders. A part of these amounts was mentioned as due from sundry debtors but has not actually been received.
Ø They have utilized/supplied goods while rendering the services and they have paid VAT under different schemes as applicable in respect of such goods.
Ø The taxable value was to be calculated excluding the value of goods which was subject to VAT and the duty payable on it have already paid by them.
Ø The denial of the benefit of exemption under Notification No. 12/2003 on the ground that no documents have been produced was not justified as the invoices raised on the service recipients clearly indicated the rate analysis of various items which were supplied/utilized while rendering the services and on that basis on the supply/sale of such items, VAT was paid.
Ø Denial of benefit under the works contract was not justified. The Commissioner has held that no option was exercised for paying service tax under the head Works Contract. The option under Works Contract would arise only when service tax was sought to be paid under the composite scheme and not for regular assessees.
Ø Referring to Board's Circular No. B-1/16/2007-TRU, dated 22-5-2007, he submits that any contracts which are treated as works contracts for purposes of levy of VAT/sales tax shall also be treated as works contract for purposes of levy of service tax.

Respondent Contentions:-Learned Commissioner (A.R.) reiterated the findings and reasoning of the Commissioner. He relied on the decision of the Larger Bench of the Tribunal in the case of Aggarwal Colour Advance Photo System v. Commissioner of Central Excise, Bhopal [2011 (23) S.T.R. 608 (Tri.-LB.)] and submitted that for the purpose of Notification No. 12/2003, only actual sales could be considered and not the deemed sales. He further submitted that Commissioner has denied the benefit as the appellants have failed to produce necessary documents indicating sale of the goods. For the purpose of paying service tax under works contract, the contract should involve supply of goods and rendering of services in a composite manner. Once the appellants exclude the value of the goods, they cannot seek assessment under works contract.

Reasoning of Judgment:- Tribunal has carefully considered the submissions from both sides and perused the records. The Commissioner has confirmed the demand treating the amounts mentioned as "receivables" as service charges received by the appellant. This is erroneous as the service tax is liable to be paid on actual amounts received and not on amounts which may be receivable and not yet received. The Commissioner fined that the appellants have executed orders and they claim that value of goods involved in rendering of the said services. Commissioner has totally disallowed the claim for deduction of value of goods. In other words, he has taken the entire value of services rendered. It is not disputed that the appellants have paid VAT on goods valued. As per Board's clarification dated 22-5-2007, any contract which is considered as works contract involving payment of VAT deserves to be treated as works contract for purposes of levy of service tax. Further, for the period prior to 1-6-2007, the denial of benefit of Notification No. 12/2003 may not be justified in the light of documents submitted by the assessee which contained detailed specifications and value of the material supplied/utilized while rendering the services. Prima facie, the appellants were eligible for benefit of Notification No. 12/2003. Undisputedly, the appellants have paid service tax which according to them was payable after availing the benefit of Notification No. 12/2003 and under works contract from 1-6-2007. In view of the above, it was held that the appellant has made out a case for waiver of balance of dues as per the impugned order and, accordingly, waiver of pre-deposit of balance of dues is granted and stay recovery thereof till disposal of the appeal.

Decision:-Stay Granted.

Comment:- The analogy drawn from this case is that service tax liability cannot be confirmed on receivables basis when the same arises on receipt basis. Further, the benefit of notification 12/2003 regarding deduction of value of goods from the taxable value for levy of service tax cannot be denied merely on the grounds that the documents indicating sale of goods were not submitted when it can be clearly established that there was sale from the invoices produced by the assessee.

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PJ/Case Laws/2012-13/1369

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