Service tax liability of works contractor when service tax deducted and paid by recipient.

PJ/Case Study/2018-19/130

CASE STUDY
M/S Mewara Enterprises
Prepared By: CA Neetu Sukhwani and Prateeksha Jain

Introduction:M/s Mewara Enterprises, hereinafter referred to as appellant, is engaged in providing works contract services to M/s RRVPNL. The works contract services under the negative list tax regime was covered under partial reverse charge wherein the service tax to the extent of 50% was liable to be paid by the service provider and 50% was liable to be paid by the service recipeint. However, M/s RRVPNL deducted the service tax from payment made to M/s Mewara Enterprises and deposited to the government exchequer. Thus, the service tax payable by M/s Mewara Enterprises was paid by M/s RRVPNL. However, the service tax authorities issued service tax demand notice to M/s Mewara Enterprises for paying their share of service tax on the contention that the service tax paid by M/s RRVPNL was their own share as recipient of service. The benefit of 40% deduction as per Service Tax Valuation Rules was also not allowed while computing the service tax demand. The service tax demand was confirmed against M/s Mewara Enterprises along with interest and penalty. Thereafter, M/s Mewara Enterprises filed appeal to the Commissioner Appeals against the confirmation of service tax demand. The present appeal pertains to the outcome of the decision given by the Commissioner Appeals.

Relevant Legal Provisions:

Rule 2(A) of Service Tax Determination of Value Rules, 2006
Notification No. 30/2012-ST dated 20.06.2012

Issue Involved: Service tax liability of works contractor when service tax deducted and paid by recipient.

Brief Facts:M/s Mewara Enterprises (hereinafter referred to as the appellant) are holder of service tax registration no. AAHPN0543QSD001 and are engaged in providing services of works contract. A Show Cause Notice No. V (ST) Adj./JDR/73/2016/738 dated 11.04.2016 was issued to the appellant wherein it was alleged that the appellant has not paid service tax amounting to Rs. 8,59,458/- on the services provided by them to M/s RRVPNL and XEN PHED, Phalodi during the period from 2014-15.The appellant filed reply to the show cause notice vide letter having reference as PJ/SCN/M-91/16-17/573 dated 09.05.2016.Personal hearing for the case was convened on 08.12.2016 which was attended by Shri Pradeep Jain, their authorised representative wherein the submissions made in the reply were reiterated. However, the submissions made by the appellant in their reply were not considered and the learned adjudicating officer passed the impugned order in original no. 03/2017-ST dated 25.01.2017 confirming the demand of Rs. 6,96,369/- along with interest under section 75 of the Finance Act, 1994 and penalty under section 77(2) and 78 of the Finance Act, 1994. The service tax demand of Rs. 6,96,369/- pertaining to services provided to XEN PHED, Phalodi was dropped as the same were related to laying of pipelines which was exempt under entry no. 12 of the Mega Exemption Notification No. 25/2012-ST dated 20.06.2012.
Aggrieved by the order in original (hereinafter referred as impugned order) confirming the demand of service tax along with interest and penalty, the appellant prefer to file the appeal.
Appellant’s Contention:-

The appellant submit that the impugned Order-in-Original passed by the learned Assistant Commissioner is wholly and totally erroneous in confirming the demand of service tax along with interest and penalty and is liable to be quashed.

The impugned order has held that they are liable to pay tax at full rate and their plea for deduction of value of material and VAT from the gross value or admissibility of the benefit of abatement provided in Rule 2A of Service Tax Determination of Value Rules, 2006 is not acceptable because they have not submitted any document in support of their claim. They have neither submitted copies of work order nor have submitted copies of bills evidencing value of material involved in the work contract. Hence, it is held that in the absence of documentary evidence, it is not possible to ascertain whether the work order was involving material or not and if yes, then what value of such material. Therefore, it is held that the service tax liability on gross value has been correctly calculated in the SCN and the assessee is liable to pay the same because they have not submitted any documents evidencing payment of VAT and cost of material involved. In this regard, the appellant submits that the contention of the impugned order is totally erroneous as the service tax demand has been raised under the category of ‘works contract services’ which implies that the contract involves transfer of property in goods along with provision of service. The appellant submits that when the impugned show cause notice has raised service tax demand under the category of ‘works contract services’, they are not required to prove that the work order was involving material also in the contract as it is deemed that there is supply of goods along with provision of service in case of works contract. As far as submitting the value of material used in the contract is concerned, it is submitted that since it is not possible to bifurcate the value of material used in the contract, they have requested to grant the benefit of Rule 2A(ii)(A) wherein service tax is payable on 40% of the total amount charged for works contract in case of original works. However, the benefit of the said Rule has been denied on the irrational grounds that value of material was not submitted. The appellant submits that if the provisions of Rule 2A are studied, it is found that its clause (i) pertains to situations wherein the value of works contract can be segregated as the value of materials used in the works contract is known and is ascertainable. However, the clause (ii) pertains to situations wherein it is not possible to bifurcate the value of works contract into material portion and so standard deductions are allowed for various categories of works contract. The appellant’s case falls under clause (ii) as it is not possible to bifurcate the material value from the works contract and this is evidenced from the fact that even VAT has been paid under composition scheme. Therefore, it was requested that the service tax computations should be made after considering the abatement admissible by virtue of Rule 2A(ii)(A). However, the impugned show cause notice has denied the benefit on absurd reasons like it was not proved that material was involved in the works contract and no value of material was submitted. The appellant submits that since the value of material was not ascertainable, they have pleaded that the benefit of Rule 2A(ii)(A) should be extended to them. Furthermore, as regards ascertaining the nature of works contract services is concerned, the appellant submits that the impugned show cause notice while calculating the service tax demand has relied upon the details provided by M/s RRVPNL wherein the nature of services provided by the appellant is also clearly mentioned. The appellant submits that if the said details are pursued, it is very clear that the nature of works contract undertaken by them is that of original works as they have undertaken construction of boundary wall, cement road, cable transformer etc. As such, there was no need of submitting any work order because the basis of computation of demand by the learned adjudicating authority clearly reveals the nature of work undertaken by the appellant for M/s RRVPNL. As such, it cannot be contended by the impugned order that since the nature of work was not known, the benefit of valuation under Rule 2A(ii) could not be extended to them. Moreover, while confirming service tax demand, consequential benefits available to the assessee ought to be extended to them and the service tax demand at full rate cannot be confirmed simplicitor on the grounds that documentary evidences were not submitted when infact the nature of work undertaken was known to the adjudicating authority. Consequently, merely because the value of material was not submitted or the work orders were not enclosed, the same cannot be taken as reason to deny the benefit of abatement under Rule 2A of Service Tax Determination of Value Rules, 2006. The appellant submit that material was involved in their contract and they have paid VAT on the material portion under composition scheme of VAT Laws. Therefore, the impugned order in original denying the benefit of composition scheme or reduced service tax rate is not tenable and deserves to be quashed.

In continuation to the above, the appellant further submits that the learned adjudicating authority has also contended that the total amount of the ledger account does not tally with that of M/s RRVPNL. In this regard, the appellant submits that the individual entries of the ledger account tally with that entries taken by the impugned show cause notice while calculating the service tax demand and there is only discrepancy as regards one entry. The appellant submits that the ledger account submitted by them cannot be ignored merely because the total amount does not tally with the details provided by M/s RRVPNL. The appellant submits that while computing service tax demand on the services provided by them, the ledger account submitted by the appellant will hold more relevance rather than details obtained from M/s RRVPNL. Consequently, when the individual entries in the ledger account are tallied with the computations made by the learned adjudicating authority, the calculations made by the appellant should be considered and the impugned order in original should be quashed.

In continuation to the above, the impugned order has rejected their contention that the service recipient, M/s RRVPNL has deducted the service tax and has paid the same to the government exchequer and the said service tax pertains to the appellant’s share. It is stated that the service recipient while making payment to the provider deducts service tax of fifty per cent and pays the remaining amount to the service provider. This makes it clear that the service receiver deducted his share of service tax only which was included in the gross payment and remaining fifty per cent of service tax was paid to the service provider as included in his payment. It has been held that it cannot be construed that the service recipeint has deducted service tax element payable by the provider and has paid his share of service tax to the service provider. The service receiver has deducted his share of service tax as he cannot deposit service tax for the service provider under his registration. In this regard, the appellant submit that the learned adjudicating authority has rejected their pleading without discussing the show cause notice issued to M/s JVVNL having no. as V(ST) Adj./JDR/10/2014/752 dated 19.03.2015 and V(ST) Adj/JDR/121/2015/192 dated 22.01.2016 wherein it has been alleged that the amount of service tax deducted from the payment made to contractors is the share of service tax pertaining to contractor and that M/s JVVNL has not discharged 50% share of service tax under reverse charge mechanism. The appellant submits that on one hand the service tax department is alleging that the service tax deducted from payment made to contractors pertains to share of M/s RRVPNL and that the appellant being contractor is liable to discharge their share of service tax whereas on the other hand, show cause notices have been issued to M/s JVVNL alleging that the service tax deducted from contractor’s payment pertain to contractor’s share and M/s JVVNL has not discharged service tax under reverse charge mechanism. It is submitted that when the service tax department itself is of the view that the amount of service tax deposited by JVVNL belongs to contractors; how can it issue the show cause notice to recover the same amount again from the contractors? In the instant case, the appellant are the contractors of RRVPNL which is also electricity board of Rajasthan State. The stand taken by department for issuing the show cause notice to JVVNL holds good in the case of RRVPNL. On the same footings, the service tax of pertaining to appellant’s share has already been paid by RRVPNL; as such, the same cannot be demanded once again from the appellant. Therefore, the impugned order confirming the amount of service tax already deposited by RRVPNL is not sustainable and deserves to be quashed.

It is further submitted that the revenue department is not allowed to take different stands as per its own convenience under same facts and circumstances. On the one hand, it has issued show cause notice to electricity boards alleging that they have paid the service tax on account of contractors and on the other hand, the same department has issued show cause notice to the contractors stating that the service tax due from them is to be paid. Thus, department is taking differential stands under the same set of facts and circumstances which is not permissible. It has been held by hon’ble Supreme Court that once a stand is taken by an authority, it is not allowed to take a differential stand under the same facts and circumstances. It has been held in the case of BIRLA CORPORATION LTD. VERSUS COMMISSIONER OF CENTRAL EXCISE [2005 (186) E.L.T. 266 (S.C.)]. In this case it was held that revenue is not allowed to take a different stand in the two identical situations. The verdicts of hon’ble Supreme Court are produced as follows:-

“Judicial discipline - Discrimination - When question arising for consideration and facts are almost identical to previous case, revenue cannot be allowed to take a different stand.”
Similar decision was given in the following cases:-

JAYASWALS NECO LTD. VERSUS COMMISSIONER OF CENTRAL EXCISE, NAGPUR [2006 (195) E.L.T. 142 (S.C.)].

COMMISSIONER OF C. EX., HYDERABAD VERSUS NOVAPAN INDUSTRIES LTD. [2007 (209) E.L.T. 161 (S.C.)]

In the above stated cases, it was held that where department has accepted a certain fact, it cannot take any stand contrary to the view taken earlier. In the instant case, while issuing the show cause notice to JVVUNL, department has accepted the fact that JVVUNL has paid the service tax due on account of contractors. But the view stand taken by them stands contradicted as the impugned order has been passed in their case (who are one of the contractors) for recovery for service tax which is alleged as not paid by them. Thus, the department has taken differential stands under same set of facts and circumstances which is not permissible in view of above cited decisions of Supreme Court. The impugned order in original being issued by contravening the decisions of Apex Court is liable to be set aside.

Aligning with above, it is submitted that even if it is accepted for the sake of argument also that the service tax is payable by the appellant, then too, the calculations made by the adjudicating authority is not correct. In this respect, it is stated that the impugned order in original has made calculation of service tax by applying the 50% of service tax rate on the gross receipts, i.e. on both material and labour. The impugned order in original has not allowed the abatement benefit for material part and has levied the service tax even on material portion. This is totally unjust in view of the valuation rule 2A of the Service Tax (Determination of Value) Rules, 2006. This rule is reproduced as follows:-

“2A. Determination of value of taxable services involved in the execution of a works contract.-
Subject to the provisions of section 67, the value of taxable service involved in the execution of a works contract (hereinafter referred to as works contract service), referred to in clause (8) of section 66E of the Act, shall be determined by the service provider in the following manner, namely:-

     (i) Value of works contract service shall be equivalent to the gross amount charged for the works contract less the value of transfer of property in goods involved in the execution of the said works contract.
Explanation.- For the purposes of this clause,-
          (a)gross amount charged for the works contract shall not include value added tax or sales tax, as the case may be, paid, if any, on transfer of property in goods involved in the execution of the said works contract;
              (b)value of works contract service shall include, -
(i)    labour charges for execution of the works;
(ii)   amount paid to a sub-contractor for labour and services;
(iii) charges for planning, designing and architect’s fees;
(iv) charges for obtaining on hire or otherwise, machinery and tools used for the execution of the works contract;
(v)   cost of consumables such as water, electricity, fuel used in the execution of the works contract;
(vi) cost of establishment of the contractor relatable to supply of labour and services;
(vii) other similar expenses relatable to supply of labour and services; and
(viii)profit earned by the service provider relatable to supply of labour and services;
          (c)Where value added tax has been paid on the actual value of transfer of property in goods involved in the execution of the works contract, then, such value adopted for the purposes of payment of value added tax, shall be taken as the value of transfer of property in goods involved in the execution of the said works contract for determining the value of works contract service under this clause.

(ii) Where the value has not been determined under clause (i), the person liable to pay tax on the taxable service involved in the execution of the works contract shall determine the service tax payable in the following manner, namely:-

(A) in case of works contracts entered into for execution of original works, service tax shall be payable on forty per cent. of the total amount charged for the works contract:

Provided that where the gross amount charged includes the value of the land, in respect of the service provided by way of clause (8) of section 66E of the Act, service tax shall be payable on twenty five per cent. of the total amount including such gross amount;

(B) in case of other works contracts including completion and finishing services such as glazing, plastering, floor and wall tiling, installation of electrical fittings not covered under sub-clause (A), service tax shall be payable on sixty per cent. of the total amount charged for the works contract;

Explanation 1.- For the purposes of this rule,-

(I) “original works” means-
(i) all new constructions;
(ii) all types of additions and alterations to abandoned or damaged structures on land that are required to make them workable;

(II)“total amount” means the sum total of gross amount and the value of all goods, excluding the value added tax, if any, levied on goods and services supplied free of cost for use in or in relation to the execution of works contract, under the same contract or any other contract:

Provided that where the value of goods or services supplied free of cost is not ascertainable, the same shall be determined on the basis of the fair market value of the goods or services that have closely available resemblance;

Explanation 2.--For the removal of doubts, it is clarified that duty of excise paid on any goods, property which is transferred (whether as goods or in some other form) in the execution of works contract, shall not be availed as CENVAT credit.”.

The analysis of the above rule in simple words is given as follows:-

Value of Works Contract = Gross amount charged – Value of transfer of property in goods. However, VAT or Sales Tax is not includible in the value of material supplied.

Value of Works contract service shall include the labour charges, amount paid to sub-contractor for labour and services, charges for planning, designing and architect’s fees, hire charges for machinery and tools, cost of consumables like water, electricity, fuel, etc., cost of establishment of contractor relatable to supply of labour and services, profit earned in relation to supply of labour and services.

In the cases where VAT has been paid on ACTUAL value of transfer of property in goods, then this value will considered while calculating the value of Works Contract.

If the VAT is not paid on the ACTUAL value, “the person liable to pay tax on service portion involved in the execution of works contract” will calculate the same as follows:-

In, works contract for original works, service tax will be payable on 40% of total amount charged;
In works contract for maintenance/repairs/ reconditioning/ restoration/ servicing of any goods, service tax will be payable on 70% of total amount charged.
In case of other works contract (like maintenance, repair, completion and finishing services such as glazing, plastering, floor and wall tiling, installation of electrical fittings of an immovable property) not covered in above two clauses, service tax will be payable on 60% of total amount charged.

Thus, the above stated analysis of rule 2A makes it ample clear that this is the rule which is applicable in all the cases of works contract and the value of works contract will be determined in accordance with this rule. Therefore, under whichever rule the case of works contract falls; the value for the purpose of paying service tax shall not include the value of material. It is worthwhile to mention here that if VAT is paid on actual value of material, it will be deducted on actual basis. However, if the value of material is not known, it shall be calculated on deemed basis by applying the percentage of 40%/70%/60% as the case may be. Thus, in any case, the service tax shall be payable only on the labour portion and material value will not form part of valuation for the purpose of paying the service tax. The impugned order in original issued totally in contradiction of this rule is not tenable and deserves to be dropped.

In continuation to above it is submitted that the order in original is also erroneous in calculating demand on the grounds that it has also included the amount of Sales tax/VAT in it. From the discussion done in the forgoing para it is ample clear that rule 2A specifically states that the gross amount of works contract will not include the amount of sales tax. Therefore, whatever the case may be, the amount of VAT is not includible in the taxable value of works contract service. In the instant case, the payment made to the appellant by RVVPNL also includes the amount of VAT. It is worthwhile to mention here that every cheque issued by RVVPNL includes the amount of VAT. Thus, this value of VAT should be excluded while determining the taxable value. Therefore, the deduction of VAT should also be allowed while re-quantifying the taxable value in the present case. The impugned order in original being erroneous in confirming the service tax even on the value of sales tax deserves to be quashed.

The appellant further submits that since M/s RRVPNL has paid WCT/VAT under composition scheme and the actual value of material is not at all ascertainable, we are entitled for computing service tax as per Rule 2A(ii) which prescribes that service tax is leviable as per the category under which the works contract falls. The impugned show cause notice has computed the service tax without ascertaining whether the service tax is payable as original works or as repair or maintenance of goods or as repair or maintenance of immovable property. It is pertinent to mention that there is difference in the quantum of service tax payable in case of original works and in case of repair and maintenance of immovable property. The provisions in this regard are summarized for the sake of convenient reference as follows:-

Nature of Works Contract	Taxable portion of works contract
Original Works Contract	40%
Maintenance or repair or reconditioning or restoration or servicing of any goods	70%
Maintenance, repair, completion and finishing services such as glazing, plastering, floor and wall tiling, installation of electrical fittings of an immovable property	60%

It is worth noting that w.e.f. 01.10.2014, the taxable portion of works contract pertaining to Maintenance, repair, completion and finishing services such as glazing, plastering, floor and wall tiling, installation of electrical fittings of an immovable property has been specified as 70%.
The appellant submits that when the impugned show cause notice agrees that they have provided works contract services, then the valuation should have been derived according to the provisions contained in Rule 2A of the Service Tax (Determination of Value) Rules, 2006 but this has not been done. Moreover, the revenue authorities had knowledge of the scope of works contract service undertaken by them for the financial year 2014-15 (this is clear from the details provided by M/s RRVPNL taken as basis for computation of demand against the appellant) and inspite of this, the service tax has been erroneously computed at the full rate of 12.36%. In this respect, it is worth observing that the scope of work undertaken by the appellant clearly reveals that they have undertaken original works contract for which they are liable to pay service tax at 40% of the value of service and that too, only to the extent of 50%. Consequently, the effective rate of service tax comes out to 2.472% whereas the impugned order in original has computed service tax liability at the rate of 12.36% without even considering the statutory provisions applicable. The computation of service tax demand with respect to works contract executed for M/s RRVPNL on the basis of Rule 2A of Service Tax Determination of Value Rules, 2006 is tabulated as follows:-

NATURE OF WORKS CONTRACT	GROSS AMOUNT	SALES TAX	SERVICE TAX INCLUDED	NET AMOUNT	TAXABLE VALUE @40%	ST @ 6.18%
CONST OF BASE CONORETC & GRAVELLING	855180	25655	21140	808385	323354	19983
CONST OF BOUNDRY WALL	490789	4908	12132	473749	189500	11711
CONST OF CABLE TRENCHER	128735	3862	3032	121841	48736	3012
LEVELLING AND DRESSING	840050	8401	19788	811861	324744	20069
CONST OF BOUNDRY WALL	1083664	10837	25526	1047301	418920	25889
CONST OF CABLE TRENCHER	462888	13887	10904	438097	175239	10830
CONST OF CEMENT CONCRETE ROAD	1000339	30010	23563	946766	378706	23404
CONST OF CEMENT CONCRETE ROAD	1573589	47208	37067	1489314	595726	36816
ROCK EXTENTION	243	7	6	230	92	6
CONST OF BASE CONORETC & GRAVELLING	1169847	35095	27556	1107196	442878	27370
CONST OF BOUNDRY WALL	760179	11403	17906	730870	292348	18067
CONST OF BOUNDRY WALL	728488	21855	17160	689473	275789	17044
CONST OF CEMENT CONCRETE ROAD	833530	25006	19634	788890	315556	19501
CONST OF CABLE TRANSFORMER	487397	14622	11481	461294	184518	11403
ADVANCE RECEIVED	553700	16611	13040	524049	209620	12954
	10968618		259935			258060

The appellant submit that the above calculation has been made according to contract receipts as per appellant’s ledger account for M/s RRVPNL. They submit that the show cause notice has taken incorrect figures at certain places and so the calculation has been done as per the contract receipts reflected in their ledger account.
The appellant further submits that the impugned order in original has not deducted sales tax and service tax already included in the gross amount of contract receipts while computing the service tax demand which is totally erroneous. They submit that the Explanation 1 (b) as produced in point no. 2 clarifies that ‘total amount charged’ shall exclude value added tax or sales tax, if levied. However, the impugned order has not deducted sales tax while arriving at the service tax liability. Moreover, as their contract with M/s RRVPNL was inclusive of service tax, the service tax included in the gross amount also needs to be deducted.
In view of the above computation, the service tax liability with respect to works contract services provided to M/s RRVPNL arrives at Rs. 2,58,060/- whereas the impugned order in original has computed the same as Rs. 6,96,369/- which is totally erroneous and deserves to be quashed. Moreover, the appellant submit that service tax on their account amounting to Rs. 2,59,935/- has already discharged by M/s RRVPNL. Consequently, M/s RRVPNL has already paid service tax in excess of their computed service tax liability and the impugned order in original proposing to recover service tax on the works contract undertaken by the appellant for M/s RRVPNL is totally erroneous and deserves to be quashed.

Aligning with the above, the appellant wish to point out that if the show cause notice issued to JVVNL is pursued, it is found that the computation of service tax has been made by duly extending the benefit of abatement of 60% as per Rule 2A(ii) of the Service Tax Determination of Value Rules, 2006. The appellant further submit that when the revenue department has accepted the valuation of works contract under Rule 2A (ii) in case of service receiver, the service tax demand should have been computed accordingly while issuing show cause notice in case of appellant also. The appellant further submit that they are not liable to pay any service tax as their portion of service tax has already been paid by M/s RRVPNL and hence, the present order in original is non-est and deserves to be dropped.

The appellant reiterates that the impugned order has wrongly imposed penalty under section 78 as analysis of section 78 makes it clear that no penalty can be imposed under the said section if there was no willful suppression or intention to evade payment of service tax on the part of the assessee. The impugned order has not been able to clearly establish that any of these elements were in existence in the present case. It is submitted that when no such element was there, the penalty under Section 78 of the Act is not required to be imposed on them. It has been held in the case of HINDUSTAN STEEL V. STATE OF ORISSA [1978 2 ELT J 159 (SUPREME COURT)] that an order imposing penalty for failure to meet statutory obligation is a result of proceedings which are quasi judicial in nature and penalty should not ordinarily be imposed unless the person acted deliberately in defiance of law or was guilty of misconduct or dishonest or acted in conscious disregard of his obligation. It is further held in the case of ORIENT CERAMICS AND INDUSTRIES [1987 (32) ELT 218 (I)] that words ‘with intent to evade payment of duty’ are very significant and unless and until the intention to evade payment of tax is proved on part of assessee, no penalty can be imposed. Similar view has been taken by hon’ble High Court in the case of COMMISSIONER OF CENTRAL EXCISE V/S ESS ESS ENGINEERS [2011 (23) S.T.R. 3 (P & H)]

Thus, mens rea is essential for invoking the penal provisions. Reliance is also placed on the following judgments:-

2010 (258) ELT 465 (SC) – Sanjiv Fabrics
2007 (207) ELT 27 (P &H) – UT Ltd
2007 (5) STR 251 (P & H) – Kamal Kapoor
2009 (238) ELT 3 (SC) – Rajasthan Spinning & Weaving Mills
2009 (238) ELT 209 (P&H) – J. R. Fabrics
2009 (238) ELT 226 (Mad) – Thirumala Alloys Castings
2008 (228) ELT 31 (Del) – K. P. Pouches

In view of these judgments, no penalty can be imposed unless mens rea or intention to evade payment of duty/service tax is proved. The appellant have categorically submitted that there was simply ignorance of law which cannot be equated to suppression of facts. Thus, no penalty is imposable on them. Also, the impugned order has not otherwise proved the malafide intention; therefore, in view of these judgments the impugned order is liable to be quashed. It is pertinent to mention that the above submissions were made in the reply to the show cause notice but the same have not been considered while passing the impugned order in original. Therefore, the impugned order in original rejecting the submissions made without assigning any justifiable reasons turns to be a non-reasoned order which has no relevance in the eyes of law in light of the decision given in the case of COMMISSIONER OF CENTRAL EXCISE, BANGALORE VERSUS SRIKUMAR AGENCIES [2008 (232) E.L.T. 577 (S.C.)] wherein it was held that:-

“Appellate Tribunal’s order - Non-speaking order - Facts not analysed in detail in impugned order by Tribunal - Disposal of appeals by mere reference to decisions not proper way to deal with appeals - Applicability of decision cited by Revenue not considered - Appeals involving different goods - CESTAT ought to have examined cases individually and articles involved - Manner of disposal not proper - Impugned order set aside - Question referred to Larger Bench of Supreme Court not answered as matter remitted to CESTAT for fresh decision by appropriate Bench - Section 35C of Central Excise Act, 1944. - By clubbing all the cases together and without analyzing the special features of each case disposing of the appeals in the manner done was not proper. [para 6]”
In view of above decision, an order passed without discussing and distinguishing the submissions given by appellant is void ab initio. Therefore, extending the benefit of this decision, the impugned order, being a non speaking and non reasoned order, deserves to be quashed and the appeal should be allowed.

Reasoning adopted by the adjudicating authority: - As per the provisions of the Service Tax (Determination of Value) Rules, 2006:

Rule 2A(i) provides that value of service portion in the execution of a work contract shall be equivalent to the gross amount charged for the works contract less the value of property in goods transferred in the execution of the said works contract. However, such gross amount charged shall not include VAT/Service Tax.

Rule 2A(ii) provides that here the value has not been determined under clause (i), the person liable to pay tax on the service portion involved in the execution of the works contract shall determine the service tax payable in the following manner, namely:-

(A) in case of works contracts entered into for execution of original works, service tax shall be payable on forty per cent of the total amount charged for the works contract;

(B) in case of works contract entered into for maintenance or repair or reconditioning or restoration or servicing of any goods, service tax shall be payable on seventy percent of the total amount charged for the works contract;

(C) in case of other works contracts, not covered under sub-clauses (A) and (B), including maintenance, repair, completion and finishing services such as glazing, plastering, floor and wall tiling, installation of electrical fittings of an immovable property , service tax shall be payable on sixty per cent. of the total amount charged for the works contract.

The Adjudication Authority held that the work of construction of boundary wall, cement road, cable transformer etc. are original work by M/s RRVPNL, Jodhpur. Also value of materials involved therein was also not known and hence when the value of material involved in works contract is not ascertainable, the provisions of Rule 2A(ii) of Service Tax Valuation Rules, 2006 come into picture and accordingly, the appellant is liable to pay service tax on 40% of the value of original work done by them.
As far as their service tax liability in terms of Notification No. 30/2012-ST as amended is concerned, it is found that the works contract service is covered under the reverse charge mechanism vide the said notification. The liability of service tax under said service shall be paid equally by the contractor/provider of service and the recipient of the service. That is fifty percent of the service tax liability shall be paid by the contractor and balance 50% shall be paid by the recipeint of the service as in the instant case the service provider is proprietary/partnership firm and the recipeint of service is body corporate.
The learned adjudicating authority agreed with the computation of service tax demand as stated by the appellant in their grounds to the appeal.
Accordingly, the service tax demand was reduced from Rs. 6,96,369/- to Rs. 2,58,060/- along with interest with consequent reduction in penalty under section 78 of the Finance Act, 1994. However, penalty of Rs. 10,000/- under section 77(2) of the Finance Act, 1994 was upheld.

Conclusion:- It was pleaded that since service tax demand was also issued to M/s RRVPNL for paying 50% share in the capacity of recipeint, present demand was not sustainable as it would tantamount to taking absolutely contrary stand by the service tax department. With respect to show cause notice issued to M/s RRVPNL, it was contended that 50% tax paid pertained to share of M/s Mewara Enterprises whereas in case of show cause notice issued to the appellant, it was contended that service tax paid by M/s RRVPNL pertained to their own share in the capacity of service recipeint. However, the submissions as regards computation of service tax demand were allowed such as benefit of 40% deduction as per Rule 2A of Service Tax Determination of Value Rules, 2006 and deduction of VAT paid from the taxable value of service.

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PJ/Case Study/2018-19/130
22 September 2018

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PJ/Case Study/2018-19/130 22 September 2018

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PJ/Case Study/2018-19/130
22 September 2018