Whether non submission of the copy of work orders along with the option letter prior to payment of service tax the, the benefit of composition scheme will be denied to the assessee?

PJ/Case Study/2018-19/124

23 June 2018

CASE STUDY

Prepared By: Pushpa Choudhary & CA Akanksha Anchaliya

Whether non submission of the copy of work orders along with the option letter prior to payment of service tax the, the benefit of composition scheme will be denied to the assessee?

Introduction:
M/S Swift Engineering & Technology [OIO NO. 38/ST/JDR/2016-Additional commissioner, DT. 21.03.2016]

Theassessee, M/S SWIFT ENGINEERING & TECHNOLOGYis engaged in providing taxable service namely Erection Commissioning, Commercial construction and Works Contract Service. The show cause notice C. No. V (ST) Adj.-II/JPR-II/314/13/3390 dated 11.10.2013 was issued to the appellant alleging that they have not paid the Service Tax amounting to Rs. 21,58,505/- by wrong availment of benefit of rule 3 of the Works Contract (Composition Scheme for payment of Service Tax) Rules, 2007 and wrongly assessing the taxable value in terms of Rule 2A of the Service Tax (Determination of Value) Rules, 2006 during Financial year 2010-11 and 2011-12. Service tax along with interest and penalty under section 76 and 78 of the Finance Act, 1994 was proposed to be recovered from them. The learned Adjudicating Officer did not adhere to the submissions made by the appellant and passed the impugned order in original no. 38/ST/JDR/2016-ADDITIONAL COMMISSIONER DT 21.03.2016, confirming the demand of service tax and interest and penalty under section 78. However, the penalty under section 76 was dropped. Aggrieved by the part of Order in Original confirming the demand of service tax, interest and penalty and is liable to be set aside.

Relevant Legal Provisions:

Sub-rule (1) of Rule 3 of the works contract reads as under:-

In terms of sub rule (1) of the Rule 3 of the Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007, as amended and as explained under above clarification dated 6.7.2009, the service provider was required to add the value of all goods used in or in relation to the execution of the works contract whether purchased directly or material supplied free by the service recipient and only thereafter the service provider was entitled for payment of service tax at the composite rate 4%, whereas, the service provider did not follow the conditions laid down under composition scheme, by not adding the gross value of material supplied free by the service recipient M/s Suzlon Infrastructure Services Limited while paying the service tax at reduced rate during the F/Y 2010-11.”

Issue Involved:The issue involved in this case before the adjudicating authority was that they have not paid the Service Tax amounting to Rs. 21,58,505/- by wrong availment of benefit of rule 3 of the Works Contract (Composition Scheme for payment of Service Tax) Rules, 2007

Brief Facts:Briefly stated the facts of the case are that M/S SWIFT ENGINEERING & TECHNOLOGY, (hereinafter referred to as the appellant) is engaged in providing taxable service namely Erection Commissioning, Commercial construction and Works Contract Service and is having Service Tax Registration No. ABTFS7686QSD001.A show cause notice dated 19.08.2015 was issued to them alleging that they had not paid the service tax amounting Rs.2158505/- by wrong availment of benefit of rule 3 of the Works Contract Service tax alongwith interest and penalty under section 76 and 78 of the Finance Act,1994 was proposed to be recovered from them. Considering the replies and argument placed during personal hearing, the Adjudicating Authority passed the impugned order in original no.38/ST/JDR/2016-Additional Commissioner Dated 21.03.2016, confirming the Demand of service Tax of Rs. 1905042 /- and ordered to be recovered along with interest. Penalty under section 78 was also imposed. The appellant submit that the impugned Order-In-Original passed by the learned adjudicating authority is wholly and totally erroneous in confirming the demand of service tax, interest and penalty and is liable to be set aside.

Assessee’s Contention: The assessee made following submissions before the adjudicating authority:-

Submit that the impugned Order-In-Original passed by the learned adjudicating authority is wholly and totally erroneous in confirming the demand of service tax, interest and penalty and is liable to be set aside.
Submit that the impugned order is alleging that the benefit of composition scheme is not available to them since they had not submitted the copy of option letter prior to payment of service tax. It has further been contended that the appellant have not submitted the copies of work orders or details to satisfy the requirements of composition rules.
Submitted that the denial of benefit of composition scheme on the grounds of non filing of option letter is wholly and totally erroneous.
Submits that since the allegation of non-filing of option letter for availing the benefit of Composition Scheme is non-est. the computation of service tax demand by the impugned order by resorting to the provisions of Rule 2A of the Service Tax Determination of Value Rules, 2006.
Submits that when they have timely exercised the option to avail the benefit of composition scheme, the benefit cannot be denied by the learned adjudicating authority.
Submits that practically there is no dispute as regards availment of benefit of composition scheme because all the conditions for availing the said benefit have been duly complied by them.
Submits that they have correctly discharged their service tax liability under the composition scheme for both the financial years 2010-11 and 2011-12, under consideration.
Submits that due to change of accountant, there was some mis-computation of service tax demand and consequently, there was short payment of service tax for the financial year 2011-12. However, the said short payment was made good by the appellant along with appropriate interest. Hence, the appellant have discharged their entire service tax liability under the composition scheme.
Submits that the impugned order in original has not acknowledged the differential challans paid by them with respect to their service tax liability for the financial year 2011-12. Consequently, the amount of Rs. 3,83,203/- which is not considered by the impugned order in original ought to have been accounted for while computing the service tax liability. Moreover, by considering the entire set of challans, it is found that the appellant have discharged their entire service tax liability under the works contract composition scheme and no further service tax is payable by them.
Submit that the impugned order is confusing and ambiguous to the extent that it has been passed on the grounds other than the allegations made in the show cause notice.
Submits that various overheads incurred with respect to materials such as transportation expenses, handling expenses etc. associated with the materials will also be recovered from the service receiver. Moreover, for the Financial Year 2011-12, deduction of materials such as cutting material, Unregistered Dealer Material etc. has not been allowed to them. Furthermore, the claim regarding deduction of profit, administrative overheads etc. has been rejected by stating that no documentary evidence indicating profit element was provided by the appellant.
Submitted that no service provider would indicate profit element in the invoice raised by it towards provision of service including supply of certain materials that were used during the provision of such service.
Submit that the impugned order in original has confirmed service tax demand by invoking the extended period of limitation. However, the extended period of limitation is not invocable in the present case as there is no deliberate suppression on our part to evade payment of duty. They submit that the appellant had duly filed option letter for availing the benefit of composition scheme and had discharged their service tax liability and have also duly filed Service Tax Returns.

Decision:- Appeal Allowed

Conclusion: The inference of the case is that the appellant has paid the service tax for the year 2010-2011 and 2011-12 on the amount of their contract receipts under composition scheme @ 4.12%. However the adjudicating authority has not allowed the benefit of composition scheme on the grounds that the appellant had not filed the option letter. Later on it was observed that since the option was exercised prior to payment of service tax the benefit of composition scheme was allowed. Though the appellant has not filed the option letter for the works undertaken during the period of 2011-12, it was held that non filing of option for specific contract cannot debar them from substantial benefits of service tax rate moreover there is no law to charge service tax on the cost of the material used during the course of providing the services. And further there was intention to pay service tax under composition scheme in the invoices issued by mentioning the fact that it was issued by them under the said scheme. But in the view of the findings it was gripped that there was a short payment of service tax during the year 2011-2012 and thus the appellant was directed to deposit the same along with interest.

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PJ/Case Study/2018-19/124
23 June 2018

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