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ST - WCS - Composition Scheme - Rules do not prescribe a format for exercise of option - liability cannot be fastened once return filed shows exercise of option: CESTAT

By TIOL News Service

MUMBAI, DEC 29, 2017: THE SCN dated 13/04/2009 sought to deny the appellant the benefit of Composition Scheme of 2007 on the ground that the appellant had not exercised the option to be governed by the scheme.

The Bench observed that the adjudicating authority had proceeded on the premise that the appellant being a works contractor he was not entitled to abatement and also CENVAT credit, however, the said issue was not raised in the SCN.

It was, therefore, viewed by the Tribunal that since the adjudication order traveled beyond the issue raised in SCN, the adjudication has to fail.

The AR submitted that when the appellant availed CENVAT credit it could be said that the appellant is not governed by the Composition scheme.

The appellant contested this argument of the Revenue by saying that there is no bar in the Rules to avail input service credit.

After extracting Rule 3(3) of the Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007, the Bench noted that the same does not prescribe a format for exercise of the option.

It was further observed -

"4. It is also peculiar to note in the present case that under Works Contract (Composition Scheme of Payment of Service Tax) Rules, 2007 the manner of exercise of option is not made known to the common public. In absence of a procedure prescribed, the mandate of the law granting option to be exercised prior to payment of service tax can only be gathered from the conduct of the appellant visible from its return. Therefore nothing more can be said to fasten liability on the appellant once return filed shows exercise of option."

Concluding that the adjudication had travelled beyond show-cause notice and appropriate procedure had not been prescribed for exercise of option, the appeal was allowed.

The CESTAT also directed the Registry to send a copy of the order to the Chairman of the Board suggesting that appropriate procedure of exercise of option be prescribed.

The penalty imposed on the appellant was also set aside.

(See 2017-TIOL-4585-CESTAT-MUM)


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