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ST - Once provisions of s.67 have been complied with, applicability of Rule 2A of Valuation Rules, 2006 does not arise - no question of forcibly applying option of Composition Scheme: CESTAT

By TIOL News Service

ALLAHABAD, JAN 02, 2018: THE appellants are engaged in the business of manufacture, supply and erection at site of pre-fabricated/pre-engineered steel buildings and parts thereof at its three manufacturing units located at (i) Pantnagar (ii) Chennai (ii) Uttrakhand.

The registration under "Commercial or Industrial Construction Service" was for supply and erection of pre-fabricated/pre-engineered steel buildings and parts thereof. The goods manufactured are cleared from the place of manufacture on payment of Central Excise duty on which Cenvat credit was availed by the appellants.

It appeared to Revenue that the appellant should have classified their service activity under "Works Contract Service" and consequently appellants were not entitled to avail Cenvat credit of the Central Excise duty paid on inputs.

For the period January, 2007 to March, 2012, the appellant had paid a total Service Tax of Rs. 131.34 crores and out of the said amount, an amount of Rs.3.30 crores was paid in cash and the balance by debit in the Cenvat credit account out of which Rs.15.42 crores was the credit utilised out of the one accrued on account of Input services.

The Revenue, therefore, opined that –

+ Rs.112.60 Crores availed as credit was inadmissible and to the said extent there has been short payment of service tax;

+ After adjusting the amount paid through cash and by debiting credit availed on Input services, it is alleged that there has been a short payment of service tax of Rs.22.37 crores.

+ An amount of Rs.90.23 crores collected as cash in excess of the Service Tax assessed/determined by passing the inadmissible Cenvat credit to their recipients of taxable service was recoverable.

A demand notice dated 23/10/2012 was issued to the appellant and the proposals were confirmed by the adjudicating authority on 28/03/2014 along with imposition of penalty and interest.

The CESTAT by its order dated 18/11/2015 remanded the matter by observing as under:-

"Having considered the rival contentions, we find it fit and appropriate in the interest of Justice set aside the impugned order and remand the issue to the Adjudicating Authority who shall re-determine the tax liability after hearing the appellant and considering the case-law of this Tribunal in S.V. Jiwani - 2014-TIOL-559-CESTAT-AHM and other case law as may be brought to the notice of the authority. We further make it clear that all the issues are kept open. Thus, the appeal is allowed by way of remand. Stay application also stands disposed of."

The impugned order dated 31.03.2017 was passed in remand proceedings by the adjudicating authority. It met the same fate as the earlier passed order and also included the proceedings initiated under three more demand notices which covered a further period from April 2012 to March 2014.

In Para 5.10.13, the adjudicating authority, while dealing with the judgement in S.V. Jivani's case (supra) which had been appealed by the Revenue before the Bombay High Court and which appeal was dismissed 2016-TIOL-503-HC-MUM-ST, stated as follows:-

"The observation of the Hon'ble Bombay High Court that there had been no loss of Revenue in case of M/s S.V. Jiwani is not applicable in the instant case of M/s Interarch Building Products Pvt. Ltd. Plot No. 29, Udyog Nagar, Greater Noida,. was mandatory for the party to pay the Service tax on the Works Contract Service with reference to the value of service portion determined under Section 67(1) (iii) of the Finance Act, 1994 read with Rule 2A of Service Tax (Determination of Value) Rules, 2006 or in terms of Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007, and there was no provision for availment of Cenvat Credit of Central Excise duty paid on the construction materials (inputs) under the said Rules."

Aggrieved, the appellant is again before the CESTAT and makes elaborate submissions while concluding that the decision in S V Jiwani applies to their case and the proceedings have to be dropped.

The AR made detailed submissions supporting the stand taken by the adjudicating authority.

After considering the rival contentions and on perusal of the facts on record, the Bench inter alia observed thus –

++ We find that the appellant has contested this claim of the Revenue for reclassification of their services on 01.06.2007. We, however, observe that even if the services of the appellant are considered as classifiable under works contract services' after 1st June, 2007, as claimed by the Revenue, the further claims of the Revenue that there were only two options as above for valuation of works contract service available to the appellant and consequential non-admissibility of Cenvat credit have no merit.

++ We find that Composition Scheme is optional and provisions of said Rule 2A of the said Rules are subject to provisions of Section 67 of the Finance Act, 1994. We also find that in Para 42 of the said Show Cause Notice dated 23/10/2012, Revenue has not alleged that the appellant had violated the provisions of Section 67 of the said Act.

++ Once the said provisions of Section 67 of the said Act have been complied with, the question of applicability of said Rule 2A of the Rules does not arise. It is further clear from the provisions of Sub-section (4) of Section 67 of the said Act, that where value cannot be determined as provided under Sub-rule (1) to (3) of Section 67 of the said Act, then only the value is to be determined as provided under the Rules.

++ We find that there is no allegation in the Show Cause Notice that provisions of Section 67 of the said Act, are violated by the appellant, therefore, there is no question of application of said Rule 2A of the said Rules, nor there was any question of forcibly applying option of Composition Scheme on the appellant. In both these circumstances, the appellants were entitled for Cenvat credit on inputs.

++ We find that the entire demand is made out on the presumption that Cenvat credit on input was not admissible and as a result there was short payment and as a result there was also a demand Section 73A of the Finance Act, 1994. In view of our above discussion and findings, the allegation in the show cause notices based on such presumption are not sustainable.

++ Once it is established that Cenvat credit on input was admissible, then the demand on short levy of Service Tax and also under Section 73A of the Finance Act, 1994, does not survive. We also find that the finding by the Original Authority that the Final Order of this Tribunal in the case of M/s S. V. Jiwani -2014-TIOL-559-CESTAT-AHM was not applicable in the present case due to loss to Revenue, is also not sustainable.

++ We find that the Hon'ble Bombay High Court, while discussing the appeal of the Revenue in S.V. Jivani's case (supra), has made general Observation on the aspect of Revenue loss but has otherwise upheld the order of the Tribunal. We find that the Commissioner's reliance on the observations of the Hon'ble High Court on 'revenue loss' are misplaced and without any basis.

++ We find that in the show cause notices, the Department has not made out any such case of the alleged revenue loss against the appellant.

++ The Commissioner's impugned order also does not explain as to in what manner such loss is caused by the appellant.

+++ We also find that Revenue did not contest applicability of Final Order in the case of M/s S. V. Jiwani in the present case.

++ We also find that it was held in the said case, that in case of "Works Contract Service" also assessment can be done under the provisions of Section 67 of the Finance Act, 1994 and that valuation methods prescribed under Rule 2A or composition scheme are merely options provided to the assessee. Once this is the legal position, the benefit of Cenvat credit on inputs cannot be denied to the appellants in the absence of any specific bar or prohibition in the Cenvat Credit Rules, 2004 or the Finance Act, 1994 or the rules made there under.

Concluding that the judgement of the Tribunal in M/s S. V. Jiwani (supra) squarely applies to the present case, the impugned Order-in-Original dated 31/03/2017 was held as unsustainable and set-aside.

The appeal was allowed with consequential relief.

(See 2018-TIOL-35-CESTAT-ALL)