Cc and Ce and St, Noida vs M/s Interarch Building Products Pvt. Ltd.

67 and 73 – Service (Determination of Value) Rules, 2006 – Rule 2A – CENVAT Credit Rules, 2004 – Payment of service tax – Liability for – Respondent–assessee was engaged in the business of manufacture, supply and erection at the site of prefabricated steel buildings – They paid service tax under the category “commercial or industrial constructions services” as referred u/s.65(105)(zzq) of the Finance Act, 1994 – Respondent availed CENVAT credit and short paid the Service Tax in cash – Revenue was of the view that the service rendered by the respondent was classifiable under “works contract service”(chargeable under sub clause(zzzza) of s.65(105) and it was mandatory for the respondent to either follow Rule 2A of Service Tax (Determination of Value) Rules, 2006 or adopt Composition Scheme – Tribunal held that there was no question on applicability of Rule 2A nor there was any question of forcibly applying the option of composition scheme and respondent was entitled to CENVAT credit on inputs – Before the Supreme Court, the case on behalf of the respondent-assessee was that Rule 2A and even in the composition scheme the words used are subject to the provisions of s.67 the assessee had an option to pay the service tax on the entire contract value and that the Rule 2A is not compulsory and the composition scheme is optional – Whether an assessee who is liable to pay service tax under works contract service has the legal right not to follow Rule 2A nor the composition Scheme on the ground that in terms of s. 67 of the Act of 1994 an assessee is entitled to take the total contract value which includes both goods and services and remit service tax on the entire value as works contract service and in the process also entitled to avail the CENVAT Credit – Held: Services rendered by the respondent can be said to be ‘works contract service’ as per the Finance Act, 1994 w.e.f. 01.06.2007 as per s.64(54) r/w. s. 65(105)(zzzza) – In the case of ‘works contract service’ an assessee is liable to pay the service tax on the service element and the sales tax on the element of goods transferred pursuant to the contract – The submission of the respondent made cannot be accepted as it would make Rule 2A and composition scheme otiose – As per the scheme of the Act the determination of value of service portion in the execution of the works contract is to be made as per Rule 2A, however with an option to the assessee to avail the benefit of composition scheme – Either the assessee has to go for composition scheme or go for determination of value as per Rule 2A and the assessee has to pay service tax on service element and can claim CENVAT credit on the said amount only – Therefore, the respondent has to pay the service tax on the value of services as per Rule 2A of the (Determination of Value) Rules, 2006 and thereafter to avail the CENVAT Credit accordingly – The impugned judgment and order passed by the CESTAT is quashed and set aside.

Allowing the appeal, the Court

HELD:1. The service elements have found a statutory recognition as part of Rule 2A of the Service Tax (Determination of Value) Rules, 2006 w.e.f. 01.06.2007 which has been referred. The applicability of Rule 2A has been dealt with and considered by this Court in extenso in the case of Larsen and Toubro. Therefore, as per the law laid down by this Court in the case of ‘works contract service’ an assessee is liable to pay the service tax on the service element/value of the service rendered and the sales tax/tax on the element of goods transferred pursuant to the contract. [Para 8.4][1000-B-C]

2. It is the case on behalf of the respondent – assessee that as in Rule 2A and even in the Composition Scheme the word used are subject to the provisions of Section 67 the assessee had an option to pay the service tax on the entire contract value i.e. on gross amount charged by the service provider and that Rule 2A is not compulsory and the Composition Scheme is optional. However, the aforesaid has no substance. If the submission on behalf of the assessee is accepted in that case Rule 2A and the Composition Scheme shall become otiose. [Para 8.8][1001-E]

3. With respect to the ‘works contract service’ and/or the Composition Works Contract the valuation has to be made as per Rule 2A of the Valuation Rules, 2006. Even as per the Composition Scheme vide Notification 32/2007 dated 22.04.2007 an assessee has an option to discharge the service tax liability on the works contract service provided or to be provided, instead of paying service tax at the rate specified in Section 66 of the Act by paying equivalent to 2% of the gross amount charged for the works contract. It is to be noted that Rule 3(1) provides notwithstanding anything contained in Section 67 of the Act and Rule 2A of the Service (Determination of Value) Rules, 2006. Therefore, as per the Scheme of the Act the determination of value of service portion in the execution of the works contract is to be made as per Rule 2A, however with an option to the assessee to avail the benefit of Composition Scheme. Therefore, either the assessee has to go for Composition Scheme or go for Determination of Value as per Rule 2A and the assessee has to pay service tax on the service element and can claim CENVAT Credit on the said amount only. [Para 8.9][1001-F-H; 1002-A]

4. In view of the above the impugned judgment and order passed by the CESTAT taking the contrary view is unsustainable by which it is held that the assessee is entitled to take the total contract value which includes both goods and services and remit service tax on the entire value as ‘works contract’ and the assessee is also entitled to avail the CENVAT Credit on the same. However, at the same time the service tax needs to be paid in terms of Rule 2A of Service Tax (Determination of Value) Rules, 2006 and since the assessee has not opted for composition scheme, the matter is to be remitted back for re--computation of the demands in terms of Rule 2A. As the issue with respect to the extended period of limitation has also not been decided by CESTAT the matter is to be remanded to the CESTAT to decide the issue of limitation. [Para 9 and 9.1][1002-B-D]

5. The impugned judgment and order passed by the CESTAT is hereby quashed and set aside and it is held that the assessee is not entitled to take the total contract value which includes both goods and services and remit service tax on the value as works contract service and, in the process, also entitled to avail the CENVAT Credit on the entire amount. It is observed and held that the assessee has to pay the service tax on the value of services as per Rule 2A of the (Determination of Value) Rules, 2006 and thereafter to avail the CENVAT Credit accordingly. However, it is also observed and held that demand for the period January 2007 to May 2007 is unsustainable. [Para 10][1002-E-F] Commissioner of Central Excise v. Larsen and Toubro (2016) 1 SCC 170 : [2015] 8 SCR 1046; Total

Environment Building Systems Pvt. Ltd. v. Deputy Commissioner of Commercial Taxes (2022) SCC Online SC 953; Gannon Dunkerly and Co. v. State of

Rajasthan (1993) 1 SCC 364 : [1992] 3 Suppl. SCR

103 – referred to.

CCE v. S.V. Jiwani 2014 (35) STR 351 – referred to.