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CESTAT Upholds classification of Activity by Adjudicating authority under ‘works contract service’ as assessee paid service tax by opting scheme as per State VAT Rules [Read Order]

It was evident that the appellant was paying service tax by opting for the scheme as per the State VAT Rules.

CESTAT Upholds classification of Activity by Adjudicating authority under ‘works contract service’ as assessee paid service tax by opting scheme as per State VAT Rules [Read Order]
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In a recent case, the Bangalore bench of the Customs, Excise & Service Tax Appellate Tribunal (CESTAT)upheld the classification of Activity by the Adjudicating authority under ‘works contract service’ as assessee paid service tax by opting scheme as per the State VAT Rules The issue in the appeals is whether the activity carried out by Nag Interiors Pvt. Ltd, the...


In a recent case, the Bangalore bench of the Customs, Excise & Service Tax Appellate Tribunal (CESTAT)upheld the classification of Activity by the Adjudicating authority under ‘works contract service’ as assessee paid service tax by opting scheme as per the State VAT Rules

The issue in the appeals is whether the activity carried out by Nag Interiors Pvt. Ltd, the appellant amounts to ‘Completion and Finishing Service’ as defined under Section 65(105)(zzq) of the Finance Act, 1994 and whether the appellant is eligible to avail the benefit of Notification No.12/2003-ST dated 20.06.2003.

Alleging that the appellant had rendered service without payment of proper service tax, investigation was commenced on 27.02.2007; thereafter first show-cause notice was issued on 7.9.2010 alleging that the appellant had short-paid service tax for the period from 16.06.2005 to 31.03.2010 (ST/2906/2011). Thereafter, second show-cause notice was issued on 14.10.2011 for the period from April 2010 to March 2011 (ST/27323/2013); third show-cause notice was issued on 19.10.2012 for the period from April 2011 to March 2012; and fourth show-cause notice was issued on 5.5.2014 for the period from April 2012 to June 2012 covered by appeal No. ST/20288/2020. Thereafter, the adjudicating authority had confirmed the demands as alleged in the show-cause notices. Aggrieved by these orders, appellants have filed these present appeals.

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When the appeal came up for hearing, the counsel for the appellant submitted that the entire demand of service tax is on gross amount received, including the value of goods consumed for providing taxable service and it is ultra vires to charge under Section 65. Counsel further submitted that the activity carried out by the appellant is works contract and appellant had paid VAT on the value of goods consumed under Karnataka VAT Act, 2004 and appellant paid service tax on the balance amount. The VAT assessment orders are sufficient documentary evidence regarding value of the goods for availing the benefit of Notification No.12/2003-ST dated 20.06.2003.

The counsel also drew our attention to Circular F.No.B1/16/2007-TRU dated 22.05.2007 wherein it is clarified that contracts that are treated as ‘works contract’ for the purpose of levy of VAT /Sale Tax shall also be treated as works contract for the purpose of service tax. However, the respondent is considering the activity as ‘completion and finishing service’ but the appellant was carrying out the activities and registered under Interior Decorations and Commercial or Industrial Service.

The Authorized Representative (AR) reiterating the findings in the impugned order, submitted that the activity carried out by the appellant is not falling under the ‘works service contract’ since they have not obtained registration under ‘works contract service’ but registered under the category of ‘Interior Decorators and Commercial or Industrial Construction Service’.

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AR further submitted that though they are carrying out activities falling under the service tax for the period and they obtained service tax registration on 8.1.2007, but they have not opted for works contract service with came to effect from 1.6.2007 and not discharged appropriate service tax liability during the period from 16.5.2005 to 30.06.2012. The AR also drew our attention to Notification dated 20.6.2003 and submitted that the benefit of the Notification can be extended to appellant only if they fulfilled the condition regarding documentary proof indicating the value of the said goods and material. In the absence of such evidence, the adjudicating authority rightly confirmed the demand with interest and imposed penalty.

It is an admitted fact that the appellant was paying service tax during the period of dispute but excluded the value of goods on which VAT was paid by them. Even though the activity was classified by them under the category of ‘Interior Decorators and Commercial or Industrial Construction Service’, the tribunal found that the appellant was paying service tax by opting the scheme as per the State VAT Rules and also submitted evidence regarding payment of VAT on the value of goods/materials during the relevant period and paid service tax on the balance amount.

Further, as evident from the ST-3 returns filed and relied by the appellant shows the value of ‘works contract service’ and the value of material separately. Fact being so, alleging that the appellant had violated the provision of law is prima facie unsustainable. Considering the same, the classification of the activity by the adjudicating authority under ‘works contract service’ is confirmed.

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It was evident that the appellant was paying service tax by opting the scheme as per the State VAT Rules and also submitted evidence regarding payment of VAT against the value of goods/materials during the relevant period and paid service tax on the balance amount.

A two-member bench, P. A. Augustian, Member (Judicial) and R. Bhagya Devi, Member (Technical) held that since, the appellant paid service tax under the category of “Interior Decorations and Commercial or Industrial Service” on gross amount excluding the value of goods materials where VAT was paid, the appropriation of the said amount as per the impugned orders under works contract service is upheld.

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