Facts, Terms and Conditions and Intention of the Parties determine Activity as a Sale or Works Contract for levy or exemption of Service Tax: CESTAT allows appeal [Read Order]

The Customs, Excise and Service Tax AppellateTribunal (CESTAT), Chennai Bench, allowed an appeal and held that facts, terms and conditions and intention of the parties determine whether an activity is a sale or a works contract for levy or exemption of service tax.

The departmental audit noted that for a water supply project at Odisha, the appellant, IL & FS Water Ltd., paid service tax at the normal rate only on the service portion of the works contract, excluding the value of goods transferred on which VAT was paid.

The department alleged that the appellant wrongly availed common input service credit without maintaining separate accounts or reversing credit under Rule 6(2) and Rule 6(3)/6(3A) of the CENVAT Credit Rules, 2004.

The Adjudicating Authority confirmed the demand with interest and imposed penalties. The counsel for the appellant submitted that the appellant’s separate books of account were not verified or considered by the Audit Department.

Further, it was argued that as no question of reversal of credit arose, no ground for interest and imposition of penalty is made out. It is to be noted that the Adjudicating Authority concluded that the appellant was providing both taxable services and exempted services.

CESTAT took into consideration the contract entered into and held that it lacked a separate agreement involving transfer of title for consideration. The tribunal made note that the separate activity of “trading” was not intended.

Finally, the bench of Ajayan T. V. (Judicial Member) and M. Ajit Kumar (Technical Member) held that Rule 6(3) of the Cenvat Credit Rules 2004 would not be applicable and no intimation was required to be filed by the appellant. The order was accordingly set aside as the appeal was allowed.

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