M/s. Bagai Construction vs CST, Delhi

The appellants filed the stay application along with appeal against orders-in-appeal No.123-124/S.TAX D-II/13 dated 10.05.2013 which upheld the

orders in original No. 9/SG/DI B-II 2012 dated 28.09.2012 (in terms of which service tax demand of Rs.2,12,173/- for the period 01.10.2009 to

31.03.2010 was confirmed alongwith interest and penalties under sections 77 and 78 of the Finance Act, 1994 and order in original No.10/SG Div-II/12

dated 28.12.2012 (in terms of which service tax demand of Rs.5,62,410/- for the period 01.04.2007 to 31.03.2008 alongwith interest and penalties

under sections 77 and 78 ibid were confirmed).

The facts briefly stated are as under:-

The appellants have been providing various construction services in an on-going project and paid service tax prior to 01.06.2007 under commercial or

industrial construction services, but from 01.06.2007 changed the classification under works contract service. For the period prior to 01.06.2007 they

paid service tax on 33% of the gross amount and after 01.06.2007 they availed of the Works Contract (Composition Scheme for payment of service

tax) Rules, 2007. The lower authorities held that the service provided by the appellants was in the nature of completion and finishing service and,

therefore, they were not entitled to benefit of Notification No.1/2006-ST and also that they were not legally allowed to change the classification of the

ongoing project w.e.f. 01.06.2007 and consequently were not eligible to avail of the benefit of the Composition Scheme.

The appellants have contended that the services rendered by them were not merely completion and finishing services and involved transfer of

property in goods. Further with the introduction of the works contract service w.e.f. 01.06.2007, their services were more appropriately classifiable

under works contract service making them eligible for the Composition Scheme. They also stated that in any case they were wrongly denied the

benefit of Notification No.12/2003-ST and also of the benefit of Rule 2A of the Service Tax (Determination of Value) Rules, 2006.

The Ld. D.R. essentially supported the impugned orders.

We have considered the submissions of both sides. We find that essentially the lower adjudicating authorities have relied upon the CBEC Circular

No.98/1/2008-ST dated 04.01.2008 which interalia held that in respect of ongoing projects under which the services had been classified under

Errection, Commissioning or Installation Services (ECIS), Commercial or Industrial Construction Services (CICS) or Construction of Complex Service

(CCS) as the case may be, the appellants were not entitled to change the classification for the purpose of payment of service tax on or after

01.06.2007 and they were not entitled to avail of the Composition Scheme.

In this regard, it needs to be appreciated that the services were being rendered under ongoing projects on a continuous basis. It was not that the

entire service was rendered on the date of entering into the contract. Thus, the classification of the services has to be done in accordance with the

provisions of section 65(105) ibid and with the introduction of the new service w.e.f. 01.06.2007, if the service got more appropriately covered under

the scope of works contract service, it will have to be classified there-under in terms of Section 65A of the Finance Act 1994. To that extent the

Boards Circular is devoid of correct appreciation of the legal provisions. It is claimed in the orders of the lower authorities that the said Board Circular

has been upheld by the judgment of Andhra Pradesh High Court in the case of Nagarjuna Construction Company vs. Govt. of India - 2010 (19) STR

321 (A.P.). We have perused the said judgment of Andhra Pradesh High Court and find that nowhere the High Court has said that the classification

of ongoing services cannot be changed to works contract service, if the service was more appropriately classified there-under; what the High Court

has, however, upheld is the Board’s clarification that in respect of the ongoing projects where service tax had been paid earlier (prior to

01.06.2007), the benefit of the Composition Scheme is not available. Thus, the lower authorities are correct in holding that for such ongoing project the

appellants were not eligible to avail of the Composition Scheme. The appellants have contended that they have all the required evidence to be eligible

for the benefit of Notification No.12/2003 or the Provisions of Rule 2A of the Service Tax (Determination of Value) Rules, 2006. Needless to say,

however, that the onus remains on the appellants to demonstrate that they satisfy the conditions/requirements for the purpose of claiming the said

benefit.

In the light of the foregoing, waiving the requirement of pre-deposit, we allow the appeals by way of remand to the original adjudicating authority

with the direction that (i) the appellants should be allowed to classify their services as works contract service even in respect of ongoing projects

w.e.f. 01.06.2007, provided that the services are more specifically covered there-under and not to deny such classification only on the ground that

prior to 01.06.2007 in respect of some ongoing contracts the classification was elsewhere and (ii) thereafter for the relevant periods (i.e. prior to

01.06.2007 and w.e.f. 01.06.2007) the appellants should be allowed to make a claim for the benefit of any applicable notification (including Notification

No.12/2003-ST) or the Provisions of Rule 2A of the Service Tax (Determination of Value) Rules, 2006 and produce the necessary evidence in

support of their claim. The appellants shall submit such evidence within a period of 4 weeks from the date of receipt of this order. The adjudicating

authority shall thereafter pass the denovo order after affording the appellants an opportunity of being heard.