# CC AND CE AND ST, NOIDA v. M/S INTERARCH BUILDING PRODUCTS PVT. LTD

- **Citation:** [2023] 7 S.C.R. 977
- **Court:** Supreme Court of India
- **Decided:** 2023-05-02
- **Case number:** Civil Appeal No. 11330 of 2018
- **Bench:** M. R. Shah, Krishna Murari
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/cc-and-ce-and-st-noida-v-m-s-interarch-building-products-pvt-ltd-37538
- **Pages:** 27

## Headnote

Finance Act, 1994 - ss. 64,65(105)(zzq),65(105)(zzzza),66,
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
[2023] 7 S.C.R. 977
977
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SUPREME COURT REPORTS
[2023] 7 S.C.R.
'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

## Text

_Characters 0–39,754 of 58,237. This is a partial read: ask again with offset=39754 for what follows._

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977
CC AND CE AND ST, NOIDA
v.
M/S INTERARCH BUILDING PRODUCTS PVT. LTD.
(Civil Appeal No. 11330 of 2018)
MAY 02, 2023
[M. R. SHAH AND KRISHNA MURARI, JJ.]
Finance Act, 1994 - ss. 64,65(105)(zzq),65(105)(zzzza),66,
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
[2023] 7 S.C.R. 977
977
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[2023] 7 S.C.R.
'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]
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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
CC AND CE AND ST, NOIDA v. M/S INTERARCH BUILDING
PRODUCTS PVT. LTD.
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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.
Case Law Reference
[2015] 8 SCR 1046
referred to
para 4
[1992] 3 Suppl. SCR 103
referred to
para 4.10
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 11330
of 2018.
From the Judgment and Order dated 09.11.2017 of the Custom
Excise Service Tax Appellate Tribunal in A. No. 70517 of 2017.
N. Venkataraman, ASG, Ms. Nisha Bagchi, Shantanu Sharma,
Ms. Shraddha Deshmukh, VCS Bharathi, Mukesh Kumar Maroria, Advs.
for the Appellant.
V. Raghuraman, Sr. Adv., Shailesh Sheth, Sandeep Bisht, Divyam
Garg, Yati Ranjan, Raghavendra CR, Ranjan Kumar Pandey, Advs. for
the Respondent.
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The Judgment of the Court was delivered by
M. R. SHAH, J.
1. Feeling aggrieved and dissatisfied with the impugned judgment
and order dated 09.11.2017 passed by the Customs, Excise and Service
Tax Appellate Tribunal, Regional Bench at Allahabad (hereinafter referred
to as 'the Appellate Tribunal') by which the learned Tribunal has allowed
the said appeal preferred by the respondent and has set aside the Orderin-Original dated 31.03.2017 disallowing the CENVAT Credit, the
Revenue has preferred the present appeal.
2. The facts leading to the present appeal in nutshell are as under:
2.1 The respondent - assessee was engaged in the business of
manufacture, supply and erection at the site of prefabricated/preengineered steel buildings and parts thereof classifiable under the relevant
Headings/sub-headings of the First Schedule to the Central Excise Tariff
Act, 1985. The respondent was having centralized registration for Service
Tax with the Service Tax Department for services under "Commercial
or Industrial Construction Service" and "Construction Services" right
from the commencement of production. The goods manufactured were
cleared from the place of manufacture on payment of central excise
duty on which CENVAT Credit was made by the respondent. The unit
at Greater Noida registered as a Centralized Service Provider, availed
CENVAT Credit
(i) Excise duty paid by the units at the time of removal
(ii) duty paid on capital goods
(iii) service tax paid on input services.
They paid service tax on the gross amount of contract for
engineering, procurements supply, construction, erection etc. under the
category "commercial or industrial constructions services" as referred
under Section 65(105)(zzq) of the Finance Act, 1994 (hereinafter referred
to as 'the Act, 1994').
2.2 Based on specific intelligence that the respondent had wrongly
classified the services rendered by them, availed inadmissible CENVAT
Credit and short paid the Service Tax in cash. Department was of the
view that the services rendered by the respondent amounted to Works
Contract which were chargeable to tax under sub clause [zzzza] of
CC AND CE AND ST, NOIDA v. M/S INTERARCH BUILDING
PRODUCTS PVT. LTD.
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Section 65(105] of the Finance Act, 1994. Therefore, according to the
Revenue on classifiable service under 'works contract service' the
respondents availed CENVAT Credit on Central Excise duty paid on
inputs.
2.3 Therefore, the Department issued a Show Cause Notice alleging
inter alia that the respondent had utilized CENVAT Credit of
Rs.1,12,60,92,760/- on building material during June, 2007 to March, 2012
which was inadmissible. It was alleged that the said amount had been
recovered as service tax from the customer under Section 73(1) of the
Act, 1994. It appeared to the Revenue that services should have been
classified under "Works Contract Service". It was mandatory for the
respondent to either follow Rule 2A of Service Tax (Determination of
Value) Rules, 2006 or adopt Composition Scheme. The said Rule 2A
and Composition Scheme do not allow the availment of CENVAT Credit
on input. Therefore, it appeared to the Revenue that the CENVAT Credit
of Rs.112,60,92,760/- as availed on input was inadmissible and therefore,
the said debit has resulted in short payment of Service Tax.
2.4 The Show Cause Notice was related to the period from June,
2007 to March, 2012. The respondent was called upon to show cause as
to why the services being provided by them be reclassified under "Works
Contract Service" in place of "Commercial or Industrial Construction
Services", inadmissible CENVAT Credit of building material amounting
to Rs.112,60,92,760/- be disallowed in terms of Rules 2 & 3(1) of
CENVAT Credit Rules, 2004; an amount of Rs.22,37,01,811/- on account
of short paid Service Tax towards the liability debited from the inadmissible
Cenvat Credit on construction materials be recovered under Section
73(1) of the Act, 1994;an amount of Rs.90,23,90,907/- alleged to have
been collected as cash in excess of the Service Tax assessed/determined
by passing the inadmissible CENVAT Credit to their recipients of taxable
service be demanded under Section 73A of the Act, 1994 along with the
appropriate rate of interest under Sections 73B and 75 of the Act and
the penalties be imposed under Sections 77 & 75 of the Act, 1994 read
with Rule 15(3) of CENVAT Credit Rules, 2004. By Order dated
28.03.2004 the Adjudicating Authority who disallowed the CENVAT
Credit amounting to Rs.1,12,60,92,760/- confirmed the amounts of
Rs.22,37,01,811/- being short paid, confirmed the claim in the show cause
notice.
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2.5 The department had issued further Show Cause Notices/
statement of demands for the subsequent period also.
2.6 By order dated 18.11.2015, the learned Tribunal set aside the
adjudication order and remanded the matter back to the adjudicating
authority with the direction that the tax liability be re-determined after
hearing the respondent.
On remand the adjudicating authority passed a fresh order dated
31.03.2017 and confirmed the demands. The Commissioner held that
the services rendered by the respondent was classifiable as 'Works
Contract Service' and rejected the availability of CENVAT Credit amount
and directed recovery under Section73A of the Act, 1994. The Orderin-Original passed by the adjudicating authority was the subject matter
of the present appeal before the Tribunal.
2.7 Before the Tribunal the Order-in-Original passed by the
Adjudicating Authority was challenged on the following grounds:
(i)
"The Id. Commissioner disallowed Cenvat credit availed
on inputs in terms of Rule 2 & 3(1) of Cenvat Credit Rules,
2004 to the extent of Rs.1,12,60,92,760/- in case of show
cause notice dated 23.10.2012 and the amounts in case other
3 notices as specified above and that such order is not
sustainable in law.
(ii)
The provision of Rule 2A of Service Tax (Determination of
Value) Rules, 2006, start with expression "subject to the
provisions of Section 67" which means the provision
prescribed under said Rule 2A, is subject to the provisions
of Section 67 of the Finance Act, 1994.
(iii)
Opening Para of Rule 3 of Composition Scheme reads as-
"Notwithstanding anything contained in Section 67 of the
Act and Rule 2A of the Service Tax (Determination of
Value) Rules, 2006, the person liable to pay Service Tax in
relation to Works Contract Service shall have the option to
discharge his Service Tax liability on the Works Contract
Service." It clearly indicates that it is one of the options
given to the Service Provider to discharge Service Tax
liability in respect of Works Contract Service and it is not
mandatory to adopt the said Rule under Composition
Scheme for discharge of Service Tax liability.
CC AND CE AND ST, NOIDA v. M/S INTERARCH BUILDING
PRODUCTS PVT. LTD. [M. R. SHAH, J.]
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(iv)
Section 67 of the Finance Act, 1994 provides for arriving at
assessable value which states "subject to the provisions of
this Chapter, where Service Tax is chargeable on any taxable
service with reference to its value, then such value shall in
a case where the provision of service is for a consideration
in money, be the gross amount charged by the service
provider for such service provided or to be provide by him."
Therefore, the said provision which is fundamental in nature
and is applicable to any taxable service.
(v)
The demand towards Cenvat credit confirmed in case of
show cause notice dated 23.10.2012 is substantially time
barred.
(vi)
In the impugned order, Id. Commissioner has distinguished
the judgment of this Tribunal in the case of S.V. Jiwani
(supra) and the grounds on which Id, Commissioner
distinguished the judgment are invalid."
2.8 By the impugned judgment and order the learned Tribunal has
allowed the appeal preferred by the respondent and has set aside the
Order-in-Original passed by the adjudicating authority by observing that
the composition scheme is optional and the provisions of Rule 2A of the
said Rules are subject to provisions of Section 67 of the Act, 1994. The
learned Tribunal has also observed that it is clear from the provisions of
sub-section 4 of Section 67 of the Act, that where value cannot be
determined as provided under sub-rule (1) to (3) of Section 67 of the
Act, then only the value is to be determined as provided under the Rules.
Therefore, the Tribunal held that there is no question on applicability of
Rule 2A nor there was any question of forcibly applying the option of
Composition Scheme. The learned Tribunal held that in both these
circumstances, the respondent was entitled to CENVAT Credit on inputs.
2.9 Feeling aggrieved and dissatisfied with the impugned judgment
and order passed by the learned Tribunal setting aside the Order-inOriginal, the Revenue has preferred the present appeal.
3. Shri N. Venkataraman, learned ASG has appeared on behalf of
the Revenue and Shri V. Raghuraman, learned Senior Counsel has
appeared on behalf of the respondent - assessee.
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4. Shri N. Venkataraman, learned ASG appearing on behalf of
the Revenue has made the following submissions challenging the
correctness and legality of the impugned order passed by the CESTAT:
(i)
That the period under dispute is January, 2007 to March,
2014. He has submitted that the definition of 'works
contract service' was brought into the Finance Act, 1994
w.e.f. 01.06.2007. Therefore, he has fairly conceded the
demand for the period January, 2007 to 31.05.2007 shall
not be maintainable in light of the decision of this Court in
the case of Commissioner of Central Excise vs. Larsen
and Toubro, (2016) 1 SCC 170 as well as Total
Environment Building Systems Pvt. Ltd. vs. Deputy
Commissioner of Commercial Taxes, (2022) SCC
Online SC 953.
4.1 It is submitted that therefore the demand for the period January,
2007 to May, 2007 is not sustainable and therefore to that extent the
demand should go.
4.2 It is submitted that however, for the period commencing
01.06.2007 to 31.03.2014 the demands are sustainable and the Ordersin-Original need to be restored.
4.3 Shri N. Venkataraman, learned ASG has taken us to the
relevant provisions of the Act, 1994 more particularly Chapter 5 and the
definition of 'works contract' and the definition of 'taxable
service'contained in Section 64(54) and Section 65(105)(zzzza)
respectively. It is submitted that post 01.07.2012, the Finance Act, 1994
underwent major amendments by the insertion of both negative list and
declared services. It is submitted that Section 66E was introduced for
the first time which defined declared services. He has taken us to subclause (h) of Section 66E of the Act.
4.4 It is submitted that the Service Tax (Determination of Value)
Rules, 2006 came into force w.e.f. 19.04.2006 vide Notification No.12/
2006 - Service Tax. Rule 2A has been inserted vide notification 29/2007
dated 22.05.2007 w.e.f. 01.06.2007 which reads as under, which has
been amended periodically:
"Prior to 01.07.2012 it reads as under:
CC AND CE AND ST, NOIDA v. M/S INTERARCH BUILDING
PRODUCTS PVT. LTD. [M. R. SHAH, J.]
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2A. Determination of value of services involved in the
execution of a works contract:
(1) Subject to the provisions of section 67, the value of taxable
service in relation to services involved in the execution of a works
contract (hereinafter referred to as works contract service),
referred to in sub-clause (zzzza) of clause (105) of section 65 of
the Act, shall be determined by the service provider in the following
manner:-
(i) Value of works contract service determined shall be equivalent
to the gross amount charged for the works contract less the value
of transfer of property in goods involved in the execution of the
said works contract.
Explanation.- For the purposes of this rule,-
(a) gross amount charged for the works contract shall not include
Value Added Tax (VAT) or sales tax, as the case may be, paid, if
any, on transfer of property in goods involved in the execution of
the said works contract;
(b) value of works contract service shall include,-
(i) labour charges for execution of the works;
(ii) amount paid to a sub-contractor for labour and services;
(iii) charges for planning, designing and architect's fees;
(iv) charges for obtaining on hire or otherwise, machinery and
tools used for the execution of the works contract;
(v) cost of consumables such as water, electricity, fuel, used in
the execution of the works contract;
(vi) cost of establishment of the contractor relatable to supply of
labour and services;
(vii) other similar expenses relatable to supply of labour and
services; and
(viii) profit earned by the service provider relatable to supply of
labour and services;
(ix) Where Value Added Tax or sales tax, as the case may be, has
been paid on the actual value of transfer of property in goods
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involved in the execution of the works contract, then such value
adopted for the purposes of payment of Value Added Tax or sales
tax, as the case may be, shall be taken as the value of transfer of
property in goods involved in the execution of the said works
contract for determining the value of works contract service under
clause (i)."
4.5 It is submitted that vide notification 32/2007 - ST dated
22.04.2007 the Central Government in exercise of its powers conferred
by Sections 93 and 94 of the Act, 1994 introduced the Works Contract
(Composition Scheme for Payment of Service Tax) Rules, 2007. Rule
3(1) of the said Rules reads as under:
"3. (1) Notwithstanding anything contained in section 67 of the
Act and rule 2A of the Service (Determination of Value) Rules,
2006, the person liable to pay service tax in relation to works
contract service shall have the option to discharge his 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 an amount equivalent to two per cent of the
gross amount charged for the works contract.
Explanation. - For the purposes of this rule, gross amount charged
for the works contract shall not include Value Added Tax (VAT)
or sales tax, as the case may be, paid on transfer of property in
goods involved in the execution of the said works contract."
4.6 It is submitted that the sub-rules came to be amended vide
Notification No.23/2009 - ST dated 07.07.2009 and further amended by
Notification 1/2011 - ST dated 01.03.2011.
4.7 It is submitted that Section 67 of the Act, 1994 deals with
valuation of taxable services reads as under:
"67. Valuation of taxable services for charging Service Tax
-1) Subject to the provisions of this Chapter, service tax chargeable
on any taxable service with reference to its value shall, -
(i)
in a case where the provision of service is for a consideration
in money, be the gross amount charged by the service
provider for such service provided or to be provided by
him;
CC AND CE AND ST, NOIDA v. M/S INTERARCH BUILDING
PRODUCTS PVT. LTD. [M. R. SHAH, J.]
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(ii)
in a case where the provision of service is for a consideration
not wholly or partly consisting of money, be such amount in
money, with the addition of service tax charged, is equivalent
to the consideration;
(iii)
in a case where the provision of service is for a consideration
which is not ascertainable, be the amount as may be
determined in the prescribed manner.
(2) Where the gross amount charged by a service provider, for
the service provided or to be provided is inclusive of service tax
payable, the value of such taxable service shall be such amount
as, with the addition of tax payable, is equal to the gross amount
charged.
(3) The gross amount charged for the taxable service shall include
any amount received towards the taxable service before, during
or after provision of such service.
(4) Subject to the provisions of sub-sections (1), (2) and (3), the
value shall be determined in such manner as may be prescribed.
Explanation-For the purposes of this section, -
(a) "consideration" includes
(i) any amount that is payable for the taxable services provided or
to be provided;
(ii) any reimbursable expenditure or cost incurred by the service
provider and charged, in the course of providing or agreeing to
provide a taxable service, except in such circumstances, and
subject to such conditions, as may be prescribed.
(iii) Any amount retained by the lottery distributor or selling agent
from gross sale amount of lottery tickets in addition to the fee or
commission, if any, or, as the case may be, the discount received,
that is to say, the difference in the face value of lottery ticket and
the price at which the distributor or selling agent gets such ticket.
 (c) "gross amount charged" includes payment by cheque, credit
card, deduction from account and any form of payment by issue
of credit notes or debit notes and 2[book adjustment, and any
amount credited or debited, as the case may be, to any account,
whether called "Suspense account" or by any other name, in the
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books of account of a person liable to pay service tax, where the
transaction of taxable service is with any associated enterprise.]]"
4.8 It is submitted that the Central Board of Excise and Customs
vide letter dated 22.05.2007 issued clarifications regarding various
amendments brought out Vide Finance Act, 2007. It is submitted that
paras 9.1 to 9.7 which are relevant read as under:
"9.1 Works contract is a composite contract for supply of goods
and services. A composite works contract is vivisected and, -(i)
VAT/sales tax is leviable on transfer of property in goods involved
in the execution of works contract [Art.366 (29A)(b) of the
Constitution of India], and
(ii) Service tax will be leviable on services provided in relation to
the execution of works contract.
9.2 Service tax is chargeable on the gross amount charged by the
service provider for the taxable services provided (Section 67).
In the case of works contract, the taxable value of services is to
be determined by vivisecting the composite works contract. Rule
2A of Service Tax (Determination of Value) Rules, 2006
[Notification No.29/2007-Service tax, dated 22.05.2007], provides
that value of works contract service shall be equivalent to the
gross amount charged for the works contract less the value of
transfer of property in goods involved in the execution of the said
works contract. Thus, wherever the service provider maintains
records, the value of services shall be the gross amount charged
for the works contract less the value of transfer of property in
goods involved in the execution of works contract.
9.3 Wherever VAT/sales tax on transfer of property in goods
involved in the execution of works contract is paid on actual value,
the same value is also taken for the purpose of determining the
value of works contract service. In other cases, value of works
contract service shall be determined based on the actual. It has
also been explained that value of works contract service shall
include: (i) labour charges for execution of the works; (ii) amount
paid to a sub-contractor for labour and services; (iii) charges for
planning, designing and architect's fees; (iv) charges for obtaining
on hir or otherwise, machinery and tools uses for the execution of
the works contract; (v) cost of consumables such as water,
CC AND CE AND ST, NOIDA v. M/S INTERARCH BUILDING
PRODUCTS PVT. LTD. [M. R. SHAH, J.]
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electricity, fuel, used in the execution of the works contract, the
property in which is not transferred in the course of execution of
works contract; (vi) cost of establishment of the contract relatable
to supply of labour and services; (vii) other similar expenses
relatable to supply of labour and services; and (viii) profit earned
by the service provider relatable to supply of labour and service;
9.4 If the gross amount charged for the works contract is inclusive
of VAT or sales tax, the value for the purposes of service tax shall
be computed as follows: [Gross amount charged - (value of
transfer of property in goods involved in the execution of works
contract and VAT or sales tax paid, if any, on the said transfer of
property in goods involved in the execution of said works contract)].
9.5 As a trade facilitation measure and also for ease of
administrative convenience, the service provider has been given
an option to adopt the composition scheme for payment of service
tax on works contract service. The Works Contract (Composition
Scheme for Payment of Service Tax) Rules, 2007 has accordingly
been notified vide Notification No.32/2007-Service Tax, dated
22.05.2007.
9.6 The scheme provides that the service provider shall have an
option to pay an amount equivalent to 2% of the gross amount
charged for the works contract instead of paying service tax at
the rate specified in section 66. Gross amount charged for the
works contract shall not include VAT or sales tax paid on transfer
of property in goods involved in the execution of the said works
contract. The provider of taxable service opting to pay service
tax under the said composition scheme is not entitled to take
CENVAT Credit of duty on inputs, used in or in relation to the said
works contract, under the provisions of CENVAT Credit Rules,
2004.
9.7 The provider of taxable service who opts to pay service tax
under these rules shall exercise such option in respect of a works
contract prior to payment of service tax in respect of the said
works contract and the option so exercised shall be applicable for
the entire works contract and cannot be withdrawn until the
completion of the said works contract."
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4.9 Relying upon the above provisions, rules and regulations and
the circulars, it is submitted that works contract is contract involving
supply of goods and services together. A composite works contract gets
vivisected into transfer of property into goods liable to sales tax/VAT in
terms of Article 366 (29A)(b) of the Constitution of India and the service
portion liable to service tax w.e.f. 01.06.2007. Reliance is placed on the
decision of this Court in the case of Larsen and Toubro (supra)
(paragraphs 14 to 16).
4.10 It is submitted that the ratio of this Court in Larsen and
Toubro (supra) would be that the list of service elements as found in
Gannon Dunkerly and Co. vs. State of Rajasthan, (1993) 1 SCC
364 case will suffer service tax and the goods portion would suffer VAT
or sales tax.
4.11.It is submitted that the Constitutional Bench of this Court in
the case of Gannon Dunkerly and Co. (supra) while dealing with the
measure of tax vide para 47 had provided a list of exclusions from the
cost of valuation of goods and as to what would constitute the service
elements. He has heavily relied upon para 47 of the said decision. It is
submitted that this Court observed in para 47 in the case of Gannon
Dunkerly and Co. (supra) as under:
"47. ..... The value of the goods involved in the execution
of a works contract will, therefore, have to be determined by
taking into account the value of the entire works contract and
deducting therefrom the charges towards labour and services
which would cover-
(a)
Labour charges for execution of the works;
(b)
amount paid to a sub-contractor for labour and services;
(c)
charges for planning, designing and architect's fees;
(d)
charges for obtaining on hire or otherwise machinery and
tools used for the execution of the works contract;
(e)
cost of consumables such as water, electricity, fuel, etc.
used in the execution of the works contract the property in
which is not transferred in the course of execution of a
works contract; and
CC AND CE AND ST, NOIDA v. M/S INTERARCH BUILDING
PRODUCTS PVT. LTD. [M. R. SHAH, J.]
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(f)
cost of establishment of the contractor to the extent it is
relatable to supply of labour and services;
(g)
other similar expenses relatable to supply of labour and
services;
(h)
profit earned by the contractor to the extent it is relatable
to supply of labour and services.
The amounts deductible under these heads will have to be
determined in the light of the facts of a particular case on the
basis of the material produced by the contractor."
4.12 It is submitted that the above service elements have found a
statutory recognition as the same stood incorporated as part of Rule 2A
of the Service Tax (Determination of Value) Rules, 2006 w.e.f.
01.06.2007.
4.13 It is submitted that consequently this Court while dealing
with the decision of Larsen and Toubro (supra) had specifically
addressed this issue by bringing the similarity of the service elements as
mentioned in Constitution Bench's decision in Gannon Dunkerly (supra)
and framed as Rule 2A of the Valuation Rules, 2006. Reliance is placed
on paras 25 and 26 of the said judgment.
4.14 It is submitted that the decision of this Court rendered in
Larsen and Toubro (supra) came up for reconsideration in the batch
of matter in the case of Total Environment Building Systems Pvt.
Ltd. (supra) wherein this Court vide para 28 rejected the request to
refer the matter to the larger Bench by observing in paragraph 28 which
reads as under:
"28. While appreciating the prayer/submission made on behalf
of the Revenue to re-consider the binding decision of this Court in
the case of Larsen and Toubro Limited (supra) and to refer the
matter to the Larger Bench, few facts are required to be taken
into consideration, which are as under:-
(i) The decision of this Court in the case of Larsen and Toubro
Limited (supra) has been delivered/passed in the year 2015, in
which, it is specifically observed and held that on indivisible works
contracts for the period pre-Finance Act, 2007, the service tax
was not leviable;
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(ii) After considering the entire scheme and the levy of service
tax pre-Finance Act, 2007 and after giving cogent reasons, a
conscious decision has been taken by this Court holding that the
service tax was not leviable pre-Finance Act, 2007 on indivisible/
Composite Works Contracts;
(iii) While holding that for the period pre-Finance Act, 2007, on
indivisible/Composite Works Contracts, the service tax is not
leviable, number of decisions have been dealt with and considered
by this Court in the aforesaid decision;
(iv) That subsequently, the decision of this court in the case
of Larsen and Toubro Limited (supra) has been followed and
considered by this Court in the case of Commissioner of Service
Tax and Ors. Bhayana Builders Pvt. Ld. And Ors, (2018) 3
SCC 782,;
(v) That after the decision of this Court in the case of Larsen
and Toubro Limited (supra) rendered in the year 2015, the said
decision has been consistently followed by various High Courts
and the Tribunals;
(vi) The decisions of the various High Courts and the Tribunals,
which were passed after following the decision of this Court in
the case of Larsen and Toubro Limited (supra) have attained
finality and in many cases, the Revenue has not challenged the
said decisions;
(vii) No efforts were made by the Revenue to file any review
application to review and/or recall the judgment and order passed
by this Court in the case of Larsen and Toubro Limited (supra).
If the Revenue was so serious in their view that decision of this
Court in the case of Larsen and Toubro Limited (supra) requires
re-consideration, Revenue ought to have filed the review
application at that stage and/or even thereafter. No such review
application has been filed even as on today.
(viii) Merely because in the subsequent cases, the amount of tax
involved may be higher, cannot be a ground to pray for
reconsideration of the earlier binding decision, which has been
consistently followed by various High Courts and the Tribunals in
the entire country."
CC AND CE AND ST, NOIDA v. M/S INTERARCH BUILDING
PRODUCTS PVT. LTD. [M. R. SHAH, J.]
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4.15 It is submitted that therefore what is taxed under Section
65(105)(zzzza) which later became Section 66E(h) of the Finance Act,
1994 is the service portion in the execution of works contract. That
Section 67(1) makes it abundantly clear that service tax is chargeable
only on the taxable service with reference to its value. It is submitted
that this Court in the case of Larsen and Toubro (supra) as reiterated
in Total Environment Building (supra) has made it clear that the goods
value in the nature of transfer of property of goods would suffer sales
tax/VAT and the service components or elements would suffer service
tax w.e.f. 01.06.2007 by virtue of the definition of taxable service under
Section 65(105)(zzzza) and later as Section 66E(h) as a declared service
post 01.07.2012.
4.16 It is submitted that the incorporation of taxable service w.e.f.
01.06.2007 also resulted in the introduction of Rule 2A in the Valuation
Rules, 2006 clearly identifying the service elements or components which
would constitute the value for determination and payment of service
tax. These components again were retained even after the insertion of
Section 66E(h) post 01.07.2012.
4.17 It is submitted that this Court in the case of Larsen and
Toubro (supra) vide para 25 had referred to Rule 2A of the Valuation
Rules, 2006 and its purport by holding that the said Rule goes on to say
that the service component of the works contract is to include the 8
elements laid down in the second Gannon Dunkerly's case and the
value attributable to the service in the works contract would be the service
elements in such contracts as this scheme alone would comply with the
constitutional requirements as it seeks to bifurcate a composite indivisible
works contract and takes care to see that no element is attributable to
the property in goods transferred pursuant to such contract enters into
the computation of the service tax. It is submitted that therefore the
purport of Rule 2A of the valuation rules is only to bring the elements of
service tax as that alone would meet the constitutional requirements and
no elements attributable to the property in goods should enter in the
computation of service tax. It is, therefore, the entire contention of the
respondent - assessee that they have a legal right to pay tax even on the
goods portion as service tax and also take input credit on the duty paid
on the goods is clearly contrary to para 25 of the Larsen and Toubro
(supra)judgment and Rule 2A of the Valuation Rules, 2006.
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4.18 Now so far as the composition scheme is concerned, it is
submitted that the assessee falling under the definition of 'works contract
service' from 01.06.2007 has to discharge service tax liability either under
Rule 2A of the valuation rules only on the service components without
taking any CENVAT Credit on the input goods or go for the option of a
composition scheme in which case the rates of tax specified at various
points of time should have been complied with on the total contract value.
It is submitted that the invented method of the respondent - assessee by
seeking to pay service tax on entire contract value after taking the
CENVAT Credit on the input goods is clearly unsustainable in law.