Composition Scheme cannot be denied merely on ground of discharge of service tax under different Head prior to 01.06.2007

The Customs, Excise & Service Tax Appellate Tribunal (CESTAT Bangalore) in the matter of M/s MFAR CONSTRUCTION PRIVATE LIMITED Vs. C.C.E & C.S.T ruled out that Composition Scheme cannot be denied merely on ground of discharge of service tax under different Head prior to 01.06.2007.

MFAR Construction Private Limited, the appellants are engaged in construction of complexes and have obtained registration for rendering “Commercial or Industrial Construction” and “Construction of Complex Services”; with the introduction of levy of Service Tax on “Works Contract Service” w.e.f. 01.06.2007, the appellant sought classification, of the composite contract of „Construction of Residential Complex‟ under Works Contract, vide letter dated 14.06.2007 and opted for composition scheme under Rule 3(3) of the Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007 and started paying duty as applicable.

During the conduct of audit in the year 2008, Revenue observed that in terms of Circular No.98/1/2008-ST dated 04.01.2008 a service provider who paid service tax prior to 01.06.2007 for the taxable services like Erection, Commissioning and Installation Service, Commercial or Industrial Construction Service or Construction of Complex Service is not entitled to change the classification of the Single Composite Service for the purposes of payment of service tax on or after 01.06.2007 and therefore, the appellants are not entitled to avail the Composition Scheme. A show cause notice dated 20.04.2010 was issued to the appellants denying the classification of the services rendered by the appellants under Works Contract Service and demanding a service tax of Rs.28,08,44,455/-; the show cause notice also demanded service tax on client‟s disputed amount before 01.06.2007 and mobilization advance Cess after 01.06.2007; the show cause notice further demanded service tax on the services rendered by the appellant as a sub- contractor during the period April 2006 to March 2007. The proposals in the show cause notice were confirmed by Order-in-Original No.98/2011 dated 29.04.2011. Hence, this appeal.

The Coram found out that, “the appellants have been paying service tax under Construction of Complex Services etc. before 01.06.2007. On introduction of service tax on “Works Contract‟, the appellants had written to the Department for clarification. They have submitted a letter on 14.06.2007 that they will be opting for Composition Scheme. The Department has demanded the duty denying the opportunity.

The Tribunal ruled out that, “We are of the considered opinion that the benefit cannot be denied to the appellants. We find that Tribunal and Courts have been setting aside the demands raised in respect of Composite Works Contracts after the judgment in the case of L&T. The appellants have been paying duty albeit under a different Head before 01.06.2007. It would be miscarriage of justice if the appellants are denied the compounded scheme of payment of duty under Works Contract after 01.06.2007 which could have been easily exercised by those who were not paying duty before 01.06.2007. The appellants cannot be put to jeopardy for the reason that they have been paying service tax before 01.06.2007 though they were not legally required to pay in view of the judgment in the case of L&T.

The appellants have exercised the option to go under Compensation Scheme vide letter dated 14.06.2007, the same is not disputed by the Department who sought to deny the benefit in view of the Circular discussed above and the Circular loses its relevance after the judgment in the case of L&T. We find that Tribunal has gone into very same issue in the case of B.R. Kohli Construction Pvt. Ltd. Vs CST, Delhi, 2017 (5) GSTL 182 (Tri. Delhi) and held that Composition Scheme cannot be denied to the appellants merely on the ground of discharge of service tax under different Head prior to 01.06.2007.

In view of the above, the impugned order is set aside and the appeal is allowed by way of remand to the lower authority with the following directions:

(i) The appellants shall be allowed the option to pay service tax under Composition Scheme at the rates as applicable from time to time.

(ii) Demand is limited to the normal period.

(iii) The service tax paid by the appellants shall be adjusted towards the service tax payable by them under the Composition Scheme and the appellants shall pay the difference in service tax, if any.”

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