Service Tax Appeal No. 51786/2021

Decided On: 10.05.2022

Appellants: Trimurty Landcon
Respondent: Commissioner (Appeals) Central Excise & CGST, Jaipur

Hon'ble Judges/Coram:
Dr. Rachna Gupta


Dr. Rachna Gupta, Member (J)

1. The appellant in the present case is the holder of Service Tax registration and is engaged in providing construction of residential complex services, construction of other than residential complex services, Sponsorship, Business Auxiliary Service, etc. During Audit, it was observed that appellant was engaged in construction of residential complex service. They had entered into an agreement dated 19.4.2014 with M/s. Ramavat Energy Pvt. Ltd. Jaipur for construction of 'Trimurty's Ariana" Group Housing Project at Ramnagaria, Jagatpura, Jaipur. Vide the said agreement, the following building material was agreed to be provided to the appellant on free issue basis by M/s. Ramavat Energy Pvt. Ltd. for construction of Trimurty's Ariana'.

1. Cement,

2. TMT Rebars (Reinforcement Steel)

3. Tiles, Granite, Marble, Kota stone, etc.

4. Electrical material

5. Sanitary & water supply material

6. Anti-termite wood paints for chakhats

7. 3" thick heat insulation materials

8. Any other material as per contract.

The Audit Team observed that the appellant have wrongly availed Cenvat credit of service tax charged on the invoice for free supply of aforesaid material as an input service. From the details of the availed Cenvat credit given by the appellant, Department observed that the appellant has availed the Cenvat Credit on VAT as well. Accordingly, vide Show Cause Notice No. 1030 dated 26.9.2019, the Cenvat Credit amounting to Rs. 726,010/- was alleged to have been availed in violation of Rule 2A of Service Tax (Determination of Value) Rules, 2006, and accordingly was proposed to be recovered along with the interest and the proportionate penalties. The said proposal was initially confirmed vide the Order No. 45/2000 dated 27.7.2020. The appeal filed against the said order has been rejected vide Order-in-Appeal No. 205/2021 dated 10.06.2021. Still being aggrieved, the appellant is before this Tribunal.

2. Learned Counsel has mentioned that show cause notice was issued with absolutely wrong allegations of irregular availment of Cenvat Credit of Rs. 726,010/-. It is submitted that none of the invoices during the period in question i.e. from April, 2014 to June, 2017 issued by the Contractor mentions the amount of VAT. One of the relied upon documents in the form of invoices has been impressed upon, being issued by the Contractor M/s. Ramavat Energy Pvt. Ltd. in favour of the appellant, to show that it is the amount of Service tax which is mentioned in the said invoices to be includible in the gross value therein. It is on the said amount that the credit has been availed by the appellant, no question of said amount to include VAT at all arises. The allegations were therefore, absolutely wrong. There is no dispute that the appellant has paid tax hence, cannot be denied availment of Cenvat Credit. Confirmation of demand based on said allegations is therefore, liable to be set aside. In addition, it is submitted that the Commissioner (Appeals) otherwise has gone beyond the show cause notice. The question framed by him in para 5 of the order under challenge is absolutely out of the scope of impugned show cause notice. His findings about the impugned transaction to have been covered under section 67D of Finance Act, i.e. the negative list is absolutely beyond the scope of show cause notice. Even the violation of Rule 3 of Cenvat Credit Rules, 2004 as has been held by Commissioner (Appeals) was never the allegation in the show cause notice. With these submissions the order under challenge is prayed to be set aside and appeal prayed to be allowed.

3. While rebutting the submissions, learned Departmental Representative submits that apparently and admittedly the credit has been taken on the gross value mentioned in the invoices. The said gross value admittedly included VAT. Hence, there is nothing wrong in the allegations that the credit has been availed by the appellant on the amount of VAT as well, which is not permissible. Learned Departmental Representative has impressed upon the contract executed between the appellant and the contractor where the contract is for construction of 550000 Sqft @ Rs. 778/- per sqft which shall be inclusive of work contract tax (VAT). From the invoices of M/s. Ramavat Energy Pvt. Ltd., it is clear that the contractor has included the free issue material. The value of free issue material for charging the work contract service on abatement value of 40%. The said value is inclusive of Central Excise duty and VAT. As per Rule 2A of Determination of Value Rules, the total value for the purpose of paying the service tax shall not have included the value of material. It is submitted that due to these reasons, there is no infirmity in the order when it is held that if VAT is paid on the actual value of the material, it is to be deducted on the actual basis. Apparently and admittedly, nothing has been deducted from the total value. Hence, there is no error in the order under challenge. The appeal is accordingly, prayed to be dismissed.

4. After hearing the rival contentions and perusing the record, it is observed and held as follows:

Following are the admitted facts:

(i) The appellant executed the agreement with M/s. Ramavat Energy Pvt. Ltd. for construction of residential complex, namely Trimurty's Ariana in Jaipur.

(ii) The appellant credit to supply building material to the contractor on free issues basis. Accordingly, the construction in question is in the nature of work contract.

(iii) The contractor has issued invoices along with the value of free issue material (invoices about the amount of service tax);

(iv) Contractor has charged Service Tax on the lump sum fair value of the material. The said service tax has been paid by the assessee.

(v) The contractor has discharged his liability of paying the service tax @ 40% of value of original work done by him in terms of provision of Rule 2(A)(ii) of Service Tax (Determination of Value) Rules, 2006.

The only disputed fact is that the amount on which the Service tax has been charged was inclusive of VAT or not.

5. In view of these admitted facts when read in the light of Rule 3 of Cenvat Credit Rules, it becomes clear that once the service tax has been paid by the contractor and the invoices mentioning the said amount of service tax have been issued to the appellant, the appellant was very much entitled to have credit of the service tax paid.

6. The appellant has availed Cenvat credit of service tax charged on the invoices. The impugned show cause notice as reflected in table one '18' such invoices with the total amount of each invoices in the last column of said table. Further perusal shows that the said total/gross value of each invoice includes the value of free issue material at such rate as were provided by the appellant himself (Relied upon invoices as RUD 3 i.e. invoice No. 149 dated 20.3.2015). In the said invoices, service tax @ 4.80% has been charged on the gross value which is nothing but the sum total of steel and cement received by the contractor M/s. Ramavat Energy Pvt. Ltd. from the appellant. Based upon the total value of the cement received vide 18 invoices of table No. 1 that the total amount of Rs. 3,60,14,605/- has been worked out for cement. RUD 4 shows that the said amount of VAT of Rs. 45,60,802/- has been paid including the credit availed with respect to total amount of cement issued to the contractor. Credit availed by the appellant on the total amount of cement issued to the contractor freely by him is Rs. 2,55,405/-. Similar are the findings with respect to all other items provided free to the appellant by the contractor and similar are the observations with respect to all 18 number of invoices.

7. As pointed out by learned Departmental Representative, the contract price paid to the contractor by the appellant was @ Rs. 4.78 per sq ft (26.29 lakh for construction of 5.50 sq ft. The said amount mentioned to have been inclusive of works contact tax/VAT. There is nothing on record to show that from the gross value of the invoices which appears to have been inclusive of VAT, there has been any deduction of the said amount of VAT. As already observed above, the service tax has been deducted based upon the said gross value and the Cenvat Credit has been availed by the appellant on the said amount of service tax. Reverting to Rule 2A of Service Tax (Determination of Value) Rules, 2006 as has been reproduced in Show Cause Notice as well as in the Order-in-Appeal, it is clear that the value of concerned service portion in execution of works contract shall be the gross amount charged for the works contract less the value of property in goods transferred in execution of said works contract. The explanation thereof makes it clear that the gross amount shall not include VAT. Total amount has also been explained in Explanation 1 of the said Rule to make the gross amount charged for work contract with the market value of goods and service supplier in relation to the said work contract. However, further deducting VAT/Sales Tax the input invoices if seen in terms of these provisions, the amount thereunder is the total amount for the goods received. Since the excise duty and VAT has admittedly been paid on the said goods, the said amount should have been deducted from the gross value/total value of the said goods. The invoices of the appellant is silent about the said deduction.

8. However, it has already been held that appellant shall be entitled to take Cenvat Credit on the amount of service tax paid by the contractor. Since the service tax has already been paid on the gross value/the total value, appellant cannot be denied availment of credit proportionate to the said value till the occasion arises for refund of the said service tax on the ground that the gross value on which the service tax was paid was inclusive of VAT. It is not the case of Department that excess Service Tax paid by the contractor has been refunded or has paid applied by the payee for the refund. Hence it is held that the Commissioner (Appeals) has wrongly denied the entitlement of the appellant for claiming the Cenvat Credit on the service tax paid by his contractor. The order accordingly is held liable to be set aside. However discretion is given to the department to recalculate if refund of excess service tax paid is to be processed and in that situation, differential credit availed can be recovered from the appellant. Hon'ble High Court of Punjab and Haryana has time and again clarified the issue by holding that once it is not disputed that appropriate duty has been paid, the credit thereof cannot be denied. I draw my support from the decision of Ranbaxy Labs Ltd. vs. CCE, Chandigarh reported as [2006-TIOL-438-HC-P & H-CX]. Another decision in M/s. V.G. Steel Industry vs. CCE reported as [MANU/PH/1646/2011 : 2011-TIOL-338-HC-P & H-CX] also it was held that when the duty is paid in excess of what was payable Cenvat credit cannot be denied unless excess duty paid has been refunded. The claim of Cenvat Credit cannot at all be denied as department is not allowed to have duty twice. Question of recovery of interest on the said amount also does not arise. Hon'ble High Court of Karnataka in the case of CCE vs. Pearl Insulation Ltd. reported as [MANU/KA/0787/2012 : 2012 (281) ELT 192 (Kar)] and in case of CCE vs. Strategic Engineering Pvt. Ltd. reported as [MANU/TN/3137/2014 : 2014 (310) ELT 509 (Mad)] has held that provision of Rule 14 of Cenvat Credit Rules, 2004 for recovery of interest on said Cenvat Credit i.e. the credit availed on excess amount of service tax paid will not be attracted. Hence the Revenue's stand for recovery of interest under said Rule and imposition of penalty can not succeed.

9. Based upon the entire above observations, order under challenge is set aside. Consequential thereto, the appeal stands allowed.

(Pronounced in the open Court on 10-05-2022)

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