Calcutta High Court (Appellete Side)
M/S. Larsen & Toubro Limited vs Assistant Commissioner on 6 December, 2022
MAT NO. 1668 OF 2016
REPORTABLE
IN THE HIGH COURT OF JUDICATURE AT CALCUTTA
CONSTITUTIONAL WRIT JURISDICTION
APPELLATE SIDE
RESERVED ON: 30.11.2022
DELIVERED ON:06.12.2022
CORAM:
THE HON'BLE MR. JUSTICE T.S. SIVAGNANAM
AND
THE HON'BLE MR. JUSTICE HIRANMAY BHATTACHARYYA
MAT 1668 OF 2016
WITH
IA NO. CAN 1 OF 2016
(OLD CAN NO. 10675 OF 2016)
M/S. LARSEN & TOUBRO LIMITED
VERSUS
ASSISTANT COMMISSIONER, SERVICE TAX COMMISSIONERATE,
DIVISION-III, KOLKATA & OTHERS
Appearance:-
Mr. G. Dhara Maduri, Advocate
Mr. P. Purushottam, Advocate.
Mr. Avra Mazumder, Advocate.
Mr. T. Shanmugam, Advocate.
Mr. Binayak Gupta, Advocate.
Mr. Suman Bhowmick, Advocate.
........For the Appellant
Mr. K.K. Maiti, Advocate
Mr Tapan Bhanja, Advocate
.......For the CGST Authorities
Page 1 of 21
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Mr. Prithu Dudhoria, Advocate.
......For the Union of India
JUDGMENT
(Judgment of the Court was delivered by T.S.SIVAGNANAM, J.)
1. This intra court appeal filed by the writ petitioner is directed against
the order dated July 01, 2016 in WP No. 23547 (W) of 2014 (2016 SCC
Online Calcutta 3865). The said writ petition was filed by the appellant for
issuance of a writ of declaration to declare the Notification No. 7 of 2008
dated 01.09.2008 enhancing the rate of service tax from 2% to 4% as
illegal, ultravires the Finance Act, 1994 and the Constitution of India, and
bad in law in so far as it seeks to levy additional burden of service tax upon
the contracts for which the option under Notification No. 32 of 2007, dated
22nd May, 2007 as already been exercised by the appellant; for a
declaration that notification No. 10 of 2012 dated 17.03.2012 effective from
01.04.2012 enhancing the rate of service tax from 4% to 4.8% as illegal,
ultravires the Finance Act, 1994 and the Constitution of India, and bad in
law in so far as it seeks to levy additional burden of service tax upon the
contracts for which option under notification No. 32 of 2007 dated
22.05.2007 as already been exercised; for issuance a writ of declaration
that the amendment vide Notification vide No. 7 of 2008, dated 01.03.2008
to works contracts (Composition Scheme for Payment of Service Tax) Rules
2007 would apply to the contracts only in respect of which option is
exercised after 01.03.2008 and/or only after the expiry of the previous
contracts for which option under notification No. 32 of 2007, dated
22.05.2007 has been exercised; for a declaration that the amendment vide
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Notification No. 10 of 2012 dated 17.03.2012 to the works contracts
(Composition Scheme for Payment of Service Tax) Rules, 2007 would apply
to contracts only in respect of which option is exercised after 01.04.2012
and/or only after expiry of the previous contracts for which the option
under Notification No. 32 of 2007, dated 22.05.2007 has been exercised
and for issuance of writ of mandamus to direct the respondent to apply the
amendment to the Works Contract, Composition Scheme for Payment of
Service Tax Rules 2007, vide Notification No. 7 of 2008 dated 01.03.2008
only to the contracts entered and option is exercised after 01.03.2008
and/or only after expiry of the previous contract for which the option
under Notification No. 32/2007, dated 22.05.2007 has been exercised. The
facts leading to the filing of the writ petition could be precisely set out as
herein under.
2. The appellant entered into several works contract during the year
2006-2007 on turnkey basis. After coming into the force of the Works
Contract (Composition Scheme) for Payment of Service Tax Rules, 2007
(Composition Scheme), the appellant exercised option under the scheme
and paid service tax at 2%. The appellant had submitted their returns in
form ST-3 for the period from March 2008 to 2011-2012 showing the
payment of service tax at 2% in respect of the works contract. By
Notification No. 7 of 2008, dated 01.03.2008 the rate of service tax under
the composition scheme was enhanced from 2% to 4% with effect from the
date of notification. The respondent department issued show cause notice
dated 17.04.2013 alleging short payment of service tax on the ground that
the appellant having exercised the option to go under the composition
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scheme on 26.03.2008, ought to have paid service tax at 4% and payment
at the rate of 2% amounts to evasion of tax. The extended period of
limitation was invoked on the alleged ground that the appellant had
suppressed the date of exercise of option and continued to pay tax at the
old rate that is 2%. Another show cause notice dated 21.10.2013 was
issued alleging short payment of service tax at the enhanced rate of 4.8%
as notified in Notification dated 17.03.2012 from 01.04.2012. The appellant
by their response contended that the composition scheme which came into
effect from 01.06.2007gives an option to the service tax provider under the
works contract to pay service tax in relation thereto by paying an amount
equivalent to 2% of the gross amount charged for the works contract. It was
further stated that once the service provider exercises such option under
the composition scheme the rates of service tax at the time of option would
continue for the entire works contract period and the service provider
cannot recite from the said scheme until the completion of the said works
contract and therefore any change in the rate of tax on the basis of
subsequent notification is impermissible and hit by the Doctrine of
Promissory Estoppel. The reply submitted by the appellant was rejected by
the department on the ground that the appellant had exercised option only
on 26.03.2008 when the rate of service tax was enhanced from 2% to 4%.
For such reason, the proposal made in the show cause notice was
confirmed, interest was demanded and penalty was also imposed.
3. The learned Writ Court framed four issues for consideration:- Firstly,
whether the notifications dated 01.03.2008 and 17.03.2012 can be given
retrospective effect after an option is exercised and whether it is repugnant
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or contrary to the composition scheme violating Section 94 of the Finance
Act, 1994. The second issue being as to whether the notifications have
rendered the composite scheme as unworkable offending Article 14, 19(1)(g)
and 265 of the Constitution. Thirdly as to whether enhancing the rate of
tax by subsequent notification after parties are allowed to alter the position
is hit by principle of Promissory Estoppel and fourthly as to whether the
show cause notices were barred by limitation as no ground exists for
invoking the extended period of limitation.
4. The learned Writ Court found that the competent authority had
jurisdiction to amend the rate of tax but such amendment would be
applicable prospectively and shall not affect the pending works contract.
While taking note of the issue as to whether the appellant had exercised
option under the said scheme, the Court noted sub rule (3) of Rule 3 of the
Composition Scheme which provides that option should be exercised in
respect of works contract prior to the payment of service tax and such
option shall remain applicable for the entire works contract and shall not
be permitted to be withdrawn until the completion thereon. Further the
learned Writ Court holds that there is no prescribed mode for exercising
such option. Further the Court holds that the appellant had paid service
tax at 2% and the same was duly received by the department prior to
01.03.2008. However the Court proceeded to hold that the expression "opts
to pay service tax under this rules" cannot be construed and mean the
filing of the return and the payment would sufficiently constitute the
exercise of the option under the composition scheme. The department had
referred to the various clauses as contained in the contract entered into by
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the appellant with M/s. Godrej Water Site Properties Private Limited and
Others and contended that the appellant was conscious that the rate of tax
may vary in course of the works contract and therefore they have
incorporated the clause that any change in the existing rate of taxes or new
tax being levied during the currency of the contract, the same would be
paid by the appellant. The argument of the department was rejected by the
learned Writ Court holding that the department for the purpose of
construction of the composition scheme cannot be rely upon the conditions
in the contract entered into between the appellant and private parties. It
further held there is freedom of contract between two individuals unless it
is against public policies. Finally, the Court proceeded to hold that the
appellant having exercised the option for the first time only on 26.03.2008,
the rate of tax shall be 4%. Aggrieved by such findings, the appellants are
before us by way of this appeal.
5. When the appeal was heard, the Division Bench by order dated
11.04.2017 directed the appellant to file a comprehensive statement
disclosing therein the particulars of vouchers through which the appellant
claims that they had paid service tax at the rate of 2% under the
composition scheme prior to 01.03.2008. This has been complied with by
the appellant and a supplementary affidavit along with necessary
documents have been filed and taken on record.
6. We have heard Mr. G. Dhara Maduri, learned advocate appearing for
the appellant assisted by Mr. P. Purushottam and Mr. Avra Majumdar,
learned advocates for the appellants and Mr. K.K. Maiti, learned senior
standing counsel assisted by Mr. Tapan Bhanja, learned advocate for the
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respondent.
7. The short issue which falls for consideration is as to in what manner
an option has to be exercised by the assessee to avail the benefit of the
composition scheme. Does the scheme contemplate a mode of exercising
option and what would be the correct meaning that has to be assigned to
the words "shall exercise option in respect of the works contract prior to
payment of service tax".
8. Notification No. 32 of 2007, dated 22.05.2007 was issued framing the
rules for the composition scheme which came into force with effect from 1st
day of June 2007. The said scheme is as follows:
NOTIFICATION NO. 32/2007 -
SERVICE TAX, DATED 22-05-2007
[TO BE PUBLISHED IN THE GAZETTE OF INDIA,
EXTRAORDINARY, PART II, SECTION 3, SUB- SECTION (i)]
GOVERNMENT OF INDIA
MINISTRY OF FINANCE
(Department of Revenue)
Works Contract (Composition Scheme for Payment of
Service Tax) Rules, 2007 New Delhi, the Date: 22nd May,
1 Jyaistha, 1929 (Saka)
Notification No. 32/2007-Service Tax
G.S.R. (E). In exercise of the powers conferred by sections 93
and 94 of the Finance Act, 1994 (32 of 1994), the Central
Government hereby makes the following rules, namely:-
1. Short title and commencement.- (1) These rules may be
called the Works Contract (Composition Scheme for Payment
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of Service Tax) Rules, 2007.
(2) They shall come into force with effect from the 1st day of
June, 2007.
2. Definitions.- In these rules, unless the context otherwise
requires,-
(a) "Act" means the Finance Act, 1994 (32 of 1994);
(b) "section" means the section of the Act;
(c) "works contract service" means services provided in
relation to the execution of a works contract referred to in
sub-clause (zzzza) of clause (105) of section 65 of the Act;
(d) words and expressions used in these rules and not
defined but defined in the Act shall have the meanings
respectively assigned to them in the Act.
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.
(2) The provider of taxable service shall not take CENVAT
credit of duties or cess paid on any inputs, used in or in
relation to the said works contract, under the provisions of
CENVAT Credit Rules, 2004.
(3) 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 shall not be
withdrawn until the completion of the said works contract.
[F. No. B1/7/2007-TRU]
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(G.G. Pai)
Under Secretary to the Government of India
9. By notification No. 07 of 2008, dated 01.03.2008, the rate of service
was substituted as 4% instead of 2% and this notification came into effect
on 01.03.2008. Subsequently, by notification No. 10 of 2012, dated
17.03.2012 the rate of tax was substituted at 4.8% with effect from
01.04.2012. From the above notification more particularly, Rule 3(1), it is
seen that it commences with non-obstante clause taken and states that
notwithstanding anything contained in Section 67 of the Finance Act, 1994
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 services 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 2% of
the gross amount charged for the works contract.
10. Thus, Rule 3(1) of the scheme gives an option to the person liable to
pay service tax to discharge his service tax liability in terms of the scheme
by paying an amount equivalent to 2% of the gross amount charged for the
works contract. Sub rule (3) of Rule 3 states that a person who opts to pay
service tax under the composition scheme shall exercise such option prior
to payment of service tax and the option so exercised shall be applicable for
the entire works contract and shall not be withdrawn until the completion
of the said works contract. The argument of the department is that the
option to pay service tax under the composition scheme shall be exercised
prior to the payment of service tax and the appellant having not exercised
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the option prior to 26.03.2008 is required to pay service tax at the rate of
4% and not 2%. The department further proceeds to state that this short
payment is intentional to evade payment of duty and therefore extended
period of limitation can be invoked. The cardinal principle of interpretation
has taught us to read the rule in its entirety to ascertain the true meaning
and intention of the legislation. If that be so sub rule (3) of Rule 3 of the
scheme cannot be read in isolation. It is required to be read in conjunction
with sub rule (1) of Rule 3.
11. Sub rule (1) of Rule 3 is substantive portion of the rule which
provides for an option to be exercised by the person liable to pay service
tax. By virtue of the said rule, the person liable to pay service tax has an
option to discharge the liability by paying the 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 of the Act. On a reading of sub rule
(1) of Rule 3 shows that the option exercisable by this person liable to pay
service tax is exercised by paying service tax at the 2% instead of rates
specified in Section 66. Sub rule (3) of Rule 3 states that the provider of the
taxable service who opts to pay service tax under the composition scheme
shall exercise such option prior to the payment of service tax. If rule 3(1)
and (3) and read in conjunction and harmoniously, the intention of the
scheme is to give an option to the provider of taxable service to discharge
his service tax liability by paying an amount equivalent to 2%. This being
the substantive part of the scheme, sub rule (3) which is a machinery
provision has to give life to the substantive part of the rule namely Rule 3(1)
and that would mean that the option shall be exercised by paying the
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amount equivalent to 2% of the gross amount charged for the works
contract. It is the submission of the learned senior standing counsel that
the crucial words in sub rule (3) of Rule 3 is "opts" and "prior to payment of
service tax". Thus, the department would contend that the option has to be
exercised by the provider of taxable service prior to the payment of service
tax. If that be so the rule should provide in what manner the provider of
taxable service has to exercise such option. Admittedly no procedure has
been laid down under the rule and there is no statutory form for exercise of
such option. This has been held so by learned Single Bench, against which
the revenue are not on appeal. In the absence of statutory format can the
department be heard to say that the option should be exercised in a
particular fashion and cannot be by conduct, that is by paying the service
tax equivalent to 2% of the gross amount charged for the works contract.
12. Before we go into legal aspect as to how the courts have interpreted
similar provision, we shall touch upon the certain facts which would be
relevant. The return in Form ST3 for the relevant year have been filed
before us and by way of illustration, we have taken up form ST3 for the
period October 2007 to March 2008. Under the column works contract
services, there are several questions which have been asked and
information has been called for. In para A2, the question is whether the
assessee is liable to pay service tax on his taxable service as a service
provider or a service receiver. The appellant has indicated that they are
liable to pay service tax as a service provider. Para C1 requires the assessee
to mention as to whether they have availed benefit of any exemption
notification, the answer should be either yes of no. If answer to Para C1 is
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yes in Para C2, the assessee is required to furnish the notification number.
The assessee has indicated that they availed the benefit of notification no.
32 of 2007 which is the composition scheme, referred above. Para (F) of the
return deals with the value of taxable service, service tax payable and gross
amount charged. Under the said column, the appellant has given the
service tax rate wise breakup details and indicated in respect of services the
tax had been paid at 2% under composition scheme. The proof of payment
of tax along with the challan numbers. have also been given in the return.
Admittedly, the assessing officer has accepted the return submitted by the
assessee and has not raised any objection of any short payment of service
tax in respect of such contracts were the appellant availed the option to
discharge the service tax liability under the composition scheme. Thus, it
can never be the case of the respondent department that the appellant
failed to disclose their availment of the benefit under the composition
scheme. Having steered clear of this factual issue, we will consider as to in
what manner similar provisions has been dealt with by other High Courts
in statutes which are pari materia.
13. In T. Azhakesan Versus State Tax Officer and Others 1 , the
Division Bench of the High Court of Madras considered a similar issue, but,
arising under the provision of the Tamil Nadu Value Added Tax Act, 2006.
The said Act also contained a similar provision stating that the option
should be exercised by the dealer prior to payment of tax. Similarly, under
the said Act, there was no prescribed form for exercising such option. This
issue was considered and the same was decided in favour of the dealer
2021 SCC Online Mad 10505
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therein. The relevant portion of the judgment is herein below:
The appellant's case is that when they filed their return
under the provisions of the TNVAT Act in Form-L, they have
exercised such an option and they have paid tax at 2%
being lumpsum payment in terms of Section 6(1) of the
TNVAT Act. The Assessing Officer did not raised query and
the returns were accepted along with the proof of payment
of tax. It is much after when the Enforcement Wing
inspected the business premises of the appellant, they
pointed out several effects, one of which, which is the
subject matter in these appeals is with regard to the
absence of an option letter for payment of tax under
Compounding Scheme in terms of Section 6(2) of the TNVAT
Act. The moot question would be whether the option letter
may be in writing or can it be inferred that the dealer
having paid lumpsum tax at 2% while filing his return, is
deemed to have been exercised option in terms of Section
6(1) of the TNVAT Act.
Identical issue came up for consideration in the case of
KRamsamy [supra]. In the said case, as that of the
appellant before us, the petitioner therein was a registered
dealer under the provisions of the Tamil Nadu General
Sales Tax Act [TNGST Act]. Two issues arose for
consideration in the said writ petition, first of which would
be relevant, namely whether the Assessing Officer in the
said case was justified in holding that the said petitioner
has not opted to pay tax under Section 7-C of the TNGST
Act. The dealer in the said case had filed the return and
paid the tax at 2% and the return was processed and the
nature of work done by the petitioner therein being works
contract, the benefit of Section 7-C of the TNGST Act was
extended and the rate of tax was fixed at 2% and the
returns were accepted. Subsequently the assessment was
sought to be revised by invoking the power under Section 55
of the TNGST Act and revised orders were passed, in which
the Assessing Officer took a stand that the petitioner therein
has not opted to pay tax under Section 7-C of the TNGST
Act. Thus, the Court framed the question as to whether the
dealer was required to exercise an option to pay tax under
Section 7-C of the TNGST Act by means of a separate letter
or a petition. It also noted that under the provisions of the
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TNGST Act and the rules framed thereunder, there is no
prescribed format or procedure as to how the option should
be exercised. After taking note of the decision of the Hon'ble
Division Bench in the case of Kikani Exports RIM [supra],
wherein it was held that in the absence of any separate
form provided for under the Rules or a separate method
provided for exercising option to pay tax under Section 7-C
of the TNGST Act, it can be safely concluded that the
assessee by filing a return and paying tax at compounded
rate has exercised the option under the said provision and
therefore the Assessing Authority committed error in holding
that the dealer did not exercised his option and accordingly,
the said question was answered in favour of the dealer. The
operative portion of the order reads as follows:
In this regard, useful reference can be made to
the decision of the Hon'ble Division Bench of this
Court in the case of Commissioner of Income Tax
Versus Kikani Exports Private Limited, in TCA
No. 330 of 2013 etc. batch dated 09.09.2014.
The substantial question of law, which arose for
consideration before the Hon'ble Division Bench
was whether the return of income filed by the
assessee under Section 139(1) of the Income Tax
Act claiming depreciation can be treated as
exercising of option before the due date as
prescribed in second proviso to Rule 5 (1A) of the
Income Tax Rules. This question was answered
in favour of the assessee and against the
revenue on the following terms:-
Short of petition, the issue that arise for
consideration is for the purpose of claiming
depreciation, whether the assessee should
exercise an option before the due date in the
manner other than by filing return of income in
terms of sub section (1) of Section 139 of the
Income Tax Act. According to the Revenue, each
one of the assessee should file a separate
application or a letter indicating their intention to
avail depreciation in terms of Section 32 read
with Rule 5(1) of the Income Tax Rules and since
the assessee in each case has not exercised
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such an option before the due date for furnishing
the return of income, they will not be entitled to
the benefit of Rule 5(1) but depreciation only
under Rule 5(1A) Appendix 1A.
It is relevant to note that while filing the return of income, a
procedure has been prescribed for clamming depreciation as
pointed out above. The assessee has to set out the manner
in which depreciation is claimed for the assessment years
in question. All the details required for claiming depreciation
under various heads are set out thereunder. Rule 5 of the
Income Tax Rules is in relation to determination of profits
and gains of business or profession and deprecation forms
part of such determination. Therefore, there cannot be an
option exercised in isolation (i.e) deprecation with regard to
determination of profits and gains of business or profession
in the manner other than the procedure prescribed under
Section 139(1) of the Income Tax Act. The assessee is liable
to file the return of income and claim deprecation in
accordance with the various provisions and state in
exactitude what he claims under different heads of
deprecation. Schedules DOA and DEP in Form ITR # 6
contain the break up of various heads under which
deprecation can be claimed. All that the second proviso to
Rule 5(1A) of the Income Tax Rules states is that the
assessee has to exercise the option before the due date for
furnishing the return of income. In other words, if the option
is exercised after furnishing of the return of income under
sub-section (1) of Section 139, it is of no avail. This assumes
importance, as no procedure is prescribed for exercising the
option. Form ITR-6 gives the methodology on which
deprecation can be claimed and therefore, the statue did not
provide for any other method to exercise the option except
through filing of that an option should be exercised
separately would make the returns filed meaningless."
The above referred decision can very well be applied to the
facts of the present case, as under the TNGST Act or the
Rules framed thereunder, there is no separate form
provided or any separate method provided for exercising the
option to pay tax under Section 7-C of the TNGST Act.
Therefore, it can be safely concluded that the assessee by
filing a return and paying tax under Section 7-C of the
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TNGST Act amounts to exercising option under the said
provision. Thus, the respondents committed an error in
holding that the petitioner did not exercise his option.
Therefore, the first question is answered in favour of the
petitioner and against the revenue.
We are informed that the above order has become final as
the revenue has not carried the matter on appeal.
The only distinction in the case on hand is that the present
assessment is under the provisions of the TNVAT Act and
the said Act does not provide for any separate procedure or
method of form of application for exercising option under
Section 6(1) of the Act. Therefore, it is to be held that the
appellant/dealer having filed their return in Form-L had
opted to pay lumpsum tax at 2% is deemed to have
exercised his option to pay tax at compounded rates in
terms of Section 6(1) of the TNVAT Act.
The above decision would squarely apply to the facts and circumstances of
the case before us.
14. In GE T and N India Limited Versus Commissioner of Central
Excise and Service Tax, Large Tax Payer Unit, Chennai in C.M.A. No.
2032 of 2019 dated 16.12.2019 the High Court of Madras, identical issue
was considered and the Division Bench approved the view taken by the
tribunal in the case of Vaishno Associates Versus CCE & ST, Jaipur 2
wherein the court considered the composition scheme and pointed out that
no format has been prescribed for making/exercising an option nor has it
been specified as to whom the option must be addressed, the fact of the
paying service at composition rate in the return filed by the service provider
is enough indication to show that they have opted for payment under the
works contract composition scheme.
(2018) VIL 217
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15. While on this issue, it will be beneficial to refer to the decision of the
Hon'ble Supreme Court in Commissioner of Central Excise Versus Hari
Chand Shri Gopal and Others 3 in the said decision, the doctrine of
substantial compliance was explained. It was held that doctrine of
substantial compliance is a judicial invention, equitable in nature,
designed to avoid hardship, in the cases where the party does all that he
can reasonably expected of it, but failed or faulted in some minor or in
consequence aspect which cannot be described "essence" or the
"substance" of the requirements. It was further pointed out that
substantial compliance means actual compliance in respect to the
substance essential to every reasonable objective of the statute and the
court should determine whether the statute has been followed sufficiently
so as to carry out the intent of the statute and accomplish the reasonable
objective for which it was passed. We are informed that there are several
decisions of the tribunal which have held on the above lines and those
decisions have attained finality and one such decision being in the case of
M/s. ABL Infrastructure Private Limited Versus Commissioner of
Central Excise, Nashik 4. Thus, it can be safely held that the payment of
tax under the composition scheme upon notification of the scheme vide a
notification no. 32 of 2007 dated 26.05.2007 by filing the return and
paying tax at the compounded rate of 2% is sufficient compliance of
exercise of option under the scheme and therefore the subject contracts
for which tax had been remitted by the appellant at the rate of 2% is
(2011) SCC 236
2015(2) TMI 801-CESTAT Mumbai
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permissible and acceptable under law.
16. The next aspect is whether the extended period of limitation could
have been invoked. The disputed period can be divided into two the first of
which being from March 2008 to March 2012. For this period, the show
cause notice for the periods from March 2008 to March 2011 have all been
issued after a long delay as the show cause notices were issued on
17.04.2013.The said show cause notice also covered the period from April
2011 to September 2011 and October 2011 to March 2011 but for such
period the show cause notice was within the time permitted. The question
would be whether extended period of limitation could have been invoked in
the facts and circumstances of this case and courts have held that such
extended period of limitation can be invoked only when that there is a
deliberate intention to evade payment of tax and it does not empower the
department to invoke the extended period on the sole ground of omission.
In several decisions, the Hon'ble Supreme Court has pointed out that every
non-payment or non-levy of duty does not attract extended period and
there must be a deliberate default; mere non-payment of duties is not
equivalent to collision or willful mis statement or suppression of facts. More
importantly, if the alleged contravention has been culled out from the
records available, the question would be whether the extended period of
limitation could be invoked. Admittedly, the assessing officer of the
appellant had not pointed out any error and the returns were accepted and
the payment of tax was also accepted. It is only the audit department which
had raised such a query and such query was raised based on the available
records with no new or fresh tangible material. Therefore, the department
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invoking the extended period of limitation, for the period indicated above, is
thoroughly flawed and illegal. For the disputed period from April 2011 to
March 2013, there is no delay in issuance of show cause notice. The
learned advocate appearing for the appellant on instructions submits that
the appellant will pay the differential amount of service tax for the said
period that is from April 2012 to June 2012,July 2012 to September 2022
and October 2012 to March 2013 at the appropriate rates. Since the service
tax had been paid only at the rate of 2 %, the appellant agrees to pay
interest thereon. The learned advocate submits that the court may consider
the case and direct that the penalty should not be levied under Section 78
of the Act. We are not able to accede such a prayer as it is beyond the scope
of the prayer sought for in the writ petition nor such contention appears to
have been raised in the writ petition. However, we give liberty to the
appellant to raise all contentions both on law and facts in the event there is
proposal to levy penalty for the aforementioned period.
17. Mr. Maiti, learned senior standing counsel appearing for the revenue
referred to the decision of the Hon'ble Supreme Court in Nagarjuna
Constructions Company Limited Versus Government of India 5 for the
proposition that the appellant having failed to exercise the option prior to
the payment of tax is not entitled to the benefit of the composition scheme
at 2%. On this aspect, we have already interpreted Rule 3(1) and (3) of the
composition scheme and given our reasons as to how there has been
compliance of the rule and in the absence of any statutory form for exercise
of option, the filing of the return, mentioning the relevant notification
2012(28) STR 561 (SC)
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number. and payment of tax at the compounded rate is sufficient
compliance of exercise of option under the scheme. That apart, we note the
facts in Nagarjuna Constructions to be entirely different. Since the
appellant therein had already paid the taxes and did not opt to pay the
service tax under the composition scheme but later sought for such a
benefit which was negatived. Therefore, the said decision is inapplicable to
the facts and circumstances of the case on hand.
18. As noticed by us above, the substantial part of the order passed by
the learned Single Bench enures in favour of the appellant, the department
having accepted such portion of the judgment cannot be heard to argue
contrary to what has been held against them. The learned Single Bench has
in no uncertain terms recorded that the service tax was paid of 2% and
duly received by the department prior to 01.03.2008. Further it has been
held that the rates of tax as increased would be prospective and shall not
affect the pending contracts. Further it has been held there is no prescribed
mode for exercising option. The court had also noted Rule 6 of the service
tax rules which provides that the service tax shall be paid on or before 6th
of every month, following the months the payment are received for such
taxable service; Rule 7 which states that the return shall be filed on half
yearly basis on or before 25th day of the month following the particular
year. Further the argument made by the department by referring to the
contracts entered into by the appellant with third parties was rejected
holding that the clauses in the said contract which requires the appellant
to accept the enhanced rates of tax if any during the subsistence of
contracts cannot help the department for the purpose of considering the
MAT NO. 1668 OF 2016
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construction of the composition scheme. As the appellant has freedom to
enter into contract and in the absence of the contract being contrary to the
public policy, it is binding between contracting parties and cannot in any
manner assist the department.
19. Thus, for all the above reasons, the appeal is allowed and that
portion of the order passed by the learned Single Bench in paragraph 18 is
set aside and it is held that the appellant has exercised the option prior to
01.03.2008 and therefore would be entitled to the compounded rate of tax
at 2% for the relevant period and this cannot extend to the period from
April 2012 to March 2013 which the appellant has conceded to pay tax at
the enhanced rate along with the interest. No costs.
(T.S. SIVAGNANAM, J.)
I Agree.
(HIRANMAY BHATTACHARYYA, J.)
(P.A- SACHIN)
