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2022 Supreme(Cal) 1255
IN THE HIGH COURT AT CALCUTTA
T.S. Sivagnanam, Hiranmay Bhattacharyya, JJ.
M/s. Larsen And Toubro Limited - Appellant
Versus
Assistant Commissioner, Service Tax Commissionerate, Division-iii, Kolkata & Ors. - Respondents
MAT No. 1668 of 2016, IA No. CAN 1 of 2016, (OLD CAN No. 10675 of 2016)
Decided On : 06-12-2022
G. Dhara Maduri, Advocate, P. Purushottam, Advocate, Avra Mazumder, Advocate, T. Shanmugam, Advocate, Binayak Gupta, Advocate, Suman Bhowmick, Advocate, K.K. Maiti, Advocate, Tapan Bhanja, Advocate, Prithu Dudhoria, Advocate
Headnote:
Service Tax - Composition Scheme - Notification No. 32 of 2007, Notification No. 7 of 2008, Notification No. 10 of 2012 - The court held that the appellant had exercised the option for the first time only on 26.03.2008, and the rate of tax shall be 4%. The court also found that the department for the purpose of construction of the composition scheme cannot rely upon the conditions in the contract entered into between the appellant and private parties. The court allowed the appeal and 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.
Fact of the Case:
The appellant filed a writ petition seeking a declaration that certain notifications enhancing the rate of service tax were illegal, ultravires the Finance Act, 1994 and the Constitution of India. The appellant had exercised the option under the Works Contract (Composition Scheme) for Payment of Service Tax Rules, 2007 and paid service tax at 2%. The respondent department alleged short payment of service tax at the enhanced rate and invoked the extended period of limitation.
Finding of the Court:
The court found that the appellant had exercised the option for the first time only on 26.03.2008, and the rate of tax shall be 4%. The court also found that the department for the purpose of construction of the composition scheme cannot rely upon the conditions in the contract entered into between the appellant and private parties.
Issues: The issues considered by the court included whether the notifications can be given retrospective effect after an option is exercised, whether the notifications have rendered the composite scheme unworkable, 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 whether the show cause notices were barred by limitation.
Ratio Decidendi: The court held that the appellant had exercised the option for the first time only on 26.03.2008, and the rate of tax shall be 4%. The court also found that the department for the purpose of construction of the composition scheme cannot rely upon the conditions in the contract entered into between the appellant and private parties.
Final Decision: The appeal was allowed, and the court 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.
JUDGMENT
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 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 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
