When a service provider correctly discharges service tax on the service component and VAT on the material component under a valid exemption notification, the revenue cannot reclassify the service as a 'Works Contract Service' to demand differential tax without specifically disputing the admissibility of the exemption.

PER : DR. D.M. MISRA

This is an appeal filed against Order-in-Appeal No.161/2013 dated 03.07.2013 dated 03.07.2013 passed by the Commissioner(Appeals), LTU, Bangalore.

2. Briefly stated the facts of the case are that the appellant are engaged in the erection, commissioning and installation service, Maintenance and Repair Service, for which they are registered with the Department. On scrutiny of their ST-3 returns for the period ending September 2010, it was noticed that the appellant had executed a project for the Delhi PWD in connection with Commonwealth Games, 2010 but failed to discharge appropriate service tax @ 4% on Works Contract Service (WCS) instead of they paid @ 2% during the said period. Consequently, differential tax of Rs.25,53,687/- along with interest and penalty was demanded by issuing a show-cause notice dated 19.09.2011. On adjudication, the demand was confirmed with interest and penalty. Aggrieved by the said order, they filed appeal before the learned Commissioner(Appeals) who in turn rejected their appeal. Hence, the present appeal.

3. At the outset, the learned advocate for the appellant has submitted that during the period July 2010 to September 2010 rendered services under a Consortium Agreement dated 29.08.2009 with M/s. Bajaj Electricals Limited, Mumbi and M/s. CBM Industries Limited, New Delhi for supply and installation of Retro Reflective Road Signages on various roads in New Delhi for the Commonwealth Games, 2010. The scope of work to be executed by the members of consortium has been narrated in the said agreement. The appellant as a Consortium Leader discharged appropriate service tax of Rs.25,53,687/- on installation of the road signages on various roads classifying the services rendered under the category of ‘Erection, Commissioning or Installation’ service. The invoices have been raised in the name of Consortium Leader i.e. the appellant. He has submitted that perusal of the invoices would reveal that service tax at the applicable rate was paid on 20% of invoice value involving service and VAT was paid on 80% of the value of goods shown in the invoices. Consequently, the appellant had claimed exemption on the value of materials used in the services on which VAT has been paid in accordance with Notification No.12/2003-ST dated 20.06.2003. However, the Department misreading the said invoices alleged that the appellant had paid wrongly 2% of the gross amount charged as tax under Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007 when the applicable rate of service tax was 4%, thus differential service tax demand of 2% under the Works Contract Composition Scheme. Even though, the appellant had placed on record the Consortium Agreement dated 29.08.2009, the same was ignored and the differential service tax was confirmed with interest and penalty. He has referred to the Invoices No.5565 dated 29.09.2010, No.3598 dated 30.07.2010, No.3597 dated 30.07.2010 and No.5566 dated 29.09.2010 enclosed with appeal paper book which would clearly show that the appellants have excluded the value of the goods supplied in the course of providing taxable services on which VAT has been paid and service tax was paid on the service portion i.e. 20% of the value @ 10.30% as applicable at the relevant time. Therefore, demanding differential tax on Works Contract Service on a wrong premise is bad in law. Further, he has submitted that the sale and service are mutually exclusive since the appellant has paid VAT on the sale portion of the material supplied along with service and availing exemption on value of mat