H.K. Thakur, J.
1. Appeal No. ST/82/2011 has been filed by M/s. JMC Projects (India) Limited, A-104 Shapath, Opp. Karnavati Club, Ahmedabad -51 with respect to OIO No. STC/20/Commr/Ahd/2010 dated 28.10.2010 passed by Commissioner of Service Tax, Ahmedabad under which service tax demand of Rs. 21,79,20,479/- along with interest has been confirmed and penalties under Section 76 and 78 of the Finance Act, 1994 imposed.
2. Brief facts of the case are that searches were carried out by DGCEI officers at the registered office of the appellant on the basis of an information that appellant was paying service tax under the Works Contact (Composition Scheme of Payment of Service Tax) Rules, 2007 on those contracts which were executed on or before 01.06.2007. Investigations undertaken by DGCEI revealed that appellant was classifying the services rendered for 34 ongoing contracts under Commercial or Industrial Construction Services and Construction of Complex Services and was also paying service tax before 01.6.2007. Appellant reclassified the services of ongoing contracts under Work Contract Services with effect from 01.6.2007 under composition scheme by paying service tax at concessional rate of 2% on introduction of Works Contract Services. It was also proposed that value of free supply materials was required to be added to the gross amount while discharging Service Tax liability on these ongoing contracts under construction services as per Section 67 of the Finance Act, 1994 as Gross Amount Charged. A show cause notice dated 22.10.2008 was issued by DGCEI, Ahmedabad demanding Service Tax of Rs. 7,07,31,967/- for the period 01.6.2007 to 31.07.2008. A corrigendum dated 29.09.2009 to the earlier show cause notice dated 22.10.2008 was issued to the appellant revising the service tax amount to Rs. 7,24,13,848/-. By an addendum dated 14.12.2009 the show cause notice amount was revised to Rs. 20,53,91,319/- which was also revised by a further corrigendum dated 17.05.2010 to Rs. 21,79,20,479/-.
2.1.Appeal No. ST/83/2011-DB has been filed by the appellant with reference to a show cause notice dated 23.10.2009 adjudicated by the Adjudicating authority for Rs. 4,22,05,286/- covering the subsequent period from 01.8.2009 to 31.07.2009.
3. Shri Prakash Shah (Advocate) and Shri S.G. Vyas (Advocate) appearing on behalf of the appellant argued that the only dispute in the present proceedings is classification of 34 ongoing contracts being undertaken by the appellant as on 01.6.2007. Whether the service classification should be done as Works Contract Services or under the respective service heads applicable before 01.6.2007. Shri Prakash Shah strongly argued that show cause notice dated 22.10.2008, originally issued to the appellant, proposed to demand service tax under the Work Contract Services and only the benefit of the Works Contract (Composition Scheme for payment of Service Tax) Rules, 2007, was proposed to be denied. It was his case that the entire basis of the show cause notice was changed by an addendum dated 14.12.2009 where the classification was proposed to be changed to Commercial or Industrial Construction Services or Construction of Complex Services and in the Addendum the benefit of Notification No. 1/2006-ST dated 01.3.2006 was proposed to be denied. That the changes made in the Addendum dated 14.12.2009 were on altogether different grounds than what was proposed in the original show cause notice dated 22.10.2008. That as the Addendum dated 14.12.2009 was a new show cause notice, therefore, the same is clearly time barred. Learned advocate relied upon the case law of Commissioner vs. Turbotech Precision Engineers Pvt. Limited [2010 (18) STR 545 (Kar.)] and CESTAT Ahmedabads order in the case of ABB Limited [2011 (24) STR 199 (Tri. Bang.)] and argued that once classification for demanding short levy is held to be erroneous then demand can not be sustained under any other service tax head. It was appellants case that at the time of issue of show cause notice the classification of ongoing contracts was not in dispute and was held to be under Works Contract Service as per show cause notice dated 22.10.2008 and the show cause notice only proposed to deny the benefit of Works Contract Rules, 2007. It was the case of the appellant that by changing the classification of services and denying the benefit of Notification No. 1/2006-ST dated 01.3.2006, Adjudicating authority has gone beyond the scope of show cause notice dated 22.10.2008.
3.1. That without prejudice no service tax can be levied on the value of goods sold by the appellants in the execution of contracts. That it is settled law that service tax can be levied only on the value of services and not goods sold which providing a contractual service. That the judgment of Delhi High Court in the case G.D. Builders vs. UOI [2013 (32) STR 673 (Del.)] relied upon by the Revenue clearly hold that Composite Contracts can be vivisected and only service portion can be taxed for service tax purposes. That even now also appellant is ready to reverse cenvat credit to avail benefit of Notification No. 1/2006-ST dated 01.3.2006.4. Shri K.M. Mondal, (Special Consultant) appearing on behalf of the Revenue argued the following during the course of hearing as well as through the written submissions made:-
(i). That second show cause notice dated 23.10.2009 was issued to the appellant for the period 01.8.2008 to 31.07.2009 on the grounds that appellant had wrongly switched over to Works Contract Services from Commercial or Industrial Construction Services and Construction of Complex Services and has wrongly availed the concessional rate of service tax under the works contract composition scheme for payment of service tax under Rules, 2007 contrary to the provisions of Rule 3 (3) of the said rules.
(ii). That vide letter dated 16.07.2007, the appellant had intimated the jurisdictional Superintendent of Service Tax that it wanted to opt for Works Contract Service with effect from 01.06.2007 for all its ongoing contracts. The appellant, however, did not intimate by the said letter dated 16.7.2007 that it opted to pay service tax at the concessional rate under the Composition Scheme.
(iii). That perusal of sub-rule (3) of Rule 3 would show that an assessee 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 contracts and option so exercised shall be applicable for the entire works contracts. Admittedly, in the present case, the appellant had paid service tax under respective taxable services prior to 01.06.2007. Consequently, the appellant was not eligible to get the benefit of the Composition Scheme to pay service tax at the concessional rate. The appellant ought to have paid service tax at the normal rate as per provisions of Section 66 read with Section 67 of the Finance Act, 1994. This was precisely the point explained to Shri Amit K. Raval, Vice President (Accounts) and Central Excise authorized signatory of the appellant Company at the time of recording of his statement on 07.8.2008. It must, however, be stated that in the very same Para, Shri Raval also stated that they did not agree with the views of the Department and that there was a scope for legal interpretation.
(iv). That as per the provisions of Rule -3(3) of the Works Contract Rules, 2007 appellant was not eligible to pay duty vide Works Contract Service. (v).That the nature of work classifiable under taxable service clauses (zzd), (zzq) and (zzzh) upto 01.7.2007 and as Works Contract under clause (zzzza) from 01.7.2007 does not have any bearing on the eligibility of the appellant to composition scheme under 2007 Rules.
(vi). That as per Apex Courts judgment in the case of Nagarjuna Construction Company Limited vs. GOI [2012 (28) STR 561 (SC)] also composition scheme is not available to these assessees who were paying service tax before 01.7.2007 and that there is no discrimination while implementing circular dated 24.8.2010 issued by CBEC.
(vii). That perception of the appellant that Revenue has attempted to change the classification of the service by way of addendum dated 14.12.2009 is wrong and that the same can not be considered as a new and different ground than what was taken in the original show cause notice dated 22.10.2008.
(viii). That in view of CESTATs judgment in the case of Instrumentation Limited vs. CCE Jaipur [2011 (23) STR 221 (Tri.)] following the principles of harmonious construction, it can be said that Works Contract Service under Section 65 (105) (zzzza) would also cover the services defined in Section 65 (105) (zzd), 65(105) (zzq) and 65(105) (zzzh) pertaining to Commercial or Industrial Construction Services and Complex Construction Service. It was thus Revenues case that by mentioning of Works Contract Service in Annexure B of the show cause notice dated 22.10.2008 and mention of Construction of Complex Service in Addendum dated 14.12.1999 there was no change proposed in the classification of the services.
(ix). That in view of the following case laws, it is held that if a corrigendum or the Addendum does not change the framework of the show cause notice, then the same can not be treated as a fresh show cause notice:-
(a). Sara Services Engg. Pvt. Limited vs. CCE Meerut [2010 (254) ELT 486 (Tri.)]
(b). Delhi Public School Society vs. CST, New Delhi [2013 (32) STR 179 (Tri.)]
(c). CCE Bhubneswar vs. Konark Cylinders and Containers (P) Limited [1994 (73) ELT 702 (Tri.)]
(d). Best and Company vs. CC, New Delhi [2009 (239) ELT 294 (Tri.)]
5. With respect to the appeal No. ST/83/2011, it was the argument of the Revenue that appellant did not make any submission in respect of this appeal, nor appellant has pressed for allowing this appeal. Issue involved in this appeal is identical to that of appeal No. ST/82/2011. As far as facts of the case are concerned, the show cause notice dated 23.10.2009 issued by the Commissioner demands service tax for the period from 01.08.2008 to 31.07.2009. The show cause notice is well within the normal period of limitation. There is no Corrigendum or Addendum issued to the show cause notice. This impugned order passed by the Commissioner confirming the demand of service tax along with interest and imposing penalties on the appellant both under Section 76 and 78 of the Finance Act, 1994 is required to be upheld.
6. Heard both sides and perused the case records/ written submissions made by either sides. The main issue required to be deliberated in these appeals is as to what will be the appropriate classification of Works Contract Services undertaken by the appellant with effect from 01.6.2007. Adjudicating authority in Para 3.7(a) of the OIO No. STC/20/Commr/ Ahd/2010 dated 28.10.2010 has held that M/s. JMC were not entitled to revise the classification of their services from Commercial or Industrial Construction Services to Works Contract Services with effect from 01.6.2007 for the 34 ongoing contracts. Findings of the Adjudicating authority are encouraged by the clarification issued by CBEC vide Reference Code 09703/4-1-08 of F. No. 345/6/2007-TRU dated 04.01.2008 (Circular No. 98/1/2008-ST) according to which vivisection of a single Composite Service and classifying the same under two different taxable services, depending upon the time of receipt of consideration, is not sustainable. However learned Adjudicating authority failed to appreciate another clarification issued under Circular No. 128/10/2010-ST dated 24.08.2010 where the following was clarified by CBEC in Para 2:-
It has been brought to the notice of the Board that the following confusions/disputes prevail with respect to long term works contracts which were entered into prior to 1-6-2007 (when the taxable service, namely, Works contract came into effect) and were continued beyond that date:
(i). While prior to the said date services like Construction; Erection, commissioning or installation; Repair services were classifiable under respective taxable services even if they were in the nature of works contract, whether the classification of these activities would undergo a change?
(ii).Whether in such cases of continuing contracts, the Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007 under Notification No. 32/2007-S.T., dated 22-5-2007 would be applicable.
2. The matter has been examined. As regards the classification, with effect from 1-6-2007 when the new service Works Contract service was made effective, classification of aforesaid services would undergo a change in case of long term contracts even though part of the service was classified under the respective taxable service prior to 1-6-2007. This is because works contract describes the nature of the activity more specifically and, therefore, as per the provisions of Section 65A of the Finance Act, 1994, it would be the appropriate classification for the part of the service provided after that date.
3. As regards applicability of composition scheme, the material fact would be whether such a contract satisfies rule 3(3) of the Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007. This provision casts an obligation for exercising an option to choose the scheme prior to payment of service tax in respect of a particular works contract. Once such an option is made, it is applicable for the entire contract and cannot be altered. Therefore, in case a contract where the provision of service commenced prior to 1-6-2007 and any payment of service tax was made under the respective taxable service before 1-6-2007, the said condition under rule 3(3) was not satisfied and thus no portion of that contract would be eligible for composition scheme. On the other hand, even if the provision of service commenced before 1-6-2007 but no payment of service tax was made till the taxpayer opted for the composition scheme after its coming into effect from 1-6-2007, such contracts would be eligible for opting of the composition scheme.
4. The Boards previous Circular No. 98/1/2008-S.T., dated 4-1-2008 and the ratio of judgment of the High Court of Andhra Pradesh in the matter of M/s. Nagarjuna Construction Company Limited v. Government of India [2010 (19) S.T.R. 321 (A.P.) = 2010 TIOL 403 HC AP ST] are in line with the above interpretation.
6.1. In view of the above clarification the view taken by the Adjudicating authority is not correct that appellant was not entitled to revise the classification to Works Contract Services. The first show cause notice dated 22.10.2008 and its corrigendum dated 29.09.2009, were mainly targeted to deny the benefit of Composition Scheme to the appellant and to determine the taxable value as per Rule 2A of the Service Tax (Determination of Value) Rules, 2006 read with section 67 of he Finance Act, 1994. The provisions of Rule 2A and Composition Scheme deal only with the Works Contract Service under Section 65 (105) (zzzza). There was thus no doubt in the authority issuing show cause notice dated 22.10.2008 and its corrigendum dated 29.09.2009 that the classification of the services being dealt was Works Contract Services with effect from 01.7.2006. This fact was confirmed by CBEC by issuing circular dated 24.08.2010. Therefore, demanding a duty of Rs. 20,53,91.319 on Commercial or Industrial Construction Services/ Construction of Complex Services and denying the benefit of Notification No. 1/2006-ST dated 01.3.2006 is totally a new and different ground than what was being taken in the original show cause notice dated 22.10.2008, where classification of the service provided was not doubted at all. The judgments relied upon by the Revenue that the changes proposed were only mathematical corrections or facts available at the time of issue of show cause notice dated 22.10.2008, are thus not applicable to the facts of the present proceedings. The Addendum dated 29.09.2009 and its further corrigendum dated 17.05.2010, therefore, fails as the same has changed the entire basis of the first show cause notice dated 22.10.2008. Having said that it is further observed that Addendum dated 14.12.2009 has not been issued in suppression of the first show cause notice dated 22.10.208, therefore the first show cause notice dated 22.10.2008 and its corrigendum dated 29.09.2009 survive.
6.2.The issue of admissibility of composition scheme for ongoing Works Contracts as on 01.6.2007 has since been decided by Honble Apex Court in the case of Nagarjuna Construction Company Limited vs. GOI [2012 (28) STR 561 (SC) which was not available before the Adjudicating authority at the time of passing the adjudication order in 2010. Secondly Adjudicating authority has not considered Para 2 of the CBEC Circular No.128/10/2010-ST dated 24.08.2010 which is binding on the filed formations. Further the issue of free supply of goods/ sale of goods in a works contract and its inclusion in the assessable value, is required to be examined in the light of judicial pronouncement of Delhi High Court in the case of G.D. Builders vs. UOI [2013 (32) STR 673 (Del.)], read with Rule -2A of the Service Tax (Determination of Value) Rules, 2006. In the light of these observations and in the interest of justice, therefore, the matter is required to be remanded back to the Adjudicating authority to decide the cases afresh in de-novo proceedings by affording an opportunity of personal hearing to the appellant to explain their stand.
7. In view of the above observations, appeals filed by the appellants are allowed, to the extent indicated hereinabove, by way of remand to the Adjudicating authority.