H.K. Thakur, J.
1. This appeal has been filed by the appellant against OIO No. 61/Commr/2012 dated 18.10.2012 passed by Commissioner, Central Excise, Rajkot. This issue required to be decided in the present appeal is whether the appellant is eligible for Composition Scheme under the Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007 for a works contract entered with M/s. Essar Oil Limited when some advance payments were received by the appellant prior to 01.6.2007 i.e. before introduction of Works Contract Service.
2. Brief facts of the case are that appellant entered into an agreement dated 14.02.2007 with M/s. Essar Oil Limited for the expansion of an oil refinery set up by the latter. The execution of the contract began in July 2007 and even some advances were received by the appellant from M/s. Essar Oil Limited prior to 01.6.2007 but no service tax was paid prior to 01.6.2007. It is the case of the appellant that the condition of Rule 3(3) of the Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007, as explained by CBEC in their Circular dated 24.08.2010, was entirely fulfilled and service tax @ 2% (later enhanced to 4% with effect from 01.3.2008) was correctly paid under Works Contract Services.
3. Shri V.K. Jain (Advocate) appearing on behalf of the appellant argued that adjudicating authority has given contrary findings in Para 25 of the Adjudication order dated 18.10.2012/ 19.10.2012. That on one hand Adjudicating authority says that Appellant, prima facie, seems to be eligible for Composition Scheme and in the same breath says that the intention behind CBEC Circular dated 24.08.2010 does not appear that a defaulter should get the benefit of Composition Scheme. Learned advocate argued that findings of the Adjudicating authority are contrary to the well settled principles of law that fiscal statues have tot be read according to the plain language contained in the provisions and not by referring to the intention of the legislature. That neither Rule 3(3) of the Composition Scheme nor CBEC Circular dated 24.08.2010 contain a provision that word payment used therein should be read as payable. That the Rule of liberal interpretation of fiscal statutes is required to be applied in this case in view of the recent Larger Bench judgment in the case of Bhayana Bujilders Private Limited [2013-TIOL-1331-CESTAT-LB]. That Apex court in the case of Nagarjuna Construction Company Limited vs. GOI [2012 (28) STR 561 (SC)], while dealing with the same Circular and the provisions, has held that those who paid service tax on the services prior to 01.6.2007 and those who paid service tax under Rule 3 of the 2007 Rules belong to different classes and there is no discrimination on the basis of the legal provisions and impugned CBEC Circular.
3.1. It was also the case of the Learned Advocate that alternative attempt of the Adjudicating authority that, in the event of Composition Scheme held applicable to the appellant than also the value of both Construction Contract and the indigenous Supply Contract, is not correct in view of the judgment of this very bench in the case of Essar Projects (India) Limited vs. CCE and ST, Rajkot in Appeal No. ST/10138/2013 with respect to OIO No. 62/Commissioner/2012 dated 18.10.2012 passed by Adjudicating authority.
3.2. Learned advocate appearing on behalf of the appellant further argued that the demand is also unsustainable on the ground of Revenue neutrality as Essar Oil Limited was contractually obliged to reimburse any liability to tax and was in turn entitled to avail cenvat credit of such payments in full. During the relevant period, Essar Oil Limited had made duty payments through PLA to the tune of Crores. As such any excess payment of service tax by the appellant would have resulted in a simultaneous reduction in PLA payments on the part of Essar Oil Limited, thus resulting to a No gain No loss situation both for the Revenue as well as the assessee.
3.3. That the demand is also barred by limitation as the relevant facts of receipts of advances and payment of service tax thereon under the head works contract service was disclosed by the appellant in the ST-3 return filed on 02.5.2008 for the period April September 2007. That no intention to evade duty can be attributed where the entire situation is Revenue neutral.
4. Shri K. Sivakumar (AR) appearing on behalf of the Revenue and though written submission defended the order passed by the Adjudicating authority and argued that commencement of services started prior to 01.6.2007 and even service tax was also payable but the same was not paid/ shown in the returns filed by the appellant with the Revenue for the period prior to 01.6.2007. It was also his case that both, Construction Contract and Supply Contract has to be considered as one and values of both the contracts need to be clubbed as per the Income Tax Appellate Tribunal, Rajkot Bench in the case of Essar Oil Limited in the case of Essar Oil Limited vs. Income Tax Officer [(2001) 77 ITD 92 (Rajkot)].
5. Heard both sides and perused the case records. The main issue required to be decided in the present proceedings is whether appellant is entitled to Composition Scheme under the provisions of Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007(effective from 01.6.2007) when the contracts for rendering services was entered before 01.6.2007 and part of the services were also rendered before 01.6.2007. The Advance payment for the service to be provided was received before 01.6.2007 and duly reflected in the returns filed with the Revenue but no service tax was paid before 01.6.2007. Appellant has argued that as per Rule 3(3) of the above Composition Scheme Rules, 2007, read with CBEC Circular dated 24.08.2010, Composition Scheme was correctly availed by the appellant. Appellant also relied upon the Apex Courts judgment in the case of Nagarjuna Construction Company Limited vs. GOI (supra) where the appellant paid the service tax on services under Section 65 (105) (zzd), 65 (105) (zzq) and 65 (105) (zzzh) prior to 01.6.2007.
5.1. Relevant provisions of Rule 3(3) of the Works Contract Rules, 2007 are reproduced below:-
Option to avail Composition Scheme;
3(1).
(2).
(2A) ..
(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.
5.2. The provisions of the above Rule 3(3) have been further clarified by CBEC under Circular No. 128/10/2010-ST dated 24.8.2010. Para 3 and 4 of this Circular are reproduced below:-
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.
5.3. Honble Appex Court in the case of Nagarjuna Construction Company Limited vs. GOI (supra) while interpreting the applicability of Rule 3(3) of the Works Contracts Rules 2007, has made the following observation in Para 27 to 30:-
27. On perusal of Rule 3(3) of the 2007 Rules it is very clear that the assessee who wants to avail of the benefit under Rule 3 of the 2007 Rules must opt to pay service tax in respect of a works contract before payment of service tax in respect of the works contract and the option so exercised is to be applied to the entire works contract and the assessee is not permitted to change the option till the said works contract is completed.
28. In the instant case it is an admitted fact that the appellant-assessee had already paid service tax on the basis of classification of works contract which was in force prior to 1st July, 2007. In the circumstances, it cannot be said that the appellant had exercised a particular option with regard to the mode of payment of tax after 1st July, 2007 with regard to reclassified works contract. We are in agreement with the submissions made by the learned counsel appearing for the respondents that not availing of CENVAT credit is absolutely irrelevant in the instant case.
29. We do not? accept the submission of the learned counsel appearing for the appellant that the Impugned Circular is discriminatory in nature. Those who had paid tax as per the provisions and classification existing prior to 1st June, 2007 and those who opted for payment of tax under the provisions of Rule 3 of the 2007 Rules and paid tax before exercising the option belong to different classes and, therefore, it cannot be said that the Impugned Circular or the provisions of Rule 3(3) of the 2007 Rules are discriminatory.
30. The appellant? has not challenged the validity of Rule 3(3) of the 2007 Rules and, therefore, we do not go into the said issue. In our opinion, the Impugned Circular is not contrary to the Act or the statutory rules made thereunder and the Impugned Circular only provides guidelines as to how the provisions of Rule 3(3) of the 2007 Rules are to be interpreted. Even if the Impugned Circular is set aside, the provisions of Rule 3(3) of the 2007 Rules would remain and that would not benefit the appellant. In view of the above facts, we are of the view that the High Court did not commit any error while upholding the Impugned Circular and, therefore, we dismiss the appeal with no order as to costs.
6. In view of the above position of law and the legal interpretation made by the Apex Court, the crucial element for eligibility to Composition Scheme under the Works Contract Rules, 2007 is the event of payment of Service Tax and the exercising of option, whether the same has been done before 01.6.2007 or after 01.6.2007. The words used in Rule 3(3) of these Rules are regarding exercising of option to pay service tax under Composition Scheme before payment of service tax in respect of a Works Contract. There is no explanation in the said Rule to clarify that payment of service tax shall also mean the situation where service tax was payable but not paid by the assessee. In the absence of any such provision in the Composition Scheme introduced under Works Contract Rules, 2007, it will not be correct to hold that intention behind the scheme should be seen when no such intention is coming out of the legal provisions of Rule 3(3). Appellant has, therefore, correctly availed the Composition Scheme for the Works Contracts for which the option and payment of service tax was exercised after 01.6.2007 and no service tax was paid before 01.6.2007.
7. So far as adding the value of Supply Contract to the Service Contract is concerned, this Bench has already taken a view that such clubbing can not be done as per our order No. A/10908-10909/WZB/HAD/2013 dated 11.7.2013 in the case of Essar Projects (India) Limited vs. CCE and ST, Rajkot in appeal No. ST/10138 of 2013.
8.1. Ld.A.R. has relied upon a CBEC Circular No.98/1/2008-ST, dt.04.01.2008 for contending the said Circular bars an assessee from claiming the benefit of Composition Rules 2007 for the works contract services provided after 01.06.2007, if tax at the full standard rate (and not the composition rate) had become payable on a part of the contract value prior to 01.06.2007. The contention of the Revenue, with reference to this Board Circular dated 04.01.2008 is that a single contract cannot be vivisected and classified into two, for the purposes of Composition Rules 2007 and as in the present case an advance had been received prior to 01.06.2007 and liability to pay Service Tax thereon had arisen at the full standard rate on this part of the contract value, albeit under a different classification, i.e. Commercial and Industrial Construction Services consequently, the remainder of the contract value could not be granted the benefit of Composition Scheme in view of the bar contained in Rule 3(3) of the Composition Rules 2007. The contention, in our view, is based on mis-reading of the circular dated 04.01.2008.
8.2. The CBEC Circular dt.04.01.2008 only prohibits vivisection of a single composite service into two taxable categories merely by virtue of the fact that a part of the consideration was received after 01.06.2007. Significantly, this circular does not prohibit vivisection of a composite contract under two classifications. In fact, two other circulars of the Board viz.F.No.B1/16/2007-TRU dt.22.05.2007 and Circular No.128/10/2010-ST, dt.24.08.2010 which seek to clarify the earlier circular dt.04.01.2008, as well as the order of the Commissioner in the present case concede that services rendered under a long term contract signed prior to 01.06.2007 could be classified under two different classifications: (i) to the extent of services provided for the period prior to 01.06.2007 under the head Commercial and Industrial Construction Services (CICS), and (ii) the remainder under the head of WorksContract Service (i.e. for services for the period after 01.06.2007). The Circular dt.04.01.2008 in our view only prohibits vivisection of a single composite service (and not of a contract), under two different classifications. In our view, this distinction between a single service contract and other contracts can be best illustrated by an example of a construction contract entered into prior to 01.06.2007 which envisages performing five different tasks/services, of which one task/service is completed prior to 01.06.2007, and the remaining four tasks are performed after 01.06.2007. Undisputedly, the one task/service which is completed prior to 01.06.2007, will be classified under the category of Commercial and Industrial Construction Services (CISC), the remaining four tasks/services may be classified under Works Contract Service the same having been provided after 01.06.2007. In respect of the task/service completed prior to 01.06.2007, if part of the consideration was received before 01.06.2007 and part thereafter, whether for that part of the consideration received after 01.06.2007, the composition scheme could be claimed was the only question considered by the CBEC in Circular dt.04.01.2008. It is in this context that CBEC Circular clarified that a single composite service covered by the first task/service could not be vivisected, so that a part of its value is classified as Works Contract Service merely by reason of the consideration being received after 01.06.2007. In this illustration, the Works Contract Service is a reference to the services covered by the remainder four tasks/services performed after 01.06.2007. The task/service which was already performed prior to 01.06.2007 is not regarded, for the purposes of the Finance Act, 1994, as WorksContract Service and therefore in respect of the service covered by such a task, there can never be an option available to an assessee to pay tax at the Composition rate and consequently the question of such an assessee exercising such an option cannot arise. Since the Composition Rules 2007 came into effect from 01.06.2007 and provided for a specific definition of Works Contract Serviceas being provided in relation to the execution of a Works contract referred to in Section 65(105)(zzzza), the option contemplated in Rule 3(1) can only be an option in respect of such Works Contract Service i.e. services provided after 01.06.2007, which in the illustration given above, is a reference to the balance four tasks/services performed after 01.06.2007. The expression Works Contract Services and Works Contract appearing in Rule 3 of the Composition Rules 2007 should be understood analogously to refer to such contracted services which are after 01.06.2007. Thus, as long as the assessee is clear in choosing the Composition option in respect of services provided after 01.06.2007 and does not vacillate on his choice, he is entitled to avail of the Composition rate under Rule 3(1) for the value of WorksContract Service which, as discussed above, refers to services provided after 01.06.2007. The classification of services rendered prior to 01.06.2007 cannot affect the assessees entitlement to the Composition Scheme in respect of services rendered after 01.06.2007. Our this view is fortified by the judgment of Hon'ble High Court of Andhra Pradesh in the case of Nagarjuna Construction Company Ltd Vs GoI 2010 (19) STR 321 (A.P.) (supra) 2010 (19) S.T.R. 321 (A.P.). We may gainfully reproduce the relevant paragraphs:-
24. On the analysis above and in our considered view the impugned circular (to the extent it is challenged i.e., in relation to reference code 097.03 dated 4-1-2008) is wholly in conformity with the provisions of Rules 3(3) of the 2007 Rules. The fact that the nature of the works executed by the petitioner which hitherto fell within the ambit of the taxable services enumerated in Clauses (zzd), (zzq) and (zzzh), now fall within services classified as a works contract in Clause (zzzza), does not in our considered view have any bearing on the entitlement of the petitioner to the benefits of the composition scheme under the 2007 Rules and in the facts and circumstances of this case. The benefit of the composition scheme under the 2007 Rules is available [subject to the exercise of option and the conditions of eligibility for exercise of such option as spelt out in Rule 3(3)] only in relation to works contract service, as defined in Rule 2(c) as meaning service provided in relation to execution of the works contract referred to in sub-clause (zzzza) of Clause 105 of Section 65 of the Act.
25. The impugned circular merely reiterates the eligibility criterion specified in Rule 3(3), as the condition precedent for entitlement to exercise an option for coming within the composition; scheme, while impliedly recognizing that certain taxable services earlier falling within Clauses (zzd), (zzq) and (zzzh) of Sec. 65 (105) may now fall within the recently introduced Clause (zzzza); of Sec. 65(105) (amendment w.e.f. 1-6-2007), in the light of the criteria for classification of taxable services spelt out in Section 65A of the Act.
(emphasis ours)
8.3. In the present case, it is not in dispute that in respect of the services provided after 01.06.2007, which alone are regarded as WorksContract Service, the appellant had opted to pay tax at the Composition rate and not at the standard rate and was thus eligible for the composition benefit in respect of services provided after 01.06.2007. However, in respect of advance received prior to 01.06.2007 which tantamounts to provisions of service prior to 01.06.2007, the benefit of composition rate could not have been claimed, on the said advance and in view of our findings recorded herein above, Service Tax on the same was payable under the head of Commercial or Industrial Construction Services, as has been held by the respondent. As such, the appellants contention that they were entitled to pay tax at the composition rate on advances received prior to 01.06.2007 cannot be accepted. The alternative question whether the appellant would have been eligible for abatement computing the tax liability only advance payments is not being analyzed by us as we find that the entire demand on this count is hopelessly barred by limitation as the factum of the advance having been received prior to 01.06.2007 and in respect of the same tax having been discharged under the composition scheme was specifically stated in the Service Tax return. It is settled law that when there is no deliberate suppression of facts, the extended period of limitation cannot be invoked. The appellant had, in fact, clearly stated in the ST-3 return that Service Tax was not discharged in view of the fact that the service in the contract was an indivisible Works Contract. At the relevant time, the judgment of the Tribunal in the case of Dailiem as reported at 2003 (155) ELT 457 was holding this view and holding the field, which had been upheld by the Apex Court. Even today, the issue is pending before 5 Member of the Tribunal in the case of Larsen and Toubro Ltd [2013 (32) STR 410]. In these facts and circumstances, the extended period cannot be invoked in the case in hand.
9. In view of the above observations appeal filed by the appellant is allowed and Cross objection filed by the Revenue is accordingly rejected.