No Service Tax Leviable on Goods component of Composite Works Contract as VAT has been paid: CESTAT
November, 29th 2021
The Chennai Bench of Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) held that no Service Tax is leviable on goods component of composite works contract as VAT has been paid.
The appellant, M/s Touchstone Infrastructure and Solutions Private Limited provides finishing services on a works contract basis to various parties. This work includes providing false ceilings, flooring, glazing, fixing up partitions, electrical work, etc. The appellant charges a single amount for the entire contract without invoicing separately for the goods and the services. It is undisputed that the appellant is liable to pay service tax on these services under the head of works contract service and the appellant is also liable to pay VAT on the goods component of these contracts. The appellant paid VAT on the goods component reckoning 70% of the total contract of the value of the goods as per the provisions of Tamil Nadu Value Added Tax Act and Rules and paid service tax on 30% of the total contract value. The case of the Revenue is that since the appellant could not ascertain the actual value of goods transferred, it should have paid service tax under the composition scheme.
The appellant paid VAT as per Section 5 of the Tamil Nadu VAT Act, read with Rule 8 (5) (d) of Tamil Nadu VAT Rules which prescribe that in case of works contracts 30% of the total amount charged would be treated as the service component and VAT shall be paid on the remaining 70%. The appellant discharged VAT accordingly and paid service tax on 30% of the total amount reckoning it as the service component. The case of the Revenue is that service tax on works contract is chargeable on the consideration received for the service portion of works contract if such consideration is available in the contract/invoice separately, otherwise service tax must be paid under the “Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007” upto 30.06.2012.
The coram headed by President Justice Dilip Gupta and Technical Member P.V.Subba Rao held that where the value has already been split as per the state law and VAT has been paid on the goods component of the composite works contract, no service tax can be levied on such component again taking recourse to Rule 2A(ii) of Service Tax (Determination of Value) Rules, 2006. The demand for the period post 01.07.2012 also needs to be set aside on this ground. Since the demand of service tax does not sustain, the demand of interest under Section 75 and imposition of penalty under Section 76, 77, and 78 do not also survive.