Assessee Is Liable To Pay Service Tax On Value Of Services Rendered- SC Observes On 'Works Contract Service'

A Supreme Court Bench of Justice MR Shah and Justice Krishna Murari has stressed that in the case of ‘works contract service’ an assessee is liable to pay the service tax on the service element/value of the service rendered and the sales tax/tax on the element of goods transferred pursuant to the contract.

ASG N Venkataraman appeared for the Revenue, and Senior Counsel V Raghuraman appeared for the respondent-assessee. 

In this case, based on specific intelligence that the respondent had wrongly classified the services rendered by them, availed inadmissible CENVAT Credit and short-paid the Service Tax in cash, the Department issued a Show Cause Notice. 

The issue posed for consideration before the Apex Court was whether an assessee who is liable to pay service tax under works contract service has the legal right not to follow Rule 2A of the Service Tax (Determination of Value) Rules, 2006 nor the Composition Scheme on the ground that in terms of Section 67 of the Finance Act, 1994 an assessee is entitled to take the total contract value which includes both goods and services and remit service tax on the entire value as works contract service and in the process also entitled to avail the CENVAT Credit.

At the outset, the Court noted that as such the services rendered by the respondent-assessee could be said to be "works contract service", as per the Finance Act, as per Section 64(54) read with Section 65(105)(zzzza). 

Subsequently, the Court analysed a catena of judgments to observe that "as per the law laid down by this Court in the case of ‘works contract service’ an assessee is liable to pay the service tax on the service element/value of the service rendered and the sales tax/tax on the element of goods transferred pursuant to the contract".

On perusal of the relevant provisions of the Service Tax (Determination of Value) Rules, 2006, it was held that "either the assessee has to go for Composition Scheme or go for Determination of Value as per Rule 2A and the assessee has to pay service tax on the service element and can claim CENVAT Credit on the said amount only". 

Reiterating that the service tax needs to be paid in terms of Rule 2A of the Rules, the Court allowed the appeal.

Cause Title: CC and CE and ST, NOIDA v. M/s Interarch Building Products Pvt. Ltd. 

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