Service Tax – Works Contract – Benefit of composition scheme not available for ongoing projects on which ST was paid prior to 01.06.2007 under respective services– AP High Court
IN Circular No. dated 04.01.2008, Board clarified,
a service provider who paid service tax prior to 01.06.07 for the taxable service, namely, erection, commissioning or installation service, commercial or industrial construction service or construction of complex service, as the case may be, is not entitled to change the classification of the single composite service for the purpose of payment of service tax on or after 01.06.07 and hence, is not entitled to avail the Composition
This was challenged in the AP High Court. The High Court in a recent judgement upheld the Circular observing,
“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.”
The High Court further held,
On a true and fair construction of Rule 3(3) of the 2007 Rules, it is clear that where in respect of a works contract service tax has been paid, no option to pay service tax under the composition scheme could be exercised. There is no ambiguity in this provision. The entitlement to avail the benefits of the composition scheme is only after an option is exercised under Rule 3(3) of the 2007 Rules and this provision specifically enjoins a disqualification for exercise of such option where service tax had been paid in respect of a works contract. To put it succinctly, where service tax has been paid in respect of a works contract, the eligibility to exercise an option to avail the benefits of the composition scheme under the 2007 Rules is excluded.
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