Revenue wins another FIAT in SC
WORKS Contract in service tax has always been a jinxed service. Initially when service tax was imposed on Commercial or Industrial Construction, Residential Construction or Erection Commissioning or Installation service, an abatement of 67% was provided to identify the service portion. Many assessees were paying service tax after availing the abatement of 67%. But with effect from 01.06.2007, for reasons unexplained till today, Works Contract was introduced as new separately defined service, with Rules notified for composition. Initially, the composite rate was 2% on the gross amount charged. With general rate of Service Tax at 12%, paying 2% worked cheaper for the assessees instead of paying at 3.96%, that too with the condition of non-availment of CENVAT Credit. So many assessees started paying 2% on the ongoing works contracts.
CBEC vide Circular 98/1/2008-ST, dated 4.1.2008 had clarified that such migration to composition scheme is not permissible for ongoing works contracts.
The Circular was challenged before the High Court of Andhra Pradesh, but without any success. Supreme Court has dismissed the appeal filed by the assessee by holding that the Circular is valid and it cannot be termed as discriminatory.