Works Contract Composition - Elementary Dear Watson?
AN assessee is a manufacturer of MS Pipes in their factory. They are availing the benefit of CENVAT credit of duty paid on MS Plates and other inputs procured by them for use in the manufacture of MS Pipes.
The assessee was also providing services of laying down of pipelines for irrigation, lift irrigation schemes, drinking water supply schemes for various State, Central and Government undertakings as also were executing similar works contracts awarded to them by various commercial undertakings. The assessee opted for payment of Service Tax under Composition Scheme.
Rule 3 of the Works contract (Composition Scheme for payment of Service Tax) Rules 2007 requires an assessee to pay service tax as per the composition scheme subject to the condition that the Service provider shall not avail CENVAT Credit on inputs used for execution of the contract. It is the case of revenue that as the assessee had availed CENVAT Credit on inputs, i.e., Steel Plates used for manufacture of pipes which were used for execution of the Works Contracts, they are not eligible for composition benefit.
The CESTAT observed,
If the service provider was at liberty to procure the pipes from another manufacturer who could have availed the credit on the inputs used for the manufacture of pipes, the appellants as a service provider would have been entitled to the composition scheme inasmuch as admittedly they have not availed credit of duty paid on the MS pipes. Merely because the appellant is performing two separate roles, as a manufacturer and also as a service provider under two different registrations, the denial of the credit to the appellant is neither justified nor warranted. As a manufacturer of the goods, the appellant is entitled to avail the credit.
Strange that bright people who cleared toughest UPSC exam could not understand this elementary principle. - Seems to be a fit case of "ignoring non-application of mind"
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