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CESTAT : 'Rule 2A' & 'composition' optional methodologies; Allows 'Section 67' valuation with input credit for works-contracts

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  • CESTAT sets aside recovery of Rs. 220 Cr (approx.) towards demand of CENVAT credit and service tax against assessee engaged in supply and erection of pre-fabricated / pre-engineered steel buildings and parts thereof; Rejects Revenue’s stand that such activity being a ‘works contract service’ u/s 65(105)(zzzza) of Finance Act from June 2007 onwards, assessee ought to have discharged tax by either opting valuation method under Rule 2A of Service Tax (Determination of Value) Rules or composition scheme with bar / restriction on admissibility of CENVAT credit on inputs;
  • Observes that composition scheme is optional and provisions of Rule 2A being subject to Section 67 of Finance Act, question of applicability thereof does not arise absent violation of provisions of Section 67 by assessee; Holding that assessee is entitled to CENVAT credit on inputs in both circumstances, CESTAT rejects Adjudicating Authority’s reliance on Apex Court decision in L&T Ltd that had ruled on sole issue of leviability of service tax on composite contracts prior to June 2007;
  • Applies coordinate bench’s ratio in S V Jiwani case which had held that for works contract services as well the assessment could be done u/s 67, and resultantly observes, “…the benefit of Cenvat credit on inputs cannot be denied to the appellants in the absence of any specific bar or prohibition in the Cenvat Credit Rules, 2004 or the Finance Act, 1994 or the rules made there under...” : Allahabad CESTAT
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