/2023 INSC 0380/
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REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
                                                                         
CIVIL APPEAL NO.11330 of 2018
CC and CE and ST, NOIDA   ...Appellant(s)
Versus
M/s Interarch Building Products 
Pvt. Ltd.                                      ...Respondent(s)
J U D G M E N T
M. R. Shah, J.
1. Feeling   aggrieved   and   dissatisfied   with   the
impugned   judgment   and   order   dated
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09.11.2017 passed by the Customs, Excise and
Service Tax Appellate Tribunal, Regional Bench
at   Allahabad   (hereinafter   referred   to   as   ‘the
Appellate   Tribunal’)   by   which   the   learned
Tribunal  has allowed  the  said appeal preferred
by the respondent and has set aside the Order­
in­Original   dated   31.03.2017   disallowing   the
CENVAT Credit, the Revenue has preferred the
present appeal.
2. The   facts   leading   to   the   present   appeal   in
nutshell are as under:
2.1 The  respondent  –  assessee  was  engaged  in  the
business   of   manufacture,   supply   and   erection
at the site of prefabricated/pre­engineered steel
buildings   and   parts   thereof   classifiable   under
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the   relevant   Headings/sub­headings   of   the
First Schedule to  the Central Excise Tariff Act,
1985.     The   respondent   was   having   centralized
registration for Service Tax with the Service Tax
Department   for   services   under   "Commercial   or
Industrial   Construction   Service"   and
"Construction   Services"   right   from   the
commencement   of   production.     The   goods
manufactured   were   cleared   from   the   place   of
manufacture on payment of central excise duty
on   which   CENVAT   Credit   was   made   by   the
respondent.     The   unit   at   Greater   Noida
registered   as   a   Centralized   Service   Provider,
availed CENVAT Credit
(i) Excise duty  paid by  the  units  at the time of
removal
(ii) duty paid on capital goods 
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(iii) service tax paid on input services. 
They   paid   service   tax   on   the   gross   amount   of
contract for engineering, procurements supply,
construction,   erection   etc.   under   the   category
"commercial   or   industrial   constructions
services" as referred under Section 65(105)(zzq)
of the Finance Act, 1994 (hereinafter referred to
as ‘the Act, 1994’). 
2.2 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.     Department   was   of   the   view   that   the
services rendered by the respondent amounted
to   Works   Contract   which   were   chargeable   to
tax under sub clause [zzzza] of Section 65(105]
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of the Finance Act, 1994.   Therefore, according
to   the   Revenue   on   classifiable   service   under
‘works contract service’ the respondents availed
CENVAT Credit on Central Excise duty paid on
inputs.
2.3 Therefore,   the   Department   issued   a   Show
Cause   Notice   alleging   inter   alia   that   the
respondent   had   utilized   CENVAT   Credit   of
Rs.1,12,60,92,760/­   on   building   material
during   June,   2007   to   March,   2012   which   was
inadmissible.     It   was   alleged   that   the   said
amount had been recovered as service tax from
the   customer   under   Section   73(1)   of   the   Act,
1994.  It appeared to the Revenue that services
should   have   been   classified   under   “Works
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Contract   Service”.     It   was   mandatory   for   the
respondent   to   either   follow   Rule   2A   of   Service
Tax   (Determination   of   Value)   Rules,   2006   or
adopt   Composition   Scheme.   The   said  Rule  2A
and   Composition   Scheme   do   not   allow   the
availment   of   CENVAT   Credit   on   input.
Therefore,   it   appeared   to   the   Revenue   that   the
CENVAT   Credit   of   Rs.112,60,92,760/­   as
availed   on   input   was   inadmissible   and
therefore,   the   said   debit   has   resulted   in   short
payment of Service Tax.
2.4 The   Show   Cause   Notice   was   related   to   the
period   from   June,   2007   to   March,   2012.     The
respondent   was   called   upon   to   show   cause   as
to   why   the  services being  provided  by  them  be
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reclassified   under   "Works   Contract   Service"   in
place   of   "Commercial   or   Industrial
Construction   Services",   inadmissible   CENVAT
Credit   of   building   material   amounting   to
Rs.112,60,92,760/­   be   disallowed   in   terms   of
Rules  2  &   3(1)   of  CENVAT   Credit  Rules,  2004;
an amount of Rs.22,37,01,811/­ on account of
short   paid   Service   Tax   towards   the   liability
debited from the inadmissible Cenvat Credit on
construction   materials   be   recovered   under
Section   73(1)   of   the   Act,   1994;   an   amount   of
Rs.90,23,90,907/­   alleged   to   have   been
collected   as   cash   in   excess   of   the   Service   Tax
assessed/determined   by   passing   the
inadmissible CENVAT Credit to their recipients
of   taxable   service   be   demanded   under   Section
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73A of the Act, 1994 along with the appropriate
rate   of   interest   under   Sections   73B   and   75   of
the   Act   and   the   penalties   be   imposed   under
Sections   77   &   75   of   the   Act,   1994   read   with
Rule   15(3)   of  CENVAT   Credit   Rules,  2004.     By
Order   dated   28.03.2004   the   Adjudicating
Authority   who   disallowed   the   CENVAT   Credit
amounting   to   Rs.1,12,60,92,760/­   confirmed
the   amounts   of   Rs.22,37,01,811/­   being   short
paid,   confirmed   the   claim   in   the   show   cause
notice.
2.5 The   department   had   issued   further   Show
Cause   Notices/statement   of   demands   for   the
subsequent period also.
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2.6 By   order   dated   18.11.2015,   the   learned
Tribunal   set   aside   the   adjudication   order   and
remanded   the   matter   back   to   the   adjudicating
authority   with   the   direction   that   the   tax
liability   be   re­determined   after   hearing   the
respondent .
 On remand the adjudicating authority passed a 
fresh order dated 31.03.2017 and confirmed the 
demands.  The Commissioner held that the services 
rendered by the respondent was classifiable as 
‘Works Contract Service’ and rejected the availability
of CENVAT Credit amount and directed recovery 
under Section 73A of the Act, 1994.  The Order­in­
Original passed by the adjudicating authority was 
the subject matter of the present appeal before the 
Tribunal.
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2.7 Before   the   Tribunal   the   Order­in­Original
passed   by   the   Adjudicating   Authority   was
challenged on the following grounds:
(i) “The   Id.   Commissioner   disallowed   Cenvat
credit availed on inputs in terms of Rule 2
& 3(1) of Cenvat Credit Rules, 2004 to the
extent   of   Rs.1,12,60,92,760/­   in   case   of
show   cause   notice   dated   23.10.2012   and
the   amounts   in   case   other   3   notices   as
specified above and that such order is not
sustainable in law. 
(ii) The   provision   of   Rule   2A   of   Service   Tax
(Determination   of   Value)   Rules,   2006,
start   with   expression   "subject   to   the
provisions of Section 67" which means the
provision   prescribed   under   said   Rule   2A,
is subject to the provisions of Section 67 of
the Finance Act, 1994. 
(iii) Opening   Para   of   Rule   3   of   Composition
Scheme   reads   as­   "Notwithstanding
anything   contained   in   Section   67   of   the
Act   and   Rule   2A   of   the   Service   Tax
(Determination   of   Value)   Rules,   2006,   the
person liable to pay Service Tax in relation
to   Works   Contract   Service   shall   have   the
option to discharge his Service Tax liability
on   the   Works   Contract   Service."   It   clearly
indicates that it is one of the options given
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to the Service Provider to discharge Service
Tax   liability   in   respect   of   Works   Contract
Service   and   it   is   not   mandatory   to   adopt
the   said   Rule   under   Composition   Scheme
for discharge of Service Tax liability. 
(iv) Section   67   of   the   Finance   Act,   1994
provides   for   arriving   at   assessable   value
which   states   "subject   to   the   provisions   of
this   Chapter,   where   Service   Tax   is
chargeable   on   any   taxable   service   with
reference   to   its   value,   then   such   value
shall   in   a   case   where   the   provision   of
service is for a consideration in money, be
the   gross   amount   charged   by   the   service
provider for such service provided or to be
provide   by   him."   Therefore,   the   said
provision   which   is   fundamental   in   nature
and is applicable to any taxable service. 
(v) The   demand   towards   Cenvat   credit
confirmed   in   case   of   show   cause   notice
dated   23.10.2012   is   substantially   time
barred. 
(vi) In   the   impugned   order,   Id.   Commissioner
has   distinguished   the   judgment   of   this
Tribunal in the case of S.V. Jiwani (supra)
and   the   grounds   on   which   Id,
Commissioner distinguished the judgment
are invalid.”
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2.8 By   the   impugned   judgment   and   order   the
learned   Tribunal   has   allowed   the   appeal
preferred   by   the   respondent   and   has   set   aside
the   Order­in­Original   passed   by   the
adjudicating   authority   by   observing   that   the
composition   scheme   is   optional   and   the
provisions   of   Rule   2A   of   the   said   Rules   are
subject   to   provisions   of   Section   67   of   the   Act,
1994.   The learned Tribunal has also observed
that   it   is   clear   from   the   provisions   of   sub­
section   4   of   Section   67   of   the   Act,   that   where
value  cannot be determined  as provided under
sub­rule (1) to (3) of Section 67 of the Act, then
only   the   value  is  to   be  determined  as   provided
under   the   Rules.     Therefore,   the   Tribunal   held
that   there   is   no   question   on   applicability   of
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Rule 2A nor  there was any  question  of forcibly
applying   the   option   of   Composition   Scheme.
The   learned   Tribunal   held   that   in   both   these
circumstances,   the   respondent   was   entitled   to
CENVAT Credit on inputs.
2.9 Feeling   aggrieved   and   dissatisfied   with   the
impugned   judgment   and   order   passed   by   the
learned   Tribunal   setting   aside   the   Order­in­
Original, the Revenue has preferred the present
appeal.
3. Shri   N.   Venkataraman,   learned   ASG   has
appeared on behalf of the Revenue and Shri V.
Raghuraman,   learned   Senior   Counsel   has
appeared   on   behalf   of   the   respondent   –
assessee.
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4. Shri N. Venkataraman, learned ASG appearing
on   behalf   of   the   Revenue   has   made   the
following   submissions   challenging   the
correctness  and   legality   of  the  impugned  order
passed by the CESTAT:
(i) That the period under dispute is January,
2007   to   March,   2014.     He   has   submitted
that   the   definition   of   ‘works   contract
service’ was brought into the Finance Act,
1994 w.e.f. 01.06.2007.  Therefore, he has
fairly conceded the demand for the period
January, 2007 to 31.05.2007 shall not be
maintainable   in   light   of   the   decision   of
this   Court   in   the   case   of   Commissioner
of   Central   Excise   vs.   Larsen   and
Toubro,   (2016)   1   SCC   170   as   well   as
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Total   Environment   Building   Systems
Pvt.   Ltd.   vs.   Deputy   Commissioner   of
Commercial   Taxes,   (2022)   SCC   Online
SC 953.  
4.1 It   is   submitted   that   therefore   the   demand   for
the   period   January,   2007   to   May,   2007   is   not
sustainable   and   therefore   to   that   extent   the
demand should go.
4.2   It   is   submitted   that   however,   for   the   period
commencing   01.06.2007   to   31.03.2014   the
demands   are   sustainable   and   the   Orders­in­
Original need to be restored.
4.3 Shri N. Venkataraman, learned ASG has taken
us   to   the   relevant   provisions   of   the   Act,   1994
more   particularly   Chapter   5   and   the   definition
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of ‘works contract’ and the definition of ‘taxable
service’ contained in Section 64(54) and Section
65(105)(zzzza) respectively.  It is submitted that
post   01.07.2012,   the   Finance   Act,   1994
underwent major amendments by the insertion
of both negative list and declared services.  It is
submitted that Section 66E was introduced for
the   first   time   which   defined   declared   services.
He   has   taken   us   to   sub­clause   (h)   of   Section
66E of the Act. 
4.4 It   is   submitted   that   the   Service   Tax
(Determination of Value) Rules, 2006 came into
force   w.e.f.   19.04.2006   vide   Notification
No.12/2006   –   Service   Tax.     Rule   2A   has   been
inserted   vide   notification   29/2007   dated
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22.05.2007   w.e.f.   01.06.2007   which   reads   as
under, which has been amended periodically:
“Prior to 01.07.2012 it reads as under:
2A.   Determination   of   value   of
services involved in the execution of
a works contract:  
(1) Subject to the provisions of section 67,
the   value   of   taxable   service   in   relation   to
services   involved   in   the   execution   of   a
works   contract   (hereinafter   referred   to   as
works contract service), referred to in sub­
clause (zzzza) of clause (105) of section 65
of   the   Act,   shall   be   determined   by   the
service provider in the following manner:­ 
(i)   Value   of   works   contract   service
determined shall be equivalent to the gross
amount   charged   for   the   works   contract
less   the   value   of   transfer   of   property   in
goods involved in the execution of the said
works contract. 
Explanation.­   For   the   purposes   of   this
rule,­ 
(a)   gross   amount   charged   for   the   works
contract   shall   not   include   Value   Added
Tax (VAT) or sales tax, as the case may be,
paid,   if   any,   on   transfer   of   property   in
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goods involved in the execution of the said
works contract; 
(b)   value   of   works   contract   service   shall
include,­ 
(i)   labour   charges   for   execution   of   the
works; 
(ii)   amount   paid   to   a   sub­contractor   for
labour and services; 
(iii)   charges   for   planning,   designing   and
architect’s fees; 
(iv)   charges   for   obtaining   on   hire   or
otherwise,   machinery   and   tools   used   for
the execution of the works contract; 
(v)   cost   of   consumables   such   as   water,
electricity,   fuel,   used   in   the   execution   of
the works contract; 
(vi) cost of establishment of the contractor
relatable to supply of labour and services; 
(vii)   other   similar   expenses   relatable   to
supply of labour and services; and 
(viii)   profit   earned   by   the   service   provider
relatable to supply of labour and services; 
(ix) Where Value Added Tax or sales tax, as
the   case   may   be,   has   been   paid   on   the
actual   value   of   transfer   of   property   in
goods   involved   in   the   execution   of   the
works   contract,   then   such   value   adopted
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for   the   purposes   of   payment   of   Value
Added   Tax   or   sales   tax,   as   the   case   may
be,  shall  be taken  as  the  value  of  transfer
of   property   in   goods   involved   in   the
execution   of   the   said   works   contract   for
determining   the   value   of   works   contract
service under clause (i).”
4.5 It is submitted that vide notification 32/2007 –
ST   dated   22.04.2007   the   Central   Government
in   exercise   of   its   powers   conferred   by   Sections
93   and   94   of   the   Act,   1994   introduced   the
Works   Contract   (Composition   Scheme   for
Payment of Service Tax) Rules, 2007.  Rule 3(1)
of the said Rules reads as under:
“3.   (1)   Notwithstanding   anything
contained   in   section   67   of   the   Act   and
rule   2A   of   the   Service   (Determination   of
Value)   Rules,   2006,   the   person   liable   to
pay   service   tax   in   relation   to   works
contract service shall  have the option to
discharge   his   service   tax   liability   on   the
works contract service provided or  to be
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provided, instead of paying service tax at
the   rate   specified   in   section   66   of   the
Act,   by   paying   an   amount   equivalent   to
two   per   cent   of   the   gross   amount
charged for the works contract.
Explanation.   ­   For   the   purposes   of   this
rule,   gross   amount   charged   for   the
works   contract   shall   not   include   Value
Added Tax (VAT) or sales tax, as the case
may   be,   paid   on   transfer   of   property   in
goods   involved   in   the   execution   of   the
said works contract.”
4.6 It   is   submitted   that   the   sub­rules   came   to   be
amended   vide   Notification   No.23/2009   –   ST
dated   07.07.2009   and   further   amended   by
Notification 1/2011 – ST dated 01.03.2011.
4.7 It is submitted that Section 67 of the Act, 1994
deals   with   valuation   of   taxable   services   reads
as under:
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“67.     Valuation   of   taxable   services   for
charging   Service   Tax   ­ 1)   Subject   to   the
provisions   of   this   Chapter,   service   tax
chargeable   on   any   taxable   service   with
reference to its value shall, ­
(i) in a case where the provision of service is
for   a   consideration   in   money,   be   the
gross   amount   charged   by   the   service
provider   for   such   service   provided   or   to
be provided by him;
(ii) in a case where the provision of service is
for   a   consideration   not   wholly   or   partly
consisting   of   money,   be   such   amount   in
money,   with   the   addition   of   service   tax
charged,   is   equivalent   to   the
consideration;
(iii) in   a   case   where   the   provision   of
service is for a consideration which is not
ascertainable,   be   the   amount   as   may   be
determined in the prescribed manner.
(2) Where the gross amount charged by a
service   provider,   for   the   service   provided
or   to   be   provided   is   inclusive   of   service
tax   payable,   the   value   of   such   taxable
service shall be such amount as, with the
addition   of   tax   payable,   is   equal   to   the
gross amount charged.
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(3)   The   gross   amount   charged   for   the
taxable service shall include any amount
received   towards   the   taxable   service
before,   during   or   after   provision   of   such
service.
(4)   Subject   to   the   provisions   of   sub­
sections (1), (2) and (3), the value shall be
determined   in   such   manner   as   may   be
prescribed.
Explanation ­For   the   purposes   of   this
section,   ­
(a) "consideration" includes 
(i) any   amount   that   is   payable   for   the
taxable   services   provided   or   to   be
provided;
(ii) any   reimbursable   expenditure   or
cost incurred by the service provider and
charged,   in   the   course   of   providing   or
agreeing   to   provide   a   taxable   service,
except   in   such   circumstances,   and
subject   to   such   conditions,   as   may   be
prescribed.
(iii)      Any amount retained by the lottery
distributor   or   selling   agent   from   gross
sale amount of lottery  tickets in addition
to   the   fee   or   commission,   if   any,   or,   as
the   case   may   be,   the   discount   received,
that   is   to   say,   the   difference   in   the   face
value   of   lottery   ticket   and   the   price   at
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which the distributor or selling agent gets
such ticket.  
  (c) "gross amount charged" includes payment
by   cheque,   credit   card,   deduction   from
account   and   any   form   of   payment   by
issue   of   credit   notes   or   debit   notes
and   2
[book   adjustment,   and   any   amount
credited   or   debited,   as   the   case   may   be,
to any account, whether called "Suspense
account"   or   by   any   other   name,   in   the
books of account of a person liable to pay
service   tax,   where   the   transaction   of
taxable   service   is   with   any   associated
enterprise.]]”
4.8 It is submitted that the Central Board of Excise
and   Customs   vide   letter   dated   22.05.2007   issued
clarifications   regarding   various   amendments
brought out Vide Finance Act, 2007.  It is submitted
that   paras   9.1   to   9.7   which   are   relevant   read   as
under:
“9.1     Works   contract   is   a   composite
contract   for   supply   of   goods   and
services.     A   composite   works   contract
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is   vivisected   and,   ­(i)   VAT/sales   tax   is
leviable   on   transfer   of   property   in
goods   involved   in   the   execution   of
works contract [Art.366 (29A)(b) of the
Constitution of India], and 
(ii) Service   tax   will   be   leviable   on   services
provided in relation to the execution of
works contract.
9.2 Service   tax   is   chargeable   on   the
gross   amount   charged   by   the   service
provider   for   the   taxable   services
provided   (Section   67).   In   the   case   of
works   contract,   the   taxable   value   of
services   is   to   be   determined   by
vivisecting   the   composite   works
contract.     Rule   2A   of   Service   Tax
(Determination   of   Value)   Rules,   2006
[Notification   No.29/2007­Service   tax,
dated 22.05.2007], provides that value
of   works   contract   service   shall   be
equivalent   to   the   gross   amount
charged   for   the   works   contract   less
the   value   of   transfer   of   property   in
goods   involved  in   the  execution   of   the
said   works   contract.     Thus,   wherever
the   service   provider   maintains
records,   the   value   of   services   shall   be
the   gross   amount   charged   for   the
works   contract   less   the   value   of
transfer   of   property   in   goods   involved
in the execution of works contract.
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25
9.3     Wherever   VAT/sales   tax   on
transfer   of   property   in   goods   involved
in   the   execution   of   works   contract   is
paid   on   actual   value,   the   same   value
is   also   taken   for   the   purpose   of
determining   the   value   of   works
contract service.  In other cases, value
of   works   contract   service   shall   be
determined   based   on   the   actual.       It
has   also   been   explained   that   value   of
works   contract   service   shall   include:
(i)   labour   charges   for   execution   of   the
works;   (ii)   amount   paid   to   a   sub­
contractor for labour and services; (iii)
charges   for   planning,   designing   and
architect’s   fees;   (iv)   charges   for
obtaining   on   hir   or   otherwise,
machinery   and   tools   uses   for   the
execution   of   the   works   contract;   (v)
cost   of   consumables   such   as   water,
electricity,   fuel,   used   in   the   execution
of   the   works   contract,   the   property   in
which is not transferred in the course
of   execution   of   works   contract;   (vi)
cost   of   establishment   of   the   contract
relatable   to   supply   of   labour   and
services;   (vii)     other   similar   expenses
relatable   to   supply   of   labour   and
services; and (viii)  profit earned by the
service   provider   relatable   to   supply   of
labour and service;
9.4   If   the   gross   amount   charged   for
the works contract is inclusive  of VAT
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26
or   sales   tax,   the   value   for   the
purposes   of   service   tax   shall   be
computed   as   follows:   [Gross   amount
charged – (value of transfer of property
in   goods   involved   in   the   execution   of
works   contract   and   VAT   or   sales   tax
paid,   if   any,   on   the   said   transfer   of
property   in   goods   involved   in   the
execution of said works contract)].
9.5     As   a   trade   facilitation   measure
and   also   for   ease   of   administrative
convenience,   the   service   provider   has
been   given   an   option   to   adopt   the
composition   scheme   for   payment   of
service   tax   on   works   contract   service.
The   Works   Contract   (Composition
Scheme   for   Payment   of   Service   Tax)
Rules,   2007   has   accordingly   been
notified   vide   Notification   No.32/2007­
Service Tax, dated 22.05.2007.
9.6 The   scheme   provides   that   the
service   provider   shall   have   an   option
to  pay  an  amount equivalent to  2% of
the   gross   amount   charged   for   the
works   contract   instead   of   paying
service   tax   at   the   rate   specified   in
section 66.  Gross amount charged for
the   works   contract   shall   not   include
VAT   or   sales   tax   paid   on   transfer   of
property   in   goods   involved   in   the
execution   of   the   said   works   contract.
The   provider   of   taxable   service   opting
to   pay   service   tax   under   the   said
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27
composition   scheme   is   not   entitled   to
take CENVAT Credit of duty on inputs,
used in or in relation to the said works
contract,   under   the   provisions   of
CENVAT Credit Rules, 2004.
9.7     The   provider   of   taxable   service
who   opts   to   pay   service   tax   under
these   rules   shall   exercise   such   option
in respect of a works contract prior to
payment   of   service   tax   in   respect   of
the said works contract and the option
so exercised shall be applicable for the
entire   works   contract   and   cannot   be
withdrawn   until   the   completion   of  the
said works contract.”
4.9 Relying   upon   the   above   provisions,   rules   and
regulations   and   the   circulars,   it   is   submitted
that works contract is contract involving supply
of   goods   and   services   together.     A   composite
works   contract   gets   vivisected   into   transfer   of
property   into   goods   liable   to   sales   tax/VAT   in
terms of Article 366 (29A)(b) of the Constitution
of India and the service portion liable to service
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28
tax   w.e.f.   01.06.2007.     Reliance   is   placed   on
the decision of this Court in the case of  Larsen
and Toubro (supra) (paragraphs 14 to 16).
4.10 It   is   submitted   that   the   ratio   of   this   Court   in
Larsen and Toubro (supra)  would be that the
list   of   service   elements   as   found   in   Gannon
Dunkerly   and   Co.   vs.   State   of   Rajasthan,
(1993)   1   SCC   364   case   will   suffer   service   tax
and   the   goods   portion   would   suffer   VAT   or
sales tax.
4.11. It is submitted that the Constitutional Bench of
this   Court   in   the   case   of   Gannon   Dunkerly
and   Co.   (supra)   while   dealing   with   the
measure of tax vide para 47 had provided a list
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29
of   exclusions   from   the   cost   of   valuation   of
goods   and   as   to   what   would   constitute   the
service   elements.     He   has   heavily   relied   upon
para   47   of   the   said   decision.     It   is   submitted
that this Court observed in para 47 in the case
of   Gannon   Dunkerly   and   Co.   (supra)   as
under:
“47.   ….. The value of the goods involved
in   the   execution   of   a   works   contract   will,
therefore,   have   to   be   determined   by   taking
into   account   the   value   of   the   entire   works
contract   and   deducting   therefrom   the
charges towards labour and services which
would cover—
( a ) Labour charges for execution of the works;
( b )   amount   paid   to   a   sub­contractor   for
labour and services;
( c )   charges   for   planning,   designing   and
architect's fees;
( d ) charges for obtaining on hire or otherwise
machinery   and   tools   used   for   the
execution of the works contract;
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30
( e )   cost   of   consumables   such   as   water,
electricity,   fuel,   etc.   used   in   the   execution
of   the   works   contract   the   property   in
which   is   not   transferred   in   the   course   of
execution of a works contract; and
( f )   cost   of   establishment   of   the   contractor   to
the   extent   it   is   relatable   to   supply   of
labour and services;
( g ) other similar  expenses relatable to  supply
of labour and services;
( h )   profit   earned   by   the   contractor   to   the
extent   it   is   relatable   to   supply   of   labour
and services.
The   amounts   deductible   under   these
heads   will   have   to   be   determined   in   the
light of the facts of a particular case on the
basis   of   the   material   produced   by   the
contractor.”
4.12 It is submitted that the above service elements
have found a statutory recognition as the same
stood   incorporated   as   part   of   Rule   2A   of   the
Service   Tax   (Determination   of   Value)   Rules,
2006 w.e.f. 01.06.2007.
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31
4.13 It   is   submitted   that   consequently   this   Court
while   dealing  with   the  decision  of   Larsen   and
Toubro  (supra)   had  specifically  addressed this
issue   by   bringing   the   similarity   of   the   service
elements as mentioned in Constitution Bench’s
decision   in   Gannon   Dunkerly   (supra)   and
framed   as   Rule   2A   of   the   Valuation   Rules,
2006.  Reliance is placed on paras 25 and 26 of
the said judgment.
4.14   It   is   submitted   that   the   decision   of   this   Court
rendered  in   Larsen   and   Toubro   (supra)   came
up for reconsideration in the batch of matter in
the   case   of   Total   Environment   Building
Systems   Pvt.   Ltd.   (supra)   wherein   this   Court
vide   para   28   rejected   the   request   to   refer   the
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32
matter   to   the   larger   Bench   by   observing   in
paragraph 28 which reads as under:
“28.   While   appreciating   the
prayer/submission   made   on   behalf   of   the
Revenue   to   re­consider   the   binding
decision of this Court in the case of   Larsen
and Toubro Limited   (supra) and to refer the
matter   to   the   Larger   Bench,   few   facts   are
required   to   be   taken   into   consideration,
which are as under:—
(i)   The   decision   of   this   Court   in   the   case
of   Larsen   and   Toubro   Limited   (supra)   has
been delivered/passed in the year 2015, in
which,   it   is   specifically   observed   and   held
that   on  indivisible   works   contracts  for  the
period   pre­Finance   Act,   2007,   the   service
tax was not leviable;
(ii) After considering the entire scheme and
the   levy   of   service   tax   pre­Finance   Act,
2007   and   after   giving   cogent   reasons,   a
conscious decision has been taken by this
Court holding that the service tax was not
leviable   pre­Finance   Act,   2007   on
indivisible/Composite Works Contracts;
(iii)   While   holding   that   for   the   period   pre­
Finance   Act,   2007,   on
indivisible/Composite   Works   Contracts,
the   service   tax   is   not   leviable,   number   of
decisions   have   been   dealt   with   and
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33
considered   by   this   Court   in   the   aforesaid
decision;
(iv) That subsequently, the decision of this
court   in   the   case   of   Larsen   and   Toubro
Limited   (supra)   has   been   followed   and
considered   by   this   Court   in   the   case
of   Commissioner of Service Tax and Ors.
Bhayana   Builders   Pvt.   Ld.   And   Ors,
(2018) 3 SCC 782, ;
(v)   That   after   the   decision   of   this   Court   in
the   case   of   Larsen   and   Toubro
Limited   (supra)  rendered in the year 2015,
the   said   decision   has   been   consistently
followed   by   various   High   Courts   and   the
Tribunals;
(vi)   The   decisions   of   the   various   High
Courts   and   the   Tribunals,   which   were
passed   after   following   the   decision   of   this
Court   in   the   case   of   Larsen   and   Toubro
Limited   (supra)   have   attained   finality   and
in   many   cases,   the   Revenue   has   not
challenged the said decisions;
(vii)   No   efforts   were   made   by   the   Revenue
to   file   any   review   application   to   review
and/or   recall   the   judgment   and   order
passed by this Court in the case of   Larsen
and Toubro Limited   (supra). If the Revenue
was   so   serious   in   their   view   that   decision
of   this   Court   in   the   case   of   Larsen   and
Toubro   Limited   (supra)   requires   re­
consideration, Revenue ought to have filed
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34
the review application at that stage and/or
even thereafter. No such review application
has been filed even as on today.
(viii)   Merely   because   in   the   subsequent
cases,   the   amount   of   tax   involved   may   be
higher,   cannot   be   a   ground   to   pray   for
reconsideration   of   the   earlier   binding
decision,   which   has   been   consistently
followed   by   various   High   Courts   and   the
Tribunals in the entire country.”
4.15 It   is   submitted   that   therefore   what   is   taxed
under   Section   65(105)(zzzza)   which   later
became   Section   66E(h)   of   the   Finance   Act,
1994   is   the   service   portion   in   the   execution   of
works   contract.   That   Section   67(1)   makes   it
abundantly clear that service tax is chargeable
only on the taxable service with reference to its
value.     It   is   submitted   that   this   Court   in   the
case   of   Larsen   and   Toubro   (supra)   as
reiterated   in   Total   Environment   Building
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35
(supra)   has made it  clear  that  the goods  value
in   the   nature   of   transfer   of   property   of   goods
would   suffer   sales   tax/VAT   and   the   service
components   or   elements   would   suffer   service
tax w.e.f. 01.06.2007 by virtue of the definition
of   taxable   service   under   Section   65(105)(zzzza)
and   later   as   Section   66E(h)   as   a   declared
service post 01.07.2012.
4.16 It is submitted that the incorporation of taxable
service   w.e.f.   01.06.2007   also   resulted   in   the
introduction of Rule 2A in the Valuation Rules,
2006 clearly identifying the service elements or
components   which   would   constitute   the   value
for   determination   and   payment   of   service   tax.
These   components   again   were   retained   even
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36
after   the   insertion   of   Section   66E(h)   post
01.07.2012.
4.17 It   is   submitted   that   this   Court   in   the   case   of
Larsen   and   Toubro   (supra)   vide   para   25   had
referred   to   Rule   2A   of   the   Valuation   Rules,
2006   and   its   purport   by   holding   that   the   said
Rule goes on to say that the service component
of   the   works   contract   is   to   include   the   8
elements   laid   down   in   the   second   Gannon
Dunkerly’s   case   and   the   value  attributable  to
the  service in  the  works contract would be the
service   elements   in   such   contracts   as   this
scheme   alone   would   comply   with   the
constitutional   requirements   as   it   seeks   to
bifurcate a composite indivisible works contract
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37
and   takes   care   to   see   that   no   element   is
attributable   to   the   property   in   goods
transferred   pursuant   to   such   contract   enters
into   the   computation   of   the   service   tax.     It   is
submitted that therefore the purport of Rule 2A
of   the   valuation   rules   is   only   to   bring   the
elements   of   service   tax   as   that   alone   would
meet   the   constitutional   requirements   and   no
elements   attributable   to   the   property   in   goods
should enter in the computation of service tax.
It   is,   therefore,   the   entire   contention   of   the
respondent   ­   assessee   that   they   have   a   legal
right   to   pay   tax   even   on   the   goods   portion   as
service   tax   and   also   take   input   credit   on   the
duty   paid   on   the   goods   is   clearly   contrary   to
para   25   of   the   Larsen   and   Toubro   (supra)
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38
judgment   and   Rule   2A   of   the   Valuation   Rules,
2006.
4.18 Now   so   far   as   the   composition   scheme   is
concerned,   it   is   submitted   that   the   assessee
falling   under   the   definition   of   ‘works   contract
service’   from   01.06.2007   has   to   discharge
service tax liability either under Rule 2A of the
valuation rules only on the service components
without   taking   any   CENVAT   Credit   on   the
input   goods   or   go   for   the   option   of   a
composition scheme in which case the rates of
tax   specified   at   various   points   of   time   should
have   been   complied   with   on   the   total   contract
value.     It   is   submitted   that   the   invented
method   of   the   respondent   –   assessee   by
seeking   to   pay   service   tax   on   entire   contract
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39
value   after   taking   the   CENVAT   Credit   on   the
input   goods   is   clearly   unsustainable   in   law.
The   contention   that   Rule   2A   is   subject   to
Section 67 which according to the respondent –
assessee   permits   payment   of   tax   on   the
contract   value   including   the   goods   runs
counter   to   the   scheme   of   works   contract
service.     It   is   submitted   that   the   what   would
constitute   as   goods   under   Article   366   (29A)(b)
of   the   Constitution   cannot   be   construed   as   a
taxable   service   and   as   a   value   of   taxable
service. 
4.19 It   is   submitted   that   Finance   Act,   1994   read
with   the   Rules   permit   only   2   options   either   to
pay   service   tax   on   the   service   elements   as
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40
envisaged   under   Rule   2A   of   the   Valuation
Rules, 2006 without taking the CENVAT Credit
on   input   goods   or   opt   for   composition.     It   is
submitted   that   the   third   variant   of   paying
service tax on the total contract value including
goods   and   correspondingly   availing   CENVAT
Credit   on   the   input   is   not   only   misconceived
but   also   legally   untenable   besides   a
Constitutional bar.
4.20 Now   so   far   as   the   reliance   is   placed   upon   the
decision   of   this   Court   in   the   case   of
Commissioner   of   Service   Tax   and   Ors.
Bhayana Builders Pvt. Ld. and Ors, (2018) 3
SCC  782   is concerned, it is submitted that on
facts   it   has   no   relevance.     It   is   submitted   that
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41
on   the   contrary   the   decision   of   this   Court   in
the case of   Larsen and Toubro (supra)   would
apply.     It   is   submitted   that   even   the   circular
dated   22.05.2005   makes   it   amply   clear   as   to
how a works contract service needs to be taxed
and   vide   para   9.2   referred   to   Rule   2A   of   the
Valuation   Rules,   2006   to   affirm   that   the   value
of works contract service shall be equivalent to
the   gross   amount   charged   for   the   works
contract less the value of transfer of property in
goods   involved   in   the   execution   of   the   said
contract   and   vide   para   9.3   rings   out   the
elements   of   services   which   matches   exactly
with   the   elements   laid   down   by   this   Court   in
the case of  Gannon Dunkerly (supra).
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42
5. Making above submissions it is prayed to allow
the present appeal.
6. Present   appeal   is   vehemently   opposed   by   Shri
V.   Raghuraman,   learned   Senior   Counsel
appearing   on   behalf   of   the   respondent   –
assessee. 
6.1 While   opposing   the   present   appeal   and   in
support   of   the   impugned   order   passed   by   the
CESTAT,   learned   counsel   appearing   on   behalf
of   the   respondent   has   made   the   following
submissions:
(i) That   the   composition   scheme   is   optional
as per Rule 3(1) of the Composition Rules;
(ii) Provisions   of   Rule   2A   of   the   Valuation
Rules   are   subject   to   the   provisions   of
Section 67 of the Finance Act, 1994;
(iii) Once   the   provisions   of   Section   67   of   the
Finance   Act,   1994   have   been   complied
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43
with,   neither   the   question   of   applicability
of   Rule   2A   of   the   Valuation   Rules   arise
nor   was   there   any   question   of   forcibly
applying   option   of   Composition   Scheme
on the assessee;
(iv) Even if the services of the respondent are
considered   as   classifiable   under   ‘works
contract   service’   after   1 st
  June,   2007,   as
claimed   by   the   Revenue,   the   further
claims of the Revenue that there were only
two   options   as   above   for   valuation   of   the
works   contract   service   namely   the
composition   rules   and   the   Rule   2A   of   the
Valuation   Rules   available   to   the   assessee
and   consequential   non­admissibility   of
CENVAT Credit has no merit.
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(v) It   is   submitted   that   in   case   of   ‘works
contract service’ also, the assessment can
be   done   under   the   provisions   of   Section
67   of   the   Finance   Act,   1994   and   that
valuation   methods   prescribed   under   Rule
2A   or   composition   scheme   are   merely
options provided to the assessee;
(vi) Therefore,   the   benefit   of   CENVAT   Credit
on   inputs   cannot   be   denied   to   the
respondents in absence of any specific bar
or   prohibition   in   the   CENVAT   Credit
Rules, 2004 or the Finance Act, 1994.
6.2 It   is   further   submitted   by   learned   counsel
appearing   on   behalf   of   the   respondent   that
while   passing   the   impugned   order   the   learned
Tribunal has rightly followed its earlier decision
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in the case of   CCE vs. S.V. Jiwani, 2014 (35)
STR   351   affirmed   by   the   Bombay   High   Court
which   is   squarely   applicable.     It   is   submitted
that   in   the   said   case   it   was   held   that   the
composition rules and Rule 2A of the Valuation
Rules   are   merely   options   provided   to   the
service   provider   to   discharge   of   service   tax
liability vis­à­vis options available in Section 67
of the Finance Act, 1994.
6.3 It   is   further   submitted   that   Rule   2A   of   the
Valuation Rules begins with the words ‘subject
to   provisions   of   Section   67’.     It   is   submitted
that this would mean that Rule 2A would apply
only   when   value   of   the   service   involved   in
execution   of   the   works   contract   could   not   be
determined under Section 67 of the Act.
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6.4   It   is   further   submitted   by   learned   counsel
appearing   on   behalf   of   the   respondent   –
assessee that prior  to 01.07.2012 the assessee
had three options:
(i) Follow   the   tenets   of   Section   67   and   pay   tax
on the full value and take input tax credit.
(ii) Rule   2A   of   the   Valuation   Rules:   to   pay
service   tax  at   the   full   applicable   rate   on   the
taxable value as determined in terms of Rule
2A   of   the   Valuation   Rules.     No   bar   to   avail
CENVAT Credit on inputs.
(iii) Composition   Rules:   To   pay   service   tax   @
2.06%   (increased   to   4.12%   w.e.f.
01.03.2008)   on   the   gross   amount   charged
for the Contract, in terms of the Composition
Rules.     Cenvat   credit   on   inputs   would   be
inadmissible.
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6.5 After   01.07.2012   the   assessee   had   three
options:
(i)   Follow the tenets of Section 67 and pay tax on
the full value and take input tax credit.
(ii)       Rule   2A(i):   To   determine   the   taxable   value   of
service after deducting the actual value of the
material involved.
(iii)     Rule   2(ii):   To   pay   service   tax   on   specified
percentage   of   the   total   amount   charged   for
the works contract.
6.6 It   is   submitted   therefore   under   the   above
scheme the assessee had the option to pay the
service   tax   at   full   value   on   the   entire   amount
charged towards providing construction service
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48
or works contract services under the provisions
of Section 67 of the Finance Act, 1994.
6.7  It   is   submitted   that   in   this   case   the   assessee
would   be   eligible   to   full   CENVAT   Credit   and
input,   input   services   and   capital   goods   under
CENVAT   Credit   Rules,   2004   OR   to   pay   service
tax   under   the   head   construction   services   by
opting   for   abatements   specified   in   Notification
under 15/2004 – HT, as amended from time to
time   or   replaced   with   new   notification;   OR   to
pay service tax under the head ‘works contract
services’   either   in   terms   of   Rule   2A   of   the
Valuation Rules or in terms of the Composition
Rules.
6.8 It   is   further   submitted   that   the   words   used   in
Rule   2A   ‘subject   to   Section   67’   conveys   the
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49
clear   idea   that   the   valuation   done   under
Section   67   is   supreme   and   the   rules   are
subject to the Act.
6.9     It   is   submitted   that   therefore   the   composition
rules   are   completely   optional   for   the   assessee
to exercise the assessee can opt for Section 67.
6.10   It   is   submitted   that   taking   CENVAT   duty   on
inputs   is   barred   only   if   one   opts   for
Composition   Rules   and   not   if   tax   is   paid   at
normal   prevailing   rates   on   full   gross   value   of
contract under Section 67.
6.11 It is further prayed on behalf of the respondent
that   in   case   the   appeal   be   allowed   on   merits,
the   Tribunal   has   not   rendered   any   finding   on
extended   period   of   limitation   and/or   other
issues   and   therefore   the   matters   may   be
remanded back to the Tribunal.
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50
7 Heard   learned   counsel   for   the   respective   parties   at
length.
8 The short question which is posed for  consideration
before   this   Court   is   as   to   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?
8.1 At the outset, it is required to be noted that as
such   services   rendered   by   the   respondent   –
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assessee   can   be   said   to   be   ‘works   contract
service’   as   per   the   Finance   Act,   1994   w.e.f.
01.06.2007   as   per   Section   64(54)   read   with
Section 65(105)(zzzza).
8.2 As   per   the   law   laid   down   by   this   Court   in   the
case   of   Larsen   and   Toubro   (supra)   and
Gannon Dunkerly and Co. (supra)  and the
subsequent   decision   in   the   case   of   Total
Environment   Building   Systems   Pvt.   Ltd.
(supra)   with   respect   to   the   works   contract   an
assessee   is   liable   to   sales   tax   on   the   goods
element and the service tax on the availment of
service/value of service rendered.
8.3 In   the   case   of   Gannon   Dunkerly   and   Co.
(supra)   while   dealing   with   measure   of   tax   in
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para   47   this   Court   had   provided   a   list   of
exclusions   from   the   cost   of   valuation   of   goods
and   as   to   what   would   constitute   the   service
elements.     As   per   the   law   laid   down   by   this
Court   in   the   aforesaid   decision   the   following
are to be excluded from the cost of valuation of
the goods.
“47.   ….. The value of the goods involved
in   the   execution   of   a   works   contract
will, therefore, have to be determined by
taking   into   account   the   value   of   the
entire   works   contract   and   deducting
therefrom   the   charges   towards   labour
and services which would cover—
( a ) Labour charges for execution of the
works;
( b ) amount paid to a sub­contractor for
labour and services;
( c ) charges for planning, designing and
architect's fees;
( d )   charges   for   obtaining   on   hire   or
otherwise machinery and tools used for
the execution of the works contract;
( e ) cost of consumables such as water,
electricity,   fuel,   etc.   used   in   the
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execution   of   the   works   contract   the
property  in   which   is  not  transferred   in
the   course   of   execution   of   a   works
contract; and
( f )   cost   of   establishment   of   the
contractor   to   the   extent   it   is   relatable
to supply of labour and services;
( g )   other   similar   expenses   relatable   to
supply of labour and services;
( h )   profit   earned   by   the   contractor   to
the   extent   it   is   relatable   to   supply   of
labour and services.
The   amounts   deductible   under   these
heads will have to be determined in the
light of the facts of a particular case on
the   basis   of   the   material   produced   by
the contractor.”
8.4 It is required to be noted that thereafter the above
service   elements   have   found   a   statutory
recognition   as   part   of   Rule   2A   of   the   Service   Tax
(Determination   of   Value)   Rules,   2006   w.e.f.
01.06.2007   which   has   been   referred   to
hereinabove.  The applicability of Rule 2A has been
dealt with and considered by this Court in extenso
in   the   case   of   Larsen   and   Toubro   (supra) .
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Therefore,   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.
8.5 In   light   of   the   above   now   the   next   main
question   posed   for   consideration   before   this
Court   is   required   to   be   considered   namely
whether   despite   Rule   2A   of   the   Service   Tax
(Determination   of   Value)   Rules,   2006   and   the
Composite Scheme still the assessee is entitled
to take the total contract value which includes
both goods and services in terms of Section 67
of   the   Act,   1994   and   remit   service   tax   on   the
entire   value   as   works   contract   service   and   the
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assessee   is   also   entitled   to   avail   CENVAT
Credit?  
8.6 Rule   2A   applicable   prior   to   01.07.2012   is
reproduced hereinabove.   It is to be noted that
Rule   2A   is   the   specific   provision   for
determination   of   value   of   taxable   service   in
relation to services involved in the execution of
a   works   contact   shall   be   determined   by   the
service  provider   in  the   manner  provided  under
Rule 2A(1)(i) i.e. value of works contract service
determined   shall   be   equivalent   to   the   gross
amount charged for the works contract.  As per
explanation   to   Rule   2A   gross   amount   charged
for   the   works   contract   shall   not   include   Value
Added Tax  (VAT) or   sales  tax, as  the  case  may
be, paid, if any, on transfer of property in goods
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involved in the execution of the works contract.
The   position   is   made   more   clear   post
01.07.2012.     Post   01.07.2012   as   per   Rule   2A
value   of   service   portion   in   the   execution   of   a
works contract shall be determined taking into
consideration the value of service portion in the
execution of a works contract equivalent to the
gross   amount   charged   for   the   works   contract
less   the   value   of   property   of   goods   transferred
in   the   execution   of   the   said   works   contract.
Therefore,   as   such   the   things   which   were
already   there   as   per   the   decision   of   this   Court
in   the   case   of   Gannon   Dunkerly   and   Co.
(supra)   and   Rule   2A   earlier   has   been   made
explicitly clear.
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8.7 However,   as   per   the   Composition   Scheme   vide
notification 32/2007 – ST dated 22.04.2007 by
which works contract (Composition Scheme for
payment   of   Service   Tax)   Rules,   2007   came   to
be   introduced,   as   per   Rule   3(1)   and
notwithstanding   anything   contained   in   Section
67   of   the   Act   and   Rule   2A   of   the   Rules,   2006,
the   person   liable   to   pay   service   tax   in   relation
to works contract service shall have the option
to discharge the service tax at the rate specified
in  Section 67 of  the  Act, by  paying   an  amount
equivalent   to   2%   of   the   gross   amount   charged
for the works contract.  Explanation specifically
provides   that   gross   amount   charged   for   the
works   contract   shall   not   include   the   VAT   or
sales   tax,   as   the   case   may   be  paid   on   transfer
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of   property   in   goods   involved   in   the   execution
of   the   said   works   contract.     At   this   stage,   it   is
required to be noted that post 01.07.2012 Rule
2A specifically provides that the taxable service
shall   not   take   CENVAT   Credit   of   duty   or   cess
paid   on   inputs   used   in   or   in   relation   to   said
works   contract,   under   the   provisions   of
CENVAT Credit Rules, 2004.
8.8 It   is   the   case   on   behalf   of   the   respondent   –
assessee   that   as   in   Rule   2A   and   even   in   the
Composition Scheme the word used are subject
to   the   provisions   of   Section   67   the   assessee
had   an   option   to   pay   the   service   tax   on   the
entire   contract   value   i.e.   on   gross   amount
charged   by   the   service   provider   and   that   Rule
2A   is   not   compulsory   and   the   Composition
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Scheme is optional.  However, the aforesaid has
no   substance.     If   the   submission   on   behalf   of
the   assessee   is   accepted   in   that   case   Rule   2A
and   the   Composition   Scheme   shall   become
otiose. 
8.9 With   respect   to   the   ‘works   contract   service’
and/or   the   Composition   Works   Contract   the
valuation has to be made as per Rule 2A of the
Valuation   Rules,   2006.     Even   as   per   the
Composition Scheme vide Notification 32/2007
dated 22.04.2007 an assessee has an option to
discharge the  service tax  liability  on the works
contract   service   provided   or   to   be   provided,
instead   of   paying   service   tax   at   the   rate
specified   in   Section   66   of   the   Act   by   paying
equivalent   to   2%   of   the   gross   amount   charged
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for   the   works   contract.     It   is   to   be   noted   that
Rule   3(1)   provides   notwithstanding   anything
contained in Section 67 of the Act and Rule 2A
of   the   Service   (Determination   of   Value)   Rules,
2006.   Therefore, as per the Scheme of the Act
the determination of value of service portion in
the   execution   of   the   works   contract   is   to   be
made   as   per   Rule   2A,   however   with   an   option
to   the   assessee   to   avail   the   benefit   of
Composition   Scheme.   Therefore,   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.
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9 In   view   of   the   above   the   impugned   judgment
and   order   passed   by   the   CESTAT   taking   the
contrary   view   is   unsustainable   by   which   it   is
held   that   the   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’   and   the   assessee   is
also entitled to avail the CENVAT Credit on the
same.
9.1       However,   at   the   same   time   the   service   tax
needs to be paid in terms of Rule 2A of Service
Tax   (Determination   of   Value)   Rules,   2006   and
since   the   assessee   has   not   opted   for
composition   scheme,   the   matter   is   to   be
remitted   back   for   re­computation   of   the
demands   in   terms   of   Rule   2A.     As   the   issue
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with   respect   to   the   extended   period   of
limitation   has   also   not   been   decided   by
CESTAT   the   matter   is   to   be   remanded   to   the
CESTAT to decide the issue of limitation. 
10 In   view   of   the   above   and   for   the   reason   stated
above,   the   present   appeal   succeeds.     The
impugned   judgment   and   order   passed   by   the
CESTAT   is   hereby   quashed   and   set   aside   and   it
is   held   that   the   assessee   is   not   entitled   to   take
the   total   contract   value   which   includes   both
goods   and   services   and   remit   service   tax   on   the
value   as   works   contract   service   and,   in   the
process, also entitled to avail the CENVAT Credit
on   the   entire   amount.     It   is   observed   and   held
that   the   assessee   has   to   pay   the   service   tax   on
the   value   of   services   as   per   Rule   2A   of   the
(Determination   of   Value)   Rules,   2006   and
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thereafter   to   avail   the   CENVAT   Credit
accordingly.     However,   it   is   also   observed   and
held that demand for the period January 2007 to
May 2007 is unsustainable.  
10.1 In   that   view   of   the   matter   now   the   service   tax
needs   to   be   computed   in   terms   of   Rule   2A   of
the   (Determination   of   Value)   Rules,   2006   and
as   the   assessee   has   not   opted   for   the
composition   scheme,   the   matter   is   remitted
back   to   the   CESTAT   for   re­computation   of   the
demands in terms of Rule 2A.  
As observed hereinabove the Tribunal has
also not decided the issue of extended period of
limitation.     Therefore,   while   quashing   and
setting aside the impugned judgment and order
passed   by   the   CESTAT,   the   matter   is   remitted
back   to   the  CESTAT   limited   only  to   decide   the
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issue   of   limitation   and   re­computation   of   the
demands   in   terms   of   Rule   2A.     The   aforesaid
exercise   be   completed   by   the   CESTAT   on
remand   within   a   period   of   three   months   from
the date of the present order.
Present   appeal   is   accordingly   allowed.
However, in the facts and circumstances of the
case there shall be no order as to costs. 
 
……………………………J.
                 (M. R. SHAH)
……………………………J.
                                      (KRISHNA MURARI)
New Delhi, 
May 2, 2023 
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