It is presumed that the querist is having a commercial or industrial civil contract and performs services on material-cum-labour-contract basis. However, it also seems that under the contract, some of the materials are supplied by the contractee company.

The Works Contract Composition Scheme came into effect from June 1, 2007, and therefore, in respect of any works contract received on or after June 1, 2007, your client can opt for the composition scheme. There is no specific clarity with regard to opting for composition scheme in respect of running contract, namely, which is partly executed as on June 1, 2007.

However Rule 3 the Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007, clarifies that once the provider of taxable service pays service tax under these rules, such option shall be exercised prior to payment of service tax in respect of such works contract and option so exercised shall not be allowed to be withdrawn till completion of the works contract. While making use of abatement under Notification 1/2006–ST dated March 1, 2006, the service provider should include the value of free issues given by the customer to arrive at taxable value and thereafter calculate the abatement amount. In the Composition Scheme, payment at 2 per cent could be an ideal option, particularly so when the service provider is allowed Cenvat credit on input services and capital goods in respect of such contracts.

Can penalties under Sections 76 and 78 be levied simultaneously? As a service provider of business auxiliary services, we have been paying service tax since 2003. As an agent, we also get commission from banks and NBFCs for providing leads for finance for personal loans on which we did not pay service tax till November 2006, as it was clarified that such services were taxable under business auxiliary service. Now, the adjudication officer has levied maximum penalties under Sections 76 and 78, thought we had deposited tax and interest. Please advice how to respond?

Prathap Jain

It remains a fact that the Board clarified this issue in para 4 of its Circular No 87/06/2006-ST dated November 6, 2006 (since withdrawn) where it was clarified for the first time that commission received by dealers from banks/NBFCs would be taxable as business auxiliary services. Recourse could be taken under Section 80 where penalties can be waived or reduced on showing reasonable cause.

Confusion or non-clarity of taxable service is an undisputed reasonable cause upheld in various decisions. Moreover, Sections 76 and 78 cannot be invoked simultaneously for the same offence or contravention. While one is for non-payment, the other is for recovery. Section 76 talks of normal course whereas Section 78 presupposes guilty mind. Both cannot exist together. Support can also be drawn from CESTAT order in the Opus Media & Entertainment vs CCE, Jaipur (2007 10 STJ 259 Cestat, New Delhi) and The Financers vs CCE, Jaipur (2007 10 STJ 261 Cestat, New Delhi) cases wherein it has been very clearly held that cases in which are imposed under Section 78 cannot fall in respect of the same service tax evade under Section 76. There is no scope for imposing double penalty, both under Sections 76 and 78 for the same offence. It has to fall either under Section 76 or 78 and mens rea will have to be proved.

SANJIV AGRAWAL

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