CC AND CE AND ST, NOIDAversusM/S INTERARCH BUILDING PRODUCTS PVT. LTD.

                        [2023] 7 S.C.R. 977                             977


                  CC AND CE AND ST, NOIDA                               A
                                 v.
     M/S INTERARCH BUILDING PRODUCTS PVT. LTD.
                  (Civil Appeal No. 11330 of 2018)
                           MAY 02, 2023                                 B
         [M. R. SHAH AND KRISHNA MURARI, JJ.]
       Finance Act, 1994 – ss. 64,65(105)(zzq),65(105)(zzzza),66,
67 and 73 – Service (Determination of Value) Rules, 2006 – Rule
2A – CENVAT Credit Rules, 2004 – Payment of service tax – Liability
                                                                        C
for – Respondent–assessee was engaged in the business of
manufacture, supply and erection at the site of prefabricated steel
buildings – They paid service tax under the category “commercial
or industrial constructions services” as referred u/s.65(105)(zzq)
of the Finance Act, 1994 – Respondent availed CENVAT credit and
short paid the Service Tax in cash – Revenue was of the view that       D
the service rendered by the respondent was classifiable under “works
contract service”(chargeable under sub clause(zzzza) of s.65(105)
and it was mandatory for the respondent to either follow Rule 2A of
Service Tax (Determination of Value) Rules, 2006 or adopt
Composition Scheme – Tribunal held that there was no question on
                                                                        E
applicability of Rule 2A nor there was any question of forcibly
applying the option of composition scheme and respondent was
entitled to CENVAT credit on inputs – Before the Supreme Court,
the case on behalf of the respondent-assessee was that Rule 2A and
even in the composition scheme the words used are subject to the
provisions of s.67 the assessee had an option to pay the service tax    F
on the entire contract value and that the Rule 2A is not compulsory
and the composition scheme is optional – Whether an assessee who
is liable to pay service tax under works contract service has the
legal right not to follow Rule 2A nor the composition Scheme on the
ground that in terms of s. 67 of the Act of 1994 an assessee is
                                                                        G
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 – Held: Services rendered by the respondent can be said to
be ‘works contract service’ as per the Finance Act, 1994 w.e.f.
01.06.2007 as per s.64(54) r/w. s. 65(105)(zzzza) – In the case of      H
                                 977
978            SUPREME COURT REPORTS                      [2023] 7 S.C.R.


A     ‘works contract service’ an assessee is liable to pay the service tax
      on the service element and the sales tax on the element of goods
      transferred pursuant to the contract – The submission of the
      respondent made cannot be accepted as it would make Rule 2A and
      composition scheme otiose – As per the scheme of the Act the
      determination of value of service portion in the execution of the
B
      works contract is to be made as per Rule 2A, however with an option
      to the assessee to avail the benefit of composition scheme – 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 service element and can claim CENVAT credit on the
C     said amount only – Therefore, the respondent has to pay the service
      tax on the value of services as per Rule 2A of the (Determination of
      Value) Rules, 2006 and thereafter to avail the CENVAT Credit
      accordingly – The impugned judgment and order passed by the
      CESTAT is quashed and set aside.
D           Allowing the appeal, the Court
             HELD:1. The 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.
      The applicability of Rule 2A has been dealt with and considered
E     by this Court in extenso in the case of Larsen and Toubro.
      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. [Para 8.4][1000-B-C]
F
             2. 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
G     Rule 2A is not compulsory and the Composition 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. [Para
      8.8][1001-E]
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 CC AND CE AND ST, NOIDA v. M/S INTERARCH BUILDING                     979
                PRODUCTS PVT. LTD.

      3. With respect to the ‘works contract service’ and/or the       A
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
                                                                       B
of paying service tax at the rate specified in Section 66 of the Act
by paying equivalent to 2% of the gross amount charged 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           C
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
                                                                       D
pay service tax on the service element and can claim CENVAT
Credit on the said amount only. [Para 8.9][1001-F-H; 1002-A]
       4. 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        E
service tax on the entire value as ‘works contract’ and the
assessee is also entitled to avail the CENVAT Credit on the same.
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              F
scheme, the matter is to be remitted back for re--computation of
the demands in terms of Rule 2A. As the issue 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. [Para 9 and 9.1][1002-B-D]
                                                                       G
      5. 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


                                                                       H
980            SUPREME COURT REPORTS                      [2023] 7 S.C.R.


A     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 thereafter to avail the CENVAT Credit accordingly.
B
      However, it is also observed and held that demand for the period
      January 2007 to May 2007 is unsustainable. [Para 10][1002-E-F]

            Commissioner of Central Excise v. Larsen and Toubro
            (2016) 1 SCC 170 : [2015] 8 SCR 1046; Total
C           Environment Building Systems Pvt. Ltd. v. Deputy
            Commissioner of Commercial Taxes (2022) SCC Online
            SC 953; Gannon Dunkerly and Co. v. State of
            Rajasthan (1993) 1 SCC 364 : [1992] 3 Suppl. SCR
            103 – referred to.

D           CCE v. S.V. Jiwani 2014 (35) STR 351 – referred to.

                            Case Law Reference

      [2015] 8 SCR 1046                 referred to      para 4
E     [1992] 3 Suppl. SCR 103           referred to      para 4.10

            CIVIL APPELLATE JURISDICTION: Civil Appeal No. 11330
      of 2018.

            From the Judgment and Order dated 09.11.2017 of the Custom
F
      Excise Service Tax Appellate Tribunal in A. No. 70517 of 2017.

             N. Venkataraman, ASG, Ms. Nisha Bagchi, Shantanu Sharma,
      Ms. Shraddha Deshmukh, VCS Bharathi, Mukesh Kumar Maroria, Advs.
      for the Appellant.
G
            V. Raghuraman, Sr. Adv., Shailesh Sheth, Sandeep Bisht, Divyam
      Garg, Yati Ranjan, Raghavendra CR, Ranjan Kumar Pandey, Advs. for
      the Respondent.


H
 CC AND CE AND ST, NOIDA v. M/S INTERARCH BUILDING                             981
                PRODUCTS PVT. LTD.

      The Judgment of the Court was delivered by                               A
      M. R. SHAH, J.
        1. Feeling aggrieved and dissatisfied with the impugned judgment
and order dated 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      B
the said appeal preferred by the respondent and has set aside the Order-
in-Original 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:
                                                                               C
       2.1 The respondent – assessee was engaged in the business of
manufacture, supply and erection at the site of prefabricated/pre-
engineered steel buildings and parts thereof classifiable under the relevant
Headings/sub-headings 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             D
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         E
CENVAT Credit
      (i) Excise duty paid by the units at the time of removal
      (ii) duty paid on capital goods
      (iii) service tax paid on input services.
                                                                               F
       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’).
                                                                               G
       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
                                                                               H
982             SUPREME COURT REPORTS                            [2023] 7 S.C.R.


A     Section 65(105] 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
B     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 Contract Service”. It was mandatory for the
C     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,
D     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 reclassified under “Works
      Contract Service” in place of “Commercial or Industrial Construction
E     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
F     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 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
G     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.

H
 CC AND CE AND ST, NOIDA v. M/S INTERARCH BUILDING                           983
         PRODUCTS PVT. LTD. [M. R. SHAH, J.]

      2.5 The department had issued further Show Cause Notices/              A
statement of demands for the subsequent period also.
      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 re-determined after
hearing the respondent.                                                      B
       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 Section73A of the Act, 1994. The Order-          C
in-Original passed by the adjudicating authority was the subject matter
of the present appeal before the Tribunal.
     2.7 Before the Tribunal the Order-in-Original passed by the
Adjudicating Authority was challenged on the following grounds:
      (i)     “The Id. Commissioner disallowed Cenvat credit availed         D
              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.                                            E
      (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.                        F
      (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
                                                                             G
              discharge his Service Tax liability on the Works Contract
              Service.” It clearly indicates that it is one of the options
              given 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.                 H
984               SUPREME COURT REPORTS                        [2023] 7 S.C.R.


A           (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
B
                    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
C                   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.”
D
             2.8 By the impugned judgment and order the learned Tribunal has
      allowed the appeal preferred by the respondent and has set aside the
      Order-in-Original 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
E     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 sub-rule (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
F     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 Order-in-
G     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.

H
 CC AND CE AND ST, NOIDA v. M/S INTERARCH BUILDING                            985
         PRODUCTS PVT. LTD. [M. R. SHAH, J.]

      4. Shri N. Venkataraman, learned ASG appearing on behalf of             A
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         B
             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 Total
             Environment Building Systems Pvt. Ltd. vs. Deputy                C
             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.                                                             D

      4.2 It is submitted that however, for the period commencing
01.06.2007 to 31.03.2014 the demands are sustainable and the Orders-
in-Original need to be restored.
       4.3 Shri N. Venkataraman, learned ASG has taken us to the              E
relevant provisions of the Act, 1994 more particularly Chapter 5 and the
definition 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        F
the first time which defined declared services. He has taken us to sub-
clause (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       G
dated 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:

                                                                              H
986      SUPREME COURT REPORTS                           [2023] 7 S.C.R.


A     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),
B     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
C     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
D     any, on transfer of property in 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;
E     (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 hire or otherwise, machinery and
      tools used for the execution of the works contract;

F     (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
G     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
H
 CC AND CE AND ST, NOIDA v. M/S INTERARCH BUILDING                            987
         PRODUCTS PVT. LTD. [M. R. SHAH, J.]

      involved in the execution of the works contract, then such value        A
      adopted 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).”
                                                                              B
      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:
                                                                              C
      “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 provided,
      instead of paying service tax at the rate specified in section 66 of    D
      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       E
      goods involved in the execution of the said works contract.”
      4.6 It is submitted that the sub-rules 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.
                                                                              F
      4.7 It is submitted that Section 67 of the Act, 1994 deals with
valuation of taxable services reads as under:
      “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, -
                                                                              G
      (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;
                                                                              H
988          SUPREME COURT REPORTS                          [2023] 7 S.C.R.


A     (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
B              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
C     as, with the addition of tax payable, is equal to the gross amount
      charged.
      (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.
D     (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
E     (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
F     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
G     the price at 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,
H     whether called “Suspense account” or by any other name, in the
 CC AND CE AND ST, NOIDA v. M/S INTERARCH BUILDING                            989
         PRODUCTS PVT. LTD. [M. R. SHAH, J.]

      books of account of a person liable to pay service tax, where the       A
      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:                            B
      “9.1 Works contract is a composite contract for supply of goods
      and services. A composite works contract 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                                             C
      (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      D
      be determined by vivisecting the composite works contract. Rule
      2A of Service Tax (Determination of Value) Rules, 2006
      [Notification No.29/2007-Service 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           E
      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.
                                                                              F
      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          G
      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,
                                                                              H
990      SUPREME COURT REPORTS                           [2023] 7 S.C.R.


A     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;
B
      9.4 If the gross amount charged for the works contract is inclusive
      of VAT 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
C     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
D     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
E     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
F     tax under the said 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
G     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.”

H
 CC AND CE AND ST, NOIDA v. M/S INTERARCH BUILDING                           991
         PRODUCTS PVT. LTD. [M. R. SHAH, J.]

       4.9 Relying upon the above provisions, rules and regulations and      A
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 tax w.e.f. 01.06.2007. Reliance is placed on the
                                                                             B
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      C
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 of exclusions from the
cost of valuation of goods and as to what would constitute the service       D
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          E
      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;
                                                                             F
      (b)    amount paid to a sub-contractor 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.      G
             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

                                                                             H
992               SUPREME COURT REPORTS                        [2023] 7 S.C.R.


A           (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
B                   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.”

C            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.
             4.13 It is submitted that consequently this Court while dealing
D     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
E
      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 matter to the larger Bench by observing in paragraph 28 which
      reads as under:
F
            “28. While appreciating the prayer/submission made on behalf
            of the Revenue to re-consider 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:—
G           (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 pre-Finance Act, 2007, the service tax
            was not leviable;
H
CC AND CE AND ST, NOIDA v. M/S INTERARCH BUILDING                       993
        PRODUCTS PVT. LTD. [M. R. SHAH, J.]

   (ii) After considering the entire scheme and the levy of service     A
   tax pre-Finance Act, 2007 and after giving cogent reasons, a
   conscious decision has been taken by this Court holding that the
   service tax was not leviable pre-Finance Act, 2007 on indivisible/
   Composite Works Contracts;
   (iii) While holding that for the period pre-Finance Act, 2007, on    B
   indivisible/Composite Works Contracts, the service tax is not
   leviable, number of decisions have been dealt with and 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           C
   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       D
   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          E
   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).      F
   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 the review
   application at that stage and/or even thereafter. No such review
   application has been filed even as on today.
                                                                        G
   (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.”
                                                                        H
994             SUPREME COURT REPORTS                           [2023] 7 S.C.R.


A            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
B
      in Total Environment Building (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
C     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
D     tax. These components again were retained even 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
E     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 and takes care to see that no element is attributable to
F     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
G     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)judgment and Rule 2A of the Valuation Rules, 2006.

H
 CC AND CE AND ST, NOIDA v. M/S INTERARCH BUILDING                             995
         PRODUCTS PVT. LTD. [M. R. SHAH, J.]

        4.18 Now so far as the composition scheme is concerned, it is          A
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
                                                                               B
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 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             C
including the goodsruns 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         D
permit only 2 options either to pay service tax on the service elements as
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            E
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 on the       F
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      G
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).
                                                                               H
996                SUPREME COURT REPORTS                         [2023] 7 S.C.R.


A           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.
B           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;
C
            (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 with, neither the question of applicability
D                    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 1st June,
                     2007, as claimed by the Revenue, the further claims of the
E
                     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 non-admissibility
                     of CENVAT Credit has no merit.
F
            (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;
G           (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.

H
 CC AND CE AND ST, NOIDA v. M/S INTERARCH BUILDING                             997
         PRODUCTS PVT. LTD. [M. R. SHAH, J.]

       6.2 It is further submitted by learned counsel appearing on behalf      A
of the respondent that while passing the impugned order the learned
Tribunal has rightly followed its earlier decision 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
                                                                               B
merely options provided to the service provider to discharge of service
tax liability vis-à-vis 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           C
service involved in execution of the works contract could not be
determined under Section 67 of the Act.
       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:                                                                 D

      (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       E
              terms of Rule 2A of the Valuation Rules. No bar to avail
              CENVATCredit 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      F
              credit on inputs would be inadmissible.
      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      G
              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.

                                                                               H
998             SUPREME COURT REPORTS                           [2023] 7 S.C.R.


A           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 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
B     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
C     the Composition Rules.
            6.8 It is further submitted that the words used in Rule 2A ‘subject
      to Section 67’ conveys the clear idea that the valuation done under
      Section 67 is supreme and the rules are subject to the Act.

D           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
E     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.
F           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
G     CompositionScheme 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?
H
 CC AND CE AND ST, NOIDA v. M/S INTERARCH BUILDING                                999
         PRODUCTS PVT. LTD. [M. R. SHAH, J.]

      8.1 At the outset, it is required to be noted that as such services         A
rendered by the respondent – 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                    B
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                   C
dealing with measure of tax in 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.
                                                                                  D
      “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—
                                                                                  E
      (a) Labour charges for execution of the works;
      (b) amount paid to a sub-contractor for labour and services;
      (c) charges for planning, designing and architect’s fees;
      (d) charges for obtaining on hire or otherwise machinery and tools
                                                                                  F
      used for the execution of the works contract;
      (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   G
      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.                                              H
1000            SUPREME COURT REPORTS                           [2023] 7 S.C.R.


 A           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
 B     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). 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
 C     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)
 D     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 assessee is also entitled to avail
       CENVAT Credit?
 E            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
 F     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 involved in the execution of the works contract. The
       position is made more clear post 01.07.2012. Post 01.07.2012 as per
 G     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
 H     such the things which were already there as per the decision of this
 CC AND CE AND ST, NOIDA v. M/S INTERARCH BUILDING                             1001
         PRODUCTS PVT. LTD. [M. R. SHAH, J.]

Court in the case of Gannon Dunkerly and Co. (supra) and Rule 2A               A
earlier has been made explicitly clear.
        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       B
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     C
may be paid on transfer 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 cesspaid on inputs used in or in
relation to said works contract, under the provisions of CENVAT Credit         D
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       E
the service provider and that Rule 2A is not compulsory and the
Composition 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             F
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           G
charged 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      H
1002            SUPREME COURT REPORTS                          [2023] 7 S.C.R.


 A     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.
 B            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.
 C
              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 re-computation of the demands in terms of
       Rule 2A. As the issue with respect to the extended period of limitation
 D     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
 E     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
 F     (Determination of Value) Rules, 2006 and 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,
 G     2006 and as the assessee has not opted for the composition scheme, the
       matter is remitted back to the CESTAT for re-computation 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,
 H
 CC AND CE AND ST, NOIDA v. M/S INTERARCH BUILDING                         1003
         PRODUCTS PVT. LTD. [M. R. SHAH, J.]

the matter is remitted back to the CESTAT limited only to decide the       A
issue of limitation and re-computation 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.             B

Ankit Gyan                                               Appeal allowed.
(Assisted by : Aarsh Choudhary, LCRA)


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