Works contract service tax turns on execution period, not payment date, under the applicable statutory regime

Service tax liability on works contracts for civil construction depended on the statutory regime in force during the relevant period of execution. The 1 June 2007 introduction of service tax for certain works contracts applied to contracts completed after that date, while contracts finished before then were not taxable merely because payment was received later. Contracts awarded before 1 June 2007 but extending beyond that date, or awarded thereafter, had to be tested against the applicable law at the stage of execution. The later insertion of Section 65B(54) in 2012 did not displace the earlier taxable category already covered by the 2007 amendment.

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Issues: Whether works contracts for construction of civil structures were liable to service tax depending on the date of award, completion, and receipt of payment.

Analysis: Service tax on certain works contracts was introduced with effect from 1 June 2007, while the later insertion of Section 65B(54) by the Finance Act, 2012 did not exclude the earlier taxable category already covered by the 2007 amendment. Contracts of civil nature completed before 1 June 2007 were not liable merely because payment was received later. Where a works contract was awarded before 1 June 2007 but continued beyond that date, or was awarded thereafter, service tax liability could arise according to the applicable statutory regime and the stage of execution.

Conclusion: The writ petition was not decided by quashing the demand notice, and the petitioner was directed to place its explanation before the Commissioner.

Ratio Decidendi: Service tax on works contracts depended on the statutory regime in force during the relevant period of execution, and not solely on the date of payment.

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