2013 (10) TMI 205 - AT - Service Tax

Tribunal Refers Taxability of Works Contract Service Issue to Larger Bench for Resolution

The Tribunal directs the Registry to refer the issue of taxability of works contract service before 1.6.2007 to a Larger Bench of five members to resolve ... Taxability of works contract prior to 1.6.2007 - vivisection of composite works contract and classification of segregable service elements under pre-existing taxable services - precedential effect of a third member decision resolving a Division Bench conflict - reference to a Larger Bench of five members for resolution of conflicting precedentsPrecedential effect of a third member decision resolving a Division Bench conflict - A judgment rendered pursuant to resolution of a Division Bench conflict by a third member is to be treated as the opinion of a full Bench (three member Bench) for precedential purposes. - HELD THAT: - The Tribunal relied on the reasoning in Puri (P.C.) v. Commissioner of Income Tax as authoritatively explaining that where two judges differ and the matter is referred to a third judge, the opinion of the majority (including the third judge) constitutes the decision of a Full Bench. Applying that principle, the Tribunal held that where a conflict originating in a Division Bench is referred to a third member for resolution, the resultant judgment is effectively the judgment of a full Bench (three members) and must be given corresponding precedential efficacy. [Paras 12, 13, 14]The decision of a third member resolving a Division Bench conflict is to be treated as a full Bench (three member) judgment for precedent.Taxability of works contract prior to 1.6.2007 - vivisection of composite works contract and classification of segregable service elements under pre-existing taxable services - reference to a Larger Bench of five members for resolution of conflicting precedents - Conflict among existing three member Bench decisions on whether composite/turnkey works contracts (involving transfer of property in goods and services) could be vivisected and the service components taxed under pre existing taxable services for periods prior to 1.6.2007 must be referred to a Larger Bench of five members. - HELD THAT: - The Tribunal identified an extant conflict between three three member Benches (Jyoti Ltd., Indian Oil Tanking Ltd., and BSBK Pvt. Ltd.) on whether a composite works contract was taxable before 1.6.2007 by vivisecting service elements and classifying them under pre existing taxable services. In the interests of precedential coherence and doctrinal stability, and having held that third member decisions resolving Division Bench conflicts attract full Bench status, the Tribunal considered it appropriate to refer the determinative question-whether service components of such composite contracts could be segregated and taxed under pre existing services for the period prior to 1.6.2007-to a Larger Bench of five members and directed the Registry to place the papers before the President for constitution of such a Bench. [Paras 8, 14, 15, 17]The issue is referred to a Larger Bench of five members; Registry directed to place the papers before the President for appropriate constitution and listing.Reference to a Larger Bench of five members for resolution of conflicting precedents - The contention that referring the issue to a five member Larger Bench would impermissibly pre judge the discretion of a third member who may later resolve a Division Bench conflict is rejected. - HELD THAT: - The Tribunal held that resolving conflicts among precedents of equal efficacy is a duty of the Tribunal to ensure doctrinal stability. If a five member Larger Bench decides the question, a subsequently constituted third member would be bound by that authoritative decision; this does not constitute an impermissible curtailment of judicial discretion but serves to harmonise conflicting precedents. [Paras 16]The objection that a five member reference would chill the discretion of a third member is rejected; reference to a Larger Bench is permissible and appropriate.Final Conclusion: The Tribunal held that a third member decision resolving a Division Bench conflict carries the effect of a full Bench (three member) judgment for precedential purposes; identified a conflict among three member Bench decisions on the taxability and vivisection of composite/turnkey works contracts for periods prior to 1.6.2007; rejected the contention that a five member reference would impermissibly pre judge a third member; and directed the Registry to place the papers before the President for constitution of a Larger Bench of five members to decide the determinative question. Issues Involved:1. Whether works contract service is chargeable to service tax prior to 1.6.2007.2. Conflict between decisions of various Larger Benches on the taxability of works contract service before 1.6.2007.3. Validity and impact of judgments delivered by a third member resolving conflicts in Division Bench decisions.4. The necessity of referring the issue to a Larger Bench of five members.Detailed Analysis:1. Chargeability of Works Contract Service to Service Tax Prior to 1.6.2007:The primary issue is whether works contract service was subject to service tax before 1.6.2007. With the introduction of Section 65(105)(zzzza) by the Finance Act, 2007, service tax was explicitly levied on services related to the execution of a works contract from 1.6.2007 onwards. Before this date, services provided under turnkey agreements were taxed under other specified taxable services such as commercial or industrial construction service.2. Conflict Between Decisions of Various Larger Benches:The application highlights a conflict between two Larger Benches, namely, Jyoti Ltd. Vs. CCE and CCE Vs. Indian Oil Tanking Ltd., which held that works contract service was not independently taxable prior to 1.6.2007. Conversely, the Larger Bench in CCE Vs. BSBK Ltd. held that the service elements of a composite works contract could be segregated and taxed under pre-existing taxable services. This conflict necessitates a resolution to ensure doctrinal stability.3. Validity and Impact of Judgments Delivered by a Third Member Resolving Conflicts in Division Bench Decisions:The judgment discusses the nature of decisions delivered by a third member in resolving conflicts in Division Bench decisions. According to the Delhi High Court in Puri (P.C.) Vs. Commissioner of Income Tax, such decisions are considered as judgments of a full bench. Thus, judgments resulting from a third member's resolution of a conflict are treated as decisions of a Larger Bench, having the same efficacy as if three members had sat en banc.4. Necessity of Referring the Issue to a Larger Bench of Five Members:Given the existing conflict between the decisions of three-member benches in Jyoti Ltd., Indian Oil Tanking Ltd., and BSBK Pvt. Ltd., the Tribunal finds it necessary to refer the matter to a Larger Bench of five members. This referral aims to resolve whether a composite contract involving both goods and services, which became taxable from 1.6.2007, could be vivisected and taxed under pre-existing taxable services for the period before 1.6.2007.Conclusion:The Tribunal directs the Registry to place the papers before the Hon'ble President for an appropriate decision, emphasizing the need to resolve the conflict in precedents to maintain doctrinal stability. The contention that referring the issue to a Larger Bench of five members would prejudge the discretion of a third member is rejected, as resolving conflicts in precedents is essential for judicial consistency.