2018 (7) TMI 1941 - AT - Central Excise

Tribunal rules service tax not applicable to works contracts already subject to VAT

The Tribunal held that service tax could not be demanded on the value of works contracts already subject to VAT as the two levies are mutually exclusive. ... Works contract services - interior contracting work on the basis of specific job/work orders awarded by its clients - composition scheme - HELD THAT:- The Appellant is duly registered as a works contractor under the VAT laws and discharged VAT on the gross receipts as evident from Quarterly Sales Tax Returns and the VAT Assessment Orders for the relevant period. The work orders enclosed by the Appellant as part of the Paper Book and the bills raised against them proves it beyond any element of doubt that these were indivisible composite work orders involving Therefore, in essence a composite works contract involving supply of both goods and services could not be vivisected for imposition supply of both goods and services. The Appellant intended to seek registration as a works contract service provider only, as evident from the application for STC Code filed alongwith the application for registration on 30 May 2007 coupled with the fact that even after the grant of registration under CICS, the Appellant was discharging service tax at the rate of 2% under the works contract composition scheme for payment of tax rules - no negative inferences can be drawn from the fact that registration was initially granted to the Appellant under the taxable category “Commercial or Industrial Construction Services. it is well settled that there is estoppel in law and the person cannot be saddled with a statutory liability which was never there on account of an inadvertent mistake committed by such person. We observe that the levy of VAT and service tax are mutually exclusive - thus, service tax cannot be demanded on the value of the works contract which has already suffered VAT. Appeal allowed - decided in favor of appellant. Issues:1. Classification of services under Works Contract Services, Commercial or Industrial Construction Services, and Erection, Commissioning or Installation Services.2. Application of service tax on the activities of the appellant.3. Interpretation of the Circular dated 22 May 2007 and its impact on the case.4. Comparison of the definitions of works contract under VAT laws and service tax laws.5. Consideration of the estoppel principle in statutory liabilities.Analysis:1. The case involved a dispute regarding the classification of services provided by the appellant under Works Contract Services, Commercial or Industrial Construction Services (CICS), and Erection, Commissioning or Installation Services (ECIS). The appellant, a sole proprietorship interior contracting organization, was registered under the West Bengal VAT laws as a Works Contractor and discharged VAT under the composition scheme. However, a show cause notice was issued demanding service tax under CICS and ECIS for the period before the introduction of Works Contract Services as a taxable category.2. The appellant argued that Works Contract Services were notified as taxable only from 1 June 2007 and could not have been taxed under pre-existing categories like CICS or ECIS. The appellant contended that the new Works Contract Services category introduced a tax on composite works contracts involving both goods and services, distinct from the previous categories. The appellant had applied for service tax registration under Works Contract Services and was discharging service tax under the Composition Rules.3. The Circular dated 22 May 2007 clarified that contracts treated as works contracts for VAT purposes should also be treated as works contracts for service tax purposes. The Tribunal found that the Order-in-Appeal was contrary to the decision of the Supreme Court in the Larsen & Toubro case, emphasizing that the payment of VAT on work orders did not bar their classification under CICS or ECIS before 1 June 2007.4. The Tribunal referenced the Supreme Court's decision in the Larsen & Toubro case, highlighting that works contracts are distinct from service contracts and that prior to 1 June 2007, the machinery for determining the value of service in works contracts did not contemplate taxing composite works contracts. The appellant's work orders and billing practices demonstrated the indivisibility of the composite works contracts involving both goods and services.5. Considering the principle of estoppel, the Tribunal concluded that the appellant's intention to seek registration under Works Contract Services was evident from the application for STC Code and the continued payment of service tax under the works contract composition scheme. The Tribunal held that service tax could not be demanded on the value of works contracts already subject to VAT, as the two levies are mutually exclusive. Therefore, the impugned order was set aside, and the appeal was allowed with consequential relief.This detailed analysis of the judgment highlights the key legal issues, arguments presented by the parties, relevant legal principles, and the Tribunal's findings and conclusions.