2019 (9) TMI 1531 - AT - Service Tax

Tribunal rules in favor of KEC International Ltd on tax classification dispute, deeming penalties legally unsustainable.

The Tribunal allowed the appeal of M/s KEC International Ltd, holding that the appellant correctly classified services and discharged tax liabilities. The ... Supply, and/or installation, of ‘transmission towers’ - 35 contracts entered into by the assessee with electricity distribution authorities - between 1st October 2004 and 31st March 2009 - Benefit of N/N. 12/2003-ST dated 20th June 2003 - HELD THAT:- It is seen that the adjudicating authority has accepted the computation of tax liability of ₹ 49,12,81,797 pertaining to the tax discharged under two of services existing prior to 1st June 2007. For the period between May 2007 and March 2009, total billing of ₹ 538,80,93,109 was, after abatement of value of goods/materials amounting to ₹348,39,74,000, was reduced to ₹ 190,41,19,109 on which tax of ₹ 353,49,122 was held as liable. With the decision of the Hon’ble Supreme Court in COMMISSIONER, CENTRAL EXCISE & CUSTOMS VERSUS M/S LARSEN & TOUBRO LTD. AND OTHERS [2015 (8) TMI 749 - SUPREME COURT], the legality of levy of tax on composite contract, by recourse to entry for services simpliciter that existed prior to incorporation of section 65(105)(zzzza) of Finance Act, 1994, was negated. The eligibility to discharge tax under Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007 on contracts that were in existence even before 1st June 2007 has been approved by the Tribunal in M/S B.R. KOHLI CONSTRUCTION PVT. LTD. VERSUS CST, NEW DELHI [2017 (4) TMI 38 - CESTAT NEW DELHI] where it was held that subject to fulfilment of the conditions, the appellants are eligible to discharge service tax on such works contract, after 1-6-2007, in terms of composition scheme of 2007. The charging of differential tax by denial of eligibility for the composition scheme is not correct in law - even on the ground of proper discharge of liability without recourse to the notification issued under section 11 C of Central Excise Act, 1944, the demand fails - Appeal allowed - decided in favor of appellant. Issues Involved:1. Classification and taxability of services under the Finance Act, 1994.2. Eligibility for benefits under various notifications, including Notification No. 45/2010-ST.3. Application of the Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007.4. Legality of demand for differential tax and penalties.Issue-wise Detailed Analysis:1. Classification and Taxability of Services:The appellant, M/s KEC International Ltd, engaged in contracts with electricity distribution authorities for supply and/or installation of transmission towers, was initially assessed under 'erection, commissioning and installation service' and later under 'commercial and industrial construction service' until March 2009. The adjudicating authority's decision to classify these services and impose tax based on the entire value, including transmission towers, was contested. The appellant argued that they had duly discharged tax liabilities under the appropriate classifications and schemes.2. Eligibility for Benefits under Various Notifications:The appellant claimed benefits under Notification No. 12/2003-ST and Notification No. 45/2010-ST. The adjudicating authority denied the benefits, stating that the appellant did not fall under the category exempted by industry practice. However, the Tribunal found that the appellant had been discharging tax either as a provider of 'erection, commissioning and installation agency service' or 'commercial or industrial construction service' and later under the composition scheme for 'works contract service.' The Tribunal cited precedents like Kedar Constructions v. Commissioner of Central Excise and Noida Power Co Ltd v. Commissioner of Central Excise, which supported the appellant's claim for exemption under Notification No. 45/2010-ST for services related to electricity distribution and transmission.3. Application of the Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007:The appellant switched to the composition scheme for 10 contracts post the introduction of 'works contract service' on 1st June 2007. The adjudicating authority denied this switch, arguing that the contracts were entered into before the new levy. The Tribunal, referencing cases like BR Kohli Construction Pvt Ltd and Skyline Engineering Contract (India) Pvt Ltd, upheld that the appellant was eligible to discharge tax under the composition scheme for ongoing contracts even if they were initiated before 1st June 2007, provided the conditions were met.4. Legality of Demand for Differential Tax and Penalties:The Tribunal found that the adjudicating authority's demand for differential tax by denying the composition scheme was incorrect. The Tribunal noted that the appellant had discharged tax liabilities appropriately and that the denial of the composition scheme benefits was not legally sustainable. The Tribunal also highlighted that the adjudicating authority's reliance on the Larger Bench decision in Larsen & Toubro Ltd was misplaced as it was overruled by the Supreme Court, which negated the levy of tax on composite contracts before the incorporation of section 65(105)(zzzza).Conclusion:The Tribunal set aside the impugned order, allowing the appeal. It concluded that the appellant had appropriately discharged their tax liabilities and was entitled to the benefits under the relevant notifications and composition scheme. The demand for differential tax and penalties was deemed unsustainable in law.