2018 (9) TMI 2086 - AT - Service Tax

Tribunal upholds classification of services under Works Contract Service over Commercial Construction.

The Tribunal dismissed the Revenue's appeals and upheld the Commissioner's order, determining that the services were correctly classified under Works ... Classification of composite contracts as Works Contract Service - Exclusion of services in respect of dams and tunnels from Commercial or Industrial Construction Service - Primary use of constructed building determines levy under Commercial or Industrial Construction Service - Non-taxability of works contracts prior to 01.06.2007Classification of composite contracts as Works Contract Service - Non-taxability of works contracts prior to 01.06.2007 - Composite contracts involving supply of goods and services were correctly classified as works contracts and not as service contracts simpliciter; therefore demand could not be sustained under Commercial or Industrial Construction Service for the periods in dispute. - HELD THAT: - The Tribunal applied the ratio of the Apex Court in Commissioner v. Larsen & Toubro Ltd., holding that the charging provisions for specified services cover service contracts simpliciter and do not extend to composite works contracts which involve transfer of property in goods. Because the contracts in question were composite (supply of goods plus services), they were within the ambit of works contracts. Consequently, demands framed under Commercial or Industrial Construction Service - a levy aimed at service contracts simpliciter - were not maintainable for the entire disputed period. The Tribunal also noted that works contracts were not taxable prior to 01.06.2007 and accordingly upheld the Commissioner's dropping of demands for the pre-01.06.2007 period; for the post-01.06.2007 period the characterisation as composite works contract prevented maintenance of the demand under Commercial or Industrial Construction Service. [Paras 10, 11, 12]Revenue's challenge to classification is rejected; Commissioner's order upholding classification as works contract is maintained and demands under Commercial or Industrial Construction Service are not sustainable.Exclusion of services in respect of dams and tunnels from Commercial or Industrial Construction Service - Construction activities relating to dams and tunnels (forming part of the hydro-electric project) are excluded from the definition of Commercial or Industrial Construction Service and therefore not taxable under that head. - HELD THAT: - The Tribunal examined the statutory definition of Commercial or Industrial Construction Service which expressly excludes services provided in respect of roads, airports, railways, transport terminals, bridges, tunnels and dams. The assessee delineated the hydro-electric project into (a) dams and tunnels and (b) electro-mechanical works, with tax already paid on the latter where applicable. Revenue did not dispute that the impugned demand related only to dam- and tunnel-related civil works. In light of the exclusion in the definition and consistent Tribunal precedent recognizing works integral to dams as excluded, the Commissioner's finding that the disputed services related to dams and tunnels and therefore fell outside the taxable definition was upheld. [Paras 13, 14]Demand insofar as it relates to construction of dams and tunnels is excluded from Commercial or Industrial Construction Service and is not leviable.Primary use of constructed building determines levy under Commercial or Industrial Construction Service - Construction of educational institutions by the assessee is not taxable under Commercial or Industrial Construction Service where the buildings are used primarily for educational purposes and Revenue failed to rebut that finding. - HELD THAT: - The Tribunal applied the statutory test that levy under Commercial or Industrial Construction Service depends on whether the constructed building is used, to be used, occupied or engaged primarily in commerce or industry. CBEC clarification was noted that the leviability hinges on user of the building. The Commissioner found that the buildings were used for educational purposes; Revenue produced no evidence to show commercial use. In the absence of any material to displace that finding, the Tribunal sustained the Commissioner's conclusion that construction of the educational institutes was not taxable under the said service. [Paras 15]Revenue's challenge to the non-levy in respect of educational institutions is dismissed and the Commissioner's finding of non-taxability is upheld.Final Conclusion: The Revenue appeals are dismissed and the Commissioner's order dropping the demands is upheld: the contracts are composite and correctly treated as works contracts (with pre-01.06.2007 non-taxability), civil works relating to dams and tunnels are excluded from Commercial or Industrial Construction Service, and construction of the educational institutes is not taxable on the record before the Tribunal; cross-objection disposed of with consequential benefits to the assessee. Issues Involved:1. Classification of services rendered for hydro-electric projects.2. Taxability of construction services for educational institutions.3. Applicability of the exclusion clause under the definition of 'Works Contract Service' and 'Commercial or Industrial Construction Service'.4. Classification of composite contracts involving supply of goods and services.Issue-Wise Detailed Analysis:1. Classification of Services Rendered for Hydro-Electric Projects:The Revenue challenged the classification of services rendered for hydro-electric projects, arguing that such services should fall under 'Commercial or Industrial Construction Service' (CICS) rather than 'Works Contract Service' (WCS). The respondent-assessee contended that the construction related to dams and tunnels, which are excluded from the definition of CICS. The Tribunal upheld the Commissioner’s decision, emphasizing that the contracts were composite in nature, involving both goods and services, and thus correctly classified under WCS. The Tribunal referenced the Supreme Court’s decision in Commissioner v. Larsen & Toubro Limited, which clarified that composite works contracts involving supply of goods and services are to be classified under WCS and not under service contracts simpliciter.2. Taxability of Construction Services for Educational Institutions:The Revenue argued that the construction services for educational institutions were provided for consideration and thus should be considered commercial and taxable. The Tribunal, however, upheld the Commissioner’s finding that the buildings constructed were used for educational purposes and not for commercial purposes. The Tribunal referred to the CBEC Circular No. 80/10/2004-ST, which clarified that the taxability of construction services depends on whether the building is used for commerce or industry. Since the Revenue failed to provide evidence that the buildings were used for commercial purposes, the Tribunal maintained that the construction services for educational institutions were not taxable under CICS.3. Applicability of the Exclusion Clause:The Tribunal examined whether the construction of dams and tunnels related to hydro-electric projects falls under the exclusion clause of CICS and WCS. The Tribunal noted that the definition of CICS explicitly excludes services provided in respect of roads, airports, railways, transport terminals, bridges, tunnels, and dams. The Tribunal referenced the Larger Bench decision in Lanco Infratech Ltd. v. CCE, Hyderabad, which held that construction of canals and laying of pipelines integrated into dam projects are excluded from the scope of WCS. The Tribunal concluded that the services in question were indeed in respect of dams and tunnels and thus excluded from the definition of CICS, making them non-taxable.4. Classification of Composite Contracts:The Tribunal confirmed that the contracts in dispute were composite in nature, involving both supply of goods and services. The Tribunal reiterated the Supreme Court’s ruling in Commissioner v. Larsen & Toubro Limited, which established that composite works contracts are to be classified under WCS. The Tribunal found that the Commissioner correctly dropped the demand for the period prior to 01.06.2007, as WCS was not taxable before that date. For the period post 01.06.2007, the demand could not be confirmed under CICS, as it only covers service contracts simpliciter, not composite contracts. The Tribunal cited several decisions supporting this view, including URC Construction (P) Limited v. Commissioner and Srishti Constructions v. Commissioner.Conclusion:The Tribunal dismissed the appeals filed by the Revenue and upheld the Commissioner’s order. The Tribunal concluded that the services in dispute were correctly classified under WCS, the construction of dams and tunnels related to hydro-electric projects was excluded from the definition of CICS, and the construction services for educational institutions were not taxable as they were not used for commercial purposes. The cross-objection filed by the respondent was disposed of, and the respondent-assessee was entitled to consequential benefits.