2009 (2) TMI 142 - AT - Service Tax

Tribunal sets aside order, grants relief, deems service as 'works contract', no Service Tax pre-1-6-2007

The Tribunal allowed the appeal, setting aside the impugned order and granting consequential relief to the appellant. It held that the service provided ... Construction Services – Service Tax is applicable from 1/6/2007 - work of construction of Raw water reservoir and its lining package – held that levy of Service Tax on ‘works contract’ came into effect from 1-6-2007 and no Service Tax liability arose prior to that period under any other category of services. We find that in this case also, the liability to pay Service Tax on the period prior to 1-6-2007 under any other category of services does not arise. Issues Involved:1. Classification of the service provided by the appellant.2. Applicability of Service Tax on the service provided.3. Determination of whether the contract was a 'works contract'.4. Liability for penalties and interest under various sections of the Finance Act, 1994.Issue-wise Detailed Analysis:1. Classification of the Service Provided by the Appellant:The appellant was engaged in the construction of a 'Raw water reservoir and its lining package' for NTPC. The investigation revealed that the appellant did not obtain Service Tax Registration under 'Commercial & Industrial Construction Services' (CICS) and did not discharge Service Tax liability on the gross amount charged. The Adjudicating Authority concluded that the activities fell under the category of 'commercial or industrial construction services' due to the nature of the work involved, which included area clearance, excavation, concreting, and other construction-related activities. The appellant contested this, arguing that the construction was of a dam, not a reservoir, and hence should not be classified under CICS.2. Applicability of Service Tax on the Service Provided:The show-cause notices demanded Service Tax for the periods from February 2005 to November 2006 and December 2006 to August 2007, respectively. The Adjudicating Authority demanded Service Tax, interest, and imposed penalties under sections 76, 77, and 78 of the Finance Act, 1994. The appellant argued that the service provided was not taxable under CICS as it was a dam construction, and further, the contract was a 'works contract', which only became taxable from 1-6-2007. The Tribunal found that the contract was indeed understood and acted upon as a 'works contract' by both parties, and thus, no Service Tax liability arose prior to 1-6-2007.3. Determination of Whether the Contract was a 'Works Contract':The Tribunal examined the contract clauses and found that the contract was on a 'Works Contract basis', as explicitly stated in the contract and evidenced by the appellant's registration with the Sales Tax authorities. The Tribunal relied on previous judgments, including Diebold Systems (P.) Ltd. v. CST and Air Liquide Engg. India (P.) Ltd. v. CC&CE, which held that 'works contracts' were not taxable under Service Tax prior to 1-6-2007. The Tribunal concluded that since the contract was a 'works contract', it could not be taxed under CICS for the period before 1-6-2007.4. Liability for Penalties and Interest:Given the conclusion that the service provided was a 'works contract' and not taxable under Service Tax prior to 1-6-2007, the Tribunal found it unnecessary to address the issues of penalties and interest. The impugned order demanding Service Tax, interest, and imposing penalties was set aside.Conclusion:The Tribunal allowed the appeal, setting aside the impugned order, and granted consequential relief to the appellant. The Tribunal's decision was based on the interpretation that the service provided was a 'works contract' and thus not liable for Service Tax prior to 1-6-2007.