2017 (4) TMI 1086 - AT - Service Tax

Service tax demand on DMRC project contracts ruled not sustainable. Contracts exempt from tax liability. Commissioner's misclassification criticized.

M/s Ircon International Ltd. Versus CST, Delhi

The Tribunal held that the service tax demand and penalties imposed on the appellants for contracts executed for DMRC projects were not legally ... Composite works contract - The Commissioner held that the appellants rendered taxable service under the category of erection, commissioning and installation service chargeable to service tax w.e.f. 01/07/2003 - case of Revenue is that contracts executed by the appellants are to be classified as works contract and the works contract in respect of railways is excluded from tax liability as per the statutory definition itself. It is well settled legal position that metro work is nothing but railway work - Held that: - a contract wherein transfer of property in goods involved in the execution of such contract is leviable to tax as sale of goods is covered under works contract service. Admittedly, in the contracts now under consideration there were transfer of property in goods which are directly involved in the exclusion of work by the appellant. As such, we find that the findings of the Original Authority is without any basis and cannot be legally sustained - appeal allowed - decided in favor of appellant. Issues:Liability to service tax for contracts executed by appellants for DMRC.Analysis:The appeal challenged an order regarding the liability to service tax for contracts executed by the appellants for DMRC projects. The Commissioner held that the appellants rendered taxable service under the category of erection, commissioning, and installation service chargeable to service tax from 01/07/2003. The Commissioner confirmed the service tax demand and imposed penalties under various sections of the Finance Act, 1994.The appellant's counsel argued that the contracts executed were composite in nature, involving both transfer of goods and provision of services. He cited the scope of work in the contracts and contended that they should be classified as works contracts, liable to service tax only from 01/06/2007 based on a Supreme Court decision. The counsel challenged the Commissioner's classification of the service and the inclusion of material supply and civil work in determining tax liability.The Authorized Representative supported the Original Authority's findings, emphasizing that the contracts were primarily for the installation and commissioning of railway track and traction electrification. He argued that the tax liability should be based on the service portion identified in the contract separately.The Tribunal analyzed the scope of work in the contracts and found that they involved track installation, supply of rails, and other related activities. The Tribunal noted the Commissioner's focus on the statutory definition of tax entry related to erection, commissioning, or installation service but criticized the misdirection in classifying the service without considering the works contract service category under the Finance Act, 1994. The Tribunal highlighted the exclusion of works contract in respect of railways from tax liability and referred to relevant decisions supporting this interpretation.Ultimately, the Tribunal concluded that the service tax confirmed against the appellant was not legally sustainable. Citing previous decisions and the nature of work executed, the Tribunal set aside the impugned order and allowed the appeal.