Tribunal Remands Turnkey Projects Tax Liability Decision for Fresh Determination

The Tribunal allowed the appeal by remanding the matter to the original authority for fresh determination on the tax liability of turnkey projects under works contract service. The Tribunal emphasized that the exemption by exclusion did not apply to turnkey projects, stating that the activities in the contract could not be segregated to fit the distinct activities listed in the definition of "works contract." The decision highlighted the taxability of works contract service post-June 1, 2007, expanding the scope of taxable activities. The appellant's contracts for sewage treatment plants/water treatment plants required further scrutiny for tax liability under relevant sections.

---

---

Issues: Tax liability on turnkey projects under works contract service.

Analysis:
1. The Commissioner confirmed a demand for service tax on the appellant for the period from April 2008 to June 2012, along with interest and penalties under the Finance Act, 1994.

2. The appellant argued that they were not liable for tax as their projects were excluded from the definition of "works contract service" due to the involvement of municipal corporations and government bodies as recipients. However, the impugned order held that the exemption by exclusion did not apply to turnkey projects, including engineering, procurement, construction, or commissioning projects. The order emphasized that the activities in the contract, from designing to commissioning, could not be segregated to fit the distinct activities listed in the definition of "works contract."

3. The Tribunal referred to a Supreme Court decision in Commissioner of Service Tax v. Larsen & Toubro Ltd, which clarified that taxability of works contract service arises only after June 1, 2007. The decision highlighted that composite contracts were only taxable from this date, and vivisecting such contracts for tax purposes was no longer valid. The legislative intent was to expand the scope of works contract service by adding new taxable activities under section 65(105)(zzzzd)(ii)(e) of the Finance Act, 1994. The Tribunal concluded that the appellant's contracts for sewage treatment plants/water treatment plants needed further scrutiny to determine tax liability under the relevant sections.

4. The Tribunal set aside the impugned order and remanded the matter to the original authority for a fresh determination, with all issues left open for consideration. The appeal was allowed by way of remand.

5. The judgment was pronounced on September 6, 2017, by the Tribunal.

---