2018 (4) TMI 844 - AT - Service Tax

Tribunal remands construction tax classification for fair review

The Tribunal set aside the previous order and remanded the matter to the Adjudicating Authority for re-examination of the classification of construction ... Construction of Complex Services - composite contract - Works Contract Services - declared service - Explanation to Section 65(105)(zzzh) - machinery provision for determination of value - definition of 'Residential Complex' - reverse charge mechanism - Preferential Location Charges (PLC) services - club or association services - Cenvat creditConstruction of Complex Services - definition of 'Residential Complex' - composite contract - Whether the construction of individual villas in the two township projects falls within the scope of Construction of Complex Services or constitutes non-chargeable/non-complex activity - HELD THAT: - The Tribunal observed that the question requires factual and legal re-examination by the original Adjudicating Authority. It noted that the Explanation expanding the scope of the statutory definition raises issues as to whether the townships in fact possess the common areas and facilities required by the statutory definition of 'Residential Complex' and whether the contracts are composite in nature so as to preclude classification under Construction of Complex Services. The Tribunal recorded that these matters were not examined below with reference to the factual details and relevant authorities, and therefore directed a de novo adjudication on this point. [Paras 12, 13]Remanded to the Adjudicating Authority for fresh consideration and determination whether the projects qualify as a 'Residential Complex' and whether the construction of villas is chargeable under Construction of Complex Services.Works Contract Services - composite contract - Larsen and Toubro precedent - Whether the services rendered are to be classified as Works Contract Services instead of Construction of Complex Services - HELD THAT: - The Tribunal held that the classification question - whether the activity is to be treated as Works Contract Services - requires reconsideration in the light of the judgments of the Supreme Court in Larsen & Toubro and other authorities. It observed that the lower authority had not addressed these competing contentions with reference to the factual matrix of the projects and directed that the Adjudicating Authority examine afresh whether the contracts fall within the scope of Works Contract Services. [Paras 10, 12, 13]Remanded for de novo determination whether the services are classifiable as Works Contract Services.Explanation to Section 65(105)(zzzh) - machinery provision for determination of value - declared service - composite contract - Applicability of the Delhi High Court decision in Suresh Kumar Bansal and the need to consider absence or presence of machinery provisions for excluding non-service components - HELD THAT: - The Tribunal noted the appellant's reliance on Suresh Kumar Bansal, which held that the impugned Explanation could not cover composite contracts in the absence of machinery to exclude non-service components. As this decision was not cited before the Adjudicating Authority, the Tribunal found it necessary that the Authority re-examine the matter with reference to that judgment and the presence or absence of mechanistic rules for valuation and segregation of service components. [Paras 6, 8, 12]Remanded for fresh consideration of the impact of Suresh Kumar Bansal and whether the Explanation and the existing rules suffice to determine and tax the service component.Preferential Location Charges (PLC) services - club or association services - reverse charge mechanism - Cenvat credit - Chargeability of Service Tax on PLC, club charges, works contract service under reverse charge, and correctness of Cenvat credit availed - HELD THAT: - The Tribunal recorded that the Adjudicating Authority had made findings on these heads but concluded that the entire case requires reconsideration. It directed that the Authority re-adjudicate, with opportunity of hearing, whether PLC and club charges are exigible under the respective service heads, whether reverse charge applies to works contract services for internal roads, and whether Cenvat credit was wrongly availed, all in light of the factual materials and legal precedents. [Paras 11, 12, 13]Remanded for de novo adjudication on PLC, club charges, reverse charge applicability and Cenvat credit issues.Final Conclusion: The impugned Order-in-Original is set aside and the matter is remanded to the Adjudicating Authority for de novo adjudication on all contested issues (qualification as Construction of Complex or Works Contract Services, effect of relevant precedents and Explanation, PLC and club charges, reverse charge liability and Cenvat credit), with a fair opportunity of hearing. Issues Involved:1. Non-payment of Service Tax on construction of individual villas in two projects.2. Non-payment of Service Tax on services rendered before July 2010 but payments received thereafter.3. Short-payment of Service Tax on electricity and transformer charges.4. Short-payment of Service Tax on club charges.5. Service Tax liability under works contract services under reverse charge mechanism.6. Service Tax liability as per reconciliation chart.7. Wrong availment of Cenvat credit.Issue-wise Detailed Analysis:1. Non-payment of Service Tax on construction of individual villas in two projects:The appellant argued that the levy of Service Tax under 'Construction of Complex Services' (CCS) is ultra vires as per the Delhi High Court's decision in Suresh Kumar Bansal v. Union of India. The High Court stated that composite contracts involving both services and goods transfer cannot be taxed under CCS due to the absence of machinery provisions to ascertain the service element. The appellant also cited that from 01/07/2012, construction activities are under declared services, but the absence of machinery provisions continues to make the levy unsustainable. Additionally, the appellant contended that their activities should fall under 'Works Contract Services' (WCS), not CCS, based on the Supreme Court's decision in L&T. The appellant further argued that individual villas do not constitute a 'Residential Complex' as per Section 65(91a) since they do not comprise buildings with more than twelve residential units.2. Non-payment of Service Tax on services rendered before July 2010 but payments received thereafter:The appellant maintained that Service Tax is not applicable for services rendered before 01/07/2010, even if payments were received later. They cited several cases, including Reliance Industries Ltd. v. Commissioner, to support their position that the taxable event is the rendering of services, not the receipt of payment.3. Short-payment of Service Tax on electricity and transformer charges:The appellant argued that Service Tax on these charges, demanded under 'Preferential Location Services' (PLC), was already paid under 'Construction Services' with abatement claimed. Hence, no additional tax should be levied.4. Short-payment of Service Tax on club charges:The appellant contended that club charges should not be taxed under 'Club or Association Services.' They referenced cases like Sports Club of Gujarat Ltd. v. Union of India to support their argument.5. Service Tax liability under works contract services under reverse charge mechanism:The appellant argued that services received for road construction within townships should not attract Service Tax under WCS as the roads are public and thus exempt.6. Service Tax liability as per reconciliation chart:No specific arguments or details were provided in the judgment summary regarding this issue.7. Wrong availment of Cenvat credit:No specific arguments or details were provided in the judgment summary regarding this issue.Conclusion:The Tribunal noted that the core dispute revolves around the classification of the construction activities and the applicability of Service Tax under CCS or WCS. The Tribunal observed that the decision of the Delhi High Court in Suresh Kumar Bansal was not considered by the lower authority. The Tribunal also acknowledged the need to re-examine whether the construction of individual villas falls under CCS or WCS and whether the activities meet the statutory definition of a 'Residential Complex.' The Tribunal set aside the impugned order and remanded the matter to the Adjudicating Authority for de novo consideration, ensuring all issues are re-examined with reference to relevant case laws and statutory provisions. The Adjudicating Authority is instructed to provide a fair hearing before passing a new order.Order Pronounced:The Tribunal pronounced the order in the open court on 14/03/2018, setting aside the previous order and remanding the matter for reconsideration.