Tribunal rules on service tax demands for works contracts, sub-contracted projects, and government entities

The Tribunal set aside the service tax demands for works contracts executed before 01.06.2007, sub-contracted projects, and projects for certain government entities. The demand for a specific project was reduced to 30% of the contract value. However, the service tax liability on transportation of goods by road was upheld. Penalties for certain projects were set aside, and the appeal was disposed of accordingly.

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Issues Involved:

1. Service tax liability on works contracts executed prior to 01.06.2007.
2. Service tax liability on works contracts executed post 01.06.2007.
3. Service tax liability on sub-contracted projects.
4. Service tax liability on projects executed for APIICL, KTPS, APSHCL, and Software Engineers Employees Housing & Welfare Association.
5. Service tax liability on transportation of goods by road.
6. Limitation and bona fide belief regarding service tax liability.

Detailed Analysis:

Issue 1: Service tax liability on works contracts executed prior to 01.06.2007

The appellant argued that the contracts executed before 01.06.2007 were works contracts, and as per the decision in CCE & Customs Kerala Vs Larsen & Toubro Ltd., such contracts are not liable for service tax. The Tribunal agreed, holding that the service tax liability on the turnover of Rs. 12.35 crores prior to 01.06.2007 is unsustainable and set it aside.

Issue 2: Service tax liability on works contracts executed post 01.06.2007

The Tribunal addressed the service tax liability post 01.06.2007 individually:

A. Sub-contracted Projects:

The appellant contended that the service tax liability was discharged by the sub-contractor, M/s Sudhama Projects India Pvt Ltd, under the composition scheme. The Tribunal found that the appellant provided sufficient evidence showing that M/s Sudhama Projects had discharged the service tax liability. Therefore, the demand for service tax from the appellant on the turnover of Rs. 49.15 crores was set aside.

B. Projects Executed for APIICL, KTPS, APSHCL, and Software Engineers Employees Housing & Welfare Association:

B.1 APSHCL and APIICL:

The appellant argued that these were government organizations and the projects were non-commercial. The Tribunal noted the absence of any finding indicating the commercial nature of the buildings constructed for APSHCL and APIICL. Referring to the Larger Bench decision in Lanco Infratech Ltd., the Tribunal held that such non-commercial projects are not liable for service tax. The demands for these projects were set aside.

B.2 KTPS:

The appellant claimed exemption under Notification No. 45/2010, which exempts services related to the transmission and distribution of electricity. The Tribunal, referring to the decisions in Kedar Constructions and Noida Power Co. Ltd., held that the services rendered to KTPS are exempt from service tax and set aside the demand.

B.3 Software Engineers Employees Housing & Welfare Association:

The Tribunal found no evidence to show that the association's projects were non-commercial. However, it allowed a reduction in the taxable value to 30% of the total contract value, based on the CA's certificate indicating that materials constituted 70% of the contract value. The appellant was directed to discharge the service tax liability on this reduced value along with interest, but the penalty was set aside.

Issue 3: Service tax liability on transportation of goods by road

The appellant argued that the transportation was within the project site and not taxable. The Tribunal found no evidence to support this claim and upheld the service tax liability of Rs. 6,89,387/- along with interest and penalty.

Issue 4: Limitation and bona fide belief

The appellant claimed a bona fide belief that services rendered to government entities like APIICL and APSHCL were exempt from service tax, based on communications from these entities. The Tribunal accepted this argument, noting that the appellant could have reasonably believed they were not liable for service tax based on the information provided by the state government entities. The demands for these entities up to 2009-10 were set aside on the grounds of limitation.

Conclusion:

The Tribunal set aside the service tax demands for the period prior to 01.06.2007, the sub-contracted projects, and the projects executed for APSHCL, APIICL, and KTPS. The demand for the Software Engineers Employees Housing & Welfare Association was reduced to 30% of the contract value. The service tax liability on transportation of goods by road was upheld. The penalties for the Software Engineers Employees Housing & Welfare Association and transportation of goods by road were set aside. The appeal was disposed of accordingly.

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