2019 (2) TMI 13 - AT - Service Tax

Tribunal rules in favor of appellants on service tax demand for construction contracts

The Tribunal ruled in favor of the appellants in a case concerning the demand of service tax under Commercial or Industrial Construction Service for the ... Commercial or Industrial Construction Service - agreements for construction of buildings - period involved is from 2005 to 2008 - Held that:- Undisputedly, the works executed or the contracts entered are of composite in nature as it involves supply of materials as well as element of services - The Hon'ble apex court in the case of M/s. Larsen & Touboro Ltd., [2015 (8) TMI 749 - SUPREME COURT] has held that such contracts which are composite in nature are not leviable to service tax prior to 01.06.2007 - the demand prior to 01.06.2007 cannot sustain and requires to be set aside. Part of the demand falls after 01.06.2007 - Construction of Complex Service - Held that:- The Tribunal in the case of M/s. Real Value Promoters Pvt Ltd., [2018 (9) TMI 1149 - CESTAT CHENNAI] had discussed in detail the leviability of service tax on composite contracts under the category of CCS/CICS/ECIS for the period after 01.06.2007. The Tribunal therein had observed that after 01.06.2007, the demand for such composite contracts can attract the levy of service tax under the category of Works Contract Services only - demand do not sustain. The demand prior to 01.06.2007 or after cannot sustain - appeal allowed - decided in favor of appellant. Issues:Demand of service tax under Commercial or Industrial Construction Service for the period 2005 to 2008.Analysis:The case involved a dispute regarding the levy of service tax on construction activities conducted by the appellants from 2005 to 2008. The department issued a show-cause notice proposing to demand service tax under Commercial or Industrial Construction Service. The original authority confirmed the demand, which was upheld by the Commissioner (Appeals).The appellant argued that the constructions were for hospital use, not commercial or industrial purposes, and therefore should be excluded from service tax. They contended that the contracts were composite in nature, involving both supply of materials and services, and thus not leviable to service tax before 01.06.2007, as per the Supreme Court judgment in Commissioner of Central Excise & Customs Vs. Larsen & Touboro Ltd.The Tribunal analyzed the nature of the contracts and the applicable law. It noted that composite contracts were not subject to service tax before 01.06.2007, as established by the Larsen & Toubro case. The demand prior to this date was set aside. For the period after 01.06.2007, the Tribunal referred to the case of M/s. Real Value Promoters Pvt Ltd., which clarified that demand for composite contracts could attract service tax under Works Contract Services only.The Tribunal further discussed the legislative intent behind the introduction of Works Contract Service in 2007 and emphasized that composite contracts were not liable to service tax under Commercial or Industrial Construction Service or Construction of Complex Service. It highlighted the specific classification of services and the need to prefer the more specific description, as per Section 65A of the Finance Act, 1994.Based on the above analysis, the Tribunal held that the demand before and after 01.06.2007 could not sustain and needed to be set aside. The appeal was allowed with consequential reliefs, if any. The judgment provided a detailed interpretation of the law regarding the levy of service tax on composite contracts in the construction sector, emphasizing the distinction between pure service contracts and composite works contracts.