2019 (2) TMI 89 - AT - Service Tax

Service tax demand on commercial construction services post 1.6.2007 ruled unsustainable.

The Tribunal concluded that the demand for service tax under commercial or industrial construction service (residential complex) could not be sustained ... Construction Services - Construction of Complex Service - appellant entered into agreement with the customers for sale of undivided share of land and for providing construction service - period involved is from 10.9.2004 to 31.10.2008 - Held that:- The contracts entered between the appellant and the service recipient is a composite contract which involves both supply of materials as well as rendering of service. The Tribunal in the case of Real Value Promoters Ltd. [2018 (9) TMI 1149 - CESTAT CHENNAI] had occasion to analyse the issue regarding demand of service tax under construction of residential complex services, commercial or industrial construction service and construction of complex service. The Tribunal has held that prior to 1.6.2007, levy of service tax can be under the above categories only for contracts which are purely for services. That after 1.6.2007, the above categories would be applicable only if the contracts are purely services and which are not composite contracts. Further, it was held that after 1.6.2007, demand in respect of composite contracts would fall under works contract service only. The demand of service tax under commercial or industrial construction service (residential complex) cannot sustain after the period 1.6.2007. The levy of service tax prior to 1.6.2007 cannot also sustain by application of the decision of the Hon’ble Supreme Court in the case of Larsen & Toubro Ltd. [2015 (8) TMI 749 - SUPREME COURT]. Appeal allowed - decided in favor of appellant. Issues Involved:1. Classification of the service provided by the appellant.2. Applicability of service tax on composite contracts prior to and post-1.6.2007.3. Validity of the demand raised under the category of Construction of Complex Service and Commercial Construction Service.4. Reference to the Tribunal’s decision in Real Value Promoters Ltd. Vs. CCE and its applicability.Detailed Analysis:1. Classification of the Service Provided by the Appellant:The appellants were engaged in rendering services under the category of Construction of Commercial Residential Complex. The department alleged that they provided taxable services without obtaining service tax registration and without payment of service tax. The appellants argued that their activities fell under the category of works contract service involving execution of composite contracts, which includes both supply of materials and rendering of services.2. Applicability of Service Tax on Composite Contracts Prior to and Post-1.6.2007:The Tribunal analyzed the issue in light of the period involved, which was from 10.9.2004 to 31.10.2008. It was noted that the contracts entered into by the appellant were composite contracts. The Tribunal referred to the case of Real Value Promoters Ltd. Vs. CCE, where it was held that prior to 1.6.2007, service tax could be levied on contracts purely for services. Post-1.6.2007, composite contracts would fall under works contract service only, as defined under section 65(105)(zzzza).3. Validity of the Demand Raised Under the Category of Construction of Complex Service and Commercial Construction Service:The Tribunal found that the demand raised under the category of Construction of Complex Service and Commercial Construction Service could not sustain for the period after 1.6.2007. The relevant portion of the decision stated that composite works contracts would necessarily fall within the ambit of works contract service, and the value of services in a works contract should attract service tax. The Tribunal cited several cases, including the Hon’ble Apex Court’s decision in Larsen & Toubro, which held that there could be no levy of service tax on composite contracts prior to 1.6.2007.4. Reference to the Tribunal’s Decision in Real Value Promoters Ltd. Vs. CCE and Its Applicability:The Tribunal heavily relied on its earlier decision in Real Value Promoters Ltd. Vs. CCE, where it was concluded that composite contracts involving both service and supply of goods were brought within the ambit of service tax only with effect from 1.6.2007. The Tribunal reiterated that only contracts purely for services would be subject to service tax under the categories of CICS/CCS/RCS prior to and after 1.6.2007. The Tribunal also referred to the Union Finance Minister’s budget speech in 2007, which proposed an optional composition scheme for works contracts.Conclusion:The Tribunal concluded that the demand of service tax under commercial or industrial construction service (residential complex) could not sustain after 1.6.2007. The levy of service tax prior to 1.6.2007 was also unsustainable based on the Supreme Court’s decision in Larsen & Toubro Ltd. Consequently, the impugned order was set aside, and the appeal was allowed with consequential relief. The miscellaneous application for change of cause title was also allowed.