2019 (4) TMI 1200 - AT - Service Tax

Tribunal sets aside Service Tax demand, aligns with Works Contract Service rules.

The Tribunal allowed the appeal, setting aside the Service Tax demand and penalties. It determined the contract was composite and fell under Works ... Classification of service - Construction services - period of dispute is 10/09/2004 to 31/07/2006 - Commercial or Industrial Construction Service or Works Contract Service - assessee claims this to be composite contract - HELD THAT:- It is considered a contract for construction of Chimney for Super Thermal Power Plant. In the contract, clause 5.1.0 specifically mentions that the Sales Tax is to be paid on Works Contract basis. Hon’ble Supreme court in the case of COMMISSIONER, CENTRAL EXCISE & CUSTOMS VERSUS M/S LARSEN & TOUBRO LTD. AND OTHERS [2015 (8) TMI 749 - SUPREME COURT] held that the composite contract involving supply of goods as well as providing Service Tax will be liable to Service Tax only under the category of “works contract service” after its introduction with effect from 01/06/2007. The Apex Court has further held that such individual contract cannot be made liable for payment of Service Tax under any other Category prior to the introduction of Works Contract Service. In the present case, since it is a composite contract, it will be liable to payment of Service Tax only with effect from 01/06/2007 under the category of “Works Contract Service”. Since the demand in the present case is entirely prior to this date, the Service Tax taken is liable to be set aside in lying with the Apex Court’s decision. Appeal allowed - decided in favor of appellant. Issues:1. Liability of Service Tax on a composite contract for construction services.2. Applicability of Works Contract Service for Service Tax assessment.3. Recovery of Service Tax from the contract party.Analysis:1. The appellant, a public sector undertaking, entered into a contract with NTPC for construction services, leading to a Service Tax dispute. The Department claimed Service Tax under 'Commercial or Industrial Construction Service,' but the appellant argued it was a composite contract not liable for Service Tax.2. The appellant contended that as per the Supreme Court's decision, composite contracts are assessable under 'Works Contract Service,' effective from 01/06/2007. The Tribunal agreed, stating that pre-2007 demands cannot be taxed under this category, aligning with the Supreme Court's ruling.3. The Tribunal noted the contract specified Sales Tax on a Works Contract basis, indicating a composite nature. It directed the Adjudicating Authority to verify if Service Tax was actually recovered from NTPC, stating any such recovery should be paid to the Government.In conclusion, the Tribunal set aside the Service Tax demand and penalties, allowing the appeal based on the composite nature of the contract and the applicability of Works Contract Service from 01/06/2007. The judgment emphasized the need for proper verification of Service Tax recovery from the contract party.