2020 (8) TMI 787 - AT - Service Tax

Classification of composite contracts under Works Contract Service with entitlement to material abatement

The Tribunal held that in cases of composite contracts involving material, they should be classified under Works Contract Service. The appellant was ... Classification of Service - composite contract (involving material part and labour part) - classified under Works Contract Service or under the other heads like Construction of Complex etc.? - abatement of material component involved in the work done. HELD THAT:- In every case of composite contract the same is classifiable under the head ‘Works Contract Service’. In the absence of proposal for classification under the ‘Works Contract Service’ in the show-cause notice, said contracts cannot be taxed. Further, appellant is entitled for abatement of material component either on actual basis or as per the prescribed percentage, as per N/N. 01/2006-ST read with 18/2005-ST., as the case may be. This appeal by way of remand for a De novo calculation of the tax in view of the law laid down by Hon’ble Supreme Court in COMMISSIONER, CENTRAL EXCISE & CUSTOMS VERSUS M/S LARSEN & TOUBRO LTD. AND OTHERS [2015 (8) TMI 749 - SUPREME COURT]. Appellant is also directed to appear before the original adjudicating authority with a fresh reply to the show-cause notice along with calculation of tax and seek opportunity of hearing. Issues involved:1. Classification of service in a composite contract under Works Contract Service or other heads.2. Entitlement of the appellant for abatement of material component in the work done.Analysis:1. The main issue in this appeal was the classification of service in a composite contract. The appellant argued that as per the law laid down by the Hon'ble Supreme Court in a specific case, only simpliciter service contracts not involving material could be subjected to service tax prior to a certain date. It was contended that in cases of composite contracts involving material, they should be classified under Works Contract Service, effective from a specified date. The Tribunal agreed with this argument and held that in every case of a composite contract, it should be classified under Works Contract Service. Since the show-cause notice did not propose this classification, the contracts in question could not be taxed under this head.2. The second issue revolved around the entitlement of the appellant for abatement of the material component involved in the work done. The appellant contended that they should be entitled to abatement either on an actual basis or at a prescribed percentage as per relevant notifications. The Tribunal, after considering the contentions of both parties, ruled in favor of the appellant. It held that the appellant is entitled to abatement of the material component either on an actual basis or as per the prescribed percentage mentioned in the notification. Therefore, the appeal was allowed by way of remand for a fresh calculation of tax in accordance with the law laid down by the Hon'ble Supreme Court in a specific case.In conclusion, the Tribunal set aside all penalties imposed on the appellant and directed them to appear before the original adjudicating authority with a fresh reply to the show-cause notice, along with the calculation of tax and to seek an opportunity of hearing. The judgment provided clarity on the classification of services in composite contracts and the entitlement of abatement for the material component, ensuring compliance with the relevant legal provisions and notifications.