Tribunal rules against service tax on composite construction services pre-2007

The Tribunal ruled in favor of the appellant, setting aside the demand for service tax on construction services that are composite in nature for the period before 01.06.2007. The Tribunal held that service tax cannot be levied on composite contracts prior to the introduction of Works Contract Services in 2007. The decision was based on the precedent set by the Hon'ble Apex Court in a similar case and concluded that the demand was not sustainable.

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Issues:
Whether the appellant is liable to pay service tax on the consideration received for construction services which are composite in nature including both supply of materials and provision of services for the period prior to 01.06.2007.

Analysis:
The appellant, M/s. Sakthi Constructions India Pvt. Ltd., was found to have not discharged service tax on the entire consideration received for providing 'Construction of Residential Complex Service' from June 2005 to September 2006. The original authority confirmed the demand for short paid service tax along with interest and penalties. The Commissioner (Appeals) upheld the order but granted cum tax benefit. The appellant appealed to the Tribunal, arguing that the contracts were composite in nature, including both supply of materials and services, and thus, the duty demand should be quantified after allowing abatement. They relied on the decision of the Hon'ble Apex Court in the case of CCE & Cus. Kerala Vs Larsen & Toubro Ltd. to support their argument. Additionally, they cited the Tribunal's decision in the case of Springfield Shelters P. Ltd. Vs CCE & ST to assert that the demand for the period prior to 01.06.2007 should be set aside.

The Tribunal considered whether the appellants are liable to pay service tax on the consideration received for construction services that are composite in nature, involving both supply of materials and provision of services, for the period before 01.06.2007. Referring to the decision of the Hon'ble Apex Court in the Larsen & Toubro Ltd. case, the Tribunal observed that there can be no levy of service tax on composite contracts prior to 01.06.2007. The Tribunal noted that composite contracts were brought within the ambit of the levy of service tax only with effect from 1.6.2007 by the introduction of Section 65(105)(zzzza) i.e. Works Contract Services. It was highlighted that only contracts involving service simpliciter (not including supply of goods) would be subject to the levy of service tax under Construction of Residential Complex Service prior to 01.06.2007 and after. The Tribunal concluded that the demand cannot be sustained and set it aside, allowing the appeal with consequential relief, if any, as per law.

In conclusion, the Tribunal ruled in favor of the appellant, setting aside the impugned order and allowing the appeal with consequential relief, if any, as per law. The decision was pronounced in open court on 07.03.2023.

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