2023 (5) TMI 12 - AT - Service Tax

Tribunal confirms works contract services classification, excludes materials from tax. Department appeal dismissed. Correct VAT payment noted.

The Tribunal upheld the Commissioner (Appeals) decision, confirming the classification of services as works contract services and excluding the value of ... Valuation - Works contract or not - exclusion of value of material on which VAT has been paid - period from June, 2012 to July, 2017 - blasting services for extraction of sand stone etc. by using explosive material procured by them - Commissioner (Appeals) has dropped the demand holding that the activity of the respondent is a works contract service though chargeable to tax under section 65B (44) of Finance Act, 1994 but the value for the material as has already been assessed for the purposes of VAT cannot be considered as the value for assessing service tax liability. HELD THAT:- Similar issue has been dealt by the Hon’ble Apex Court, the 3 Judge Bench in the case of M/S. LARSEN & TOUBRO LIMITED & ANOTHER VERSUS STATE OF KARNATAKA & ANOTHER [2013 (9) TMI 853 - SUPREME COURT] wherein the 46th Amendment of 1982 has been appreciated to have widened the concept of sale or purchase of goods that would be eligible to tax by introducing the fiction of a deemed sale to the transactions covered specifically by sub-clauses (a) to (f) to sub-article 29A of the said Article. Hon’ble Court held that the expression “goods (whether as goods or in some other form)” appearing in sub-clause (b) of 366 (29A) of the Constitution has the effect of enlarging the term “goods” by bringing within its fold goods in all different forms. Adopting Larsen and Toubro, there exists no reason to differ from the findings that term ‘works contract’ cannot be confined to a contract to provide labour and services alone and any contract which is undertaken to bring into existence some element of works involving supply of goods would be sufficient to hold the said as “works contract”. The Apex Court in the case of Larsen & Toubro has held that in performance of contract for construction of building, goods like cement, concrete, steel, bricks etc. are intended to be incorporated in structure and even though they lost their identity as goods. Hence it is liable to tax under Article 366 (29A) (b) of Constitution as was introduced vide 46th Amendment of 1982 Act. The very basis of 46th Amendment was the decision of Hon’ble Supreme Court in THE STATE OF MADRAS VERSUS GANNON DUNKERLEY & CO. (MADRAS) LTD. [1958 (4) TMI 42 - SUPREME COURT] wherein the Constitution Bench had laid down “dominant intention test” to find out as to whether a particular contract involved transfer of property in goods. The Court was of the opinion that if the dominant intention of a contract was not to transfer the property in goods, but it was Works Contract, or for that matter, a contract in the nature of rendering of services, even if a part of it related to the transfer of goods, that would be immaterial and no sales tax on the said part could be levied, going by the principle of dominant intention behind such a contract, which was in the nature of Works Contract in the contract relating to construction of buildings. Thus, the Court also held that such a contract was indivisible. In the light of 46th amendment, any service in the nature of works which involves utilization of goods is classifiable only as works contract service and that the transfer of goods in such contract has to be considered as the deemed sale. Reverting to the facts of the present case, it is observed that undisputedly, the assessee – respondent was purchasing explosives from the authorized seller under a license for being used for the blasting purposes at customer’s site. Though the assessee was not selling the explosive to the mine blaster and was issuing the same for execution of mining works but there is no simultaneous denial to the fact that the assessee was issuing bills to the customer in which they were charging for the explosive material and blasting service separately and that the assessee was paying applicable VAT on the explosive material. From the entire above discussion dominant intention test to ascertain the factum of sale no more holds a good law. There are no infirmity with the Order of Commissioner (Appeals), same is hereby upheld - appeal of Revenue dismissed. Issues Involved:1. Classification of services provided by the respondent-assessee.2. Applicability of VAT on explosives used in blasting services.3. Determination of tax liability under service tax provisions.4. Invocation of the extended period for issuing the Show Cause Notice.5. Legal interpretation of 'works contract' and 'deemed sale.'Summary:1. Classification of Services Provided by the Respondent-Assessee:The Department contended that the services provided by the respondent-assessee in relation to blasting at customer sites should be classified as taxable services under section 65B (44) of the Finance Act, 1994. The Original Adjudicating Authority confirmed this classification, but the Commissioner (Appeals) held that these services were 'works contract services,' thus excluding the value of materials used from the service tax liability.2. Applicability of VAT on Explosives Used in Blasting Services:The respondent-assessee was paying VAT on the value of explosives used in blasting services. The Department argued that payment of VAT does not convert the service into a works contract. The Commissioner (Appeals) found that VAT was correctly paid as per the provisions of the Rajasthan VAT Act, 2003, and RVAT Rules, 2006, and that the services were correctly classified as works contract services.3. Determination of Tax Liability Under Service Tax Provisions:The Department issued a Show Cause Notice demanding service tax for the period from June 2012 to July 2017. The Original Adjudicating Authority confirmed the demand, but the Commissioner (Appeals) dropped it, holding that the value of materials on which VAT was paid should be excluded from the service tax liability. The Tribunal upheld the Commissioner (Appeals) decision, noting that the value of the service portion only should be assessable to tax.4. Invocation of the Extended Period for Issuing the Show Cause Notice:The respondent-assessee argued that the extended period for issuing the Show Cause Notice was wrongly invoked as there was no intent to evade duty. The Tribunal agreed, noting that the assessee had been paying VAT at a higher rate than the applicable service tax rates, thus negating the allegation of intent to evade duty.5. Legal Interpretation of 'Works Contract' and 'Deemed Sale':The Tribunal relied on the decisions of the Hon'ble Apex Court in cases such as Larsen and Toubro and Kone Elevator to interpret the term 'works contract.' It was held that any service involving the utilization of goods is classifiable as a works contract service, and the transfer of goods in such a contract is considered a deemed sale. The Tribunal found no reason to differ from the Commissioner (Appeals) findings that the services rendered by the respondent-assessee were correctly classifiable under works contract services and that VAT was correctly paid.Conclusion:The Tribunal upheld the order of the Commissioner (Appeals), finding no infirmity in the classification of services as works contract services and the exclusion of the value of materials from the service tax liability. The appeal filed by the Department was dismissed.