2023 (9) TMI 653 - AT - Service Tax

Tribunal rules in favor of appellant on service tax issue, finding works non-taxable.

Paresh H Thakkar Versus Commissioner of Central Excise & ST, Ahmedabad

The Tribunal ruled in favor of the appellant, finding that the electrical installation works did not fall under Works Contract Service as defined in the ... Taxability - Classification of services - Works Contracts Services - electrical installation works undertaken by the appellant during the disputed period - time limitation - suppression of facts or not - HELD THAT:- There must be installation of electrical devices or electronics devices. Whereas appellant are engaged in the business of electrical contractor for State Government and Semi-Governments Department. The nature of business of appellant is both, electrification and electrical material supply through tender from Government Department. In the present matter revenue nowhere provided any invoices or any documents by which it can be conclude that the appellant are engaged in erection, commissioning or installation of electrical and electronic devices. Further, general wiring contracts and fitting thereof are not covered under the above entry. Therefore, the Service tax demand in the present matter not sustainable under works contract services on appellant’s activity. Time Limitation - Suppression of facts - HELD THAT:- In the facts of the present case that firstly the issue involved is of pure interpretation of legal provisions and classification of services therefore, it cannot be said that the Appellant had any mala fide intentions and have suppressed any fact with intention to evade payment of service tax. It is also on record that the Appellant have represented the matter before department during the investigation of case. This clearly shows that there is no suppression or willful misstatement on the part of the Appellant. Further, Revenue has picked up the figures from the balance sheet and profit and loss account maintained by the assessee. Reference can be made to Tribunal’s decision in the case of C.S.T. NEW DELHI VERSUS M/S. KAMAL LALWANI [2016 (12) TMI 398 - CESTAT NEW DELHI], laying down that extended period is not invokable if services rendered are reflected in balance sheet and income tax returns and no evidence was produced that non-payment of duty was due to any mala fide. There are no proof of intent to evade either from the show cause notice or from the impugned order. Mere omission or merely classifying its services under an incorrect head does not amount to fraud or collusion or willful misstatement or suppression of facts. The intention has to be proved to invoke extended period of limitation - demand is time barred and, therefore, cannot sustain. For the same reason, the penalties imposed upon the appellant also cannot be upheld. The impugned order is required to be set aside - Appeal allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether the appellant's electrical installation/wiring activities fall within the definition of 'Works Contract Service' and are therefore taxable under the Finance Act. 2. Whether general wiring contracts and fitting of electrical items (without erection/installation of electrical or electronic devices) constitute 'erection, commissioning or installation of electrical and electronic devices' within the works contract definition. 3. Whether invocation of the extended period of limitation is permissible - i.e., whether there was suppression, willful misstatement or intent to evade tax such as would permit extended limitation and sustain penalties. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Classification: Whether the activities constitute 'Works Contract Service' Legal framework: The definition of 'Works Contract Service' (taxable service) was analyzed as per the statutory provision defining works contracts, which limits coverage to specified activities including 'erection, commissioning or installation of plant, machinery, equipment or structures ... installation of electrical and electronic devices' and other specified categories. Precedent treatment: Parties relied on several Tribunal and High Court decisions and departmental circulars addressing when electrical works attract service tax as works contract. The Tribunal reviewed those authorities but did not adopt a blanket rule; it examined factual and legal distinctions. Interpretation and reasoning: The Tribunal construed the statutory language narrowly: the phrase 'installation of electrical and electronic devices' contemplates erection/installation of identifiable electrical or electronic devices (equipment), not generic wiring or fitting activity. The revenue produced no invoices or documentary evidence establishing that the appellant performed erection/installation of such electrical/electronic devices as distinct from general wiring and electrical material supply. The appellant's activities, as evidenced in records, related to electrification and supply/laying of wires pursuant to government tenders rather than installation of discrete electrical/electronic devices covered by the definition. Ratio vs. Obiter: Ratio - where the factual matrix shows only general wiring/fitting and supply of electrical material to government/semi-government entities, without evidence of erection/installation of identifiable electrical or electronic devices, such activity does not fall within the statutory definition of works contract service. Obiter - reliance on circulars and some comparative authorities was used for support but the decision's core depends on statutory construction and facts. Conclusion: The service tax demand under the head 'Works Contract Service' is unsustainable because the appellant's activities did not meet the statutory element of 'installation of electrical and electronic devices.' General wiring contracts and fitting are not covered by the works contract entry as applied to the facts. Issue 2 - Nature of recipient and purpose (government work / non-commercial) as bearing on taxability Legal framework: Taxability under the service classification is determined by nature of service performed and statutory coverage; the recipient being a government agency and the purpose (residential/non-commercial/public utilities) were advanced by the appellant as material to taxability. Precedent treatment: The appellant cited decisions where works for government/residential or public utility purposes were held non-taxable in certain settings. The Tribunal considered those authorities but focused on statutory elements rather than recipient alone. Interpretation and reasoning: The Tribunal observed that providing services to government agencies or for residential/non-commercial purposes does not per se exclude liability if the statutory definition of taxable service is satisfied. However, in the present facts the absence of 'installation of electrical/electronic devices' controlled the classification analysis; the government-recipient character of contracts reinforced the absence of taxable elements but was not the decisive ground. Ratio vs. Obiter: Obiter - the recipient/purpose aspect was treated as supplementary to the primary statutory classification analysis rather than as an independent ground for relief. Conclusion: The government nature of contracts supports appellant's factual position but was not the primary basis of the decision; the decision rests on statutory construction showing non-coverage of the appellant's activities. Issue 3 - Limitation: Whether extended period of limitation and penalties can be invoked Legal framework: Extended limitation applies where there is suppression, willful misstatement, or intent to evade tax. The proviso to the limitation provision requires proof of suppression or evasion to invoke extended period and penalties. Precedent treatment: The Tribunal referred to prior Tribunal and High Court authority establishing that where income/transactions are reflected in balance sheets and returns and no mala fide concealment is shown, extended limitation cannot be invoked. The Tribunal also referred to the state of the law prior to a higher court ruling that clarified classification where supply of goods is involved, noting that earlier jurisprudence did not settle the issue beyond doubt. Interpretation and reasoning: The Tribunal found no evidence of suppression, fraud, collusion, or willful misstatement. The appellant had represented facts to the department during investigation; the revenue itself had derived figures from the appellant's published balance sheet and profit & loss account. The Tribunal held that mere incorrect classification or omission, without intent to evade or conceal, does not satisfy the threshold for extended limitation. Additionally, given that the legal position on classification was not settled at the relevant time (earlier higher-court developments post-dated the period), the absence of clear precedent negates a finding of mala fide intent. Ratio vs. Obiter: Ratio - extended period of limitation and penalties cannot be sustained where transactions are disclosed in accounts/returns and there is no evidence of suppression or fraudulent intent; classification disputes of an interpretative nature do not justify invocation of extended limitation. Obiter - commentary on prior unsettled jurisprudence explains why intent cannot be inferred from misclassification. Conclusion: Invocation of extended limitation and attendant penalties is not justified on the facts; demands relating to the disputed period are time-barred and penalties imposed cannot be upheld. Overall Disposition Based on statutory construction that 'installation of electrical and electronic devices' excludes general wiring/fitting absent evidence of installation of devices, and on absence of suppression or mala fide intent to invoke extended limitation, the impugned service tax demands and penalties were set aside and the appeal allowed.