Service tax demands on composite construction contracts set aside following Larsen Toubro precedent and Works Contract Service rules

CESTAT Chennai held that service tax demands on composite construction contracts cannot be sustained. For pre-1.6.2007 period, following SC precedent in Larsen Toubro case, demands were invalid as Works Contract Service was introduced only on 1.6.2007. For post-1.6.2007 period, demands under Construction of Residential Complex services and Commercial/Industrial Construction services categories were also unsustainable, as composite contracts involving both services and goods supply must be taxed under Works Contract Service category only. Following tribunal precedents in Real Value Promoters and Jain Housing cases, all demands were set aside and appeal allowed.

---

---

Issues Involved:
1. Classification of services provided by the appellant.
2. Applicability of service tax on composite contracts prior to and post 01.06.2007.
3. Invocation of the extended period for issuing the Show Cause Notice (SCN).
4. Liability to pay service tax on the landowner's portion and builder's portion.

Summary:

1. Classification of Services:
The appellant argued that their activities should be classified under "works contract service" rather than "Construction of Residential Complex service" or "Commercial or Industrial Construction service." The Tribunal agreed, stating that the appellant's contracts are composite in nature, involving both material and services, and are thus not classifiable under the latter categories.

2. Applicability of Service Tax on Composite Contracts:
The Tribunal referenced the Supreme Court's decision in *Larsen & Toubro Ltd. (2015) 39 STR 913*, which held that service tax on composite contracts cannot be levied prior to the introduction of works contract services on 01.06.2007. Consequently, the demand for service tax prior to this date was set aside. For the period post 01.06.2007, the Tribunal followed its own decision in *Real Value Promoters Pvt. Ltd.* and others, which stated that composite contracts should be taxed under works contract services and not under construction services.

3. Invocation of Extended Period:
The appellant contended that the SCN dated 24.10.2011 was time-barred as the extended period under Section 73(1) of the Finance Act, 1994, could only be invoked in cases of fraud, collusion, or suppression of facts. The Tribunal found that the department was already aware of the appellant's activities as early as 2010, and thus, the extended period was not applicable. The SCN was deemed time-barred.

4. Liability to Pay Service Tax on Landowner's and Builder's Portions:
The department argued that the appellant had not discharged service tax on the landowner's portion of the built-up area and had short-paid service tax on the builder's portion. The Tribunal, however, held that the contracts were composite in nature and thus not liable for service tax under the categories of Construction of Residential Complex services or Commercial or Industrial Construction services. The demand for service tax on both portions was set aside.

Conclusion:
The Tribunal set aside the demands raised under Construction of Residential Complex services and Commercial or Industrial Construction services for the disputed period, following the decisions in *Larsen & Toubro Ltd.*, *Real Value Promoters Pvt. Ltd.*, and *Jain Housing and Construction Ltd.* The appeal was allowed with consequential reliefs.

---