Electrical contract works to government departments are composite works contracts subject to service tax from June 2007 onwards

CESTAT Bangalore held that electrical contract works to government departments constituted composite works contracts involving both material and service components. Following Supreme Court precedent in Larsen Toubro Ltd., works contracts are subject to service tax only from 01.06.2007 onwards. The tribunal allowed the appeal regarding erection, commissioning, and installation services, setting aside the service tax demand and penalties. However, the appeal concerning rent-a-cab service was dismissed due to insufficient evidence proving the service's direct or indirect use in other appellant services, with penalties under Sections 77-78 upheld.

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Issues Involved:
1. Demand of service tax on "Erection, Commissioning or Installation Services."
2. Demand of service tax on "Rent-a-Cab Operator Service."
3. Entitlement to abatement and applicability of Notification No. 45/2010-ST.
4. Imposition of penalties under Sections 76, 77, and 78 of the Finance Act, 1994.

Summary:

1. Demand of Service Tax on "Erection, Commissioning or Installation Services":
The appellant, a proprietary concern engaged in electrical contract works, was issued a show-cause notice for service tax demand on "Erection, Commissioning or Installation Services." The Commissioner (Appeals) held that the services rendered by the appellant do not fall under "Works Contract" but under "Erection, Commissioning or Installation Service." The appellant argued that their services should be treated as works contracts, which are chargeable to service tax only from 01.06.2007, as per the Hon'ble Supreme Court decision in Larsen & Toubro Ltd. The Tribunal found that the appellant's activities are composite works contracts and thus covered by the Apex Court's decision, making them liable for service tax only after 01.06.2007. Consequently, the appeal against the demand of service tax on "Erection, Commissioning or Installation Service" was allowed, and the penalties were dropped.

2. Demand of Service Tax on "Rent-a-Cab Operator Service":
The Commissioner (Appeals) confirmed the demand of service tax on "Rent-a-Cab Operator Service," stating that this service was rendered separately and not connected to any other service by the appellant. The Tribunal upheld this finding, noting that the appellant failed to provide evidence that the service was used directly or indirectly in other services rendered. Therefore, the appeal regarding the demand on "Rent-a-Cab Operator Service" was disallowed, and the penalties under Sections 77 and 78 were upheld.

3. Entitlement to Abatement and Applicability of Notification No. 45/2010-ST:
The appellant argued for the benefit of Notification No. 45/2010-ST, which states that no service tax is recoverable if the service is related to the transmission and distribution of electricity. The Tribunal, however, did not find it necessary to decide on this issue due to the allowance of the appeal based on the composite nature of the works contract.

4. Imposition of Penalties:
Since the demand for service tax on "Erection, Commissioning or Installation Services" was not sustainable, the penalties related to this demand were dropped. However, the penalties concerning the "Rent-a-Cab Operator Service" were upheld due to the confirmation of the demand.

Conclusion:
The appeal was disposed of by allowing the appeal against the demand of service tax on "Erection, Commissioning or Installation Service" and dropping the related penalties. The demand and penalties related to "Rent-a-Cab Operator Service" were upheld.

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