2024 (3) TMI 229 - AT - Service Tax

Service Tax Demand Overturned; Tribunal Rules Activity as 'Works Contract Service' Not 'Industrial Construction.

The Tribunal set aside the service tax demand against the appellant under 'Industrial Construction Service' for the period April 2005 to March 2007. It ... Classification of service - Works Contract Service or Industrial Construction Service - appellant undertook the works of water-proofing along with materials and the some portion of the service tax was collected by them from the service recipient - HELD THAT:- It is not in dispute that the appellant has taken the activity of water proofing along with materials. Therefore, the merits classification of the said activity is “Works Contract Service” as held by the decision of the Hon’ble Apex Court in the case of COMMISSIONER, CENTRAL EXCISE & CUSTOMS VERSUS M/S LARSEN & TOUBRO LTD. AND OTHERS [2015 (8) TMI 749 - SUPREME COURT] wherein the Hon’ble Apex Court has observed The High Court first correctly holds that in the case of composite works contracts, the service elements should be bifurcated, ascertained and then taxed. The finding that this has, in fact, been done by the Finance Act, 1994 Act is wholly incorrect as it ignores the second Gannon Dunkerley decision of this Court. Further, the finding that Section 67 of the Finance Act, which speaks of “gross amount charged”, only speaks of the “gross amount charged” for service provided and not the gross amount of the works contract as a whole from which various deductions have to be made to arrive at the service element in the said contract - no demand is sustainable against the appellant under the category of “Industrial Construction Service” - the impugned demand is set aside. As no demand is sustainable against the appellant, therefore, the impugned order is set aside and the appeal is disposed of. Issues involved:The judgment involves the confirmation of demand of service tax against the appellant under the category of 'Industrial Construction Service' for the period April 2005 to March 2007. The appellant claimed that the activity falls under 'Works Contract Service' and challenged the initiation of proceedings and the show-cause notice issued against them.Details of the Judgment:Issue 1: Classification of ServiceThe appellant undertook water-proofing works with materials and collected some service tax from the recipient. The Tribunal found that the activity falls under 'Works Contract Service' based on the decision of the Hon'ble Apex Court in Larsen & Tourbro Limited case. The Court emphasized that the taxable services mentioned in the charging Section refer only to service contracts simpliciter and not composite works contracts. The Court highlighted the need to bifurcate and tax service elements in composite works contracts. Consequently, the demand under 'Industrial Construction Service' was deemed unsustainable.Issue 2: Decision and OrderThe Tribunal set aside the impugned demand of service tax against the appellant under 'Industrial Construction Service.' It was noted that the appellant had collected and deposited service tax with the Department during the relevant period, which would not be refunded. As no demand was found sustainable, the impugned order was set aside, and the appeal was disposed of accordingly.The judgment provides a detailed analysis of the classification of services and the applicability of tax in the context of composite works contracts. The decision was based on legal principles and precedents, ultimately leading to the setting aside of the demand under 'Industrial Construction Service' against the appellant.