2025 (4) TMI 771 - AT - Service Tax

Railway track widening with cement and steel materials classified as works contract service, not maintenance service

CESTAT Kolkata held that appellant's services involving materials like cement, barbed wire, and structural steel for ash filling and railway track ... Classification of services - management, maintenance or repair service and manpower recruitment or supply agency service or not - liability to pay Service Tax for the period from October 2004 to December 2007 - HELD THAT:- The appellant has used materials such as cement, barbed wire, structural steel, etc., while rendering the service. Thus, it is evident that the appellant has utilized materials in the provision of the service of filling of ash at different low lying areas and widening of MGR track of railways. The services rendered along with materials are appropriately classifiable under the category of ‘works contract service’ as held by the Hon’ble Supreme Court in the case of Commissioner of Central Excise and Customs, Kerala v. M/s. Larsen & Toubro Ltd. [2015 (8) TMI 749 - SUPREME COURT]. In these circumstances, the impugned demand pertaining to the period prior to the introduction of ‘works contract service’, is not sustainable. The appellant had hired manpower for rendering the service to themselves. The service rendered by them is thus not liable to be categorized under the category of ‘manpower recruitment or supply agency service’ as manpower has not been recruited to M/s. NTPC. Thus, the classification of the said service under the category of ‘manpower recruitment or supply agency service’ to demand Service Tax in the impugned order, is not legally sustainable. Since the demand itself is not sustainable, the question of demanding interest or imposing penalties does not arise. Conclusion - The services rendered along with materials are appropriately classifiable under the category of 'works contract service'. Appeal allowed. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered in this judgment include: Whether the services rendered by the appellant to M/s. NTPC, Kahalgaon are correctly classifiable under the categories of 'management, maintenance or repair service' and 'manpower recruitment or supply agency service' as per the Finance Act, 1994, or whether they should be classified under 'works contract service'. Whether the appellant is liable to pay Service Tax for the period from October 2004 to December 2007 under the aforementioned categories. Whether the imposition of interest and penalties under various sections of the Finance Act, 1994, is justified in this case.ISSUE-WISE DETAILED ANALYSISClassification of Services Relevant Legal Framework and Precedents: The services in question were initially classified under 'management, maintenance or repair service' and 'manpower recruitment or supply agency service' as per Sections 65(105)(zzg) and 65(105)(k) of the Finance Act, 1994. The appellant contended that these services should fall under 'works contract service', which became taxable only from 01.06.2007. Court's Interpretation and Reasoning: The Tribunal noted that the appellant provided services along with materials, which aligns with the definition of 'works contract service'. The Hon'ble Supreme Court's decision in Commissioner of Central Excise and Customs, Kerala v. M/s. Larsen & Toubro Ltd. was cited, which supports the classification of services involving material supply as 'works contract service'. Key Evidence and Findings: Work orders from M/s. NTPC, Kahalgaon indicated the use of materials such as cement and steel in service provision. This evidence supported the appellant's claim that the services were more appropriately classified under 'works contract service'. Application of Law to Facts: Given that 'works contract service' was not taxable prior to 01.06.2007, the Tribunal held that the services rendered during the disputed period were not liable for Service Tax under the initially classified categories. Treatment of Competing Arguments: The Revenue argued that the services involved manpower supply, which is taxable. However, the Tribunal found that the manpower was hired by the appellant for its own use, not supplied to NTPC, thus not fitting the definition of 'manpower recruitment or supply agency service'. Conclusions: The Tribunal concluded that the services should be classified under 'works contract service' and thus were not taxable during the relevant period.Liability for Interest and Penalties Relevant Legal Framework: Penalties were imposed under Sections 76, 77, and 78 of the Finance Act, 1994, for non-payment of Service Tax, failure to obtain registration, and failure to file returns. Court's Interpretation and Reasoning: Since the primary demand for Service Tax was found unsustainable, the Tribunal reasoned that the associated interest and penalties were also unwarranted. Conclusions: The Tribunal held that since the demand itself was not sustainable, the imposition of interest and penalties did not arise.SIGNIFICANT HOLDINGS Core Principles Established: The Tribunal reinforced the principle that services involving the supply of materials should be classified under 'works contract service' when such classification is applicable. Final Determinations on Each Issue: The Tribunal set aside the demand for Service Tax under the categories of 'management, maintenance or repair service' and 'manpower recruitment or supply agency service'. Consequently, the related interest and penalties were also annulled. Verbatim Quotes of Crucial Legal Reasoning: 'We find that services rendered along with materials are appropriately classifiable under the category of 'works contract service' as held by the Hon'ble Supreme Court in the case of Commissioner of Central Excise and Customs, Kerala v. M/s. Larsen & Toubro Ltd.'The Tribunal allowed the appeal filed by the appellant, thereby nullifying the Service Tax demands and associated penalties imposed by the lower authorities.