2025 (4) TMI 816 - AT - Service Tax

Service Tax Dispute Resolved: Composite Contract Interpretation Favors Taxpayer Under Works Contract Service Rule

The Tribunal addressed the service tax classification for a composite contract involving goods and services. Based on Supreme Court precedent, it ruled ... Levy of service tax - Erection, Commissiong or Installation Services - composite contract undertaken by the appellant - period 2005-06 to 2007-08 - HELD THAT:- In the facts and circumstances of the case and following the decision of the Hon'ble Apex Court in the case of Larsen & Toubro Ltd., [2015 (8) TMI 749 - SUPREME COURT] and the decision of this Tribunal, the composite contract for supply of goods and services is chargeable to service tax only under 'Works Contract' Service from 01.06.2007 and levy under any other category is not tenable prior to and after 01.06.2007. Therefore, the demand of service tax under the category of ‘Erection, Commissioning or Installation Services’ is unsustainable. Conclusion - The composite contract for supply of goods and services is chargeable to service tax only under 'Works Contract' Service from 01.06.2007 and levy under any other category is not tenable prior to and after 01.06.2007. Appeal allowed. ISSUES PRESENTED and CONSIDEREDThe core issue presented in this appeal is whether the service tax confirmed under the category of 'Erection, Commissioning or Installation Services' on the composite contract undertaken by the appellant is tenable, given that the contract involved a composite supply of goods and services. This issue pertains to the period from 2005-06 to 2007-08.ISSUE-WISE DETAILED ANALYSISRelevant Legal Framework and PrecedentsThe legal framework primarily involves the Finance Act, 1994, particularly concerning the classification of services for taxation purposes. The appellant relied on the precedent set by the Hon'ble Supreme Court in the case of Commissioner of C. Ex. & Cus., Kerala Vs. Larsen & Toubro Ltd., which held that prior to 01.06.2007, the activity in the nature of a works contract was not taxable. Additionally, the appellant referenced Tribunal decisions, including M/s. MFAR Construction Private Limited and Daelim Industrial Co. Ltd. Vs. CCE, Vadodara, to support their position against the invocation of the extended period of limitation.Court's Interpretation and ReasoningThe Tribunal examined the classification of the services provided by the appellant. It considered the appellant's argument that the composite contracts should be classified under 'Works Contract Service' from 01.06.2007, following the precedent set by the Supreme Court in the Larsen & Toubro case. The Tribunal also reviewed the appellant's compliance with VAT obligations, which indicated the separation of goods and services components in the contracts.Key Evidence and FindingsThe appellant submitted annual returns filed under the Kerala Value Added Tax Act for the relevant years, evidencing VAT payments on the goods component of the contracts. The Tribunal found that these returns supported the appellant's claim of a composite supply involving both goods and services.Application of Law to FactsThe Tribunal applied the legal principles from the Larsen & Toubro decision, concluding that the composite contract for the supply of goods and services is chargeable to service tax only under 'Works Contract Service' from 01.06.2007. It determined that the levy under any other category, such as 'Erection, Commissioning or Installation Services,' was not tenable for the period before and after 01.06.2007.Treatment of Competing ArgumentsThe Tribunal considered the Revenue's argument that the appellant had classified the services under 'Erection, Commissioning or Installation Services' and had not paid the appropriate service tax during the relevant period. However, it found that the appellant's classification was consistent with the law as clarified by the Supreme Court in the Larsen & Toubro case. The Tribunal also addressed the Revenue's reliance on other Tribunal decisions, such as JMC Projects India Vs CCE & ST, but found them distinguishable based on the facts and legal questions involved.ConclusionsThe Tribunal concluded that the demand for service tax under the category of 'Erection, Commissioning or Installation Services' was unsustainable. It allowed the appeal with consequential relief as per law.SIGNIFICANT HOLDINGSThe Tribunal held that 'the composite contract for supply of goods and services is chargeable to service tax only under 'Works Contract' Service from 01.06.2007 and levy under any other category is not tenable prior to and after 01.06.2007.' This holding reinforces the principle established by the Supreme Court in the Larsen & Toubro case, emphasizing the correct classification of composite contracts for service tax purposes.The Tribunal's final determination was to allow the appeal, thereby setting aside the demand for service tax under the contested category and providing consequential relief to the appellant.