TaxTMI 
TaxTMI 
2013 (11) TMI 1004
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....ber, 2004 and Notification No. 18/2005-ST dated 7th June, 2005 and in Notification No. 1/2006-ST dated 1st March, 2006, the challenge is with respect to column 4 entries at S. No. 5, 7 and 10. In some writ petitions, assessment orders have been passed and appellate proceedings have been initiated. However, in Writ Petition No. 4107/2008 by G.D. Builders, Writ Petition No. 5046/08 by Unitech Limited, Writ Petition Nos. 401/2009, 4057/2010 & 6658/2010 by Simplex Infrastructure Ltd. and Writ Petition Nos. 4187/2008 and 5646/2010 filed by Vistar Construction Pvt. Ltd., show cause notices have been issued and the proceedings are still pending before the original authority. In Writ Petition No. 4127/2008 filed by Clarion Properties Ltd. and Writ Petition No. 4658/2008 filed by Vipul Limited, notice for appearance of furnishing of documents/reply has been given and even show cause notice has not been issued. Contentions of the Petitioners 2. Contentions of the petitioners can be crystallized as under:- (i) Service tax levied from time to time by Finance Act, 1994 and subsequent amendments is in exercise of power under residual entry 97 of List I of the Seventh Schedule of t....
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.... (viii) Service tax has been imposed on services involved in execution of "composite/works contract" only with effect from 1st June, 2007 under Section 65(105)(zzzza). Rule 2A of Service Tax (Determination of Value) Rules, 2006 determines value of services involved in "works/composite contracts" and it is levied @ 2%, enhanced to 4% with effect from 1st March, 2008. The said levy is not applicable to "services" covered under Section 65(105)(zzq) and (zzzh). (ix) There is a conflict between Section 65(105)(zzzza), (zzq) and (zzzh) and what is covered by Section 65(105)(zzzza) cannot be covered by Section 65(105)(zzq) and (zzzh). The two sets of provisions cannot co-exist. Subsequent legislation shows that the earlier legislation will not cover "composite or works contract". (x) Section 66 is the charging section and provisions of Section 67 are the valuation provisions. Value of taxable services under Section 67 is the gross amount charged by the service provider for such "services provided or to be provided". Service tax can be charged only for the specified "taxable services" as defined in sub-clauses of Section 65(105). Tax can be only on the value of ser....
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....gaged, or to be engaged, primarily in, commerce or industry, or work intended for commerce or industry, but does not include such services provided in respect of roads, airports, railways, transport terminals, bridges, tunnels and dams;" 5. Finance Act 2005 also saw introduction or service tax on construction of complexes (residential complexes) under section 65(105)(zzzh) with effect from 16th June, 2005. The term "construction of complexes" was defined in Section 65(30a) as under:- "construction of complex" means- (a) construction of a new residential complex or a part thereof; or (b) completion and finishing services in relation to residential complex such as glazing, plastering, painting, floor and wall tiling, wall covering and wall papering, wood and metal journey and carpentry, fencing and railing, construction of swimming pools, acoustic applications or fittings and other similar services; or (c) repair, alternation, renovation or restoration of, or similar services in relation to, residential complex;" The expression "residential complex" was defined in Section 65(91a) but we need not refer to the said definition as it is not relev....
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....from any person by such commercial concern for providing the said taxable service: Provided that this exemption shall not apply in such cases where - (i) the credit of duty paid on inputs or capital goods has been taken under the provisions of the Cenvat Credit Rules, 2004; or (ii) the commercial concern has availed the benefit under the notification of the Government of India, in the Ministry of Finance, (Department of Revenue) No.12/2003-Service Tax, dated the 20th June, 2003 [G.S.R. 503 (E), dated the 20th June, 2003]; or (iii) the taxable services provided are only completion and finishing services in relation to building or civil structure, referred to in sub-clause (c) of clause (25b) of section 65 of the Finance Act, 1994. Explanation.- For the purposes of this notification, the "gross amount charged" shall include the value of goods and material supplied or provided or used by the provider of the commercial or industrial construction service for providing such service." 8. For the purpose of clarity, we record that clauses (ii) and (iii) of the proviso were added by way of amendment notification No.19/2005-ST dated 7th June, 2....
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...." The challenge is to the explanation to the said notification and clause (iii) of the proviso. 10. Notification No.15/2004-ST as amended and Notification No.18/2005-ST were subsequently replaced by Notification No.1/2006-ST dated 1st March, 2006 and the relevant portions of the said notification read as under:- "Notification No. 1/2006-ST[F.No.334/3/2006-TRU], dated 1-3-2006 G.S.R. (E). In exercise of the powers conferred by sub-section (1) of section 93 of the Finance Act, 1994 (32 of 1994) (hereinafter referred to as the Finance Act), the Central Government, on being satisfied that it is necessary in the public interest so to do, hereby exempts the taxable service of the description specified in column (3) of the Table below and specified in the relevant sub-clauses of clause (105) of section 65 of the Finance Act, specified in the corresponding entry in column (2) of the said Table, from so much of the service tax leviable thereon under section 66 of the said Finance Act, as is in excess of the service tax calculated on a value which is equivalent to a percentage specified in the corresponding entry in column (5) of the said Table, of the gross amount charged ....
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....rvice Tax, dated the 20th June, 2003[G.S.R. 503 (E), dated the 20th June, 2003]. Explanation.- For the purposes of this notification, the expression "food" means a substantial and satisfying meal and the expression "catering service" shall be construed accordingly." 11. The challenge, as noticed above, is to the stipulations in column 4. Service Tax and Computation 12. Service tax is a value added tax which was/is imposed and levied by the Parliament by way of Finance Act, 1994. It was imposed in phases and presently it is imposed on all taxable services as defined, except for the negative list. 13. Section 65A states that classification of taxable services shall be determined in accordance with the said-clauses of clause (105) of section 65 and where for any reason, a taxable service is prima facie, classifiable under two or more sub-clauses of clause (105) of section 65, classification shall be effected as follows :- (i) Specific description shall be preferred to more general description; (ii) Composite services consisting of a combination of different services which cannot be classified as per clause (i), shall be classified as if they cons....
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....ided or to be provided is inclusive of service tax payable, the value of such taxable service shall be such amount as, with the addition of tax payable, is equal to the gross amount charged. (3) The gross amount charged for the taxable service shall include any amount received towards the taxable service before, during or after provision of such service. (4) Subject to the provisions of sub-sections (1), (2) and (3), the value shall be determined in such manner as may be prescribed. Explanation. - For the purposes of this section, - (a) "consideration" includes any amount that is payable for the taxable services provided or to be provided; (b) "money" includes any currency, cheque, promissory note, letter of credit, draft, pay order, travelers cheque, money order, postal remittance and other similar instruments but does not include currency that is held for its numismatic value (Omitted by Finance Act 2012 w.e.f. 1st July 2012) (c) "gross amount charged" includes payment by cheque, credit card, deduction from account and any form of payment by issue of credit notes or debit notes and book adjustment." With effect from 19th Ap....
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....ically stipulate, when they apply and the preconditions which must be satisfied before they can be applied. 18. Service tax in the facts in question has been imposed in three stages. In the first stage, service tax was imposed on construction of industrial and commercial complexes. In the second stage, service tax was imposed on residential complexes of 12 or more residential units and in the third stage, service tax was imposed on works contracts of any nature except for the exclusion in respect of roads, airports, railways, transport terminals, bridges, tunnels and dams. Each provision or levy has its own scope and ambit, while the first two provisions were primarily specific and targeted, the third inclusion i.e. works contract is very broad and wide term and will include within its ambit and scope construction of industrial and commercial complex or construction of residential complexes as specified. Introduction and imposition of service tax on works contract by Finance Act, 2007 does not mean that we have to read down, the scope and ambit of the provisions enacted levy tax on contracts relating to "commercial and industrial construction" service or "construction of (reside....
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....concept of service tax is an economic concept. (vi) "Consumption of service" as in case of "consumption of goods" satisfies human needs. (vii) Service tax is a value added tax which, in turn, is a general tax applicable to all commercial activities involving provision of service. (viii) Value added tax is a general tax as well as destination based consumption tax leviable on services provided within the country. (ix) The principle of equivalence is in-built into the concept of service tax. (x) The activity undertaken in a transaction can have two components, namely, activity undertaken by a person pertaining to his performance and skill and, secondly the person who avails the benefit of the said performance and skill. In the said context, the two concepts, namely, activity and the service provider and service recipient gain significance." 20. In Tamil Nadu Kalyana Mandapam Asscn. vs. UOI and Ors. (2004) 267 ITR 9 (SC), challenge was made and rejected by the Supreme Court on imposition of service tax on Kalyan Mandapam or Mandap keepers who provided furniture, fixtures, floor coverage etc for organizing social or business functions. Th....
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....and sale/consideration for use of goods. 21. In K. Raheja Development Corpn. Vs. State of Karnataka (2005) 5 SCC 162, the Supreme Court examined the term 'works contract' as defined in Karnataka Sales Tax Act, 1957 to include any agreement for carrying out for valuable consideration etc. building construction, fabrication, erection, installation, fitting out, improvement, modification of any moveable or immovable property. It was observed that the definition was not restricted to works contract as commonly understood i.e. contract to do work on behalf of somebody else. It was further observed that the definition makes no distinction between contract for residential flat or commercial unit and would, therefore, include construction of commercial units. As long as the agreement was entered into before the construction was "complete", it would be a works contract (we are not required to interpret and construe the expression "complete" in the present case). Thus the definition clauses in the Act for applying section 65(105)(zzq) and (zzzh) have to be given full effect. 22. Affirming the judgment in the case of Raheja Development (supra), the Supreme Court in its recent decision L....
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....a):- "(i) For sustaining the levy of tax on the goods deemed to have been sold in execution of a works contract, three conditions must be fulfilled: (one) there must be a works contract, (two) the goods should have been involved in the execution of a works contract and (three) the property in those goods must be transferred to a third party either as goods or in some other form. (ii) XXXXX (iii) Where a contract comprises of both a works contract and a transfer of immovable property, such contract does not denude it of its character as works contract. The term "works contract" in Article 366 (29- A)(b) takes within its fold all genre of works contract and is not restricted to one specie of contract to provide for labour and services alone. Nothing in Article 366(29-A)(b) limits the term "works contract". (iv) Building contracts are species of the works contract. (v) A contract may involve both a contract of work and labour and a contract for sale. In such composite contract, the distinction between contract for sale of goods and contract for work (or service) is virtually diminished. (vi) The dominant nature test has no applicat....
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....tract". The Parliament can enact laws which can specify restrictions and conditions regarding the system of levy, rates or incidence of tax, but this is not a pre-condition. It means that if the Parliament enacts a law, the exercise of legislative power of the State would be subject to a system of levy, rates or incidence of tax. Most importantly it has been observed that measure of levy of tax contemplated by Article 366 (29-A)(b) is the value of the goods involved in execution of "works contract". Since the taxable event is the transfer of property in goods, the said transfer takes place when the goods are incorporated in the works, the value of goods, which can constitute the measure for the levy has to be the value of goods at the time of incorporation of the goods in the works. 24. Similarly in Mahim Patram (P) Ltd. vs. Union of India and Ors. (2007) 3 SCC 668, the Supreme Court referred to the decision of Gannon Dunkerley and Co. vs. State of Rajasthan (Supra) and observed:- "5. It was, however, held while laying down that in the absence of law by Parliament so providing, it was not permissible for the State Legislatures to impose such a tax; it did not mean that ....
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.... (c) charges for planning, designing and architect's fees; (d) charges for obtaining on hire or otherwise machinery and tools used for the execution of the works contract; (e) cost of consumables such as water, electricity, fuel, etc. used in the execution of the works contract the property in which is not transferred in the course of execution of a works contract; and (f) cost of establishment of the contractor to the extent it is relatable to supply of labour and services; (g) other similar expenses relatable to supply of labour and services; (h) profit earned by the contractor to the extent it is relatable to supply of labour and services. The amounts deductible under these heads will have to be determined in the light of the facts of a particular case on the basis of the material produced by the contractor." 26. It was further observed that in deference to the aforesaid judgment in Gannon Dunkerley and Co. vs. State of Rajasthan (Supra), Parliament had made certain amendments but no rule was framed in regard to manner in which the sale price of such transfer could be calculated and it was therefore held:- "27. We are....
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....rmination of the turnover in the hands of the assessing authority for the purpose of levy of tax. The 1956 Act provides for levy of tax. Works contract has been brought within the purview of sale. Wherever the said words have been used, the new definition, therefore, would be applied. Section 8 provides for rates of tax on sales in the course of inter-State trade or commerce. Section 8-A provides for determination of turnover. Section 9 provides for levy and collection of tax and penalties. The said provision would, thus, be applied in respect of transfer of property in goods involved in the execution of works contract. The 1956 Act provides for grant of exemptions and various provisions e.g. proviso appended to Sections 6(1) and 6(2) of the Act. (Emphasis Supplied) 27. Thereafter reference was made to the provisions of U.P. Trade Tax Act, 1948 and the Central Sales Tax Act 1956, whether there exist guidelines for determination of the turnover for the purpose of levy of tax, as works contracts had been brought within the purview of sale. It was observed that Central Sales Tax (U.P.) Rules 1957 was applicable. Clause 3 of Art 286 of the Constitution has also been amended to al....
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....ose a tax on the supply of food and drink by whatever mode it may be made. It does not conceptually or otherwise include the supply of services within the definition of sale and purchase of goods. This is particularly apparent from the following phrase contained in the said sub-article "such transfer, delivery or supply of any goods shall be deemed to be a sale of those goods". In other words, the operative words of the said sub-article are supply of goods and it is only supply of food and drinks and other articles for human consumption that is deemed to be a sale or purchase of goods. The concept of catering, admittedly, includes the concept of rendering service. The fact that tax on the sale of the goods involved in the said service can be levied does not mean that a service tax cannot be levied on the service aspect of catering. Mr Mohan Parasaran, learned Senior Counsel for the appellant submitted that the High Court before applying the aspect theory laid down by this Court in the case of Federation of Hotel and Restaurant Assn. of India v. Union of India [(1989) 3 SCC 634 : AIR 1990 SC 1637] ought to have appreciated that in that matter Article 366(29-A)(f) of the Con....
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....is beyond the competence of the legislature (Prafulla Kumar v. Bank of Commerce [AIR 1947 PC 60 : 74 IA 23] ). Article 246(1) of the Constitution specifies that Parliament has exclusive powers to make laws with respect to any of the matters enumerated in List I in the Seventh Schedule to the Constitution. As per Article 246(3), the State Government has exclusive powers to make laws with respect to matters enumerated in List II (State List). In respect of matters enumerated in List III (Concurrent List) both Parliament and State Governments have powers to make laws. The service tax is made by Parliament under the above residuary powers. The impugned Act was challenged on the ground that it infringed on the State's power to levy tax on luxury vide Entry 62 of the State List." 29. In All India Federation of Tax Practioners & Ors. Vs. Union of India Vol. 7 (2007) 7 SCC 527, the Supreme Court upheld levy of service tax on Chartered Accountants and Architects. It was observed that there was no distinction of consumption of goods and consumption of service as both satisfy human needs. Service is an economic concept based on the legal principle of equivalence which now stan....
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....he aforestated dichotomy, it is clear that tax on service does not fall under Entry 60, List II. Therefore, Parliament has absolute jurisdiction and legislative competence to enact the law imposing tax on services under Entry 97, List I of the Seventh Schedule to the Constitution." 30. In Association of Leasing and Financial Service Companies vs. Union of India (2011) 2 SCC 352, the Supreme Court explained the difference between service tax and sales tax and other taxes observing that service tax is a value added tax and destination based consumption tax i.e. levied on commercial activities, but it is not a charge on business, but on a consumer. It is an economic concept on the principle of equivalence in the sense that consumption of goods and consumption of services are similar. Therefore, it is a tax on activity i.e. the value which is added or the value addition which is made by a person providing services. Sometimes, the dividing line between the sale and service may be very thin, especially in cases where value addition is to the goods manufactured, produced or sold, but there is distinction between the two. Service tax is a tax on activity whereas sales tax is a tax on sa....
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....plication was to narrow the tax base resulting in seepage of sales tax revenue. It is in that sense "splitting" of the contract needs to be understood. Thus, it cannot be said that Parliament divested itself of the power to levy service tax vide enactment of the Constitution (Forty-sixth Amendment) Act. Even in the Report of the Law Commission, it has been observed that "if a hire-purchase transaction results in a sale, sales tax is undoubtedly leviable by the States. No doubt, it is difficult to determine the 'sale price' for the purpose of the sales tax law but this has no bearing on the question of legislative competence." (P. 26) 31. The contention of the petitioners that the impugned notifications override the statutory provisions contained in Section 65(105), which defines the term "taxable service", Section 66, which it is claimed is a charging section, and Section 67, the valuation provisions of the Finance Act, 1994, has to be rejected. We have, as already stated above, rejected the argument of the petitioners on bifurcation/vivisect and held that as per the provisions of Section 65(105)(zzq) and (zzzh), service tax is payable and chargeable on the service elem....
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....uation, the Supreme Court in State of Kerala & Another Vs. Builders Association of India and Others, (1997) 2 SCC 183 has observed:- "The main ground upon which the High Court has held sub-sections (7) and (7-A) of Section 7 to be void is that they levy tax at two per cent on the whole amount of the contract [sub-section (7)] or at a particular rate applied to the entire value of contract [sub-section (7-A)] and not merely upon the value of the goods transferred in the course of execution of the works contract as contemplated by sub-clause (b) of clause (29-A) in Article 366. The Court also noticed that the goods which are transferred in the course of execution of a works contract may be "declared goods"; they may be goods which are liable to be taxed under the Central Sales Tax Act, 1956; the goods so transferred may also be taxable under different Schedules to the Kerala Act which prescribe different rates. In such a situation, it is held, levying tax on the entire value of the contract means levy of tax contrary to the provisions of the Central Sales Tax Act and the Kerala General Sales Tax Act. It also means, the Court held, taking the non-taxable components of works c....
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....is in the nature of composition of tax payable under Section 5(1)(iv). The impugned sub-sections have evolved a convenient, hassle-free and simple method of assessment just as the system of levy of entertainment tax on the gross collection capacity of the cinema theatres. By opting to this alternate method, the contractor saves himself the botheration of book-keeping, assessment, appeals and all that it means. It is not necessary to enquire and determine the extent or value of goods which have been transferred in the course of execution of a works contract, the rate applicable to them and so on. For example, under sub-section (7), the contractor pays two per cent of the total value of the contract by way of tax and he is done with all the above-mentioned botheration. The rate of two per cent prescribed by sub-section (7) is far lower than the rates in Schedules 1, 2 and 5 referred to in Section 5(1)(iv)(a). In short, sub-sections (7) and (7-A) evolve a rough and ready method of assessment of tax and leave it to the contractor either to opt for it or be governed by the normal method." (Emphasis supplied) 33. When the charging provisions are attracted, question of computation o....
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....ement of "service" and only a limited amount/value is paid for/towards material or goods used. Their exclusion does not mean or imply discrimination as such contractors are to be taxed only for the service element in a works contract for "completion and finishing services" and not for the goods or material used. 36. The aforesaid judgments and discussion highlight the following facets/principles: (1) After 46th Amendment to the Constitution, composite contracts can be bifurcated to compute value of the goods sold/supplied in contracts for construction of buildings with labour and material. The service portion of the composite contracts can be made subject matter of service tax. Aspect doctrine is applied for bifurcating/vivisect the composite contract (2) Service tax can be levied on the service component of any contract involving service with sale of goods etc. Computation of service component is a matter of detail and not a matter relating to validity of imposition of service tax. It is procedural and a matter of calculation. Merely because no rules are framed for computation, it does not follow that no tax is leviable. (3) The notifications in quest....