TaxTMI 
TaxTMI 
2019 (9) TMI 1107
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....tract and was a Works Contract. A perusal of the agreement dated 03.04.2006 and a Letter of Award dated 27.03.2006 along with Bill of Quantities reveal that the contract is of a value of Rs. 4,72,49,360/- of which supply of Red Earth alone is worth Rs. 4,31,92,603/- . The measure chunk of the contract was for filling the Earth with borrowed Earth. It is quite evident from the 10 invoices issued during the period from 23.05.2006 to 18.03.2007 and a summary placed on the records. He also submitted that the contract was treated by Rule 42 of Kerala VAT Rules, 2005 and applicable VAT was deducted and paid by Power Grid Corporation of India. Therefore, the contract requires to be treated as a Work Contract and as held by the Hon'ble Supreme Court in the case Larsen & Toubro, 2015 (39) STR 913 (SC). He further submits that Commissioner has confirmed the demand treating the value of the service in terms of Rule 5 of Service Tax (Determination of Value) Rules, 2006; in fact, Hon'ble Supreme Court in the case of Intercontinental Consultants and Technocrats Pvt. Ltd.,2018 (10)(GSTL) 401 SC has held that Rule 5 was ultra vires of the Constitution. It was only in 2015 that Section 67 of the Fi....
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....olved. The appellants placed on record proof of payment of VAT on the subject contract under Kerala VAT which recognises the contract to be Works Contract. Therefore, in view of the Hon'ble Supreme Court's decision in L&T (Supra) the contract is to bee seen as a non-viviceptable contract and therefore, it is not chargeable to Service Tax before 01.06.2007. The relevant portions of the order are extracted as below: "11. By the Finance Act, 2007, for the first time, Section 65(105)(zzzza) set out to tax the following :- "(zzzza) to any person, by any other person in relation to the execution of a works contract, excluding works contract in respect of roads, airports, railways, transport terminals, bridges, tunnels and dams. Explanation : For the purposes of this sub-clause, "works contract" means a contract wherein, - (i) Transfer of property in goods involved in the execution of such contract is leviable to tax as sale of goods, and (ii) Such contract is for the purposes of carrying out, - (a) Erection, commissioning or installation of plant, machinery, equipment or structures, whether pre-fabricated or otherwise, installation of....
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....composite indivisible works contracts, such contracts can be taxed by Parliament as well as State legislatures. Parliament can only tax the service element contained in these contracts, and the States can only tax the transfer of property in goods element contained in these contracts. Thus, it becomes very important to segregate the two elements completely for if some element of transfer of property in goods remains when a service tax is levied, the said levy would be found to be constitutionally infirm. This position is well reflected in Bharat Sanchar Nigam Limited v. Union of India, (2006) 3 SCC 1 = 2006 (2) S.T.R. 161 (S.C.), as follows :- "No one denies the legislative competence of the States to levy sales tax on sales provided that the necessary concomitants of a sale are present in the transaction and the sale is distinctly discernible in the transaction. This does not however allow the State to entrench upon the Union List and tax services by including the cost of such service in the value of the goods. Even in those composite contracts which are by legal fiction deemed to be divisible under Article 366(29-A), the value of the goods involved in the execution of th....
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....g them, and the power of the State to separate the agreement to sell, from the agreement to do work and render service and to impose a tax thereon cannot be questioned, and will stand untouched by the present judgment." (at page 427) 24. A close look at the Finance Act, 1994 would show that the five taxable services referred to in the charging Section 65(105) would refer only to service contracts simpliciter and not to composite works contracts. This is clear from the very language of Section 65(105) which defines "taxable service" as "any service provided". All the services referred to in the said sub-clauses are service contracts simpliciter without any other element in them, such as for example, a service contract which is a commissioning and installation, or erection, commissioning and installation contract. Further, under Section 67, as has been pointed out above, the value of a taxable service is the gross amount charged by the service provider for such service rendered by him. This would unmistakably show that what is referred to in the charging provision is the taxation of service contracts simpliciter and not composite works contracts, such as are contained on the....
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.... into composite works contracts containing elements both of transfer of property in goods as well as labour and services." We find that the appellant's case is squarely covered by the above judgment of Hon'ble Supreme Court 5.2. We find that as submitted by the Learned Counsel for the appellants the valuation made by the Commissioner in terms of Rule 5 is also incorrect. Hon'ble Supreme Court in the case of Intercontinental (supra) has held in Para 21,22,23,24,25,26,27,29 as follows: "21. Undoubtedly, Rule 5 of the Rules, 2006 brings within its sweep the expenses which are incurred while rendering the service and are reimbursed, that is, for which the service receiver has made the payments to the assessees. As per these Rules, these reimbursable expenses also form part of 'gross amount charged'. Therefore, the core issue is as to whether Section 67 of the Act permits the subordinate legislation to be enacted in the said manner, as done by Rule 5. As noted above, prior to April 19, 2006, i.e., in the absence of any such Rule, the valuation was to be done as per the provisions of Section 67 of the Act. 22. Section 66 of the Act is the charging Section which re....
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....rvices actually provided by the service provider. 26. It is trite that rules cannot go beyond the statute. In Babaji Kondaji Garad, this rule was enunciated in the following manner : "Now if there is any conflict between a statute and the subordinate legislation, it does not require elaborate reasoning to firmly state that the statute prevails over subordinate legislation and the byelaw, if not in conformity with the statute in order to give effect to the statutory provision the Rule or bye-law has to be ignored. The statutory provision has precedence and must be complied with." 27. The aforesaid principle is reiterated in Chenniappa Mudaliar holding that a rule which comes in conflict with the main enactment has to give way to the provisions of the Act. 29. In the present case, the aforesaid view gets strengthened from the manner in which the Legislature itself acted. Realising that Section 67, dealing with valuation of taxable services, does not include reimbursable expenses for providing such service, the Legislature amended by Finance Act, 2015 with effect from May 14, 2015, whereby Clause (a) which deals with 'consideration' is suitably amen....
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.... the existing law and should not find that his plans have been retrospectively upset. This principle of law is known as lex prospicit non respicit : law looks forward not backward. As was observed in Phillips v. Eyre [(1870) LR 6 QB 1] , a retrospective legislation is contrary to the general principle that legislation by which the conduct of mankind is to be regulated when introduced for the first time to deal with future acts ought not to change the character of past transactions carried on upon the faith of the then existing law. 29. The obvious basis of the principle against retrospectivity is the principle of "fairness", which must be the basis of every legal rule as was observed in L'Office Cherifien des Phosphates v. Yamashita-Shinnihon Steamship Co. Ltd. Thus, legislations which modified accrued rights or which impose obligations or impose new duties or attach a new disability have to be treated as prospective unless the legislative intent is clearly to give the enactment a retrospective effect; unless the legislation is for purpose of supplying an obvious omission in a former legislation or to explain a former legislation. We need not note the cornucopia of cas....