TaxTMI 
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2022 (8) TMI 168
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....48 OF 2014 CIVIL APPEAL NO. 2667 OF 2022 (arising out of SLP (C) No. 21828 of 2015) CIVIL APPEAL NO. 6792 OF 2010 CIVIL APPEAL NO. 2668 OF 2022 (arising out of SLP (C) No. 32501 of 2015) M/s. Total Environment Building Systems Pvt. Ltd. Versus The Deputy Commissioner of Commercial Taxes & Ors., YFC Projects Pvt. Ltd. Versus Union of India, M/s. G.D. Builders Versus Union of India & Anr., M/s. National Building Construction Corporation Ltd. (NBCC) Versus Union of India & Anr., M/s. Unitech Ltd. Versus Union of India & Ors., M/s. National Building Construction Corporation Ltd. (NBCC) Versus Union of India & Ors., M/s. Larsen and Toubro Ltd. Versus Commissioner of Service Tax, Delhi, Commissioner of Service Tax Mumbai - II Versus M/s. IOT Infrastructure & Energy Services Limited, M/s. L&T Hydrocarbon Engineering Limited (previously known as Larsen & Toubro Limited) Versus Commissioner of Service Tax, Mumbai M. R. SHAH And B. V. NAGARATHNA, JJ. For the Parties : Ms. Madhavi G.Divan, ASG Mr. Arijit Prasad,Sr. Adv. Mr. A.K. Panda, Sr.Adv. Mr. Vishesh Kalra, Adv. Ms. Aishani N., Adv. Mr. Mukesh Kumar Maroria, AOR Mr. B. Krishna Prasad, AOR Mr. Praveen Kumar, AOR Mr. Sanand Ramakr....
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....ed the judgment of the Delhi High Court in the case of G.D. Builders (supra) and has observed and held that the observations made by the Delhi High Court in paragraph 31 is wholly inaccurate in its conclusion that the Finance Act, 1994 contains both the charge and machinery for levy and assessment of service tax on indivisible works contracts. At this stage, it is reported that as such Civil Appeal No. 6523 of 2014, now under consideration was also heard alongwith the group of appeals while deciding the case of Larsen and Toubro Limited (supra) and even the papers of Civil Appeal No. 6523 of 2014 were called for by the Bench concerned. However, it appears that by oversight and/or by inadvertence Civil Appeal No. 6523 of 2014 has not been decided and disposed of and therefore kept pending, which is now notified before this Court alongwith the other appeals. 3.3 Feeling aggrieved and dissatisfied with the impugned judgment and order passed by the High Court of Delhi at New Delhi dated 09.01.2014 in Writ Petition (C) No. 6803 of 2013 by which the Division Bench of the High Court relying upon its earlier decision in the case of G.D. Builders (supra) has dismissed the said writ pe....
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..... Larsen and Toubro Limited, (2016) 1 SCC 170. In the aforesaid decision, after considering the entire scheme of levy of service tax pre-2007 and post-2007, this Court has specifically observed and held that on indivisible works contracts, for the period prior to introduction of Finance Act, 2007, service tax was not leviable under Finance Act, 1994. It is specifically observed and held that works contracts on which the service tax was levied under the Finance Act, 1994 is distinct from contracts of service. 6. Ms. Madhavi Divan, learned Additional Solicitor General, appearing on behalf of the Revenue, has not disputed that the issue involved in the present appeals is as such squarely covered by the decision of this Court in the case of Larsen and Toubro Limited (supra). However, according to Ms. Madhavi Divan, the decision of this Court in the above case, holding that there was no service tax leviable on works contracts prior to the amendment by the Finance Act, 2007 needs to be re-considered. 6.1 In support to her prayer to re-consider the decision of this Court in the case of Larsen and Toubro Limited (supra), Ms. Madhavi Divan, learned Additional Solicitor General has mad....
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....d that in most of the appeals, which are arising out of the judgments and orders passed by the High Court of Delhi, the High court has followed its decision in the case of G.D. Builders (supra). That the said decision of the Delhi High Court in the case of G.D. Builders (supra) has been held to be wholly incorrect by this Court in the case of Larsen and Toubro Limited (supra). He has taken us to the relevant observations made by this Court in the case of Larsen and Toubro Limited (supra) in paragraphs 28, 29, 30, 31, 32, 33, 38 and 39. 7.1 It is vehemently submitted by Shri Datar, learned Senior Advocate appearing on behalf of some of the assesses that in the case of Larsen and Toubro Limited (supra), it is specifically observed that a taxable service under the Finance Act, 1994 covers service contracts simpliciter and not the Composite Works Contracts (reliance is placed upon the observations made in paragraphs 23 and 29 of the said decision). It is contended that while referring to exemption notifications in paragraph 42, it has been specifically observed and held that since the levy of service tax has been found to be non-existent, no question of any exemption would arise. It....
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....ance Minister while moving the amendment in the Parliament while introducing the Finance Act, 2007. It is submitted that for the first time, the service tax is levied on the Composite Works Contracts pursuant to the Finance Act amendment made vide Finance Act, 2007. However, for the reasons to be recorded hereinbelow, we do not propose to elaborately deal with and/or consider the elaborate submissions made on behalf of the respective parties on whether the service tax was leviable on Composite Works Contracts prior to Finance Act, 2007 or not and on whether the decision of this Court in the case of Larsen and Toubro Limited (supra) is required to be re-considered, as now submitted and/or prayed on behalf of the Revenue. 8. Heard, Ms. Madhavi Divan, learned ASG appearing on behalf of the Revenue and Shri Arvind Datar, learned Senior Advocate and other learned senior and other counsel appearing on behalf of the respective assessees. 9. The short question which is posed for consideration of this Court is, "whether for the period prior to introduction of the Finance Act, 2007, the service tax would be leviable on the Composite Works Contracts?" 10. At the outset, it is require....
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....inality and in many cases, the Revenue has not challenged the said decisions; (vii) No efforts were made by the Revenue to file any review application to review and/or recall the judgment and order passed by this Court in the case of Larsen and Toubro Limited (supra). If the Revenue was so serious in their view that decision of this Court in the case of Larsen and Toubro Limited (supra) requires re-consideration, Revenue ought to have filed the review application at that stage and/or even thereafter. No such review application has been filed even as on today. (viii) Merely because in the subsequent cases, the amount of tax involved may be higher, cannot be a ground to pray for reconsideration of the earlier binding decision, which has been consistently followed by various High Courts and the Tribunals in the entire country. 10.3 Keeping in mind the aforesaid factual aspects, the prayer made on behalf of Revenue to re-consider the decision of this Court in the case of Larsen and Toubro Limited (supra) and to refer the matter to the Larger Bench is required to be considered. 10.4 While considering the prayer made on behalf of the Revenue to review and/or revis....
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....44, para 23) '23. ... in reviewing and revising its earlier decision, this Court should ask itself whether in the interests of the public good or for any other valid and compulsive reasons, it is necessary that the earlier decision should be revised. When this Court decides questions of law, its decisions are, under Article 141, binding on all courts within the territory of India, and so, it must be the constant endeavour and concern of this Court to introduce and maintain an element of certainty and continuity in the interpretation of law in the country. Frequent exercise by this Court of its power to review its earlier decisions on the ground that the view pressed before it later appears to the Court to be more reasonable, may incidentally tend to make law uncertain and introduce confusion which must be consistently avoided. That is not to say that if on a subsequent occasion, the Court is satisfied that its earlier decision was clearly erroneous, it should hesitate to correct the error; but before a previous decision is pronounced to be plainly erroneous, the Court must be satisfied with a fair amount of unanimity amongst its members that a revision of the said view is ....
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....o maintain consistency and avoid uncertainty. The guiding philosophy is that a view which has held the field for a long time should not be disturbed only because another view is possible. *** 118. The doctrine of stare decisis is generally to be adhered to, because well-settled principles of law founded on a series of authoritative pronouncements ought to be followed. Yet, the demands of the changed facts and circumstances, dictated by forceful factors supported by logic, amply justify the need for a fresh look." 456. the Constitution Bench in Indra Sawhney [Indra Sawhney v. Union of India, 1992 Supp (3) SCC 217] speaking through B.P. Jeevan Reddy, J. has held that the relevance and significance of the principle of stare decisis have to be kept in mind. It was reiterated that in law certainty, consistency and continuity are highly desirable features. Following are the exact words in para 683 : (SCC p. 657) "683. ... Though, we are sitting in a larger Bench, we have kept in mind the relevance and significance of the principle of stare decisis. We are conscious of the fact that in law certainty, consistency and continuity are highly desirable featu....
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....cept of certainty of law, therefore they often justify their holdings by relying upon the established tenets of law. 19. When a decision is rendered by this Court, it acquires a reliance interest and the society organises itself based on the present legal order. When substantial judicial time and resources are spent on references, the same should not be made in a casual or cavalier manner. It is only when a proposition is contradicted by a subsequent judgment of the same Bench, or it is shown that the proposition laid down has become unworkable or contrary to a well-established principle, that a reference will be made to a larger Bench. In this context, a five-Judge Bench of this Court in Chandra Prakash v. State of U.P. [(2002) 4 SCC 234], after considering series of earlier rulings reiterated that : (SCC p. 245, para 22) "22. ... The doctrine of binding precedent is of utmost importance in the administration of our judicial system. It promotes certainty and consistency in judicial decisions. Judicial consistency promotes confidence in the system, therefore, there is this need for consistency in the enunciation of legal principles in the decisions of this Court."....
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....he aspect of consistency, certainty and uniformity in the field of judicial decisions as it sets a pattern upon which future conduct may be based. One of the basic principles of the administration of justice is that identical/similar cases should be decided alike. This is the foundation of the doctrine of precedent, which has considerable benefits and advantages. Emphasis on the law of precedent, which promotes certainty and consistency, was also noticed in Sundarjas Kanyalal Bhatija and Ors. Vs. Collector Thane, Maharashtra and Ors., (1989) 3 SCC 396, by emphasizing that it is the duty of the courts to make the law more predictable. Law must be made more effective as a guide to behaviour, otherwise, the lawyers or, for that matter, laymen would be in a predicament and would not know how to advise or conduct themselves. The general public should not be in a dilemma to obey or not to obey such law. 11.4 In Medley Pharmaceuticals Limited v. Commissioner of Central Excise and Customs, Daman, (2011) 2 SCC 6014, the question before this Court was whether, "physicians' samples" are excisable goods considering that they are prohibited from being sold under the Drugs and Cosmetics A....
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....vent of any departure therefrom the society would be in utter confusion and the resultant effect of which would be legal anarchy and judicial indiscipline-a situation which always ought to be avoided. The Central Legislature introduced the legislation (MMRD Act) in the year 1957 and several hundreds and thousands of cases have already been dealt with on the basis thereof and the effect of a declaration of a contra law would be totally disastrous affecting the very basics of the revenue jurisprudence. It is true that the doctrine has no statutory sanction but it is a rule of convenience, expediency, prudence and above all the public policy. It is to be observed in its observance rather than in its breach to serve the people and subserve the ends of justice." 12. What was said by the Constitution Bench in Indra Sawhney Vs. Union of India, 1992 Supp (3) SCC 217 and Keshav Mills Co. Ltd. Vs. Commissioner of Income Tax, Bombay North, Ahmedabad, AIR 1965 SC 1636, on the principle of stare decisis clearly bind us. The judgment of this Court in the case of Larsen and Toubro Limited (supra) has stood the test of time and has never been doubted earlier. As observed hereinabove, the said d....
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....o. 6523 of 2014 were also called and the learned counsel appearing on behalf of the G.D. Builders was also heard. It appears that, however, the Civil Appeal No. 6523 of 2014 filed by M/s. G.D. Builders against the decision of the Delhi High Court has not been specifically disposed of. Therefore, once the decision of the Delhi High Court in the case of G.D. Builders (supra), which is the subject matter of Civil Appeal No. 6523 of 2014 has been held to be wholly incorrect, Civil Appeal No. 6523 of 2014 filed by M/s. G.D. Builders has to be allowed and the judgment and order passed by the Delhi High Court has to be quashed and set aside. 13.1 Now, so far as Civil Appeal No. 6525 of 2014, Civil Appeal No. 6526 of 2014 and Civil Appeal No. 2666 of 2022 are concerned, the High Court has dismissed the said writ petitions preferred by the respective assesses relying upon its earlier decision in the case of G.D. Builders (supra). Once the decision of the Delhi High Court in the case of G.D. Builders (supra) is held to be wholly incorrect by this Court in the case of Larsen and Toubro Limited (supra), Civil Appeal No. 6525 of 2014, Civil Appeal No. 6526 of 2014 and Civil Appeal No. 2666 o....
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.... pay the service tax on indivisible/composite works contracts are hereby quashed and set aside. Consequently, the respective assessment orders/orders in originals levying the service tax on the respective assesses on the indivisible/Composite Works Contracts for the period prior to pre-2007 are hereby quashed and set aside. Necessary consequences shall follow. Civil Appeal No. 6792 of 2010 is hereby dismissed. In the facts and circumstances of the case, there shall be no order as to costs. Note :- I have had the advantage of perusing the supplementary judgment and order proposed by my learned Sister, B.V. Nagarathna, J. As such, Her Ladyship has agreed with the conclusions arrived at by me in the present judgment and order, however, has thought it fit to give additional reasons for the conclusions and has dealt with the submissions made by Ms. Madhavi Divan on merits. However, for the reasons stated above as this Court has not agreed with the prayer made by Ms. Divan, learned ASG to reconsider the decision in the case of Larsen and Toubro Limited (supra) on the principle of stare decisis and on the principle of consistency, I deem it proper not to deliberate further on mer....
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....t in the context of sales tax law and as well as under the service tax regime. This is, having regard to the definition of works contract being inserted w.e.f. 1st June, 2007 to the Finance Act, 1994 which seeks to impose service tax on the service aspect of a works contract. The reason for this exercise is because works contract by itself is not taxable. A works contract as defined by the amendment has two components, namely, a sale component and a service component. It is only when both the components are satisfied and coexist that a contract becomes a works contract as defined. Further, it is only on the service component of the works contract that the service tax is leviable w.e.f. 1st June, 2007. As far as the sale component in a works contract is concerned, the Sales Tax laws of the respective States would apply. It is also necessary to state that after the enforcement of the Central Goods and Services Tax Act (CGST), 2017 regime the matter is covered under that Act. Therefore, it is necessary to gather the meaning of works contract from judicial precedent in order to answer the rival submissions in the instant case. Section 65(105)(zzzza) of the Finance Act, 1994 as amend....
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....ndustry; or (c) construction of a new residential complex or a part thereof; or (d) completion and finishing services, repair, alteration, renovation or restoration of, or similar services, in relation to (b) and (c); or (e) turnkey projects including engineering, procurement and construction or commissioning (EPC) projects." Thus, works contract has two essential components: firstly, sale of goods involved in the execution of such contracts which would attract Sales Tax or Value Added Tax (VAT) as the case may be, i.e., prior to the enforcement of the Goods and Services Tax regime and secondly, a service component which is specified in clause (ii)(a)( e) of the definition of works contract which would attract Service Tax under the provisions of the Finance Act, 1994 as amended in the year 2007. If both the above requisites are present, then Service Tax on works contract is leviable on the service component. This is clear from the use of the word "and" between components (i) and (ii) of the definition of works contract under Clause (zzzza) of Section 65 of the Finance Act, 1994 which is as per the amendment in the year 2007. Thus, the definition speaks....
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.... result of this dictum, the Law Commission of India in its 61st Report specifically examined the taxability of works contract and examined the particular question whether the power to tax indivisible contract of works should be conferred on the States. This led to insertion of Clause (29A) to Article 366 of the Constitution. For ease of reference, the same is extracted as under: "Article 366. Definitions. In this Constitution, unless the context otherwise requires, the following expressions have the meanings hereby respectively assigned to them, that is to say - [(29A) "tax on the sale or purchase of goods" includes - (a) XXXXX (b) A tax on the transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract;" C. In Gannon Dunkerley (II) Gannon Dunkerley and Co. vs. State of Rajasthan [1993 (1) SCC 364], the Constitution Bench of this Court explained the effect of the legal fiction introduced by subclause (b) of Clause (29A) of Article 366 of the Constitution. The following principles were enunciated, to outline the operation of subclause (b) of Clause (29A) of Article 366: a) That b....
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.... to (f) of Clause (29A) of Article 366 of the Constitution as also the question, whether, the power of the State legislature to levy tax on the transfer of property in goods involved in the execution of works contract is subject to the restrictions and conditions contained in Article 286 of the Constitution, were considered by a Constitution Bench of this Court in Builders Association of India vs. Union of India [(1989) 2 SCC 645]. Therein, while upholding the constitutional validity of the aforementioned provisions, the Constitution Bench explained the unique features of a composite contract relating to work and materials and expounded on the meaning, effect and amplitude as also contours of the provisions pertaining to the taxing power of the States in relation to works contract particularly in paragraphs 3840 of the judgment. F. In light of the said discussion, this Court concluded that the transfer of any goods in Subclauses (a) to (f) of Clause (29A) of Article 366 of the Constitution is by way of a deeming provision i.e., a deemed sale. This Court however, cautioned that the levy of sales tax after the 46th Amendment to the Constitution of India has to still comply with th....
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....the issue was left for determination by the assessing authorities. I. Subsequently, in Larsen and Toubro Limited and Another vs. State of Karnataka and Another [(2014) (1) SCC 708], this Court deciphered the meaning of the works contract from the earlier judgments and in para 72 opined as under: " 72. In our opinion, the term "works contract" in Article 366(29A)( b) is amply wide and cannot be confined to a particular understanding of the term or to a particular form. The term encompasses a wide range and many varieties of contract. Parliament had such wide meaning of "works contract" in its view at the time of the Fortysixth Amendment. The object of insertion of clause (29A) in Article 366 was to enlarge the scope of the expression "tax on sale or purchase of goods" and overcome Gannon Dunkerley (1) [State of Madras v. Gannon Dunkerley and Co. (Madras) Ltd., AIR 1958 SC 560 : 1959 SCR 379] . Seen thus, even if in a contract, besides the obligations of supply of goods and materials and performance of labour and services, some additional obligations are imposed, such contract does not cease to be works contract. The additional obligations in the contract would not alter ....
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...., and (iii) the property in those goods must be transferred to a third party either as goods or in some other form. In a building contract or any contract to do construction, the above three things are fully met. In a contract to build up a flat there will necessarily be a sale of goods element. Works contract also includes building contracts and, therefore, it can be stated that building contracts are a species of works contract. L. With reference to the aspect theory, it was held that though the State Legislature does not have the power to tax services by including the cost of such service in the value of goods but that does not detract the State to tax the sale of goods element involved in the execution of works contract in a composite contract like contract for construction of building and sale of a flat therein. In light of the above discussion, the legal proposition was summarised in paragraph 97 of the judgment. Evolution of the practice in relation to the levy of service tax on works contract: (6) Service tax was introduced in India vide the Finance Act, 1994. Service tax is legislated by Parliament under the residuary entry i.e. Entry 97 of List I of the Seventh Sche....
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....een paid under the Finance Act, 1994 as amended from time to time, were also liable to tax under the Karnataka Value Added Tax Act, 2003, (KVAT) for the sale of advertisement material following the creation of the designconcept, was considered by this Court in Imagic Creative Pvt. Ltd. vs. The Commissioner of Commercial Taxes and Ors. [(2008) 2 SCC 614]. This Court observed that payments of service tax as also of KVAT are mutually exclusive. That they should be held to be applicable having regard to the respective parameters of service tax and the sales tax as envisaged in a composite contract as contradistinguished from an indivisible contract. Thus, a distinction was made between an indivisible contract and a composite contract. In doing so, it was held that a composite contract, would have to be construed such that the legal fiction in Article 366 (29A) allowing tax on the sale element of a works contract would have to be applied only to the extent for which it was enacted, i.e., to the extent of the value of the sale component of the contract and should not be applied in relation to the service element of the transaction. That taxes, in the nature of a service tax could be appl....
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.... service for the purpose of payment of service tax on or after 1st June, 2007 and hence, was not entitled to avail of the Composition Scheme. It was observed that the appellantassessee had already paid service tax on the basis of classification of service contract which was in force prior to 1st June, 2007 and the said contract could not be classified differently following the introduction of Section 65 (105) (zzzza) and the 2007 Rules. f) Thus, Works Contract Services were brought under the service tax net as per an amendment to of the Finance Act, 1994 by introduction of Clause (zzzza) to Section 65(105). The said introduction was made pursuant to the Finance Act, 2007, which expressly made the service component in such works contract liable to service tax w.e.f. 1st June, 2007. The amendment was made to the said section of the Finance Act, 1994 by which works contract which were indivisible and composite could be split so that only the labour and service element of such contracts would be taxed as service tax. (7) Having noted the above developments, it is necessary to discuss the judgment in Larsen and Toubro Ltd. (supra) in detail as learned ASG, Ms. Divan has vehe....
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....t to the issue and arrived at the correct conclusion. Thus, the assesses assailed the judgment of the Delhi High Court in G.D. Builders (supra) and considered along with Larsen & Toubro Ltd. vs. CST (supra). b) Considering the definition of 'taxable service' in subSection 105 of Section 65 of the Finance Act, 1994 and the relevant clauses therein, namely, (g), (zzd), (zzh), (zzq) and (zzzh); Charge of service tax in Section 66; valuation of taxable services for charging service tax [Section 67 and Section 65(105)(zzzza)] as well as the Rule 2A of Service Tax Act (determination of value) Rules 2006, this Court observed that crucial to the understanding and determination of the issue at hand was the second Gannon Dunkerley and Co. vs. State of Rajasthan [(1993) 1 SCC 364] (Gannon Dunkerley II) (supra) . That in the said judgment the modalities of taxing composite indivisible works contract was gone into which has been referred to above. It was observed that the value of the goods involved in the execution of the works contract will have to be determined by taking into account the value of entire works contract and deducting therefrom the charges towards labour and services which w....
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....portion of works contract which contain a service element which is to be derived from the gross amount charged for the works contract less the value of property in goods transferred in the execution of the works contract. Since this had not been done by the Finance Act, 1994, any charge to tax under the five heads in Section 65(105) would only be of service contracts simpliciter and not composite indivisible works contract. Those five heads for ease of reference are noted as under: "(g) to a client, by a consulting engineer in relation to advice, consultancy or technical assistance in any manner in one or more disciplines of engineering but not in the discipline of computer hardware engineering or computer software engineering; * * * (zzd) to a customer, by a commissioning and installation agency in relation to erection, commissioning or installation; * * * (zzh) to any person, by a technical testing and analysis agency, in relation to technical testing and analysis; * * * (zzq) to any person, by a commercial concern, in relation to construction service; * * * (zzzh) to any person, by any other person,....
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....oning 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 facts of the present cases. It will also be noticed that no attempt to remove the non63 service elements from the composite works contracts has been made by any of the aforesaid sections by deducting from the gross value of the works contract the value of property in goods transferred in the execution of a works contract." It was also observed that while introducing the concept of service tax on service element of indivisible works contract various exclusions are also made, such as, works contract in respect of roads, airport, airways transport, bridges, tunnels and dams, possibly in the national interest. The implication of the exclusion means that such contracts were never intended to be the subjectmatter of the service tax. e) Further,....
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....supra) was not correctly decided by observing in paragraph 39 as under after quoting paragraph 31 of the judgment of Delhi High Court in G.D. Builders: "We are afraid that there are several errors in this paragraph. 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 [(1993) 1 SCC 364] 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. We find therefore that this judgment is wholly incorrect in its conclusion that the Finance Act, 1994 contains both the charge and machinery for levy and assessment of service tax on indivisible works contracts." It was categorically observed that since the Finance Act, 1994 lays down no charge or machinery to levy a....