TaxTMI 
TaxTMI 
2026 (1) TMI 852
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....he basis of intelligence that appellant was not paying proper service tax, an enquiry was initiated against them in Jan 2010. Vide letter dated 24.03.2010, the appellant confirmed to have received an amount of Rs.6,27,36,379/- for construction of BLB Mall during the period from December 2006 to 2008-09 which included TDS, VAT and security deposit but not the service tax. 1.1 Scrutiny of ST-3 returns revealed that the appellant had paid service tax of Rs.7,66,424/- in 2007-2008 on taxable value of Rs.3,70,64,728/- and service tax of Rs.64,114/- in 2008-09 on taxable value of Rs.31,12,351/- under Work Contract (Composition Scheme For Payment of Service Tax) Rules, 2007 inserted vide Notification No.32/2007-ST dated 22.05.2007. Vide letter dtd 06.05.2010, M/s. BLB Mall intimated supply of 933.355 MT of steel to the appellant for execution of said work. The officers recorded statements of Shri Anilbhai D Patel, Proprietor of the firm on 28.05.2010. After conducting investigation, a show cause notice dated 13.03.2012 was issued to appellant proposing recovery of service tax of Rs.35,93,850/- by invoking proviso to Section 73(1) of the Finance Act, 1994, along with interest under Sect....
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....act service came into existence w.e.f. 01.06.2007. The works undertaken by them are to be treated as works contract for the purposes of charging service tax w.e.f. 01.06.2007 only and no service tax can be charged for the period prior to 01.06.2007. * CBEC in para 9.10 of its Circular No.B1/16/2007-TRU dated 22.05.2007 has clarified that all those contracts which qualify works contract under the Sales Tax Laws equally qualify as works contract for the purpose of levy of service tax. It is settled law that composite contract cannot be vivisected so as to levy service tax on the labour element involved in such works contracts under different categories of services. * Works Contract Service is a more specific description vis-a-vis other categories of services involved in execution of such contracts, as in the present case. For these reasons, impugned order of Commissioner (Appeals) deserves to be set aside. They rely on Circular No.128/10/2010-ST dated 24.08.2010, which mentions that- "The matter has been examined. As regards the classification, with effect from 01.06.2007 when the new service 'works contract' service was made effective, classification of afo....
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....s and materials so supplied accrues to or is retained by the service provider." This decision has also been upheld by Hon'ble Apex Court as reported at 2018 (10) GSTL 118 (SC). 3. During hearing, learned Counsel highlighted various case laws relied upon by them in the matter to argue that construction work undertaken by them in respect of shopping mall is a Works Contract Service which came into service tax net w.e.f. 01.07.2007. They were already registered with state VAT under "Works Contract" w.e.f. 01.07.2002. The said service was not leviable to service tax as per decision of Hon'ble Supreme Court in the case of Commissioner of C. Ex. & Cus. Kerala Vs. Larsen & Toubro Ltd (cited supra). The appellant has correctly paid service tax @2% of the gross amount by availing Composition scheme under the works contract service. Relying on CBIC Circular No.150/1/2012-ST dated 08.02.2012, he pleaded that value of free supply material (i.e. 933 MT steel) by the service recipient is not includible in the value for payment of service tax. 3.1 Relying on Circular No.98/1/2008-ST dated 04.01.2008, and Circular No.128/10/2010-ST dated 24.08.2010, he pleaded that they are eligible to pay s....
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....s to be decided in this case are- (a) Whether activity of construction of shopping mall by the appellant is classifiable under "Civil and Industrial Construction Service or under Works Contract Service"? (b) Whether value of free supply materials is includible to arrive at gross value for charging service tax? (c) Whether extended period is invokable for demanding service tax for larger period and imposition of mandatory penalty? 5.1 Regarding first issue, we find that the appellant were awarded a contract by M/s. BLB Mall Management Company Private Limited for construction of a shopping mall at Sarabhai Industries, Vadodara at value of Rs.6,55,41,760/- which included all direct and indirect costs, duties, taxes, sales tax, VAT, service tax on any inputs, Royalty on quarried items etc. The steel was to be supplied by the recipient of service free of cost. We find that this is a composite contract which includes not only cost of raw materials but also various service components such as Labour, Supervision etc. Hon'ble Supreme Court in the case of Commissioner of Central Excise & Customs, Kerala Vs. Larsen & Toubro Ltd reported at 2015 (39) STR 913 (SC) ....
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....ution of a works contract. In Builders' Association case [(1989) 2 SCC 645 : 1989 SCC (Tax) 317 : (1989) 2 SCR 320] it has been pointed out that in Article 366(29-A)(b), "[t]he emphasis is on the transfer of property in goods (whether as goods or in some other form)". (SCC p. 669, para 32: SCR p. 347). This indicates that though the tax is imposed on the transfer of property in goods involved in the execution of a works contract, the measure for levy of such imposition is the value of the goods involved in the execution of a works contract. We are, however, unable to agree with the contention urged on behalf of the contractors that the value of such goods for levying the tax can be assessed only on the basis of the cost of acquisition of the goods by the contractor. Since the taxable event is the transfer of property in goods involved in the execution of a works contract and the said transfer of property in such goods takes place when the goods are incorporated in the works, the value of the goods which can constitute the measure for the levy of the tax has to be the value of the goods at the time of incorporation of the goods in the works and not the cost of acquisition of the goo....
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.... relate to the various expenses which form part of the cost of establishment of the contractor. Ordinarily the cost of establishment is included in the sale price charged by a dealer from the customer for the goods sold. Since a composite works contract involves supply of materials as well as supply of labour and services, the cost of establishment of the contractor would have to be apportioned between the part of the contract involving supply of materials and the part involving supply of labour and services. The cost of establishment of the contractor which is relatable to supply of labour and services cannot be included in the value of the goods involved in the execution of a contract and the cost of establishment which is relatable to supply of material involved in the execution of the works contract only can be included in the value of the goods. Similar apportionment will have to be made in respect of item No. (viii) relating to profits. The profits which are relatable to the supply of materials can be included in the value of the goods and the profits which are relatable to supply of labour and services will have to be excluded. This means that in respect of charges mentioned....
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....the said formula need not be uniform for all works contracts and may depend on the nature of the works contract. We find merit in this submission. In cases where the contractor does not maintain proper accounts or the accounts maintained by him are not found worthy of credence it would, in our view, be permissible for the State legislation to prescribe a formula for determining the charges for labour and services by fixing a particular percentage of the value of the works contract and to allow deduction of the amount thus determined from the value of the works contract for the purpose of determining the value of the goods involved in the execution of the works contract. It must, however, be ensured that the amount deductible under the formula that is prescribed for deduction towards charges for labour and services does not differ appreciably from the expenses for labour and services that would be incurred in normal circumstances in respect of that particular type of works contract. Since the expenses for labour and services would depend on the nature of the works contract and would not be the same for all types of works contracts, it would be permissible, indeed necessary, to presc....
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....b Works" under the heading "Labour, service and other like charges as percentage of total value of the contract" specifying 15% for fabrication and installation of elevators (lifts) and escalators, is self-contradictory, for once it is treated as a composite contract invoking labour and service, as a natural corollary, it would be works contract and not a contract for sale. To elaborate, the submission that the element of labour and service can be deducted from the total contract value without treating the composite contract as a works contract is absolutely fallacious. In fact, it is an innovative subterfuge. We are inclined to think so as it would be frustrating the constitutional provision and, accordingly, we unhesitatingly repel the same." (at para 60) 19. In Larsen & Toubro Ltd. v. State of Karnataka, (2014) 1 SCC 708 = 2014 (34) S.T.R. 481 (S.C.) = 2014 (303) E.L.T. 3 (S.C.), this Court stated :- "In our opinion, the term "works contract" in Article 366(29-A)(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 mea....
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....rovider 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 non-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. 25. In fact, by way of contrast, Section 67 post amendment (by the Finance Act, 2006) for the first time prescribes, in cases like the present, where the provision of service is for a consideration which is not ascertainable, to be the amount as may be determined in the prescribed manner. 26. We have already seen that Rule 2(A) framed pursuant to this power has followed the second Gannon Dunkerley case in segregating the 'service' component of a works contract from the 'goods' component. It begins by working downwards from the gross amount charged for the entire works contract and minusing from it the value of the pro....
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....ntaining elements both of transfer of property in goods as well as labour and services. 44. We have been informed by counsel for the revenue that several exemption notifications have been granted qua service tax "levied" by the 1994 Finance Act. We may only state that whichever judgments which are in appeal before us and have referred to and dealt with such notifications will have to be disregarded. Since the levy itself of service tax has been found to be non-existent, no question of any exemption would arise. With these observations, these appeals are disposed of." 5.2 Similar finding was given by Hon'ble Karnataka High Court in the case of CST Bangalore Vs. Turbotech Precision Engg. Pvt. Ltd. reported at 2010(18) STR 545 (Kar), which held that complex contracts involving supply of goods and services (Works Contracts) were not subject to service tax before June 1, 2007 and that such contracts should not be split for taxation. 5.3 Therefore, we hold that indivisible composite contract awarded to the appellant in this case, is leviable to service tax under works contract service only w.e.f 01.06.2007. For the prior period, it will not be leviable to service tax as he....
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....aken as non availment of Cenvat Credit by the appellant. As the appellant satisfies both the rules, we hold that they are eligible to pay service tax under Works Contract (Composition Scheme For Payment of Service Tax) Rules, 2007. 5.6 Regarding free supply materials, we find that CBIC vide Circular No. No.150/1/2012-ST dated 08.02.2012 has clarified that the meaning of the expression, "Gross Amount" appearing in Rule 3(1) of the Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007 is qualified by the explanation inserted in the said Rule w.e.f. 07.07.2009. Since, explanation is clarificatory and prospective in nature, inclusion of value of free of cost supplies of goods and services in or in relation to the execution of Works Contract in the gross amount for the purpose of payment of service tax on Works Contract in the Composition Scheme, is a legal requirement only w.e.f. 07.07.2009 when the explanation became part of Rule 3(1). It therefore clarifies that where execution of Works Contract has commenced prior to 07.07.2009, or where any payment (except payment through credit or debit) has been made towards a Works Contract prior to 07.07.2009, then in th....