TaxTMI 
TaxTMI 
2023 (4) TMI 1487
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....t, 1994 and availed the benefit of concessional rate of tax under Rule 3(1) of the Works Contract Rules, 2007 and paid service tax at the rate of 4 / 8%. An audit was conducted by CERA audit team whereby it was alleged that the appellant classified the services as works contract services however, there was no sale of goods therefore service cannot be classified under works contract service and service tax @ 12.36% should have been paid by the appellant. The investigation and enquiry culminated into the issuance of show cause notice dated 15.11.2017 wherein it was proposed to demand service tax amounting to Rs. 1,06,37,604/- under Section 73(1) of the Finance Act, 1994 along with interest and penalty under Section 75, 76, 77(2) and Section 78 of the Finance Act, 1994 respectively. After considering the reply filed by appellant the learned Commissioner, CGST and CE, Ahmedabad vide order-in-original No. 03/ADC/2020-21 MLM dated 03.06.2020 confirmed the demand of service tax amounting to Rs. 1,06,37,604/- along with interest for delay in making payment of service tax and penalty. Aggrieved by the order-in-original dated 03.06.2020, the appellant preferred the appeal before learned Comm....
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....t in the case of Bharat Sanchar Nigam Limited vs. UOI - 2006 (3) SCC 1 wherein it was held by the Hon'ble Apex Court that the bifurcation of an activity into sale and service is permissible in the case of works contracts. 2.1 He further submits that Works Contract Composition Scheme Rules, 2007 were notified by the Legislature vide Notification No. 32/2007-ST dated 22.05.2007 providing the option to a taxable person towards determination and payment of its liability for works contract service on composition basis. He submits that the appellant have opted for the composition scheme prior to payment of service tax and benefit of composition scheme was availed throughout the period of ongoing contract and in terms of Rule 3(3), the composition scheme granted the option to pay service tax at the rate of 2% upto 28.02.2008 and from 01.03.2008 onwards, at the rate of 4% on the total value of the works contract. However, the condition was that the appellant must not have paid the service tax under other category. He submits that in terms of Rule 3(1) of Works Contract Rules, 2007 which is over-riding effect of the provisions of Section 67 of the Act and Rule 2A of the Determination....
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....edient of 'Interior Decorator Service' is the provision of service by way of advice, consultancy, technical assistance or in any other manner to the service recipients coupled with planning, designing or beautification of spaces. He submits that setting-up of stalls for exhibition or events cannot be considered to classify 'Interior Decorator Service'. The work undertaken by the appellant, by no stretch of imagination can be considered to be 'Interior Decorator Service'. It is merely a setup of stall as per the design and approval of the customers. There is neither any element of beautification of space involved nor any provision of advice, consultancy that is provided by the appellant. Every pattern and design for a stall is as per the layout which is provided by the customer to the appellant. The activity undertaken by the appellant is simply a works contract service since there is both labour and use of material as part of the contract and the property in goods gets transferred in favour of the customers. He placed reliance on the judgment in the case of R Nagendra Rao vs. CCE - 2018-TIOL-3280-CESTAT-MAD. 2.4 As regards the allegation in the show cause....
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....39;s Service is not sustainable. 2.6 He also submits that there is no suppression of facts since the department was well aware of the facts hence invocation of extended period of limitation is wholly incorrect. He relied upon following decisions :- (a) CCE vs. Vineet Electrical, 2002 (144) ELT A292 (SC) (b) CCE vs. Raptakos Brett, 2006 (194) ELT 101 (T) (c) CCE vs. Rishabh Velveleen, 1999 (114) ELT 839 (T) (d) Pee Jay Apparels vs. CCE, 2001 (135) ELT 842 (T) (e) Cosmic Dye Chemical vs. CCE, 1995 (75) ELT 721 (SC) He further submits that extended period of limitation was also not applicable since the issue involves interpretation of law. He takes support of the following judgments :- (a) Ispat Industries Limited vs. CCE - 2006 (199) ELT 509 (Tri .- Mum) (b) NIRC Limited vs. CCE - 2007 (209) ELT 22 (Tri .- Del.) (c) Chemicals & Fibres of India Limited vs. CCE 1988 (33) ELT 551 (Tri.) (d) Homa Engineering Works vs. Commissioner of C. Ex., Mumbai - 2007 (7) STR 546 (Tri-Mum) (e) Jaihind Projects Limited vs. CCE - [2010] 25 STT 196 (Tri- Ahmedabad) 3. Shri Prakash Kumar Singh, learned Supe....
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....rior Decorator's service, in the present case is not satisfied hence, the service cannot be classified under Interior Decorator's service. Moreover, the post Negative List regime, with effect from 01.07.2007, the definition of service was done away and there is only service portion in execution of works contract is listed as a declared service for the purpose of levy of service tax. The appellant's strong claim is that their service is nothing but Works Contract service. In this regard post 01.07.2012, the Works Contract service has been specified as declared service under Section 66E as under :- "66E. The following shall constitute declared services, namely: ...... (h) service portion in the execution of a works contract; ......" The Works Contract Composition Scheme Rules, 2007 were notified vide Notification No. 32/2007-ST dated 22.05.2007 providing the option to a taxable person towards determination and payment its liability for works contract service on composition basis. The said Notification No. 32/3007-ST dated 22.05.2007 reads as under :- Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007 ....
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....w, as per Section 65B of the Finance Act, 1994, Works Contract means a contract wherein transfer of property in goods involved in the execution of such contract is leviable to tax as sale of goods and such contract is for the purpose of carrying out construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, alteration of any movable or immovable property or for carrying out any other similar activity or a part thereof in relation to such property. In the present case, admittedly the appellant have installed stalls in the exhibition along with material. In this regard the appellant have submitted invoices of the material purchased for use in the execution of contract. Some sample invoices are scanned below :- In respect of bought-out material used for execution of the contract, the appellant have also discharged State VAT. The sample copies of receipt of VAT payment are scanned below :- With regard to the payment of VAT, the appellant have also submitted VAT return in Form-205 under Section 33 of Gujarat VAT Act, 2003. One sample copy of such Form-205 is scanned below :- The appellant have also submitted VAT assessment ord....
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....n order to answer the rival submissions in the instant case. Section 65(105)(zzzza) of the Finance Act, 1994 as amended by the Finance Act, 2007 which defines work contract, has been extracted as under, for ease of reference : " 'Works contract' means a contract wherein, - transfer of property in goods involved in the execution of such contract is leviable to tax as sale of goods, and such contract is for the purposes of (ii) carrying out, - (a) erection, commissioning or installation of plant, machinery, equipment or structures, whether pre-fabricated or otherwise, installation of electrical and electronic devices, plumbing, drain laying or other installations for transport of fluids, heating, ventilation or air-conditioning including related pipe work, duct work and sheet metal work, thermal insulation, sound insulation, fire proofing or water proofing, lift and escalator, fire escape staircases or elevators; or (b) construction of a new building or a civil structure or a part thereof, or of a pipeline or conduit, primarily for the purposes of commerce or industry; or (c) construction of a new residential comp....
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....e 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 of a composite works contract comprising of an element of sale and an element of service. Having regard to the specific definition of works contract introduced in the Finance Act, 1994, w.e.f. 1st June, 2007 and bearing in mind that both clauses (i) as well as (ii) of the definition have to be satisfied before the levy of service tax on the service component of a works contract, it is necessary to understand the scope and ambit of the expression "transfer of property in goods" in clause (i) of the definition of works contract from various judgments of this Court. Further, sales tax/VAT could also be levied on such transfer of goods involved in the execution of such contracts and a service tax on as specified in clause (ii) of the definition of works contract. The evolution of the concept of works contract is noted as under as it is on the service component of such contract that service tax is leviable. The reference to judgments on works contract under Sales Tax law would be pertinent. (A) P....
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....ub-clause (b) of Clause (29A) of Article 366 of the Constitution. The following principles were enunciated, to outline the operation of sub-clause (b) of Clause (29A) of Article 366 : (a) That by virtue of the legal fiction in Clause 29A, even in a single indivisible works contract, there is a deemed sale of goods and such sale has all the incidents of 'sale of goods.' (b) That the value of goods involved in the execution of a works contract may be determined by taking into account the value of the entire works contract and deducting therefrom, the charges towards labour and services. (c) That the following charges towards labour and services were to be excluded in determining the value of goods sold in executing a works contract : (i) Labour charges for execution of the works; (ii) Amount paid to a sub-contractor for labour and services; (iii) Charges for planning, designing and architect's fees; (iv) Charges for obtaining on hire or otherwise machinery and tools used for the execution of the works contract; (v) Cost of consumables such as water, electricity, fuel, etc. used in the execution of the....
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....uses (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 the restrictions imposed under Articles 286 and 269 of the Constitution. (G) Later a three-judge Bench of this Court in State of A.P. v. Kone Elevators [(2005) 3 SCC 389 = 2005 (181) E.L.T. 156 (S.C.)] had taken the view that a contract for manufacture, supply and installation of lifts is a "sale" and the entire value of the consideration can therefore be taxed under the sales tax law. However, the matter was subsequently referred to a Larger Bench to review the issue afresh. This Court, on re- hearing the matter referred to it, in Kone Elevator India Pvt. Ltd. v. State of Tamil Nadu [(2014) 7 SCC 1 = 2014 (34) S.T.R. 641 (S.C.) = 2014 (304) E.L.T. 161 (S.C.)], observed that the installation obligation in a contract for manufacture, supply and installation of lift is not merely incidental, but was a profound part of the entire contract. That various components were assembled together and installed at site as a permanent ....
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.... 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 the nature of contract so long as the contract provides for a contract for works and satisfies the primary description of works contract. Once the characteristics or elements of works contract are satisfied in a contract then irrespective of additional obligations, such contract would be covered by the term "works contract". Nothing in Article 366(29A)(b) limits the term "works contract" to contract for labour and service only. The Learned Advocate General for Maharashtra was right in his submission that the term "works contract" cannot be confined to a contract to provide labour and services but is a contract for undertaking or bringing into existence some "works". We are also in agreement with the submission of Mr. K.N. Bhat that the term "works contract" ....
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....ntract 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 : 20. 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 Schedule of the Constitution of India read with Article 248 of the Constitution. The service tax provisions have the following basic scheme : (i) Section 65 of the Act provides for taxable services; (ii) Section 66 of the Act provides for the charge of service tax by the person designated as "the person responsible for collecting the service tax" for the Government; (iii) ) Section 67 of the Act provides for the value of taxable service which is to be subjected to 5% service tax; and (iv) Section 68 of the Act provides for the collection and payment mechanism for service tax. It is necessary to trace the evolution of charging service tax on works contract as discerned by this Court in the....
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....n 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 applied in relation only to the service element. (c) In Nagarjuna Construction Company Ltd. v. Government of India and Ors. [(2013) 1 SCC 721 = 2012 (28) S.T.R. 561 (S.C.)], this Court discussed the effect of introduction of an express charging provision to impose tax on works contract, w.e.f. 1st June, 2007, on works contract which were entered into prior to 1st June, 2007. In the said case, the appellant therein was said to be in the business of carrying out composite construction contracts. The appellant-assessee had paid sales-tax/VAT on those contracts under the Andhra Pradesh General Sales Tax Act, 1957, Andhra Pradesh Value Added Tax Act, 2005 and other State enactments. P....
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....on 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. 21. 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 vehemently submitted that the said judgment requires re-consideration. It may be noted that this judgment concerned the position of law prior to the amendment made to the Finance Act, 1994, w.e.f. 1st June, 2007, incorporating the definition of works contract as under : (a) In the aforesaid case, this Court traced the historical setting within which the controversy leading up to the 46th amendment in the context of levy of sales tax on works contract progressed. Taking up the question as to whether service tax could be levied on the service element of a works contract, it was observed that service tax was introduced by the F....
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.... this Court observed that crucial to the understanding and determination of the issue at hand was the second Gannon Dunkerley and Co. v. 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 would cover - "(a) labour charges for execution of the works; (b) amount paid to a sub-contractor for labour and services; (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 ....
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.... assistance in any manner in one or more disciplines of engineering but not in the discipline of computer hardware engineering or computer software engineering; XX XX XX to a customer, by a commissioning and (zzd) installation agency in relation to erection, commissioning or installation; XX XX XX to any person, by a technical testing and (zzh) analysis agency, in relation to technical testing and analysis; XX XX XX to any person, by a commercial concern, in (zzq) relation to construction service; XX XX XX to any person, by any other person, in (zzzh) relation to construction of a complex; Explanation : For the purposes of this sub-clause, construction of a complex which is intended for sale, wholly or partly, by a builder or any person authorized by the builder before, during or after construction (except in cases for which no sum is received from or on behalf of the prospective buyer by the builder or a person authorized by the builder before the grant of completion certificate by the authority competent to issue such certificate under any law for the time being in force) shall be deemed to be service provided by the builde....
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....en 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 subject-matter of the service tax. e) Further, in Larsen & Toubro Ltd. (supra) the correctness of the judgment in G.D. Builders v. Union of India [2013 (32) S.T.R. 673] was also considered. In the said case, it was held by the Delhi High Court that Section 65(105)(g), (zzd), (zzh), (zzq) and (zzzh) were good enough to tax indivisible composite works contract and that even when rules are yet to be framed for computation of taxes, taxes would be leviable. This proposition was based on the judgment in Mahim Patram (P.) Ltd. v. Union of India [(2007) 3 SCC 668 = 2007 (7) S.T.R. 110 (S.C.)]. It was observed that in G.D. Bu....
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.... 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 contract." It was categorically observed that since the Finance Act, 1994 lays down no charge or machinery to levy and assess service tax on indivisible composite works contract, therefore, service tax was not existent at all under the Act and hence any exemption qua service tax "levied" did not arise at all. 22. As already noted, the definition of works contract was brought under the service tax net as per Section 65(105)(zzzza) of the Finance Act, 1994 by the insertion of the said definition. The said introduction was made pursuant to the Finance Act, 2007, which expressly made the service element in such works contract liable ....
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.... service contract and not on service element of works contract as there was no definition of a works contract till then. Hence, the amendment made to the Finance Act, 1994 by insertion of the definition of works contract as under clause (zzzza) is not clarificatory in nature. Having found that the Service Tax was not at all leviable on service element of a works contract, Parliament felt the need for the amendment and was so incorporated by the Finance Act, 2007. 27. Thus, the judgment in Larsen and Toubro Ltd. (supra) has been correctly decided and does not call for a re-consideration insofar as the period prior to 1st June, 2007 is concerned. In view of the above discussion, I agree with the result arrived at by His Lordship M.R. Shah J. vis-a-vis allowing all civil appeals under consideration except Civil Appeal No. 6792 of 2010 which is dismissed. No costs." The principle Bench of this Tribunal, in identical issue, in the case of Russell Interiors Private Limited vs. Commissioner, CGST-Delhi South in Service Tax Appeal No. 52659 of 2018 reported at 2023-VIL-222-CESTAT-DEL-ST, decided the matter as under :- "6. The issue involved in this appeal is as to whet....
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....th another client rather proves the contrary that the nature of services provided by the appellant has always been same irrespective of the clients. Once such activity is acknowledged by the Department to be a work contract services there is no justification by concluding the similar activities to fall under any other category. The Commissioner is also observed to be wrong while forming an opinion that the activity of the appellant do not fall under any clause i.e. A-E of the definition to works contract services. In view of the above discussion, the demand as confirmed is not sustainable. 7. Seeing from another angle of limitation as pleaded, we observe that period in dispute is w.e.f. 2006-07 to 2011-12. The Show Cause Notice is dated 19.10.2011. The Department has invoked the extended period of limitation in accordance of proviso to Section 73 of the Finance Act. Perusal of the Order under challenge shows that there is no lota of evidence proving any act of suppression on mis-representation on part of the appellant that too with the intention of evading taxes. On the contrary, it is an acknowledged fact that the appellant has deposited certain amount while discharging h....