TaxTMI 
TaxTMI 
2026 (8) TMI 100
X X X X Extracts X X X X
X X X X Extracts X X X X
....ing any service tax on the activities carried out by them, which according to department was activity of 'Site Formation services' (SFS). Therefore, SCN dt.01.12.2020 was issued to them by the department, which was adjudicated vide order dt.07.07.2022. Vide the said order, a demand of Rs.2,05,69,323/- was confirmed holding that the activities being performed were rightly classifiable as SFS, denying their claim for exemption under S.No.12(d) of Notification No. 25/2012. On appeal, this Bench, vide Final Order dt.20.12.2024, upheld the order passed by the Original Adjudicating Authority. However, the appellant thereafter filed a miscellaneous petition for rectification of mistake with regard to order of the Tribunal and after going through the submissions and grounds taken and arguments from both the sides, the Tribunal passed a miscellaneous order dt.11.11.2025. The relevant paras of the order dt.11.11.2025 are cited below: "20. Para 25 and 26 of the impugned order are modified, as under: "25. In view of the discussion, supra, the appellants are not entitled for benefit under S.No.12(d) of Notification No.25/2012 nor they can get the benefit on account of their be....
X X X X Extracts X X X X
X X X X Extracts X X X X
....attracting payment of VAT and the mere fact of using lubricants/consumables by noticee for running the machinery, while providing the services, cannot be construed that the property in the goods has been transferred to the service recipient (main contractor). 5. Insofar as the case laws, which were relied upon by the appellant in support that they were providing Works Contract Services (WCS) to the main contractor, the adjudicating authority has distinguished these case laws. 6. Insofar as the eligibility of the appellant for threshold exemption is concerned, the adjudicating authority allowed certain benefits in terms of exemption notification No. 33/2012-ST dt.20.06.2012 for the FY 2016-17. He also extended the benefit of cum-tax in terms of section 67(2), thereby the demand was reduced to Rs.1,77,55,933/- from the original demand. 7. Insofar as the issue of invocation of extended period is concerned, the adjudicating authority has held that the appellant had intentionally suppressed the facts and violated various provisions of the Finance Act and Service Tax Rules with an intent to evade payment of service tax. He also upheld the payment of interest and penalty under se....
X X X X Extracts X X X X
X X X X Extracts X X X X
....by main contractor suo moto and on further communication/ clarification, they agreed to return the said amount, which was deducted from their bills towards applicable RA on said work. D) The reliance placed on Circular No. 138/07/2011-ST dt.06.07.2011 and Circular No. 147/16/2011-ST dt.21.10.2011 are not applicable for negative tax regime post 2012 and even if it is assumed that said circulars are applicable, the appellant had never claimed that service tax was not payable as service provided by them was to the main contractor, who is providing the WCS. It was appellant's claim that they have always classified their services independent of the main contractor and on the basis of their own bills raised on main contractor. E) The legal principles laid down by the Tribunals on the application of goods in providing WCS were not properly considered and analyzed in arriving at the conclusion. The observations and findings of the adjudicating authority distinguishing the relied upon case laws is not correct as certain principles were laid down by the Tribunals i.e., once goods are used in providing WCS, the property in goods passes to the main contractor, was not duly ap....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the said order was further upheld by the Tribunal. However, the appellant filed miscellaneous application for rectification of mistake (ROM) and after going through the submissions and evidence on record, this Tribunal modified the original order and remanded back for specific consideration of the adjudicating authority in respect of certain points, while observing that the issue relating to their eligibility under S.No.12(d) of Notification No.25/2012 was already settled. Therefore, essentially, the remand proceedings were made for examining their claim of being covered under S.No.29(h) of the said notification and also whether extended period of limitation is invokable or otherwise. Additionally, certain other observations were also made as indicated in Para 3 above. 14. Therefore, the present appeal is restricted only to the extent of examining the order in terms of remand order and hence, the issue to be examined will be restricted to their eligibility or otherwise under S.No.29(h) of the said notification and also applicability of extended period of limitation in the facts of the case. Additionally, the issue of penalty to the extent confirmed would also have to be decided....
X X X X Extracts X X X X
X X X X Extracts X X X X
....03.2013 between the Government of Andhra Pradesh and, inter alia, main contractor, as also EPC contract dt.04.03.2013 between JV and main contractor, the main contractor was executing the work of construction of earth dam, canals, etc., for Government project. This situation is covered by exemption at S.No.12(d) of the Notification No. 25/2012-ST dt.20.06.2012 and hence it is obvious that main contractor was executing work contract in relation to dam, canals, etc., to the Government of Andhra Pradesh. The adjudicating authority has not disputed that main contractor was not providing work contract service, which was exempted. The only dispute is whether subcontractor has provided WCS or otherwise. 19. The essential ground taken by the appellant is that they had used lubricants, oil, spares, etc., on which VAT is leviable and since they were in possession of purchase bills, it is obvious that they had used these goods towards execution of WCS viz., earth excavation, levelling, etc. We find that the interpretation of the adjudicating authority that there should be transfer of property in goods and that supply of such goods should be subjected to VAT, is suffering from certain infir....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r finished item of work. Cum 20,000 Rs.58.59/- (Rupees Fifty Eight and paise Fifty Nine only) Rs.11,71,800.00 2. Excavation in F&F including dressing of bed and sides to required level and profile, cost of all materials, machinery, labour, placing the excavated soft rock at designated dump yards and levelling the dumped rock to the required level and slope with a lead of 2 km including all lifts. Cum 13,00,000 Rs.115.50/- (Rupees One Hundred Fifteen and paise Fifty only) Rs.15,01,50,000 3. Excavation in hard rock requiring blasting including dressing of bed and sides to required level and profile, cost of all materials, machinery, labour, placing the excavated rock at designated dump yards and levelling the dumped rock to the required level and slope with a lead of 2 km including all lifts. Cum 12,00,000 Rs.178.79/- (Rupees One Hundred Seventy Eight and paise Seventy Nine only) Rs.21,45,48,000 Total Amount Rs.36,58,69,800 21. Thus, it is obvious that scope of work clearly prescribe for removal of over burden, excavation, etc., including cost of certain machinery, labour, fuel, etc. In o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....or of the appellant. Therefore, since service provider had not billed and collected VAT on the ground that earth excavation/levelling work did not involve any transfer of property in goods that were liable to payment of VAT and on the other hand, they had claimed reimbursement of VAT, therefore, it was his conclusion that the work did not include usage of good involving transfer of property in goods. In fact, he has also made an observation that the mode of deduction of VAT @3.5% uniformly from the total value of all invoices is inconceivable and on the contrary, if the appellant was not able to produce VAT bills/invoices but if the deduction towards VAT payment was not uniform in all cases, then benefit of doubt with respect to transfer of property in goods could have been given to the appellant. We feel that this understanding is fallacious as it presumes that a person, who is providing WCS has to separately bill for the goods, which have been consumed in the execution of work towards recipient of WCS. In the works contract, the entire WCS is subjected to VAT as deemed sale at an applicable rate and not individual items which have gone into execution of said contract, which are b....
X X X X Extracts X X X X
X X X X Extracts X X X X
....atur solo, solo credit" is a principle which is apposite in the context of a building and engineering contract. We get the following Account of the principle "quicquid plantatur solo, solo credit": "The well-known principle is that the property in all materials and fittings, once incorporated in or affixed to a building, will pass to the free-holder quicquid plantatur solo, solo credit. As soon as materials of any description are used in a building or other erection, they cease to be the contractor's property and become that of the free holder. The employer under a building contract may not necessarily be the free-holder, but may be a lessee or licensee, or even have no interest in the land at all, as in the case of a sub-contract. However, once the builder has affixed materials, the property in them passes from him, and at least as against him, they become the absolute property of his employer, whatever the latter's tenure of or title to the lands. The builder has no right to detach them from the soil or building, even though the building owner may himself be entitled to sever them as against some other person - for example, tenant's fixtures. Nor can the buil....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ricity, 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, is to be deducted. In Section 5C also, the words "not involving any transfer of property in goods" have been incorporated. Just like the toner and developer having been put into xerox machine becoming the property of the customer in the case before the Apex Court in Xerox Modicorp Ltd case and the sale taking place before the goods are consumed, in the same way, the property in the chemical passed to the awarder the moment they are put into the effluent by the assessee and its subsequent consumption is the consumption after sale and it does not detract from the factum of sale and consequently the exigibility to tax becomes unquestionable." 27. In the case of CST Vs Matushree Textile Ltd (supra), the issue was that the appellant was engaged in the business of dyeing, bleaching and printing of grey fabrics and for the said purpose, they were using colours, dyes and chemicals and these materials were converted into a solution and stored in a tank. Thereafter, the grey fabric was passed through the above solution several times, till ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... in the case of Gannon Dunkerley & Co. (Madras) Ltd. [1958] 9 STC 353 still holds good and that the transfer which is incidental to the contract of service cannot be taxed, is without any merit. The very foundation of the Forty-sixth Amendment to the Constitution was to bring to tax the transfer of the materials (in any form) used in the execution of a works contract. Therefore, once it is held that there is transfer of goods used in the execution of a works contract either in its original form or in some other form, then, even if there is a composite works contract, it is deemed to be bifurcated and the provisions of the Works Contracts Act would apply to the materials used in the execution of such composite works contract. This is exactly what the three-Judge Bench decision of the apex Court has held in the case of Associated Cement Companies Ltd. [2001] 124 STC 59. As stated hereinabove, the three-Judge Bench decision of the apex Court in the case of Associated Cement Companies Ltd. [2001] 124 STC 59 has clearly held that even if the dominant intention of the contract is the rendering of service, it will amount to works contract and after the Forty-sixth Amendment, the States wo....
X X X X Extracts X X X X
X X X X Extracts X X X X
....lly used for the execution of work. Therefore, we find that distinguishing these case laws by the adjudicating authority on the facts is not correct and the ratio of these case laws is applicable inasmuch as there has been usage of goods in execution of work and these goods were leviable to VAT under the category of works contract. Therefore, we find that appellant has provided WCS, though they have not paid any VAT on the said services in view of the exemption under applicable tax laws during the material time. Mere reimbursement of deducted VAT amount would not tantamount to their having not paid any VAT on the contract value as deemed sale or the work itself was not leviable to VAT. 29. From the scope of work, it is obvious that work for certain earth work, all material, labour, machinery including fuel were to be provided by subcontractor. It is not a case of simple labour job but composite contract involving men, materials and machines and certain other materials used for running the machines or excavation of earth, lifting of earth, etc. All these jointly comprise the work awarded to them. In WCS, by doctrine of accretion, transfer of title in property or goods takes place....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... to establish suppression of fact. He has also relied on Lakhan Singh & Co Vs CCE, Jaipur [2016 (46) STR 297 (Tri-Del)] in support that suppression is not about making false declaration but also about not declaring what should be declared and accordingly, held that assessee had intentionally suppressed the facts and violated various provisions of the Finance Act, 1994 and Service Tax Rules with an intent to evade payment of tax. Appellant has contested that reliance on these case laws are not tenable. 32. The adjudicating authority has primarily referred to the statement of the Managing Director of the appellant and has also observed that they have not taken service tax registration nor filed periodical return and the same would not have come to notice but for detailed investigation of the officers of DGGI. He has also placed great emphasis on the fact that they had claimed reimbursement of VAT as no goods were transferred while providing earth excavation/levelling works, etc., and were clearly aware that the services did not fall under WCS. He has also relied on various case laws as under: a) CCE, Chandigarh-I Vs Punjab Steels [2011 (21) STR 5 (P&H)] b) Saraf ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ty in goods in the said execution of work or that it was deliberately and intentionally not paid. The case laws cited would indicate that the use of fuel, lubricants, spares, etc., would constitute deemed sale and therefore, leviable to VAT. Non-payment of VAT due to certain exemption is of no consequence as the said work was otherwise leviable to VAT. 35. Therefore, holistically evaluating the facts and submissions, we find that the whole issue is that of interpretation and we also find that there was bonafide belief that they were not leviable to any service tax and that is why they had not taken registration nor paid any service tax. Even for payment of service tax by the sub-contractor, when the main contractor has paid service tax, was subject matter of various disputes and it has been held by the Tribunals that due to different interpretations, there cannot be any deliberate attempt for not paying service tax and in such cases, extended period was not found invokable. 36. In the case of SEM Construction Vs CCE & ST (supra), the Hon'ble Supreme Court has, inter alia, upheld the order of the Tribunal, wherein, in the given facts invocation of extended period was not found....