Custom, Excise & Service Tax Tribunal
M/S. Srishti Constructions vs Commissioner Of Central Excise & St, ... on 30 November, 2017
CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL SCO 147-148, SECTOR 17-C, CHANDIGARH 160 017 COURT NO. I Appeal No. ST/1132/2011, ST/55173/2014-DB Date of Hearing : 28.06.2017 Date of Decision : 30.11.2017 [Arising out of Order-in-Appeal Nos. OIA-40-LDH-2010 dated 05.01.2011 and OIA-LUD-EXCUS-000-APP-103-104-14-15 dated 25.04.2014 passed by the Commissioner (Appeals) Central Excise & ST, Ludhiana] For approval and signature: Honble Mr. Ashok Jindal, Member (Judicial) Honble Mr. Devender Singh, Member (Technical) M/s. Srishti Constructions : Appellant vs. Commissioner of Central Excise & ST, Ludhiana : Respondent
Appearance:
Shri Jagmohan Bansal and Naveen Bindal, Advocates for the Appellant(s) Shri Tarun Kumar, A.R. for the Respondent(s) CORAM:
Honble Mr. Ashok Jindal, Member (Judicial) Honble Mr. Devender Singh, Member (Technical) Final Order No. A/ 62071-62072/2017 Per : Ashok Jindal The appellant is in appeal against the impugned order confirming demand of service tax of Rs. 1,09,32,336/- along with interest and various penalties imposed under Finance Act, 1994. The period involved is 10.09.2004 to 31.03.2009. The demand is confirmed under the category of construction of Residential Complex and Commercial or Industrial Construction services, by invoking extended period of limitation.
2. The facts of the case are that the appellant carried out construction activities along with material for the following organisations:-
(a) M/s. M.C. Ludhiana Construction of Roads.
(b) M/s. M.C. Nangal Govt. Pharmacy College, Nangal
(c) M/s. A.K. Gupta & Associates Bridge
(d) M/s. M.C. Amritsar MC Building, Amritsar
(e) M/s. Ansal Construction of Roads
(f) M/s. M.C. Kharar Govt. Model Sr. Sec. School
(g) M/s. Jalandhar Improvement Trust Construction of flats
(h) M/s. Midland Construction of flats
(i) M/s. OTM Accn., Ferozpur OTM Accommodation
(j) M/s. Mussorie Dehradun Development Authority Construction of flats.
(k) Airport Authority of India
(l) Railways over/under bridges
(m) Hospital of Gulab Devi Trust
(n) Thapar Institute of Technology
(o) Punjabi University, Patiala
(p) C.T. Education Society, Jalandhar During the impugned period, the appellant received a sum of Rs. 9,14,01,136/- from State Bank of India and M/s. Sharma Vikram Motors for construction of buildings and from different improvement Trusts for the construction of residential units. The appellant entered into a composite contract for supply of raw material as well as providing construction services. On the basis of scrutiny of documents, it was alleged that the construction of building for SBI and Shrama Vikram Motors falls under category of Commercial or Industrial Construction Services under Section 65 (25b) of the Finance Act, 1994 and construction of Residential Complex is under Section 65 (91a) of the Act. The appellant was granted abatement of 67% on the gross amount received and the appellant is required to pay service tax on the balance amount. Accordingly, the demand was confirmed by invoking extended period of limitation. Aggrieved from the said orders, the appellant is before us.
3. The ld. Counsel for the appellant submits that the appellant has worked for various organisations as Works Contract. The managing partner of the appellant firm has stated in his statement recorded during the course of investigation that they have entered into a Composite Contract as the raw material used in construction is supplied by them and on the basis of that, abatement of 67% on the gross amount received was allowed to the appellant. It is his contention that as the appellant has carried out construction activity with the material, therefore, the activity undertaken by the appellant is classifiable under Works Contract, in view of the decision of the Honble Apex Court in the case of Larson & Toubro Limited 2015 (39) STR 913 (SC). He also stated that for the period prior to 01.06.2007, no service tax was payable by them on their activities as they have taken the construction activity as Composite Contract. Therefore, no service tax is payable by the appellant prior to 01.06.2007 and thereafter, if at all the service tax is payable that too under the Works Contract services and the same has not been alleged against the appellant in the show cause notice. Therefore, the appellant is not liable to pay service tax at all. He further submitted that appellant is constructing residential units for the local authorities and development authorities constituted under Punjab Town Improvement Act, 1992 and are statutory autonomous bodies. The committee consisting of officers of different departments time to time notifies a common schedule of rates and in the meetings held on 14.12.2007 and 23.12.2009, common schedule of rates was notified. He submits that in the notified rates, it was specifically mentioned that rates are without service tax as service tax is not applicable in those departments. The appellant has entered into contract with these trusts without including the cost of service tax. He submits that the appellant sought information under RTI from various Commissionerates and these Commissionerates in their reply have confirmed that service tax is not payable with respect to construction of residential units for Government department/local Bodies/ Development authorities. The improvement trusts, Jalandhar, Sangrur, Bhathinda, Roop Nagar and Dehradun in their reply in their reply to RTI application have confirmed that they have not paid service tax for Residential Complex services as they are statutory autonomous bodies. It is, therefore, the contention of the appellant is that they are not liable to pay service tax and extended period is not applicable as it stands certified by different authorities. He submits that as there is no suppression of facts and the appellant has proved that there was no reason to believe that service tax is payable, the extended period is not invokable. He further submitted that the Revenue has classified the construction activities undertaken for SBI and Sharma Vikram Motors under Commercial or Industrial Construction Services and construction of residential units under Residential Complex services. The Revenue declined to classify the services under Works Contract services on the ground that no evidence has been produced to show that the appellant has worked under works contract and even after 2007 they have not given option to work under Work Contract Composite Scheme, 2007. The concept of Works Contract was inserted in the Finance Act, 1994 by way of clause (zzzza) in Section 65 (105) with effect from 01.06.2007 whereas the Revenue has classified the services under Section 65 (25b) and 65 (91a) which is taxable under Section 65 (105) (zzq) and (zzzh). The Revenue has neither issued show cause notice nor assessed liability under the said clause even though show cause notice as well as impugned order was passed after 01.06.2007. Therefore, department cannot raise demand under Construction of Commercial Complex or Residential Complex services so the demand is bad in the eyes of law. To support this contention he relied on the decision in the case of Precision Rubber Industries Pvt. Limited vs. CCE, Mumbai -2016 (334) ELT 577 (S.C.). He further submits that as per the different letters and various communications with improvement Trusts and Commissionerates, giving the appellants to believe that service tax is not payable, the appellants did not pay the alleged service tax. Moreover, the appellant due to competitive market even otherwise had no option except to believe that service tax is not payable on construction of Residential units for autonomous bodies and improvement trusts. As per Section 80 of the Act, penalty be waived against the appellant for entertaining bonafide reasons.
4. On the other hand, ld. AR has opposed the contention of the ld. Counsel and submits that the correct classification of the services provided by the appellant is construction of Commercial or Industrial Construction Services and construction of Residential Complex. He fairly agreed that as it is a composite contract along with material, in that circumstance, demand for the period prior to 01.06.2007 is not sustainable. The appellant is liable to pay service tax as abatement of 67% on their gross value of services has already been granted by the adjudicating authority. He further submitted that the activity of providing services known to the appellant, therefore, service tax is rightly demanded from the appellant under the said category of services. He also relied on the decision in the case of Madhukar Mittal vs. CCE, Panchkula 2015 (40) STR 969 (Tri. Del.) to say that the activity undertaken by the appellant is correctly falls under construction Commercial or Industrial Construction Services and construction of Residential Complex services. He also relied on the decision of Ahluwalia Contracts (India) Limited vs. CST, New Delhi 2015 (38) STR 38 (Tri. Del.).
5. Heard both sides and considered the submissions. We find that the facts of the case are not in dispute that the appellant has provided construction services along with material. Now the issue before us is whether the construction services provided along with material, falls under the Works Contract service or construction of Commercial or Industrial Construction Services / Residential Complex services. The said issue has been dealt by the Honble Apex Court in the case of Larson & Toubro Limited (supra) wherein the Honble Apex Court has examined the issue and observed as under:-
It is interesting to note that while introducing the concept of Service Tax on indivisible works contracts various exclusions are also made such as works contracts in respect of roads, airports, airways transport, bridges, tunnels, and dams. These infrastructure projects have been excluded and continue to be excluded presumably because they are conceived in the national interest. If learned counsels for the Revenue were right, each of these excluded works contracts could be taxed under the five sub-heads of Section 65(105) contained in the Finance Act, 1994. For example, a works contract involving the construction of a bridge or dam or tunnel would presumably fall within Section 65(105)(zzd) ibid as a contract which relates to erection, commissioning or installation. It is clear that such contracts were never intended to be the subject matter of Service Tax. Yet, if learned counsel for the revenue is right, such contracts, not being exempt under the Finance Act, 1994, would fall within its tentacles, which was never the intention of Parliament. Various judgments were referred to which have no direct bearing on the point at issue. In paragraph 23 of this judgment, the second Gannon Dunkerley judgment is referred to in passing without noticing any of the key paragraphs set out hereinabove in our judgment. Also, we find that the judgment in G.D. Builders (supra) went on to quote from the judgment in Mahim Patram Private Ltd. v. Union of India, (2007) 3 SCC 668, to arrive at the proposition that even when rules are not framed for computation of tax, tax would be leviable. We are afraid that the Delhi High Court completely misread the judgment in Mahim Patrams case. This judgment concerned itself with works contracts being taxed under the Central Sales Tax Act. What was argued in that case was that in the absence of any rule under the provisions of the Central Act, the determination of sale price would be left to the whims and fancies of the assessing authority. This argument was repelled by this Court after setting out Sections 2(g) and 2(ja), which define sale and works contract. The Court then went on to discuss Sections 9(2) and 13(3) of the Central Sales Tax Act. 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 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. We further find that, by Finance Act, 2007, for the first time Section 65 (105) (zzzza) was set-out to 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 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 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; From the explanation thereon it is clear that the Works Contract means, transfer of property including such contract as sale of goods and such contract involve the purpose of carrying out various construction services. Admittedly, in the case in hand, the appellant has constructed Residential Complex and other construction services along with material which has not been disputed. Therefore, the proper classification of the activity undertaken by the appellant is more appropriately falls under Works Contract service and the same has not been alleged against the appellant in the show cause notice issued to the appellant. The reliance placed by the ld. AR in the case of Ahluwalia Contracts (India) Limited (supra) and Madhukar Mittal (supra) no relevant in the light of the decision of Honble Apex Court decision in the case of Larson & Toubro Limited (supra). As the proper classification of the said activities is under Works Contract service, as held by the Honble Apex Court, therefore, the classification at the stage of adjudication cannot be changed in the light of decision of the Honble Apex Court in the case of Precision Rubber Industries (P) Limited vs. CCE, Mumbai 2016 (334) ELT 577 (S.C.). The Hon'ble Supreme Court observed as under:-
11.?In so far as the present appeal is concerned, it is the case of the Revenue in the show cause notices that the goods are classifiable under Chapter Heading 4016.99. Therefore, no new case could have been set up or decided contrary to the show cause notices that the goods fall under Chapter Heading 8448.00 without issuing a fresh show cause notice to the assessee in this regard.
12.?In these circumstances, and following the decisions of this Court, we would have ordinarily permitted the Revenue to issue a fresh show cause notice to the assessee seeking to classify the goods under Chapter Heading 8448.00. However, due to the passage of time, we are of the opinion that it would not be advisable (or permissible under the provisions of the Central Excise Tariff Act) to permit the Revenue to reopen the entire proceedings and classify the goods under Chapter Heading 8448.00.
13.?Accordingly, while setting aside the impugned order passed by the Tribunal, we remand the matter to the Tribunal to take a decision on whether the goods manufactured by the assessee are classifiable under Chapter Heading 4009.99 as claimed by the assessee or 4016.99 as claimed by the Revenue. The order of remand is limited only to this issue.
6. We further find that the show cause notice has been issued by invoking extended period of limitation on the ground that, as the appellant has sought information through RTI applications whether their activity is liable to be taxed or not and the same has been replied by the different Commissionerates as well as service recipients that their activity is not liable to be taxed under Finance Act, 1994. Therefore, in the light of decision in the case of Uniworth Textiles Limited vs. CCE, Raipur 2013 (288) ELT 161 (SC), the extended period of limitation is not invokable. The Honble Apex Court has observed as under:-
22.?We are not persuaded to agree that this observation by the Commissioner, unfounded on any material fact or evidence, points to a finding of collusion or suppression or misstatement. The use of the word willful introduces a mental element and hence, requires looking into the mind of the appellant by gauging its actions, which is an indication of ones state of mind. Blacks Law Dictionary, Sixth Edition (pp 1599) defines willful in the following manner :-
Willful. Proceeding from a conscious motion of the will; voluntary; knowingly; deliberate. Intending the result which actually comes to pass An act or omission is willfully done, if done voluntarily and intentionally and with the specific intent to do something the law forbids, or with the specific intent to fail to do something the law requires to be done
23.?In the present case, from the evidence adduced by the appellant, one will draw an inference of bona fide conduct in favour of the appellant. The appellant laboured under the very doubt which forms the basis of the issue before us and hence, decided to address it to the concerned authority, the Development Commissioner, thus, in a sense offering its activities to assessment. The Development Commissioner answered in favour of the appellant and in its reply, even quoted a letter by the Ministry of Commerce in favour of an exemption the appellant was seeking, which anybody would have found satisfactory. Only on receiving this satisfactory reply did the appellant decide to claim exemption. Even if one were to accept the argument that the Development Commissioner was perhaps not the most suitable repository of the answers to the queries that the appellant laboured under, it does not take away from the bona fide conduct of the appellant. It still reflects the fact that the appellant made efforts in pursuit of adherence to the law rather than its breach.
7. In view of the above analysis, we hold that on merits, the appropriate classification of the services in question is Works Contract service and show cause notices not allege to demand service tax under Works Contract, therefore, the demand of service tax is set-aside. We also hold that extended period of limitation is not invokable. Accordingly, the impugned orders are set-aside and appeals are allowed with consequential relief.
(Order pronounced in the court on 30.11.2017) Devender Singh Member (Technical) Ashok Jindal Member (Judicial) KL 11 Appeal No. ST/1132/2011, ST/55173/2014