Custom, Excise & Service Tax Tribunal
Kanakadhara Flat Promoters vs Cst Ch - Ii on 25 March, 2025
CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL
CHENNAI
REGIONAL BENCH - COURT NO. I
Service Tax Appeal No. 40951 of 2015
(Arising out of Order-in-Appeal No.38/2015 (STA-II) dated 05.02.2015 passed
by the Commissioner of Service Tax (Appeals-II), Chennai)
M/s. Kanakadhara Flat Promoters, ...Appellant
No.186/111, Flat No. S-1,
Neeladhari, Lake View Road,
West Mambalam,
Chennai-600 033.
Versus
Commissioner of GST and Central Excise ..Respondent
Chennai South Commissionerate MHU Complex, No.692, Anna Salai, Nandanam, Chennai-600 035.
APPEARANCE:
Ms. Radhika Chandrasekhar, Advocate for the Appellant Shri Harendra Singh Pal, Authorised Representative for the Respondent CORAM:
HON'BLE MR. VASA SESHAGIRI RAO, MEMBER (TECHNICAL) HON'BLE MR. AJAYAN T.V, MEMBER (JUDICIAL) FINAL ORDER No.40387/2025 DATE OF HEARING: 27.01.2025 DATE OF DECISION: 25.03.2025 Per Mr. Ajayan T.V.
The appeal has been preferred by the Appellant assailing the impugned Order-in-Appeal where by the Appellate Authority has uphold the Order-in-Original of the Lower Authority demanding Service Tax of Rs.18,68,852/- for the period December 2005 - June 2008 along with appropriate interest and imposing equivalent penalty.2
ST/40951/15
2. The facts of the case in brief are that the appellant is a partnership firm engaged in construction activities. The department being of the view that the appellant has not paid Service Tax in respect of " Construction of Complex Service"
provided by the appellant in construction of two residential projects for the period December 2005 to June 2008, issued a Show Cause Notice proposing demand of Service Tax along with appropriate interest and imposing of penalties. After due process in law, the Original Authority confirmed the proposals in the Show Cause Notice. Aggrieved by the same the appellant preferred an appeal which stood rejected by the Impugned Order-in-Appeal and hence the appellant is before this Tribunal.
3. Ld. Counsel Ms. Radhika Chandrasekhar appeared and argued for the appellant. Ld. Counsel would submit that the activity of the appellant merits classification under Works Contract Service as the appellant is a developer engaged in development of residential projects, and therefore the proposal to demand Service Tax under the construction of Residential Complex Service is not tenable. Ld. Counsel would submit that the two projects namely, Virushabadri and Garudathri to which the demand pertains to, were completed prior to 01.06.2007 i.e. before the introduction of „Works Contract Service‟. It is the submission of the Ld. Counsel that the appellants are also registered under VAT/Sales Tax provisions and have discharged the VAT applicable in respect of the transactions. It is the submission of the Ld. Counsel that for the first time Financial 3 ST/40951/15 Act, 2010 has brought developers into the ambit of Service Tax with effect from 01.07.2010 through introduction of explanation to Section 65(105)(zzq) as well as (zzzh). The Ld. Counsel submits that the extended period is also not invocable as none of the ingredients such a fraud, collusion, wilful misstatement, suppression, etc exists. It is submitted that the issue is squarely covered by the decision of the Hon‟ble Supreme Court in the case of Commissioner of Central Excise & Customs, Kerala vs. Larsen & Toubro Ltd. (2015) 39 STR 913 wherein it has held that works contract services cannot be taxed prior to 01.06.2007 since there was no charging section specifically levying service tax only on work contract. Reliance is also placed on the decision of this Tribunal in the case of Real Value Promoters Pvt. Ltd. Final Order No.42436-42438/2018 dated 18.09.2018, wherein it has held that works contract cannot be taxed prior to 01.06.2007 and further in respect of any contract which is a composite contract service tax cannot be demanded under CICS/CCS for the period after 01.06.2007. Reliance is also placed on the decisions in URC Construction Ltd. (Final Order No.42037-42038/2016 dated 14.07.2016), Jain Housing and Construction Ltd Vs. CST vide Final Order Nos.40077- 4079/2023, Commissioner of Service Tax vs. Jain Housing and Construction Ltd. (2023) 10 Centax 171 (S.C), BBC City Park vs. Commissioner of GST & CE vide Final Order No.ST/A/40834/2024 dated 10.07.2024 and Srinivasa Shipping & Property Developers vs. Commissioner of GST 4 ST/40951/15 & CE vide Final Order No.41107-41108/2023 dated 08.12.2023, Krishna Homes vs. CCE (2014) 34 STR 881, Pragati Edifice Pvt. Ltd. vs. Commissioner of CCE & ST Final Order No.31010-31011/19, South India Shelters Pvt. Ltd. vs. CCE vide Final Order No.40123-40124/2023 dated 07.03.2023 in support of the contentions.
4. Ld. AR Shri Harendra Singh Pal appeared for the Respondent and reiterated the findings of the Appellate Authority in the Impugned Order-in-Original.
5. Heard both sides and have perused the appeal records and decisions submitted as relied upon. The only issue that arises is whether the demand of Service Tax on the appellant for the construction activities undertaken by them would get covered under the Construction of complex services for the period under dispute. We find that it is undisputed that the appellant is engaged in a composite contract involving provision of service as well as transfer of property in goods. The appellants‟ contention that they have discharged applicable VAT on the transactions also remains uncontroverted. We find that the issue whether, service tax could be levied on Composite Works Contract prior to the introduction of the Finance Act, 2007, by which the Finance Act, 1994 came to be amended to introduce Section 65(105)(zzzza) pertaining to Works Contract, was a subject matter of dispute and litigation and was finally settled by the Hon‟ble Supreme Court in the case of Commissioner of 5 ST/40951/15 Central Excise & Customs, Kerala vs. Larsen & Toubro Ltd. (2015) 39 STR 913. The relevant portion of the Judgement is reproduced as under:
24. A close look at the Finance Act, 1994 would show that the five taxable services referred to in the charging Section 65(105) would refer only to service contracts simpliciter and not to composite works contracts. This is clear from the very language of Section 65(105) which defines "taxable service" as "any service provided". All the services referred to in the said sub-clauses are service contracts simpliciter without any other element in them, such as for example, a service contract which is a commissioning 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 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 6 ST/40951/15 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 property in goods transferred in the execution of such works contract. This is done by adopting the value that is adopted for the purpose of payment of VAT. The rule goes on to say that the service component of the works contract is to include the eight elements laid down in the second Gannon Dunkerley case including apportionment of the cost of establishment, other expenses and profit earned by the service provider as is relatable only to supply of labour and services.
And, where value is not determined having regard to the aforesaid parameters, (namely, in those cases where the books of account of the contractor are not looked into for any reason) by determining in different works contracts how much shall be the percentage of the total amount charged for the works contract, attributable to the service element in such contracts. It is this scheme and this scheme alone which complies with constitutional requirements in that it bifurcates a composite indivisible works contract and takes care to see that no element attributable to the property in goods transferred pursuant to such contract, enters into computation of service tax.
27. In fact, the speech made by the Hon‟ble Finance Minister in moving the Bill to tax Composite Indivisible Works Contracts specifically stated :-
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ST/40951/15 "State Governments levy a tax on the transfer of property in goods involved in the execution of a works contract. The value of services in a works contract should attract service tax. Hence, I propose to levy service tax on services involved in the execution of a works contract. However, I also propose an optional composition scheme under which service tax will be levied at only 2 per cent of the total value of the works contract."
28. Pursuant to the aforesaid speech, not only was the statute amended and rules framed, but a Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007 was also notified in which service providers could opt to pay service tax at percentages ranging from 2 to 4 of the gross value of the works contract.
29. 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 counsel 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) 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, 8 ST/40951/15 which was never the intention of Parliament. (emphasis supplied).
6. The said decision of the Apex Court was further affirmed in no uncertain terms by the Honourable Supreme Court in its decision in Total Environment Building Systems Pvt. Ltd v Dy. Commissioner of Commercial Taxes, 2022 (53) G.S.T.L 257 (S.C), wherein the revenue‟s request for reconsideration of this binding decision was rejected. The relevant portions are as under:
10.2 While appreciating the prayer/submission made on behalf of the Revenue to re-consider the binding decision of this Court in the case of Larsen and Toubro Limited (supra) and to refer the matter to the Larger Bench, few facts are required to be taken into consideration, which are as under :-
(i) The decision of this Court in the case of Larsen and Toubro Limited (supra) has been delivered/passed in the year 2015, in which, it is specifically observed and held that on indivisible works contract for the period pre-
Finance Act, 2007, the service tax was not leviable;
(ii) After considering the entire scheme and the levy of service tax pre-Finance Act, 2007 and after giving cogent reasons, a conscious decision has been taken by this Court holding that the service tax was not leviable pre- Finance Act, 2007 on indivisible/Composite Works Contract;
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ST/40951/15
(iii) While holding that for the period pre-Finance Act, 2007, on indivisible/Composite Works Contract, the service tax is not leviable, number of decisions have been dealt with and considered by this Court in the aforesaid decision;
(iv) That subsequently, the decision of this court in the case of Larsen and Toubro Limited (supra) has been followed and considered by this Court in the case of Bhayana Builders Private Limited and Ors., (supra);
(v) That after the decision of this Court in the case of Larsen and Toubro Limited (supra) rendered in the year 2015, the said decision has been consistently followed by various High Courts and the Tribunals;
(vi) The decisions of the various High Courts and the Tribunals, which were passed after following the decision of this Court in the case of Larsen and Toubro Limited (supra) have attained finality 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 re- 10
ST/40951/15 consideration 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. (emphasis supplied) The Apex Court then went on to hold as under:
"12. What was said by the Constitution Bench in Indra Sawhney v. Union of India, 1992 Supp (3) SCC 217 and Keshav Mills Co. Ltd. v. 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 decision has been followed consistently by this Court as well as by various High Courts and the Tribunals. Therefore, if the prayer made on behalf of the Revenue to re-consider and/or review the judgment of this Court in the case of Larsen and Toubro Limited (supra) is accepted, in that case, it will affect so many other assessees in whose favour the decisions have already been taken relying upon and/or following the decision of this Court in the case of Larsen and Toubro Limited (supra) and It may unsettle the law, which has been consistently followed since 2015 onwards. There are all possibilities of contradictory 11 ST/40951/15 orders. Therefore, on the principle of stare decisis, we are of the firm view that the judgment of this Court in the case of Larsen and Toubro Limited (supra), neither needs to be revisited, nor referred to a Larger Bench of this Court as prayed, i.e., after a period of almost seven years and as observed hereinabove when no efforts were made to file any review application requesting to review the judgment on the grounds, which are now canvassed before this Court."
7. We are consciously refraining from burdening this order by reproducing from the wealth of jurisprudence available in this regard to avoid prolixity. Suffice to note that similar view has been taken earlier by this Tribunal in more or less similar facts and circumstances, as can be seen from the decisions in Commissioner of Service Tax vs. Jain Housing and Construction Ltd. (2023) 10 Centax 171 (S.C), Real Value Promoters Ltd. vs. Commissioner of GST vide Final Order No. 42436-42438/2018 dated 18.09.2018, BBC City Park vs. Commissioner of GST & CE vide Final Order No.ST/A/40834/2024 dated 10.07.2024, Pragati Edifice Pvt. Ltd. vs. Commissioner of CCE & ST Final Order No.31010- 31011/19 dated 18.09.2019 and Krishna Homes vs. CCE (2014) 34 STR 881 to cite a few. The ratio of these decisions would also apply in the instant case.
8. In the light of the ratio of the aforesaid binding decisions of the Apex Court and coordinate benches of the Tribunal, we 12 ST/40951/15 hold that the services provided by the appellant in respect of the projects executed by them for the relevant period, being in the nature of composite works contract cannot be brought within the fold of "construction of complex" service and thus the impugned OIA upholding the impugned OIO confirming the demand along with applicable interest and imposing penalty, cannot sustain and is liable to be set aside on merits. We also find that the it is undisputed that the appellant has not collected service tax from the clients/customers during the relevant period and further the issue whether, service tax could be levied on Composite Works Contract prior to the introduction of the Finance Act, 2007, by which the Finance Act, 1994 came to be amended to introduce Section 65(105)(zzzza) pertaining to Works Contract, being a subject matter of litigation during the relevant period, evidences that the issue involved interpretational disputes. As such, no malafide can be attributed to the appellants warranting invoking of the extended period of limitation and the appellants‟ contentions against invoking of extended period of limitation is also tenable. In sum, the impugned Order in Appeal is set aside. The appeal is allowed with consequential relief in law, if any.
(Order pronounced in open court on 25.03.2025) sd/- sd/-
(AJAYAN T.V.) (VASA SESHAGIRI RAO) Member (Judicial) Member (Technical) vl