Kalthia Engineering & Construction Ltd vs Bhavnagar on 23 October, 2024

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Custom, Excise & Service Tax Tribunal

Kalthia Engineering & Construction Ltd vs Bhavnagar on 23 October, 2024

Customs, Excise & Service Tax Appellate Tribunal
West Zonal Bench at Ahmedabad

REGIONAL BENCH-COURT NO. 3

SERVICE TAX Appeal No. 11403 of 2017 - DB
(Arising out of OIO-BVR-EXCUS-000-PR-COM-001-17-18 dated 20/04/2017 passed by
Commissioner of Central Excise, Customs and Service Tax-BHAVNAGAR)

Kalthia Engineering & Construction Ltd ........Appellant
Kalthia House, 193, Satyagrahchhavni,
Opplscon Mall,
S.g. Highway,
Ahmedabad, Gujarat
VERSUS

Commissioner of C.E. & S.T.-Bhavnagar ......Respondent
Plot No.6776/B-1...Siddhi Sadan,
Narayan Upadhyay Marg,
Beside Gandhi Clinic, Near Parimial Chowk,
Bhavnagar, Gujarat- 364001

APPEARANCE:
Shri Jigar Shah & Shri Amber Kumrawat, Advocate for the Appellant
Shri G Nair, Assistant Commissioner (AR) for the Respondent

CORAM: HON'BLE MEMBER (JUDICIAL), MR. SOMESH ARORA
HON'BLE MEMBER (TECHNICAL), MR. C L MAHAR

Final Order No. 12512/2024
DATE OF HEARING: 30.04.2024
DATE OF DECISION: 23.10.2024

C. L. MAHAR

The brief facts of the matter are that the appellants are providing

construction services mainly to the Government agencies which include

Government of Gujarat, Municipal Corporations, National Highway Authority

of India (NHAI), etc. and also other companies like Suzlon Infrastructures

Ltd., Suzlon Energy Ltd etc. Apart from the construction activity the

appellants are also engaged in road construction, wind farm development,

SEZ development, construction of industrial project, etc. The Appellants are

registered with the department as per the provisions of the Finance Act, 1994

under the category of 'Commercial or Industrial Construction Service'. The

department had initiated investigations in October, 2008 against the
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appellant suspecting that the appellants are not discharging their service tax

liability correctly and after detailed investigations, a show cause notice dated

21st October, 2010 demanding Service Tax of Rs. 33,33,57,216/- was issued

under Section 73(1) of the Finance Act, 1994. The interest and penalty

provisions as provided in the Finance Act, 1994 were also invoked in the

show cause notice.

2. In the first round of litigation the Ld. Commissioner of Central Excise,

Bhavnagar adjudicated the matter vide his Order-In-Original No.

37/BVR/Commissioner/2012 dated 31.12.2012 where under he confirmed

the service tax demand of Rs.11,26,76,524/- along with interest and

imposed equal amount of penalty. The demand of service tax amounting to

Rs.22,06,80,692/- was dropped by the Adjudicating Authority. Being

aggrieved by the Order-In-Original dated 31.12.2012 , the appellant had

filed appeal before the CESTAT- AHMEDABAD and this Tribunal vide its order

dated 23.04.2013 remanded the matter back to the original Adjudicating

Authority for deciding the matter afresh, the relevant extract of this

Tribunal's order is reproduced here below:-

"6. It has been argued by the appellant's counsel that all the Contracts copies
were seized by the department and they have got it back from the
department recently. Once the documents were not available with the
appellants then the same could not have been produced before the
adjudicating authority. It has been further argued by the appellants that the
reasons given by the adjudicating authority in para 48.4.7 for dropping
demand of Rs.22,06,80,692/- are equally applicable to the contracts for
which demand has been confirmed. These facts have to be gone through and
verified by the original adjudicating authority on being agitated by the
appellants who have now been given the copies of the contracts available
with the department. After granting the stay the main appeal itself is taken
up for disposal. In view of the above observations, the case is required to be
remanded to the adjudicating authority directing the appellants to present
their case before the original adjudicating authority to establish that the
relevant contracts for which demand was confirmed were with respect to
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repair and maintenance activity of roads only. Needless to say the
Adjudicating authority, after following the principles of natural justice, will
decide the matter expeditiously. The appeal is thus allowed by way of
remand."

2.1 In pursuance to the above order by this Tribunal, the matter was re-

adjudicated by the Principal Commissioner vide its order dated 20.04.2017

whereunder the Service Tax demand of Rs. 11,26,76,524/- has been

confirmed as per the provision under Section 73 (1) of the Finance Act,

1994.

2.2 The interest has also been confirmed as per provisions of Section 75 of

the Finance Act, 1994 and penalties as per the provisions of Section 78 and

Section 76 of the Finance Act, 1994 have also been imposed on the appellant.

The appellants are before us challenging the above mentioned impugned

Order-In-Original.

3. The learned Advocate appearing for the appellant have taken us

through the list of works undertaken by the appellant and on which the

impugned Order-In-Original has confirmed Service Tax demand under

category of Commercial or Industrial Construction Service.

3.1 The list of activities which have been Undertaken by the Appellant

during the period of 2005-2006 to 2009-2010 which are part of Annexure-A

to the show cause notice, gives the details of maintenance and repair

services provided by the Appellant as per their profit and loss account for the

relevant period as well as Commercial or Industrial Construction Services

provided by them to various formations and on which the service tax has

been confirmed by the learned Adjudicating Authority. The list of such

activities is as given below :-
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4. It has been submitted by the learned Advocate that so far as the

activity mentioned at the serial No. 1 in above mentioned table concerning

i.e. GIDC Gandhinagar's work of upgradation of basic infrastructure facilities,

it has been contended that GIDC had issued a tender notice for different

works for upgradation of basic infrastructure facilities at their industrial

estate Gandhinagar. The total contract value of the tender for this work was

Rs. 9,10,00,000/-, however, out of this work the appellant have done work

of value amounting to Rs. 5,62,04,167/-. The learned Advocate has

submitted that it can be seen from the invoices which were raised by the

appellant to GIDC Gandhinagar, that the entire work carried out by the
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appellant was for improvement of roads within GIDC Gandhinagar which falls

under exempted category.

4.1 With regard to work undertaken for GIDC Sanand. Learned Advocate

submitted that the GIDC Sanand had floated a tender for upgradation of

basic infrastructure facilities along with other works. It has been the

contention of the learned Advocate that appellant had done work worth Rs.

4,58,18,067/- only during the demand period. He has referred to the copies

of the tender documents as well as the invoices raised by the appellant on

M/s. GIDC Sanand and submitted that invoices clearly indicate that the work

undertaken by the appellant were for improvement of the roads within GIDC,

Sanand which falls under exempted category.

4.2 With regard to the Work carried out for SSPL Bhachau. It has been the

contention of the learned Advocate that the activity undertaken by the

appellant did not fall into any exempted category of the work and they have

charged service tax on the invoice value from M/s. SSPL Bhachau on taxable

value of Rs. 18,39,418,/- on which they have charged Service Tax and paid

the same to the Central Government.

4.3 With regard to the taxable value shown in the table on the preceding

page under Sr. No. 04 towards M/s Suzlon Structure Ltd of Rs.

21,43,59,664/-, it has been submitted that the appellant has carried out

work of road construction for M/s. Suzlon Structure Private Limited worth Rs.

7,42,29,370/- and balance work of Rs. 14,01,30,294/- out of this work order

of Rs. 21,43,59,664/- was done for M/s. Suzlon Infrastructure Limited.

4.4 With regard to demand of Service Tax on work Carried out by the

appellant for M/s. Suzlon Infrastructure Limited and M/s. Suzlon

Infrastructure Services Limited, it has been the contention of the appellant

that they have carried out works worth Rs. 76,35,44,861/- for M/s. Suzlon
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Infrastructure Limited and M/s. Suzlon Infrastructure Services Limited. The

learned Advocate has taken us through details of various works orders

amount to Rs. 77.35 crores and stated that out of total receipt of Rs. 77.35

crores, works worth Rs. 25,07,98,384/- pertains to construction of roads and

construction activities under taken by the appellant within SEZ area. From

the balance amount, work worth Rs. 20,93,58,092/- pertains to construction

services such as laying down foundation work for wind mills and misc.

construction activities for wind mills wherein abatement under Notification

No. 01/2006-ST dated 01.03.2006 have been claimed by the appellant and

service tax has been paid on abated value. The balance amount of Rs.

30,33,88,385/- as per the appellant pertains to construction services

wherein appellant have charged services tax at applicable rate (full rate of

service tax) without any abatement and service has been paid and deposited.

4.5 With regard to the Work Carried out for M/s. Suzlon Energy Limited,

the learned Advocate has submitted that the appellant had carried out

construction work at windmill site for M/s. Suzlon Energy Limited worth Rs.

2,39,83,341/- on which the appellant have availed abatement and paid

Service Tax on abated value as per the terms of Notification No. 01/2006-ST

dated 01.03.2006.

4.6 For the Work Carried out for M/s. S E Forge, the learned advocate has

submitted that the appellant have carried out the construction work for M/s.

S E Forge worth Rs. 36,51,731/- in their SEZ unit located in Vaghodia SEZ.

Since the work was carried out by the appellant for a SEZ unite located in

Vaghodia SEZ area, the appellant have not charged any service tax on the

construction activity from the service recipient and has claimed that since

SEZ areas are exempted from payment of service tax. They have rightly not

charged the service tax from the service recipient.
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4.7 The learned Advocate has vehemently contended that it can be seen

from the documents that the majority of the work carried out by the appellant

during the disputed period pertains to construction or repair or improvement

of the road or Work carried out under SEZ area which fall under the exempted

category of the services. The learned advocate has mentioned that out of the

total service which have been mentioned in the table in the forgoing paras.

The following services undertaken by the appellant to various service

recipients pertains to construction and/or improvement of Roads.

S. Activity Amount Cros reference to
the Annexure
No. enclosed along with
Appeal
Memorandum

01. GIDC Gandhinagar Rs. 5,62,04,167/- Annexure - 4,5

02. GIDC Sanand Rs. 4,58,18,017/- Annexure - 6,7

03. Suzlon Es. 25,07,98,384/- Annexure -
Infrastructure Ltd. 11,12,13,14
Roads within SEZ

04. S E Forge Rs. 36,51,731/- Annexure - 20

05. Suzlon Structure Rs. 7,42,29,370/- Annexure - 9,10
Ltd.

Total Rs. 43,07,01,669/-

It can be seen that out of total value of the taxable services of Rs.

96,92,70,905/- as worked out in the impugned Order-In-Original, the

appellant have carried out work of construction of road or repair maintenance

of the roads amounting to Rs. 43,07,01,669/-. The learned Advocate has

drawn our attention to Section 97 of the Finance Act, 2012. Which reads as

follows :-
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"Section 97. Special provision for exemption in certain cases relating
to management, etc., of roads -

(1) Notwithstanding anything contained in section 66, no service tax shall be
levied or collected in respect of management, maintenance or repair of roads,
during the period on and from the 16th day of June, 2005 to the 26th day of
July, 2009 (both days inclusive).

(2) Refund shall be made of all such service tax which has been collected but
which would not have been so collected had sub-section (1) been in force at
all material times.

(3) Notwithstanding anything contained in this Chapter, an application for the
claim of refund of service tax shall be made within a period of six months
from the date on which the Finance Bill, 2012 receives the assent of the
President."

Thus, the learned Advocate has tried to establish that as per statutory

provisions of Section 97 of the Finance Act 1994 that road construction,

repair and maintenance work of roads carried out by the appellant during the

disputed period was exempted from payment of the Service Tax. It has

therefore been pleaded that demand of service tax on the value of services

of Rs. 43,07,01,669/- is liable to be set aside as same pertains to

construction of the road.

Thus, the learned Advocate has contended that out of total taxable value Rs.

96,92,70,905/- on which the learned Adjudicating Authority has confirmed

the Service Tax demand, taxable value of Rs. 43,07,01,669/- pertains to

construction of road or maintenance of up gradation of the roads.

4.8 The learned Advocate has also taken us through the legal provisions

pertaining to construction of the road which are as given below :-

" The services provided for road construction was excluded from the taxable
service i.e. "Commercial or Industrial Construction Service" as defined under
clause (25b) of Section 65 (105) of the Finance Act, 1994. For the ease of
reference, the provision of clause (25b) of Section 65 (105) of the Finance
Act, 1994 (in force till 30th June, 2012), is reproduced herein below :

" [(25b) "commercial or industrial construction [*]
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means-

(a) construction of a new building or a civil structure or a part thereof: or

(b) construction of pipeline or conduit; or

(c) completion and finishing services such as glazing, plastering, painting,
floor and wall tiling, wall covering and wall papering, wood and metal joinery
and carpentry. fencing and railing, construction of swimming pools, acoustic
applications or fittings and other similar services, in relation to building or
civil structure; or

(d) repair, alteration, renovation or restoration of, or similar services in
relation to. building or civil structure, pipeline or conduit, which is

(i) used, or to be used, primarily for; or

(ii) occupied, or to be occupied, primarily with; or

(iii) engaged, or to be engaged, primarily in, commerce or industry, or work
intended for commerce or industry, but does not include such services
provided in respect of roads, airports, railways, transport terminals, bridges,
tunnels and dams:)

The said definition explicitly excludes construction of road from "Commercial
or Industrial Construction Service" entry.

Further, "Works Contract Services" were brought into Service Tax net by the
Finance Act, 2007, w. e. f. 01-06-2007, vide Notification No.22/2007-ST,
dated 22.05.2007. Definition of Works Contract under Section 65(105)
(zzzza) of the Finance Act, 1994 runs as under:

Any service provided or to be provided:

(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.-

(α) 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,
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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

(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:

The said definitions of "Commercial or Industrial Construction Services" and
"Works Contract Services" were rescinded w. e. f. 01.07.2012 and only then
'concept of roads for General public' was introduced, vide Mega Exemption
Notification No. 25/2012-ST dated 20th June, 2012.

From the above provisions, we find that Works Contracts relating to Roads,
Airports, railways, transport terminals, bridges, tunnels and dams are outside
the purview of Service Tax, till 30.06.2012,

Thus, the activity of "Road works" totally worth of Rs.43,07,01,669/- carried
out by the appellant was outside the purview of Service Tax during F.Y.2005-
06 to F.Y.2009-10 and, hence, demand is not sustainable to this extent."

4.9 Thus it has been contended that activity of construction of Roads falls

under exclusion clause the category of "Commercial or Industrial

Construction Services"

(i) The Appellants further contended that even for the sake of argument,

it is assumed that demands have been appropriately raised under the

category of 'Commercial or Industrial Construction Service', still no liability

for payment of service tax could arise on Appellants as the activity of

construction of roads has been categorically excluded from the definition of

taxable services in relation to Commercial or Industrial Construction Service

as provided under Section 65 (105) (zzq) of Finance Act, 1994 and

accordingly the same do not qualify as a taxable activity.
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In order to substantiate above submission, the Appellants placed reliance

upon the clarifications issued by CBEC from time to time, vide the Circular

No. B2/8/2004-TRU dated 10.09.2004 (Para 13.4). Circular No. B1/6/2005-

TRU dated 27.07.2005 (Para 14.4 to 14.6) and Circular No. 110/4/2009-ST

dated 23.02.2009 (Para 2 and 3) reads as under:-

Circular B2/8/2004-TRU dated 10.09.2004

"...........

13.4 The definition of service specifically excludes construction of roads,
airports, railway, transport terminals, bridge, tunnel, long distance pipelines
and dams. In this regard it is clarified that any pipeline other than those
running within an industrial and commercial establishment such as a factory,
refinery and similar industrial establishments are long distance pipelines.
Thus, construction of pipeline running within such an industrial and
commercial establishment is within the scope of the levy.

....."

Circular No. B1/6/2005-TRU dated 27.07.2005

"...........

14.4 At present, services rendered for construction of commercial or
industrial buildings is taxable. However, construction of roads is not liable to
service tax. A point has been raised that if a commercial complex is
constructed which also contains roads whether the value of construction of
roads would be liable to service tax

14.5 If the contract for construction of commercial complex is a single
contract and the construction of road is not recognized as a separate activity
as per the contract, then the service tax would be leviable on the gross
amount charged for construction including the value of construction of roads.

14.6 When services provided under a contract consist of a number of different
elements, a view has to be taken on the basis of the facts and circumstances
of each case as to whether the service provider has made a single overall
supply or a supply of different services which are to be treated differently.

....."

Circular No. 110/4/2009-ST dated 23.02.2009
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"1............

2. Commercial or industrial construction service (section 65(105) (zzq)]
specifically excludes construction or repairs of roads. However, management,
maintenance or repair provided under a contract or an agreement in relation
to properties, whether immovable or not, is leviable to service tax under
section 65(105)(zzg) of the Finance Act, 1994. There is no specific exemption
under this service for maintenance or repair of roads etc, Reading the
definitions of these two taxable services in tandem leads to the conclusion
that while construction of road is not a taxable service, management,
maintenance or repair of roads are in the nature of taxable services,
attracting service tax.

3. The next issue requiring resolution is the types of activities that can be
called as "construction of road" as against the activities which should fall
under the category of maintenance or repair of roads. In this regard the
technical literature on the subject indicate that the activities can be
categorized as follows, -

(A) Maintenance or repair activities:

1. Resurfacing

II. Renovation

III. Strengthening

IV. Relaying V. Filling of potholes

(B) Construction Activities:

I. Laying of a new road

II. Widening of narrow road to broader road (such as conversion of a two lane
road to a four lane road)

III. Changing road surface (graveled road to metalled road to metalled road
blacktopped/blacktopped to concrete etc.

....."

(ii) Thus, the appellant submits that entire demand of service tax raised in
respect of activity of construction of roads undertaken by the Appellants for
GIDC Gandhinagar, GIDC Sanand, Suzlon Structure Pvt. Ltd., Suzlon
Infrastructure Ltd. & Suzlon Infrastructure Services Ltd. during the
relevant period deserved to be dropped. In this regard, the appellant also
places reliance upon the decision of Hon'ble CESTAT Ahmedabad in the case
of SVJ Innovabuild Pvt. Ltd. v. CCE & ST, Silvassa, 2023 (1) TMI 1332
13 | P a g e ST/11403/2017-DB

wherein the Hon'ble Tribunal while examining a similar issue of taxability of
services in relation construction of roads, has categorically remarked that
construction of road is excluded from service tax net. The relevant paras
form the aforesaid decision are extracted below:-

4. We have considered the rival submissions.

5. It is apparent from the above Circular that construction of road is
excluded from service tax net. Circular No. B1/6/2005-TRU dated
27.07.2005 clarifies as follows"

"14.4 At present, services rendered for construction of
commercial or industrial buildings is taxable. However,
construction of roads is not liable to service tax. A point has
been raised that if a commercial complex is constructed which
also contains roads whether the value of construction of roads
would be liable to service tax.

14.5 If the contract for construction of commercial complex is a
single contract and the construction of road is not recognized as
a separate activity as per the contract, then the service tax
would be leviable on the gross amount charged of construction
of roads." for construction including the value

In light of above Circulars, it is apparent that the activity of construction of
roads is beyond the service tax net and therefore, demand of service tax on
construction of road cannot be sustained. The same is set aside and appeal
to that extent is allowed.

(iii) The Appellants also place reliance upon the following decisions: -

 M/s Phonix Engineering v. Commissioner of Central Excise, Nagpur
2012 (7) TMI 224- (Tri. Mumbai)
 Karnataka Land Army Corpn. Ltd. v. Commissioner of ST, Bangalore
2009 (4) TMI 143- (Tri. Bangalore)

4.10 With regard to the balance taxable value of Rs. 53,85,69,236/- the

learned Advocate has contended that out of this amount the appellant have

paid Service Tax on taxable value of Rs. 31,01,91,853/- without availing any

abetment and have paid Service Tax Rs. 3,73,43,422/- . It has been the
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contention of the appellant that they have properly charged and paid Service

Tax along with interest on the above mentioned value which was not

considered by the Adjudicating Authority at the time of adjudicating the

impugned show cause notice. It has further been mentioned that they have

sub contracted the work assigned to them to M/s. KECL- RADHE JV-DHULE,

Nandurbar , who has charged Service Tax from them and the appellant has

submitted the detail of invoices issued by their sub-contractor along with

sample invoices. The learned Advocate has contended that M/s. KECL-

RADHE JV-DHULE, Nandurbar, (their sub-contractor) has issued invoice of

taxable value of Rs. 25,83,96,502/- and charge Service Tax totally

amounting to Rs. 3,18,48,902/- during financial year 2006-2007 to financial

year 2008-2009. It has been the contention of the learned Advocate that the

appellant has availed the CENVAT Credit to the tune of Rs. 3,18,48,902/- on

the basis of cenvatable invoices issued by their sub-contractor and

subsequently, the appellant after adding their normal margin of profit has

raised invoices on their clients and paid Service Tax both from CENVAT Credit

account as well as by payment of Service Tax in cash form through TR-6

/GAR-7 challans. Similarly, for the balance value of about Rs. 5.18 crores

they have paid the Service Tax at the full rate without availing any abetment.

4.11 With regard to the balance amount of taxable amount on which Service

Tax has been confirmed by the learned Adjudicating Authority amounting to

Rs. 22.83 crores. It is submitted that the appellant have provided taxable

services of commercial or industrial construction service or on work contract

service with material to their clients namely M/s. Suzlon Infrastructure

Limited , M/s. Suzlon Energy Limited, M/s. Suzlon Structure Limited and M/s.

Suzlon Infrastructure Services Limited. On the services provided to these

companies they have charged Service Tax at the prevailing rate of the

Service Tax on the abated value of 33% of invoice value after availing the
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benefit of exemption Notification No. 01/2006/ST dated 01.06.2006 as well

as at composite rate of service tax at the rate of 4.12% or 4.36% under

Work Contract Composition Scheme. It has been contention of the appellant

they have discharged their full Service Tax liability on the entire taxable value

and the Adjudicating Authority has failed to consider voluminous

documentary evidences which have been submitted before him by the

appellant.

4.12 The Ld. Advocate has further contended that the construction services

provided by the appellant were with materials and therefore same falls under

the category of ' Work Contract Services' while the demand has been made

under the category of 'Commercial or Industrial Services' which is legally not

sustainable as held by the Apex Court in case of CCE v/s Larsen and Toubro

Ltd. reported under 2015 (39) STR 913 (SC).

4.13 It has further been contended by the learned Advocate that since the

service of construction under taken by them for M/s Suzlon Infrastructures

Service Ltd & others were with material and therefore same falls under the

category of the 'Works Contracts Services'. It is a matter of fact that the

Works Contract Service was enacted from 01.06.2007 and therefore the

demand on the Work Contract Service (which comprises both element of

service and supply of goods) prior to 01.06.2007 is not sustainable in the

sense that the service itself was not enforce at the relevant time. Demanding

of service tax for construction services under 'commercial or industrial

construction' after 01.06.2007 is also legally not sustainable, as the appellant

was having a composite contract for construction of WTG Tower foundations

and ancillary works for M/s Suzlon Infrastructures Services Ltd which falls

under the category of the 'works contract service' while the demand has been

made under the category of the 'Commercial or Industrial Construction
16 | P a g e ST/11403/2017-DB

Service' and thus same is legally not sustainable as the classification of

service is under wrong category of service.

4.14 The appellant further submits that the entire construction work

undertaken by them during the relevant period for GIDC Gandhinagar, GIDC

Sanand, Suzlon Structure Pvt. Ltd., Suzlon Infrastructure Ltd. & Suzion

Infrastructure Services Ltd. duly falls under the category of the 'Works

Contract Service' whereas the demand has been made under the category of

'Commercial or Industrial Construction Service'. Therefore, the entire

demand is liable to be dropped for the reason of being raised under the

incorrect category of service. In order to substantiate above submissions,

the Appellant relies upon following decisions:-

 CCE vs. Larsen and Toubro Limited, 2015 (39) S.T.R. 913 (S.C.);
 Total Environment Building Systems Pvt. Ltd Vs. Deputy Commissioner
of Commercial Taxes, 2022 (63) G.S.T.L. 257 (S.C.)
 Real Value Promoters Pvt. Ltd. v. Commissioner of CGST & CE, 2018
(9) TMI 1149 (Tri. Chennai)
 Shati Construction Co. v. CCE & ST- Rajkot, 2023 (3) TMI 14- (Tri.
Ahmedabad)
 Prime Developers v. CCE & ST, Vadodara-l, 2023 (9) TMI 1374- (Tri.
Ahmedabad)
 Ajit India Pvt. Ltd. v. CST, Mumbai- II, 2018 (6) TMI 1005- (Tri.
Mumbai)

5. As regard the limitation, Learned Advocate contended that the

impugned show cause notice dated 21st October, 2010 has been issued under

Section 73 (1) of the Finance Act, 1994 by invoking the extended time

proviso. It has been submitted that extended time proviso can only be

invoked in cases where there is an elements of fraud, collusion or willful

misstatement or suppression of facts or contravention of any of the provision

of the Acts or Rules with an intend to evade the payment of service tax. The

Learned Advocate has submitted that entire show cause notice is based on
17 | P a g e ST/11403/2017-DB

the financial accounts of the appellant wherein all the transactions have been

entered and entire demand is based on the recorded facts and books of

accounts of the appellant. It is therefore wrong on the part of the department

to allege any fraud, suppression or misreprestation and therefore, the

invoking the extended time proviso in this case is legally not sustainable. The

Learned Advocate has relied upon the following decisions in this regard (i)

Anand Nishikawa Company Ltd Vs. Commissioner of Central Excise- Meerut

reported at the 2005-TIOL-118- S.C.-CX (ii) M/s Padmini Products Ltd Vs.

CCE reported at 1989 (43) ELT 195 (SC), (iii) as well as Apex Court decision

in the case of CCE Vs. CHEMPHAR DRUGS & LINIMENTS reported at 1989

(40) ELT 276 (SC). The Learned Advocate has tried to establish that the basic

requirements for invocation of the extended period have not been fulfilled in

the present case. Hence, the impugned order is liable to be set aside as same

is hit by the period of limitation.

6. The services provided under SEZ area are also exempted from

payment of any service tax by virtue of provisions of Section 26, Section

31 & Section 51 of SEZ Act.

8. We have also heard learned Departmental Representative who has

reiterated the findings as given in the impugned Order-In-Original.

9. We have heard both the sides and perused and analyzed voluminous

documentary evidences produced by the appellant.

9.1 The only issue which need to be decided by us is whether the appellant

has provided services pertaining to various organizations with regard to

construction and/ or upgradation or improvement of Roads, which fall under

the category of exempted services and whether the appellant has discharged

service tax on the balance amount taxable service as claimed by them.
18 | P a g e ST/11403/2017-DB

9.2 First we take the claim of appellant that they were engaged in the

construction of the roads or upgradation and improvement of roads. We find

that so far as the demand pertaining to service provided to M/s. Suzlon

Structures Private Limited is concerned, part of the Service Tax value

pertains to construction of the road as per the documentary evidence

provided before us. It is seen that the appellant has provided services of

construction of road to M/s. Suzlon Structures Private Limited sand following

invoices of value of Rs. 7,18,52,428/- has been issued and placed on record

before Adjudicating Authority by the appellant.
19 | P a g e ST/11403/2017-DB
20 | P a g e ST/11403/2017-DB

9.3 With regard to demand pertaining to services provided to M/s Suzion

Infrastructure Ltd. (SEZ DEVELOPER) where service taxable value is

Rs.24,54,65,082/- and on which the service tax has been confirmed. We find

on perusal of the Contract No. SIL/HIP/BARODA/07-08/02 dated 10th

January, 2008 submitted by the appellant, that M/s. Suzlon Infrastructure

Ltd., Pune, (a Developer of the SEZ located at Village: Waghodia, Dist.:

Baroda) has awarded a Contract for carrying out "Roads, Culverts, Kerbs,

Pathway and Storm water drains works' for the functioning and commercial

operation of the Hi-Tech Engineering SEZ located at Waghodia, District-

Baroda, as described in Schedule A of this Contract. For ease of reference,
21 | P a g e ST/11403/2017-DB

Schedule- A: 'SCOPE OF WORK of the Contract dated 10th January, 2008 is

reproduced herein below:
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23 | P a g e ST/11403/2017-DB
24 | P a g e ST/11403/2017-DB

It can be seen that the appellant has submitted that out of total Contract

Value of Rs.27.90.58,459, they have carried out road construction works

totally worth of Rs.24,54,65,082/- for M/s Suzion Infrastructure Lid. (SEZ

Developer), during F.Y.2007-08 to F.V.2009-10, as detailed below:-

9.4 The demand pertaining to Services provided to M/s S. E. Forge,

Waghodia where taxable value of Rs.36,51,731/- has been taken for

demanding Service Tax. We find that the RA Bills submitted by the appellant

indicate that here also the appellant has undertaken "Road works" for M/s.

S.E. Forge, Waghodia. As per RA Bills submitted by the appellant. they have

carried out road works of totally Rs.36,51,731/- for M/s S.E. Forge during

F.Y. 2009-10. For ease of reference, RA Bill No. First dated 03.08.2009 & Bill

No. Full & Final dated 08.09.2009 are reproduced herein below:
25 | P a g e ST/11403/2017-DB
26 | P a g e ST/11403/2017-DB

9.5. We further take the issue pertaining to demand of Service Tax payable

on value of services amounting to Rs.5,62,04.167/- provided to M/s GIDC,

Gandhinagar. It is seen that M/s Gujarat Industrial Development Corporation

has invited Tenders for "Development of Basic Infrastructure Facilities at

Gandhinagar Electronics Industrial Estate, Gandhinagar" under CIP-III

Scheme". On perusal of said Tender document, we find that the 'Scope of

Works' consists of 'Road up gradation', 'Service Duct, Street Light and 'Utility

Building'. This work was awarded to the appellant vide LOA No. 1564 dated

09/10/2009, for total Contract Value of Rs. 10 Crore. For ease of reference.

Page No. 18 of said Tender showing Scope of Work is reproduced herein

below:
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Thus, on the basis of these document the appellant has submitted that out

of contract value of Rs. 10,00,00,000/-, they have carried out road works
28 | P a g e ST/11403/2017-DB

worth of totally Rs.5,62,04,167/- only during disputed period, i.e. during F.Y.

2009-10, as revealed from RA Bill No. IInd dated 27.03.2010. For ease of

reference, RA Bill No. First & RA Bill No. Second dated 27.03.2010 are

reproduced herein below:
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30 | P a g e ST/11403/2017-DB
31 | P a g e ST/11403/2017-DB

9.7 Similarly M/s Gujarat Industrial Development Corporation has invited

Tenders for works of "Development of Basic Infrastructure Facilities at their
32 | P a g e ST/11403/2017-DB

Sanad (Chlurodi) Industrial Estate. On perusal of the copy of the Tender

submitted by the appellant, we find the Scope of Works is as under:

For ease of reference, Page No. 15 of said Tender showing "SCOPE OF

WORKS" is reproduced herein below:
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Said work was awarded to the appellant vide LOA No. 1565 dated

09/10/2009 for total Contract Value is Rs. 34,46,77,474/-. The appellant has

submitted that out of said contract value, they have carried out road works

worth of totally Rs.5,62,04,167/- (this value has been taken in impugned O-

I-O for demanding service tax) only during disputed period, i.e. during F.Y.

2009-10, as revealed from the copy of Second RA Bill submitted to GIDC vide

letter dated 28.05.2010. However, the adjudicating authority has considered

value of Rs.4,58,18,017/- as received by the appellant during disputed

period, in impugned OIO, For ease of reference, the Second RA Bill and the

Statement showing details of works executed by contractor, are reproduced

herein below:
34 | P a g e ST/11403/2017-DB
35 | P a g e ST/11403/2017-DB
36 | P a g e ST/11403/2017-DB

9.8 From above discussion, we find that the appellant has carried out "Road

works" totally worth of totally Rs.42,29,91,425/- during F.Y. 2005-06 to F.Y.

2009-10, as summarized below:

In this regard, main contention of the appellant is that the services provided

for road construction was excluded from the taxable service i.e. "Commercial

or Industrial Construction Service" as defined under clause (25b) of Section

65 (105) of the Finance Act, 1994 and "Works Contract services" in terms of

Section 65(105) (zzzza) of the Finance Act, 1994. The said definitions of

"Commercial or Industrial Construction Services" and "Works Contract

Services" were rescinded w. e. f. 01.07.2012 and only then 'concept of roads

for General public was introduced, vide Mega Exemption Notification No.

25/2012-ST dated 20th June, 2012. Thus, the activity of road construction

is outside the purview of the Service Tax, till 30.06.2012. Hence, demand of

Service Tax along with interest and penalty in respect of Road construction

works carried out during F.Y. 2005-06 to F.Y. 2009-10 by the appellant, is

liable to be set aside.

9.9 It will also be relevant to refer to the provisions of road construction

as same was excluded from taxable service category namely commercial or
37 | P a g e ST/11403/2017-DB

industrial construction service as defined under clause 25 b of Section 65

(105) of the Finance Act, 1994. The provisions pertaining to commercial or

industrial construction services are reproduced here below:-

" [(25b) "commercial or industrial construction [*]

means-

(a) construction of a new building or a civil structure or a part thereof: or

(b) construction of pipeline or conduit; or

(d) repair, alteration, renovation or restoration of, or similar services in
relation to. building or civil structure, pipeline or conduit, which is

(i) used, or to be used, primarily for; or

(ii) occupied, or to be occupied, primarily with; or

The said definition explicitly excludes construction of road from "Commercial
or Industrial Construction Service" entry.

Any service provided or to be provided:

Explanation. For the purposes of this sub-clause, "works contract" means a
contract wherein,-
38 | P a g e ST/11403/2017-DB

(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.-

(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

(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 above provisions, we find that Works Contracts relating to Roads,
Airports, railways, transport terminals, bridges, tunnels and dams are outside
the purview of Service Tax, till 30.06.2012,

Thus, the activity of "Road works" totally worth of Rs.42,29,91,425/- carried
out by the appellant was outside the purview of Service Tax during F.Y.2005-
06 to F.Y.2009-10 and, hence, demand is not sustainable to this extent."

9.10 We also take note of the provisions of Section 97 of Finance Act, 1994
which is re-produced here under section:

"[Special provision for exemption in certain cases relating to
management, etc., of roads

97. (1) Notwithstanding anything contained in section 66, no service tax shall
be levied or collected in respect of management, maintenance or repair of
39 | P a g e ST/11403/2017-DB

roads, during the period on and from the 16th day of June, 2005 to the 26th
day of July, 2009 (both days inclusive).

(2) Refund shall be made of all such service tax which has been collected
but which would not have been so collected had sub-section (1) been in force
at all material times.

(3) Notwithstanding anything contained in this Chapter, an application
for the claim of refund of service tax shall be made within a period of six
months from the date on which the Finance Bill, 2012 receives the assent of
the President.]

10. With regard to the remaining taxable value of about Rs. 54.63 Crores

on which service tax has been confirmed the appellant have produced

evidence, with regard to the payment of the Service Tax. It is an admitted

fact that the appellant were having Cenvat Credit to the tune of Rs.

3,18,48,902/- at the relevant time which was availed by them on the basis

of cenvatable invoice issued by their sub-contractor M/s. KECL- RADHE JV-

DHULE, Nandurbar for undertaking construction activities on behalf of the

appellant during the period from 2006-2007 to 2008-2009. The appellant

have furnished sample copies of the cenvatable invoices issued by their sub-

contractor, their purchase register etc. We find from record of the appeal

papers that the appellant have also furnished the copy of TR-6/GAR-7

Challans/ Tax Payer's Counterfoils, Service Tax Ledger Accounts and the

ANNEXURE-C showing the Challan-wise details of Service Tax and interest

deposited by them. On going through the above Annexure - C, we find that

prior to initiation of investigation, they have paid Service Tax (incl. Cess)

amounting to Rs.83,92,508/- along with interest of Rs.1,46,908/- (totally

Rs.85,39,416/-) against aforesaid Service Tax liabilities vide TR6/GAR-7

Challans in regular course during F.Y.2006-07 to F.Y.2009-10. Whereas,

during investigation, they have voluntarily paid Service Tax (incl. Cess)

amounting to Rs.58,12,444/- along with interest of Rs.12,08,295/- (totally

Rs.70,20,739/-) against aforesaid Service Tax liabilities vide TR6/GAR-7

Challans during F.Y. 2011-12, thus they have paid Service Tax to the tune of
40 | P a g e ST/11403/2017-DB

totally Rs. 1,42,04,952/- along with interest of Rs. 13,55,203/- (totally Rs.

1,55,60,155/-) against aforesaid Service Tax liabilities vide TR6/GAR-7

Challans during F.Y. 2005-06 to F.Y. 2011-12. Challan-wise details are as

under:
41 | P a g e ST/11403/2017-DB

The appellant has shown that on the entire taxable value for construction

services worth about Rs. 54.63 crores they have paid Service Tax amount of

Rs. 4,63,66,097/-. This amount of Service Tax has been paid by utilizing

accumulated Cenvat credit of Rs. 3,18,48,902/- as well as by making

payment in cash by TR-6 challans as mentioned above. The appellant has

claimed that the contracts for construction of windmill foundations etc were

composite contracts which includes both service element and supply of goods

for this they have availed benefit of Notification No. 1/2006-ST dated

01.06.2006 and paid Service Tax on the abated value and at the same time

they also paid service tax by availing composite work contract tax benefit,

we are therefore of view that the appellant have discharged Service Tax on

the entire taxable value.

11. From the perusal of the facts of the matter, we also find that the

appellant apart from construction of Road, has also undertaken work contract

construction service for the balance amount of the taxable value. The

appellant have shown that they have discharged the Service Tax liability

either on full value of service or after availing the abatement as per the

Notification No. 1/2006-ST dated 01.06.2006. Some of the sample invoices
42 | P a g e ST/11403/2017-DB

on which abatement has been availed by the appellant had paid Service Tax

either by availing Notification No. 1/2006-ST dated 01.06.2006 or under the

composition scheme for the work contractor service sample invoices are

reproduced here below :-
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44 | P a g e ST/11403/2017-DB

12. We find force in the argument advanced by the Learned Advocate that

the construction works undertaken by the appellant for M/s. Suzlon

Infrastructure Services Ltd. & others were composite contract wherein the

element of both supply of goods as well as service element were involved.

We are therefore of the view that the correct classification of the service will

be under the 'works contract service' however the demand in this impugned

show cause notice has been made under the service category of 'commercial

or industrial construction service', the Hon'ble Supreme Court decision in the

case of Union of India Vs. Larsen & Toubro reported under 2015 (39) STR

913 (SC) has held that being a composite contract, the correct classification

of the service provided by the appellant falls under the category of the works

contract service. For the ease of the reference, we reproduced the copy of

invoices issued by appellant to M/s Suzlon Infrastructure Services Ltd

wherein the description of the service has been given as "construction of

WTG lower foundation and ancillary work". It can also be seen that the

appellant has themselves have paid Service Tax under 'work contract service'

under composition scheme and therefore demand for a composite work

contract involving both supply of goods and service element cannot be made

under service category of "Industrial or Commercial Construction Service."

We therefore hold that demanding service tax in the impugned show cause

notice under "Industrial or Commercial Construction Service" is legally not

sustainable. The sample copies of invoices are reproduced here :
45 | P a g e ST/11403/2017-DB
46 | P a g e ST/11403/2017-DB
47 | P a g e ST/11403/2017-DB

12.1 We also feel that it will be relevant to reproduce the relevant paras of

Hon'ble Apex Court decision in the case of Larsen & Toubro (Supra) in this

regard :-

"15. A reading of this judgment, on which counsel for the assessees heavily
relied, would go to show that the separation of the value of goods contained
in the execution of a works contract will have to be determined by working
from the value of the entire works contract and deducting therefrom charges
towards labour and services. Such deductions are stated by the Constitution
Bench to be eight in number. What is important in particular is the deductions
which are to be made under sub-paras (f), (g) and (h). Under each of these
paras, a bifurcation has to be made by the charging Section itself so that the
cost of establishment of the contractor is bifurcated into what is relatable to
supply of labour and services. Similarly, all other expenses have also to be
bifurcated insofar as they are relatable to supply of labour and services, and
the same goes for the profit that is earned by the contractor. These
deductions are ordinarily to be made from the contractor's accounts.
However, if it is found that contractors have not maintained proper accounts,
or their accounts are found to be not worthy of credence, it is left to the
legislature to prescribe a formula on the basis of a fixed percentage of the
value of the entire works contract as relatable to the labour and service
element of it. This judgment, therefore, clearly and unmistakably holds that
unless the splitting of an indivisible works contract is done taking into account
the eight heads of deduction, the charge to tax that would be made would
otherwise contain, apart from other things, the entire cost of establishment,
other expenses, and profit earned by the contractor and would transgress
into forbidden territory namely into such portion of such cost, expenses and
profit as would be attributable in the works contract to the transfer of
property in goods in such contract. This being the case, we feel that the
learned counsel for the assessees are on firm ground when they state that
the service tax charging section itself must lay down with specificity that the
levy of service tax can only be on works contracts, and the measure of tax
can only be on that portion of works contracts which contain a service element
which is to be derived from the gross amount charged for the works contract
less the value of property in goods transferred in the execution of the works
contract. This not having been done by the Finance Act, 1994, it is clear that
any charge to tax under the five heads in Section 65(105) noticed above
would only be of service contracts simpliciter and not composite indivisible
works contracts.

16................
17................
18.................
19.................
20................
21..................
22...................
23...................

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
48 | P a g e ST/11403/2017-DB

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 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 :-

"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."
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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, which was never the intention of Parliament.

30. It now remains to consider the judgment of the Delhi High Court in G.D.
Builders.

31. In the aforesaid judgment, it was held that the levy of service tax in
Section 65(105)(g), (zzd), (zzh), (zzq) and (zzzh) is good enough to tax
indivisible composite works contracts. 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 = 2007 (7) S.T.R. 110 (S.C.), to arrive at the proposition
that even when rules are not framed for computation of tax, tax would be
leviable.

32. We are afraid that the Delhi High Court completely misread the
judgment in Mahim Patram's 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. Section 9(2) of the Central Sales Tax Act provides :-

"Section 9. Levy and collection of tax and penalties. -

(2) Subject to the other provisions of this Act and the rules made
thereunder, the authorities for the time being empowered to assess,
reassess, collect and enforce payment of any tax under the general sales tax
law of the appropriate State shall, on behalf of the Government of India,
assess, reassess, collect and enforce payment of tax, including any interest
or penalty, payable by a dealer under this Act as if the tax or interest or
50 | P a g e ST/11403/2017-DB

penalty payable by such a dealer under this Act is a tax or interest or penalty
payable under the general sales tax law of the State; and for this purpose
they may exercise all or any of the powers they have under the general sales
tax law of the State; and the provisions of such law, including provisions
relating to returns, provisional assessment, advance payment of tax,
registration of the transferee of any business, imposition of the tax liability of
a person carrying on business on the transferee of, or successor to, such
business, transfer of liability of any firm or Hindu undivided family to pay tax
in the event of the dissolution of such firm or partition of such family, recovery
of tax from third parties, appeals, reviews, revisions, references, refunds,
rebates, penalties, charging or payment of interest, compounding of offences
and treatment of documents furnished by a dealer as confidential, shall apply
accordingly :

Provided that if in any State or part thereof there is no general sales tax law
in force, the Central Government may, by rules made in this behalf make
necessary provision for all or any of the matters specified in this sub-section."

33. Section 13(3) of the Central Sales Tax Act says :-

"The State Government may make rules, not inconsistent with the provisions
of this Act and the rules made under sub-section (1), to carry out the
purposes of this Act."

34. In the aforesaid judgment it was found that Section 9(2) of the Central
Sales Tax Act conferred powers on officers of the various States to utilize the
machinery provisions of the States' sales tax statutes for purposes of levy
and assessment of central sales tax under the Central Act. It was also noticed
that the State Government itself had been given power to make rules to carry
out the purposes of the Central Act so long as the said rules were not
inconsistent with the provisions of the Central Act. It was found that, in fact,
the State of Uttar Pradesh had framed such rules in exercise of powers under
Section 13(3) of the Central Act as a result of which the necessary machinery
for the assessment of central sales tax was found to be there. The Delhi High
Court judgment unfortunately misread the aforesaid judgment of this Court
to arrive at the conclusion that it was an authority for the proposition that a
tax is leviable even if no rules are framed for assessment of such tax, which
is wholly incorrect. The extracted passage from Mahim Patram's case only
referred to rules not being framed under the Central Act and not to rules not
being framed at all. The conclusion therefore in paragraph 36(2) of the Delhi
High Court judgment is wholly incorrect. Para 36(2) reads as follows :-

"(2) Service tax can be levied on the service component of any contract
involving service with sale of goods etc. Computation of service component
is a matter of detail and not a matter relating to validity of imposition of
service tax. It is procedural and a matter of calculation. Merely because no
rules are framed for computation, it does not follow that no tax is leviable."
[at para 36]

35. The aforesaid finding is in fact contrary to a long line of decisions which
have held that where there is no machinery for assessment, the law being
vague, it would [not] be open to the assessing authority to arbitrarily assess
to tax the subject. Various judgments of this Court have been referred to in
51 | P a g e ST/11403/2017-DB

the following passages from Heinz India (P) Ltd. v. State of U.P., (2012) 5
SCC 443. This Court said :-

"This Court has in a long line of decisions rendered from time to time,
emphasised the importance of machinery provisions for assessment of taxes
and fees recoverable under a taxing statute. In one of the earlier decisions
on the subject a Constitution Bench of this Court in K.T. Moopil Nair v. State
of Kerala [AIR 1961 SC 552] examined the constitutional validity of the
Travancore-Cochin Land Tax Act (15 of 1955). While recognising what is now
well-settled principle of law that a taxing statute is not wholly immune from
attack on the ground that it infringes the equality clause in Article 14, this
Court found that the enactment in question was violative of Article 14 of the
Constitution for inequality was writ large on the Act and inherent in the very
provisions under the taxing section thereof. Having said so, this Court also
noticed that the Act was silent as to the machinery and the procedure to be
followed in making the assessment. It was left to the executive to evolve the
requisite machinery and procedure thereby making the whole thing, from
beginning to end, purely administrative in character completely ignoring the
legal position that the assessment of a tax on person or property is a quasi
judicial exercise."

Speaking for the majority Sinha, C.J. said: (K.T. Moopil case [AIR 1961 SC
552], AIR p. 559, para 9)

"9. ... Ordinarily, a taxing statute lays down a regular machinery for making
assessment of the tax proposed to be imposed by the statute. It lays down
detailed procedure as to notice to the proposed assessee to make a return in
respect of property proposed to be taxed, prescribes the authority and the
procedure for hearing any objections to the liability for taxation or as to the
extent of the tax proposed to be levied, and finally, as to the right to challenge
the regularity of assessment made, by recourse to proceedings in a higher
civil court. The Act merely declares the competence of the Government to
make a provisional assessment, and by virtue of Section 3 of the Madras
Revenue Recovery Act, 1864, the landholders may be liable to pay the tax.
The Act being silent as to the machinery and procedure to be followed in
making the assessment leaves it to the Executive to evolve the requisite
machinery and procedure. The whole thing, from beginning to end, is treated
as of a purely administrative character, completely ignoring the legal position
that the assessment of a tax on person or property is at least of a quasi
judicial character." (emphasis supplied)

In Rai Ramkrishna v. State of Bihar [AIR 1963 SC 1667] this Court was
examining the constitutional validity of the Bihar Taxation on Passengers and
Goods (Carried by Public Service Motor Vehicles) Act, 1961. Reiterating the
view taken in K.T. Moopil Nair [AIR 1961 SC 552] this Court held that a
statute is not beyond the pale of limitations prescribed by Articles 14 and 19
of the Constitution and that the test of reasonableness prescribed by Article
304(b) is justiciable. However, in cases where the statute was completely
discriminatory or provides no procedural machinery for assessment and levy
of tax or where it was confiscatory, the Court would be justified in striking it
down as unconstitutional. In such cases the character of the material
provisions of the impugned statute may be such as may justify the Court
52 | P a g e ST/11403/2017-DB

taking the view that in substance the taxing statute is a cloak adopted by the
legislature for achieving its confiscatory purpose.

In Jagannath Baksh Singh v. State of U.P. [AIR 1962 SC 1563] this Court was
examining the constitutional validity of the U.P. Large Land Holdings Tax Act
(31 of 1957). Dealing with the argument that the Act did not make a specific
provision about the machinery for assessment or recovery of tax, this Court
held: (AIR pp. 1570-71, para 17)

"17. ... if a taxing statute makes no specific provision about the machinery to
recover tax and the procedure to make the assessment of the tax and leaves
it entirely to the executive to devise such machinery as it thinks fit and to
prescribe such procedure as appears to it to be fair, an occasion may arise
for the courts to consider whether the failure to provide for a machinery and
to prescribe a procedure does not tend to make the imposition of the tax an
unreasonable restriction within the meaning of Article 19(5). An imposition of
tax which in the absence of a prescribed machinery and the prescribed
procedure would partake of the character of a purely administrative affair
can, in a proper sense, be challenged as contravening Article 19(1)(f)."

(emphasis supplied)

In State of A.P. v. Nalla Raja Reddy [AIR 1967 SC 1458] this Court was
examining the constitutional validity of the Andhra Pradesh Land Revenue
(Additional Assessment) and Cess Revision Act, 1962 (22 of 1962) as
amended by the Amendment Act (23 of 1962). Noticing the absence of
machinery provisions in the impugned enactments this Court observed: (AIR
p. 1468, para 22)

"22. ... if Section 6 is put aside, there is absolutely no provision in the Act
prescribing the mode of assessment. Sections 3 and 4 are charging sections
and they say in effect that a person will have to pay an additional assessment
per acre in respect of both dry and wet lands. They do not lay down how the
assessment should be levied. No notice has been prescribed, no opportunity
is given to the person to question the assessment on his land. There is no
procedure for him to agitate the correctness of the classification made by
placing his land in a particular class with reference to ayacut, acreage or even
taram. The Act does not even nominate the appropriate officer to make the
assessment to deal with questions arising in respect of assessments and does
not prescribe the procedure for assessment. The whole thing is left in a
nebulous form. Briefly stated under the Act there is no procedure for
assessment and however grievous the blunder made there is no way for the
aggrieved party to get it corrected. This is a typical case where a taxing
statute does not provide any machinery of assessment."

(emphasis supplied)

The appeals filed by the State against the judgment of the High Court striking
down the enactment were on the above basis dismissed.

Reference may also be made to Vishnu Dayal Mahendra Pal v. State of U.P.
[(1974) 2 SCC 306] and D.G. Gose and Co. (Agents) (P) Ltd. v. State of
Kerala [(1980) 2 SCC 410] where this Court held that sufficient guidance was
available from the Preamble and other provisions of the Act. The members of
53 | P a g e ST/11403/2017-DB

the committee owe a duty to be conversant with the same and discharge their
functions in accordance with the provisions of the Act and the Rules and that
in cases where the machinery for determining annual value has been provided
in the Act and the rules of the local authority, there is no reason or necessity
of providing the same or similar provisions in the other Act or Rules.

There is no gainsaying that a total absence of machinery provisions for
assessment/recovery of the tax levied under an enactment, which has the
effect of making the entire process of assessment and recovery of tax and
adjudication of disputes relating thereto administrative in character, is open
to challenge before a writ court in appropriate proceedings. Whether or not
the enactment levying the tax makes a machinery provision either by itself
or in terms of the Rules that may be framed under it is, however, a matter
that would have to be examined in each case." (at paras 15-21)

36. In a recent judgment by one of us, namely, Shabina Abraham & Ors. v.
Collector of Central Excise & Customs, judgment dated 29th July, 2015, in
Civil Appeal No. 5802 of 2005 = 2015 (322) E.L.T. 372 (S.C.), this Court held
:-

"It is clear on a reading of the aforesaid paragraph that what revenue is
asking us to do is to stretch the machinery provisions of the Central Excises
and Salt Act, 1944 on the basis of surmises and conjectures. This we are
afraid is not possible. Before leaving the judgment in Murarilal's case (supra),
we wish to add that so far as partnership firms are concerned, the Income
Tax Act contains a specific provision in Section 189(1) which introduces a
fiction qua dissolved firms. It states that where a firm is dissolved, the
Assessing Officer shall make an assessment of the total income of the firm as
if no such dissolution had taken place and all the provisions of the Income
Tax Act would apply to assessment of such dissolved firm. Interestingly
enough, this provision is referred to only in the minority judgment in M/s.
Murarilal's case (supra).

The impugned judgment in the present case has referred to Ellis C. Reid's
case but has not extracted the real ratio contained therein. It then goes on
to say that this is a case of short levy which has been noticed during the
lifetime of the deceased and then goes on to state that equally therefore legal
representatives of a manufacturer who had paid excess duty would not by
the self-same reasoning be able to claim such excess amount paid by the
deceased. Neither of these reasons are reasons which refer to any provision
of law. Apart from this, the High Court went into morality and said that the
moral principle of unlawful enrichment would also apply and since the law will
not permit this, the Act needs to be interpreted accordingly. We wholly
disapprove of the approach of the High Court. It flies in the face of first
principle when it comes to taxing statutes. It is therefore necessary to
reiterate the law as it stands. In Partington v. A.G., (1869) LR 4 HL 100 at
122, Lord Cairns stated :

"If the person sought to be taxed comes within the letter of the law he must
be taxed, however great the hardship may appear to the judicial mind to be.
On the other hand, if the Crown seeking to recover the tax, cannot bring the
subject within the letter of the law, the subject is free, however apparently
within the spirit of law the case might otherwise appear to be. In other words,
54 | P a g e ST/11403/2017-DB

if there be admissible in any statute, what is called an equitable, construction,
certainly, such a construction is not admissible in a taxing statute where you
can simply adhere to the words of the statute". (at paras 26 and 31)

37. We find that the Patna, Madras and Orissa High Courts have, in fact,
either struck down machinery provisions or held machinery provisions to
bring indivisible works contracts into the service tax net, as inadequate. The
Patna High Court judgment was expressly approved by this Court in State of
Jharkhand v. Voltas Ltd., East Singhbhum, (2007) 9 SCC 266 = 2007 (7)
S.T.R. 106 (S.C.). This Court held :-

"Section 21 of the Bihar Finance Act, 1981, as amended states :

"21. Taxable turnover. - (1) For the purpose of this part the taxable
turnover of the dealer shall be that part of his gross turnover which remains
after deducting therefrom -

(a)(i) in the case of the works contract the amount of labour and any other
charges in the manner and to the extent prescribed;"

Rule 13A of the Bihar Sales Tax Rules which was also amended by a
notification dated 1-2-2000 reads as follows :

"13A. Deduction in case of works contract on account of labour
charges. - If the dealer fails to produce any account or the accounts
produced are unreliable deduction under sub-clause (i) of clause (a) of sub-
section (1) of Section 21 on account of labour charges in case of works
contract from gross turnover shall be equal to the following percentages..."

The aforesaid provisions have been adopted by the State of Jharkhand vide
notification dated 15-12-2000 and thus are applicable in the State of
Jharkhand.

Interpretation of the amended Section 21(1) and the newly substituted Rule
13-A fell for consideration of a Division Bench of the Patna High Court in
Larsen & Toubro Ltd. v. State of Bihar [(2004) 134 STC 354]. The Patna High
Court in the said decision observed as under :

"Rule 13-A unfortunately does not talk of 'any other charges'. Rule 13-A
unfortunately does not take into consideration that under the Rules the
deduction in relation to any other charges in the manner and to the extent
were also to be prescribed. Rule 13-A cannot be said to be an absolute follow-
up legislation to sub-clause (i) of clause (a) of Section 21(1). When the law
provides that something is to be prescribed in the Rules then that thing must
be prescribed in the Rules to make the provisions workable and
constitutionally valid. In Gannon Dunkerley & Co. [(1993) 1 SCC 364 : (1993)
88 STC 204] the Supreme Court observed that as sub-section (3) of Section
5 and sub-rule (2) of Rule 29 of the Rajasthan Sales Tax Act and the Rules
were not providing for particular deductions, the same were invalid. In the
present matter the constitutional provision of law says that particular
deductions would be provided but unfortunately nothing is provided in
relation to the other charges either in Section 21 itself or in the Rules framed
in exercise of the powers conferred by Section 58 of the Bihar Finance Act.
55 | P a g e ST/11403/2017-DB

***

In our considered opinion sub-clause (i) of clause (a) of Section 21(1) read with Rule 13-A of the Rules did not make sub-clause (1) fully workable because the manner and extent of deduction relating to any other charges has not been provided/prescribed by the State." (at paras 9-12)

38. Similarly, the Madras High Court in Larsen and Toubro Ltd. v. State of Tamil Nadu and Ors., [1993] 88 STC 289, struck down Rules 6A and 6B of the Tamil Nadu General Sales Tax Rules as follows :-

"... The eight principles are the criteria and the norms which every State legislation has to conform as per the decision of the Apex Court which has been already adverted to by us supra. In addition thereto, we have also referred to at considerable length the particular reasons assigned by the Apex Court while striking down section of the Rajasthan Sales Tax Act and rule 29(2) of the Rules made thereunder. The impugned rules 6-A and 6-B of the Rules, in our view, do not pass the above vital and essential test and the basic requirements laid down by the ratio of the decision of the Apex Court in Gannon Dunkerley's case supra;. The impugned rules are squarely opposed to the ratio of the said decision and particularly the ratio laid down in conclusion Nos. 1, 2, 3, 6 and 7 of the decision in Gannon Dunkerley's case [1993] 88 STC 204 supra; and also reiterated by the Apex Court in the second Builders Association of India case [1993] 88 STC 248 (SC); [1992] 2 MTCR

542. In the light of the above, we see no merit in the stand taken for the respondents relying upon the decisions reported in [1957] 8 STC 561 (SC) (A.V. Fernandez v. State of Kerala) and [1969] 23 STC 447 (Mad.) (Kumarasamy Pathar v. State of Madras) that the omission to exclude certain items relating to non-taxable turnovers is of no consequence and does not affect or undermine the validity of the impugned proceedings. Consequently, applying the ratio of the above decisions, we hereby strike down rules 6-A and 6-B as illegal and unconstitutional, besides being violative of sections 3 to 6, 14 and 15 of the Central Sales Tax Act and consequently unenforceable.

The provisions of section 3-B merely levied the tax on the transfer of property in goods involved in the execution of the works contract. The assessment, determination of liability and recovery had to be under the provisions of the Act read with the relevant rules. In exercise of rule-making power conferred under section 53(1) and (2)(bb), rules 6-A and 6-B came to be made and published. The rules miserably failed to provide the procedure and principles for effectively determining the taxable turnover, after excluding the items of turnover relating to such works contract which could not be subjected to levy of tax by the State in exercise of its power of legislation under entry 64 of the State List. Rule 6 by its own operation had no application in the matter of determination of liability under section 3-B since it has been made applicable only in respect of determining the taxable turnover of a dealer under section 3, 3-A, 4 or 5. Consequently, with our decision above striking down rules 6-A and 6-B of the Rules, there is no proper machinery provisions to determine the taxable turnover for purposes of section 3-B. The provisions of section 3-B, therefore, in the absence of the necessary rules for enforcing the same and determining the taxable turnover for the purposes of section 3-B is rendered dormant, ineffective and unenforceable. Such would be the position till sufficient provisions are made either in the Act itself or in the rules 56 | P a g e ST/11403/2017-DB by virtue of the rule-making power to ignite, activate and give life and force to section 3-B of the Act." (at paras 32, 33)

39. And the Orissa High Court in Larsen & Turbo v. State of Orissa, (2008) 012 VST 0031, held that machinery provisions cannot be provided by circulars and held that therefore the statute in question, being unworkable, assessments thereunder would be of no effect.

40. Finally, in para 31, the Delhi High Court holds :-

"The contention of the petitioners that the impugned notifications override the statutory provisions contained in Section 65(105), which defines the term "taxable service", Section 66, which it is claimed is a charging section, and Section 67, the valuation provisions of the Finance Act, 1994, has to be rejected. We have, as already stated above, rejected the argument of the petitioners on bifurcation/vivisect and held that as per the provisions of Section 65(105)(zzq) and (zzzh), service tax is payable and chargeable on the service element of the contract for construction of industrial and commercial complexes and contract for construction of complexes as specified and in case of a composite contract, the service element should be bifurcated and ascertained and then taxed. The contention that the petitioners are paying sales tax or VAT on material in relation to execution of the contract under composite contracts for construction of industrial/commercial complexes and construction contracts as specified under Section 65(105)(zzq) and (zzzh) therefore fails. The contention that there was/is no valid levy or the charging section is not applicable to composite contracts under clauses (zzq) and (zzzh) of Section 65(105) stands rejected. But the petitioners have rightly submitted that only the service component can be brought to tax as per provisions of Section 67 which stipulates that value of taxable service is the "gross amount charged" by the service provider for such services provided or to be provided by him and not the value of the goods provided by customers of service provider and the service tax cannot be charged on the value of the goods used in the contract."

41. 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.

42. It remains to consider the argument of Shri Radhakrishnan that post 1994 all indivisible works contracts would be contrary to public policy, being hit by Section 23 of the Indian Contract Act, and hit by Mcdowell's case.

43. We need only state that in view of our finding that the said Finance Act lays down no charge or machinery to levy and assess service tax on indivisible 57 | P a g e ST/11403/2017-DB composite works contracts, such argument must fail. This is also for the simple reason that there is no subterfuge in entering into composite works contracts containing 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."

Following the above decision and in view of the entire above discussion, we are of the view that the impugned order-in-original is not sustainable both on facts as well as on law points.

13. Accordingly, the impugned order-in-original is set aside. The appeal is allowed.

                  (Pronounced in the open court on     23.10.2024   )




                                                             (SOMESH ARORA)
                                                          MEMBER ( JUDICIAL )




                                                                  (C L MAHAR)
                                                          MEMBER (TECHNICAL)


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