Custom, Excise & Service Tax Tribunal
Kailash Electricals vs Cgst & Ce Kanpur on 4 April, 2025
CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL
ALLAHABAD
REGIONAL BENCH - COURT NO.I
Service Tax Appeal No.70357 of 2022
(Arising out of Order-in-Original No.KNP-EXCUS-000-COM-009-19-20 dated
28/02/2020 passed by Commissioner of Central Excise & Service Tax,
Kanpur)
M/s Kailash Electricals, .....Appellant
(117/N/52 Bishambar Dham, Kakadeo, Kanpur)
VERSUS
Commissioner of Central Excise &
Service Tax, Kanpur ....Respondent
(117/7, Sarvodaya Nagar, Kanpur-208005)
WITH
Service Tax Appeal No.70292 of 2020
(Arising out of Order-in-Original No.KNP-EXCUS-000-COM-009-19-20 dated
28/02/2020 passed by Commissioner of Central Excise & Service Tax,
Kanpur)
Commissioner of Central Excise &
Service Tax, Kanpur .....Appellant
(117/7, Sarvodaya Nagar, Kanpur-208005)
VERSUS
M/s Kailash Electricals, ....Respondent
(117/N/52 Bishambar Dham, Kakadeo, Kanpur)
APPEARANCE:
Shri Dharmendra Srivastava, Chartered Accountant for the Appellant-
assessee
Shri A.K. Choudhary, Authorised Representative for the Respondent-
Revenue
CORAM: HON'BLE MR. P.K. CHOUDHARY, MEMBER (JUDICIAL)
HON'BLE MR. SANJIV SRIVASTAVA, MEMBER (TECHNICAL)
FINAL ORDER NOs.70169-70170/2025
DATE OF HEARING : 17 December, 2024
DATE OF PRONOUNCEMENT : 04 April, 2025
Service Tax Appeal Nos.70357 of 2022 &
2 70292 of 2020
SANJIV SRIVASTAVA:
These two appeals, one by the assessee (appellant) and
other by revenue, are directed against Order-in-Original No.KNP-
EXCUS-000-COM-009-19-20 dated 28/02/2020 passed by
Commissioner of Central Excise & Service Tax, Kanpur. By the
impugned order following has been held:-
ORDER
i) I drop the demand of Service Tax of Rs. 15276928/ against SCN dated 23.04.2010 and Rs 14030605/- against SCN dated 22.10.2010 for the work contract executed by the party for the Railways in view of the discussion made herein above.
ii) I confirm the demand for Rs. 62,74,196/- against SCN dated 23.04.2010 and Rs. 1399676/- against SCN dated 22 10.2010 under the category "Works Contract", "Management, Maintenance & Repair and "Supply of tangible Services and order for its recovery under proviso to Section 73(1) of the Finance Act, 1994 read with Section 174 of the CGST Act, 2017, I also order for appropriation of the amount of Rs. 8,31,601/- deposited by the party towards service tax dues.
iii) I also order for recovery of Interest under Section75 of the Finance Act, 1994, read with Section 174 of the CGST Act, 2017, at appropriate rates from the due date till the date of actual deposit of the confirmed amount of Service Tax.
iv) In terms of Section 76 of the Finance Act, 1994, I impose the penalty for the period up to 10.05.2008: Rs 200/- (Rupees Two Hundred only) per day or at the rate of 2% of Service Tax payable, per month, whichever is higher.
v) I also impose a penalty of Rs. 10,000/- under Section 77(1) of the Finance Act, 1994, read with Section 174 of CGST Act, 2017, upon the party for the contraventions detailed hereinabove Service Tax Appeal Nos.70357 of 2022 & 3 70292 of 2020
vi) I also impose a penalty of Rs. 10,000/- under Section 77(2) of the Finance Act, 1994, read with Section 174 of CGST Act, 2017, upon the party for the contraventions detailed hereinabove.
vii) I also impose a penalty of Rs. 76.73,872/- in terms of Section 78 of the Finance Act, 1994 read with Section 174 of CGST Act, 2017 for the reasons discussed herein above."
2.1 Appellant-assessee is engaged in the work of designing, supply, erection, commissioning and installation of electrical equipments and devices including wiring and fitting thereof. They are also engaged in Construction work, repair and maintenance of electrical equipments under annual maintenance contracts and Supply of tangible goods Service. They are registered under the category of "Works Contract Services and Management, Maintenance or Repair Services.
2.2 On the basis of intelligence that the assessee was not discharging service tax on the services provided, the premises of the appellant-assessee was visited by the officers on 19.08.2009. At the time of visit Shri Devendra Kumar, Proprietor of the assessee was present on the spot and on demand, he produced the records relating to his business activity i.e. balance sheets for the years 2004-05, 2005-06, 2006-07 & 2007-08 alongwith a chart showing payment received by them under said contract receipt for the Financial Year 2009-10. Statement of Shri Devendra Kumar, Proprietor was recorded wherein he stated that-
They are engaged in executing work relating to supply, erection, design, installation and commissioning of electrical work for Railway and I.I.T., Kanpur. On some occasion they have also executed electrical work for CPWD.
His work comprises of wiring, fitting, fitting off Panel, Cable, erection of transformers etc. He was also taking annual maintenance contract of Electrical equipment for IIT, Kanpur. For getting work Service Tax Appeal Nos.70357 of 2022 & 4 70292 of 2020 order, they get the approval from various departments under Letter of Acceptances along with the site where work had to be executed and accordingly, electrical are completed.
All the payments were received in cheques after the execution/completion of work. Bills were not raised by them rather theses were being made by the service recipient themselves and they put their signature in token or agreement.
They have not paid any service tax on their work as in his opinion the service tax in not applicable for the work of railways and institutes as the same are not commercial concerns.
2.3 After scrutiny and investigation, revenue was of the view that appellant-assessee has not paid service tax as detailed in table bellow:-
Amount in Rs Sl. No. SCN dated Period Service tax Not paid
1. 23.04.2010 01.10.2004 to 31.03.2009 2,09,96,847
2. 22.10.2010 01.04.2009 to 31.03.2010 1,54,30,281 Total 3,64,27,128 2.4 Vide the show cause notice dated 23.04.2010, appellant was asked to show cause as to why-
(i) The services provided by the party should not be covered under category of "Erection, Commissioning and installation service" and "Management, maintenance or Repair Service" and Service Tax amounting to Rs.2,09,96,847/- Education Cess amounting to Rs.4,19,937/- and Sr. & Hr. Education Cess amounting to Rs.1,34,340/- should not be demanded and recovered from them under Section 73(1) of the Chapter V of the Finance Act, 1944 by invoking proviso thereto,
(ii) Interest applicable thereon should not be demanded and recovered from them under the provisions of Section 75 of Chapter V of the Finance Act, 1994;
Service Tax Appeal Nos.70357 of 2022 & 5 70292 of 2020
(iii) An amount of Rs.8,31,601/- deposited voluntarily by the party towards their liablity of Service Tax and interest should not be appropriated against the total tax liability demanded;
(iv) Penalty should not be imposed upon them under the provisions of Section 76 of Chapter V of the Finance Act, 1994 for the reasons discussed above;
(v) Penalty should not be imposed under Section 77 of Chapter V of the Finance Act, 1994 for violation of Section 69 of the Finance Act, 1994 by not applying for registration at the appropriate time;
(vi) Penalty should not be imposed upon them under the provisions of Section 78 of Chapter V of the Finance Act, 1994 for suppressing the material facts from the department with intention to evade the tax." Show cause notice dated 22.10.2010 was also issued on the same lines.
2.5 Both the show cause notices have been adjudicated as per the Order-in-Original dated 29.07.2011 by holding as follows:-
"ORDER By holding that M/s Kailash Electricals were providing taxable services of Erection, Commissioning and Installation services. Management Maintenance or Repair Services, Commercial or Industrial Construction services, Supply of tangible goods Service-
i) I confirm the demand and order for recovery of Service Tax amounting to Rs. 3,65, 19,824 (Rs.2,10,89,543 +Rs.1,54,30,281) (Rupees Three Crore Sixtyfive Lakh Nineteen Thousand Eight Hundred and Twenty Four only) and order for its recovery. Amount of Rs. 8,31,601 deposited by the party towards service tax during investigation stands appropriated.
ii) I also order for recovery of Interest under Section75 of the Finance Act, 1994 at appropriate rates from the due date till the date of actual deposit of the confirmed amount of Service Tax.
Service Tax Appeal Nos.70357 of 2022 & 6 70292 of 2020
iii) In terms of Section 76 of the Finance Act, 1994, I impose the following penalties on M/s Kailash Electricals- subject to the total penalty not exceeding the Service Tax payable:
(a) For the period prior to 18.04.2006: Rs.100/- (Rupees One Hundred only) per day; and
(b) For the period w.e.f. 18.04.200610 10.05.2008 Rs 200/- (Rupees Two Hundred only) per day or at the rate of 2% of Service Tax payable, per month, whichever is higher, till the date of actual payment of the outstanding amount of Service Tax.
(v) In terms of Section 77 of the Finance Act, 1994, I impose the following penalties on M/s Kailash Electricals-
(a) For the period prior to 10.05.2008: Rs.100/- (Rupees One Hundred only); and
(b) For the period we.f. 10.05.2008. Rs 5000/- (Rupees five Thousand Only) or Rs. 200/- (Rupees Two Hundred Only) for every day during which such failure continues, whichever is higher, starting with the first day after the due date, till the date of actual compliance; and
(vi) In terms of Section 78 of the Finance Act, 1994, I impose a penalty of Rs.3,65,19,824/- (Rupees Three Crore Sixty Five Lakh Nineteen Thousand Eight Hundred Twenty Four only)."
2.6 Aggrieved both appellant-assessee and revenue had filed appeal before this Tribunal. Tribunal have allowed both the appeals and remanded the matter back to Original Authority vide Final Order No 71844-71845/2018 dated 06.08.2018, by holding as follows:-
"3. After hearing both the sides duly represented by Sh Mohd Altaf (Asstt. Commr.) AR for the Revenue and She Dharmendra Srivastava (CA) for the Assessee, we note that the demand stands confirmed against the appellant for the period from 01.10.2004 to 31.03.2009 under the category of Erection, Commissioning and Installation. The appellent hati taken a categorical stand before the Service Tax Appeal Nos.70357 of 2022 & 7 70292 of 2020 Adjudicating Authority that services provided by them would fall under the category of Works Contract', which were made taxable only we.f. 01.06.2007. For the subsequent period to 01.06.2007. the appellant contested the demand on the ground that they have executed the "work for the Railways which is exempted services in terms of the definition itself. For the abwe propositions learned Advocate relies upon the Hon Supreme Court's decision in the case of Commissioner Central Excise & Customs, Kerala vs. Larsen & Toubro Ltd. reported in 2015-TOIL- 187-SC-ST
4. Learned AR appearing for the Revenue submits that inasmuch as the said decision of the Hon'ble Supreme Court was not available at the time of passing of the impugned orders and the applicability of the same is to be examined in the terms of the contract entered into by the appellant with the service recipient, the matter is required to be re-examined. As regards the subsequent period he submits that the appellant has also provided services to IIT. Kanpur and as such he is liable to pay service tax in respect of the same.
5. We agree with contention of the learned. AR. The applicability of the Hon'ble Supreme Court's decision on 'Works Contract' in the above referred case, is required to be examined by referring to the terms and conditions of the various contracts. Such verification can be done only at the level of the Original Adjudicating Authority. Accordingly. we deem it fit to set aside the impugned order and remand the matter to Commissioner for fresh adjudication in the light of the declaration of law by the Hon'ble Supreme Court in the case of Larsen & Toubro Ltd., (supra). Inasmuch as the matter is being remanded to the Adjudicating Authority would also examine the appellant's plea of services rendered to Railways being exempted, as also the demand being barred by limitation.
Service Tax Appeal Nos.70357 of 2022 & 8 70292 of 2020
6. Further, as we have remanded the appellant's appeal. the Revenue's appeal which is only for imposition of separate penalties under separate sections is also being remanded for fresh decision alongwith assessee's appeal." 2.7 In the remand proceedings, matter has been adjudicated as per the impugned order referred in para 1 above. 2.8 Aggrieved by the above order, both appellant-assessee and revenue have filed these two appeals.
3.1 We have heard Shri Dharmendra Srivastava Chartered Accountant for the appellant and Shri A.K. Choudhary Authorized Representative for the revenue.
3.2 Arguing for the appellant learned Counsel submits that- Appellant is engaged in providing Works contract services to Indian Railways, IIT, Kanpur and they also involved to provide services of maintenance and repair for IIT Kanpur. All such services involve transfer of property in goods during execution, VAT is duly discharged by the appellant. The work contract services provided by the appellant are in respect of original work. The services provided in the category of Work Contract Services and the same are not taxable for the entire period.
For the period prior to 01.06.2007 Work Contract Services could not have been taxed as per the decision of Hon'ble Supreme Court in the case of Larsen & Tubro Ltd. 2015 (39) S.T.R. 913 (S.C.).
For the period after 01.06.2007 to 30 June, 2012 Work Contract Services (WCS) in respect of railways are not taxable as per para 1 of the definition, this fact has been admitted by the adjudicating authority and the demand has been duly dropped.
In respect of services provided to IIT, Kanpur, reliance is placed on the decision of Hon'ble Patna High Court in the case of Shapoorji Paloonji & Company Pvt. Ltd., wherein the IIT was considered as a government authority and allowed the exemption from service tax. This decision has been upheld by Hon'ble Supreme Court.
Service Tax Appeal Nos.70357 of 2022 & 9 70292 of 2020 Similar view has been expressed by Chennai Bench of the Tribunal in the case of M/s R R Thulasi Builders India Pvt. Ltd. and in the case of M/s RGP Construction Vs Salem. Thus for the period 01.06.2007 to 30.06.2012 both the services are not taxable under the Service Tax Act. Exemption for the period after 01.07.2012 by Clause 14(a) & 12 (c) of Mega Exemption Notification No.25/2012-ST- services pertaining to construction, erection, commissioning, or installation of original works pertaining to railways are exempt from payment of service tax. Similarly, by Sl. No.12 of the said notification services provided to government, local authority or a governmental authority by way of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, or alteration has been exempted from payment of service tax if services provided to railways and IIT. In respect of service provided to Madhyanchal Vidyut Vitran Nigam Ltd. in terms of Notification No.30/2012 dated 20.06.2012, 50% of service tax liability would be upon the service recipient under reverse charge mechanism, the taxable value in such cases can be in accordance with Rule 2A of Service Tax Determination of Value Rules, 2006. Thus computation of demand in the impugned order is erroneous.
Before 01.07.2012, the valuation could be done as per Rule 2A of Service Tax (Determination of Value) Rules, 2006 or under composition scheme.
After 01.07.2012, valuation shall be done as per Rule 2A after allowing an abatement of 40%/60%/70%, as applicable in case of works contract services. Maintenance Services provided to IIT is taxable and tax has been duly paid. Appellant has paid service tax of Rs.7,08,038/- along with interest of Rs.1,23,563/- for the period prior to 30.06.2012. After 30.06.2012 the maintenance services provided to IIT are exempt under Service Tax Appeal Nos.70357 of 2022 & 10 70292 of 2020 Clause 12 of Mega Exemption Notification No.25/2012 dated 20.06.2012.
As demand of service tax is confirmed on the maintenance services provided to IIT is unsustainable, demand of service tax liability needs to be set aside. 3.3 Learned Authorized Representative reiterates the findings recorded in the impugned order with regards to confirmation of the demand and the grounds taken in the appeal filed by the revenue in respect of the demands dropped.
4.1 We have considered the impugned orders along with the submissions made in appeal and during the course of argument.
4.2 Impugned order records findings as follows:-
"72. I find that department has alleged that activities undertaken by the party are classifiable under the category Erection Commissioning or Installation services which have been defined as under.-
Erection Commissioning or Installation services- The definition of Erection, Commissioning or Installation Services as per Section 65 (39 a) of the Finance Act, 2004 w.e.f. 10.09.2004 has been as follows "Erection, Commissioning or Installation" means any service provided by a commissioning and installation agency, in relation to erection, commissioning or installation of plant, machinery, or equipment.
The definition stands amended and applicable as- "Erection, Commissioning or Installation" means any service provided by a commissioning and installation agency, in relation to:-
i) erection, commissioning or installation of plant, machinery, or equipment or structures, whether pre-
fabricated or otherwise; or
ii) installation of-
(a) electrical and electronic devices, Including wirings or
fittings there for, or
Service Tax Appeal Nos.70357 of 2022 &
11 70292 of 2020
(b) plumbing, drain laying or other installations for
transport of fluids, or
(c) heating, ventilation or air-conditioning including
related pipe work, duct work and sheet metal work, or
(d) thermal insulation, sound insulation, fire proofing or water proofing, or
(e) lift and escalator, fire escape staircases or travelators; or
(f) such other similar services, For the purpose of these provisions, the agency can be Partnership Company, proprietary firm, private or public company, charitable organization etc. The words "in relation to have been held to be equivalent to or synonymous with "concerning with" or "pertaining to" and as words of comprehensiveness which might both have a direct significance as well as indirect significance depending on the context and therefore it can be inferred that any service which has a direct or indirect connection with a specified service has to be treated as "in relation to"
that specified service.
73 I further find that the party has contested that their work falls under the category of 'Works Contract So far as the execution of the works contract is concerned, the same has been defined under section 65(105) (zzzza), which reads as under-
Works Contract:
Taxable service means service provided 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 Service Tax Appeal Nos.70357 of 2022 & 12 70292 of 2020
(ii) such contract is for the purposes of carrying out.-
b. Erection, commissioning or installation of plant, machinery, equipment or structures, whether pre- fabricated or otherwise, Installation of electrical and electronic devices, plumbing, drain laying or other installations for transport of fluids, heating, ventilation or air-conditioning including related pipe work, duct work and sheet metal work, thermal insulation, sound insulation, fire proofing or water proofing, lift and escalator, fire escape staircases or elevators or c. 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. Construction of a new residential complex or a part thereof, or e. Completion and finishing services, repair, alteration, renovation or restoration of, or similar services, in relation to (b) and (c), or f. Turnkey projects including engineering, procurement and construction or commissioning(EPC) projects,
74. I further observe that a simple reading of above definition provides that the following are the pre-requisite for considering a service in works contract category,
1. There is a transfer of property in goods involved in the execution of such contract, and
2. Such transfer of property in goods is leviable to tax as sale of goods (such as sales tax, VAT or WCT, etc.)
3. Such contract is for the purpose of carrying out:
(a) Construction,
(b) Erection,
(c) Commissioning.
(d) Installation,
(e) Completion,
(f) Fitting out,
(g) Repair,
Service Tax Appeal Nos.70357 of 2022 &
13 70292 of 2020
(h) Maintenance,
(i) Renovation,
(j) Alteration
75. I also find it noteworthy that the words which are used in the definition are "leviable to tax as sale of goods, therefore, it is not necessary that VAT has been actually paid on the transfer of property involved in such contract. It is enough if transfer of property is leviable to tax as sale of goods for determining whether such contract is a works contract or not.
76. I have gone through the definition of both the services and I notice that works contract covers all the activities from Erection Commissioning to Repair Maintenance and Alteration. If we go by the simple meaning of words, I find that Erectioning is a service provided by the service provider to service recipient for Erection of the plant or machinery or any other fixed asset. Installation service is a service provided by the service provider to service recipient for installation of the fixed asset. By installation we mean putting the fixed asset into a condition ready for its use and Commissioning is a testing service provided by the service provider to service recipient for checking and testing whether the fixed asset is in working condition or not le. its an activity post installation or Erection. Whereas the "works contract" service is a composite contract of sale and service i.e. it involves transfer of property in goods and service in relation to the same. Thus in my opinion service contract for 'Erection and commissioning' is a parent and works contract is a specie. Both are contracts of work of 'erection and commissioning. If such work is pure labour work, it is 'Erection and commissioning service. If during execution of 'Erection and commissioning work, property in goods gets transferred from contractor to customer or in other words from service provider to service receiver, it becomes "work contract"
Service Tax Appeal Nos.70357 of 2022 & 14 70292 of 2020
77. Now I proceed to examine some of the agreements, on sample basis, which are RUD's in the case to determine the exact nature of the contract
78. In this regard, a specimen sample of party's letter of acceptance No. ELCORE/T/TSS/Gr. 133/522 dated 05.05.2008 which was executed for Railways, had been taken up for examination. On going through the said work order, it is observed that in the subject matter, Railway was mentioning "design, supply, erection, testing and commissioning of 132/25KV traction, sub-station, Feeding Post and Shunt capacitor". In the schedule enclosed with the said LOA, it is mentioned that the amount of work is bifurcated in two heads i.e. material cost and erection cost. Similarly for IIT work, they have executed the installation of electrical work like wiring, LT panel, installation of DG set, installation of Capacitor bank panel at substation etc which itself makes it clear that transfer of goods is Involved in the contract.
79 I also notice that party in their reply has quoted a portion of acceptance letter from North Central Railway dated 14.06.2006 as "this being a indivisible work contracts, North Central Railway will not reimburse any amount of trade tax However tax will be deducted from your payments as applicable at the time of payment"
80. I have also noticed that the party has submitted the record of deduction of VAT/WCT by the competent authority of IIT as well as Railways for the year 2007-08, 2008-09 and 2009-10. Details of the VAT TDS deducted are tabulated and submitted by the party alongwith corresponding certificates are as under-
M/s. Kailash Electricals, Kanpur Detail of Contract Receipts with Sales Tax for the year 2007-08 Part-A: Contract executed under compounding scheme:
S.No. Department Contract Sales Tax
Receipt (TDS)
1 IIT, Kanpur 38386252.00 1535092.00
2 Norther Central Railway, Division, 980480.00 39219.00
Allahabad
3 Railway Electrification, Lucknow 20450595.00 818024.00
Service Tax Appeal Nos.70357 of 2022 &
15 70292 of 2020
4 North Central Railway, Construction, 31599403.00 1263979.00
Allahabad
5 North Central Railway, Construction, 4543620.00 181774.00
Jhansi
Total (A) in Rs. 95960350.00 3838088.00
Part-B: Contract executed Outside UP:
S.No. Department Contract Receipt Sales Tax
(TDS)
1 North Central Railway,
Construction, Jhansi
A Madhya Pradesh 15735905.00 629437.00
B Haryana 579450.00 23178.00
Total (B) in Rs. 16315355.00 652615.00
Grand Total (A+B) 112275705.00 4490703.00
81. I find that the party has also submitted copy of certificates issued by the Railway Authorities of different region indicating the payment of VAT against their bills raised by the party. A sample is reproduced below:
Railway Electrification Statement showing the deduction of Sale Tax during the financial year 2008-09 Name of contractor: M/s. Kailash Electrical's Bishamber Dham (Opp. Suraj Hospital) 117/N/52, Kakadeo, Kanpur TSS/Shahzadnagar & Rasulya Letter of acceptance: ELCORE/T/TSS/Gr.128/535 dated 10.10.07 TIN No.DyCEEE/RE/BE 09958103341 S.No. Bill No. & date Voucher No. and Gross S.T.@4% date Amount 1 KE/RE/Gr.128/ONA/001 dated EL-380 dated 1550574 62023 06.05.08 25.05.08 2 KE/RE/Gr.128/ONA/001 dated EL-381 dated 2216391 88656 31.07.08 25.05.08 3 KE/RE/Gr.128/ONA/002 dated EL-383 dated 2094290 83772 03.09.08 06.08.08 4 KE/RE/Gr.128/ONA/002 dated EL-431 dated 2185328 87413 05.08.08 06.08.08 5 KE/RE/Gr.128/ONA/003 dated EL-462 dated 1649659 65986 03.09.08 22.11.08 6 KE/RE/Gr.128/ONA/203 dated EL-461 dated 2036251 81450 03.09.08 03.09.08 26273 7 KE/RE/Gr.128/ONA/004 dated EL-511 dated 656832 05.08.08 23.10.08 8 KE/RE/Gr.128/ONA/004 dated EL-512 dated 813907 32556 05.08.08 23.10.08 9 KE/RE/Gr.128/ONA/005 dated EL-533 dated 2360283 94411 20.11.08 22.11.08 10 KE/RE/Gr.128/ONA/005 dated EL-530 dated 2360283 94411 Service Tax Appeal Nos.70357 of 2022 & 16 70292 of 2020 20.11.08 20.11.08 11 KE/RE/Gr.128/Prg/001 dated EL-545 dated 383920 15357 18.12.08 18.12.08 12 KE/RE/Gr.128/ Prg/001 dated EL-544 dated 633942 25358 19.12.08 18.12.08 13 KE/RE/Gr.128/ONA/006 dated EL-591 dated 712695 28508 22.01.09 22.01.09 14 KE/RE/Gr.128/ONA/006 dated EL-592 dated 745334 29813 22.01.09 22.01.09 15 KE/RE/Gr.128/ONA/007 dated EL-629 dated 413880 16555 22.03.09 14.03.09 16 KE/RE/Gr.128/ONA/007 dated EL-625 dated 1748468 69939 02.03.09 14.03.09 Forwarded to Sr. AFA/RE/UMB for necessary vetting pl.
Sd/-
(Dy. CEE/RE/Bareilly)
82. I further observe that under the works contract category, the service tax is levied on service involved in the execution of works contract. As per the definition of a works contract, under this service only selective works are covered such as construction-both commercial and residential as well as erection, commissioning and installation service, which are separately covered under separate categories of taxable services. While introducing the works contract as new category of taxable service, the Government has retained other taxable service in the statute. Therefore, disagreements are bound to happen between department and assessee to which category should be opted for the purpose of discharging service tax liability. In the Works contract category only service where material and labour both are involved have been covered. In that sense scope of service is limited and applicable only for composite contracts for supply of goods and services for the above mentioned activities, whereas specific categories of taxable services have much wider scope. Further in my considered opinion section 65A. provides the manner of determination of classification of taxable services. Therefore, classification of service shall be made according to the manner given in the provisions of Section 65A and tax shall be paid according to the category of taxable service. Thus classifying a service is not an option Service Tax Appeal Nos.70357 of 2022 & 17 70292 of 2020 to service provider, but mandatory and that has to be done in accordance with the provision of Section 65A. Sub Section (1) of Section 65 A provides that "For the purposes of this chapter, classification of taxable services shall be determined according to the terms of the sub-clauses (105) of section 65". Therefore, a composite contract (Works Contract) for construction- both commercial and residential as well as erection commissioning and installation services and Turnkey projects have to be classified only under the Works Contract for levying service tax on the services Involved in the execution of a Works Contract.
83. Therefore, in view of the discussion made herein above, I am of the considered opinion that service rendered by the party is classifiable under the head "Works Contract as it has been established beyond doubt that the contract undertaken by the party involves transfer of goods on which VAT has been charged.
84. Now coming to the levy of tax upon the service, I find that Works Contract service have been brought under the service tax net w.e.f. 01.06.2007 vide notification No. 23/2007-ST dated 22.05.2007. Firstly, the taxability of service is to be considered before 01.06.2007 as the demand period is from 10.09.2004 ie. much before the introduction of works contract under service tax net. I observe that it is crystal clear that service tax cannot be levied on the value of goods. With the introduction of Works Contract under service tax net, the service tax become leviable on the services involved in the execution of a works contract Therefore, it can easily be concluded that services involved in the execution of a works contract were not subject to service tax and it cannot be collected in old entries like commercial or industrial construction, or erection commissioning and installation. There was no provision under these categories to determine the value of service involved in the execution of a works contract.
Service Tax Appeal Nos.70357 of 2022 & 18 70292 of 2020
85. I find that in the case of ABB Ltd. (vs) Commissioner of Service Tax, Bangalore where Assessee company had entered into five contracts with Delhi Metro Rail Corporation (DMRC) for design, manufacture, supply, installation, testing and commissioning of electrical, hydraulic & fire systems at some of metro stations of DMRC Show-cause notice was issued to assessee demanding service tax from it under category of 'Commissioning and installation services. The assessee contested show-cause notice contending that all contracts in question were turnkey contracts and, therefore, were not liable for service tax prior to 1-6-2007. Adjudicating authority did not agree with contention of assessee and confirmed demand along with interest and also imposed penalties. The Tribunal observed that "It was found from records that contracts entered into by assessee with DMRC were registered with sales tax authorities for billing under Delhi VAT Act and VAT liability had been deducted from payments made by DMRC to assessee It was also on record that tax was deducted at source from bills raised by assessee as per provisions of law, on execution of said projects, but was of supply of material which were either manufactured by assessee or were procured from outside. The discharge of VAT and deduction of TDS by DMRC by taking amount from Running Account Bills of assessee would definitely indicate that said contracts had been considered by both parties as works contracts. Therefore, contention of assessee that leviability of service tax under works contract would be effective only from 1-6-2007 was correct. In view of above findings, impugned order, confirming demand and imposing consequent penalties and interest, was incorrect and was to be set aside."
86. I also find that Hon'ble Supreme Court in the case of Larsen and Toubro Ltd 2015-TIOL-187-SC-ST has held that service tax cannot be imposed upon Works Contract Service Tax Appeal Nos.70357 of 2022 & 19 70292 of 2020 services prior to 01.06.2007 It was held that there was no machinery provision for assessment of works contract In absence of nay machinery provision, the tax is vague. Hence, levy is non-existent.
87. Therefore, I hold that no service tax is leviable upon works contract executed by the party prior to 01.06.2007 Irrespective of the status of service recipient l.e. whether works contract was executed for Railways, IIT or any any other service recipient. Therefore, demand made by the department for the period before 01.06.2007 is not sustainable in the eye of law and liable to be rejected. 88 Now coming to the taxability upon the party after introduction of works contract w.e.f. 01.06.2007, I find that the definition of works contract is very clear in this respect. It has been defined under section 65(105) (zzzza), which reads as under:
"Taxable service means service provided 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."
89. Thus the definition itself excludes the works contact executed for Railways. Therefore, once the service has been classified under "Works Contract the service provided by the party to Railways goes beyond the purview of levy of service tax Further, I notice that Board has also issued clarification vide Circular No. 334/1/2007-TRU dated 258.02.2007 that "Works Contract" in respect of specified infrastructure projects namely roads, airports, railways, transport terminals, bridges, tunnel and dams are specifically excluded from the scope of levy." 90 At this juncture, I would also like to refer the clarification issued by TRU vide No. 123/5/2010-TRU dated 24.05.2010 where clarification has been given specially to wipe out the confusion in field formation in respect of work of laying of cables and similar activities. In the given Service Tax Appeal Nos.70357 of 2022 & 20 70292 of 2020 circular taxable status of various activities, on which disputes have been arisen, have been clarified and tabulated. I notice that at St. No. 8, it has been provided that:
SNO Activity Status 8. Railways electrification, Not a taxable service
electrification alongside under any clause of Sub the Railways Track Section (106) of Section 65 of the Finance Act, 1994
91. Thus, it is now abundantly clear from the above that the work related to electrification for railways is exempted from service tax in any clause of Sub section (105) of Section 65 of the Finance Act, 1994. Therefore, I hold that the demand of service tax against the party on the work of Railways is not sustainable and liable to be set aside.
92 Now coming to the work executed by the party for the IIT, Kanpur, I find that party has taken contract for execution of different types of work which includes electrical work, repairing and replacement of electrical devices, modification of electrical installations, Annual maintenance contract of sub-station and moreover construction of hall for residence of Boys. Thus apart from contract for electrical work, party has undertaken the work of AMC and repair and construction of Hall/Hostel. The party has also taken contract from CPWD for electrical work. Therefore, the work executed by the party other than Railway can be bifurcated in two categories 'Works Contract covering erection commissioning and construction work and repairing and annual maintenance contract under category "Management Maintenance and Repair. As far as Works contract executed for IIT, Kanpur and CPWD department, I do not find any exemption similar to Railways. Therefore, the work executed by the party is Service Tax Appeal Nos.70357 of 2022 & 21 70292 of 2020 liable to payment of service tax on the value of work contract executed for IIT, Kanpur and CPWD, Lucknow.
93 In view of the above I am of considered opinion that the service tax of Rs. 5812615/- vide show cause notice dated 23.04.2010 and Rs 603835/- vide show cause notice dated 22.10.2010 is sustainable in the eye of law and same is demandable and recoverable from them for the period 01.06.2007 to 2009-10.
94. Now coming to another service undertaken by the party. I find that the work undertaken by them for Annual Maintenance and Repair for IIT Kanpur appropriately falls under the category Management and maintenance or repair services."
4.3 Revenue has challenged the findings recorded in the impugned order saying that Commissioner has failed to examine from the data in the impugned order, we do not find any merits in the submissions made in the para 77 to 82. There is complete examination of the work orders executed by the appellant for the railways. After having examined adjudicating authority has concluded that these pertain to the Original Works. Revenue in their appeal has made a sweeping statement without pointing out to a single order which were in relation to some other activities, which is not in nature of original works in absence of anything specific, we do not find any merits in the appeal filed by the revenue on this account.
4.4 In respect of services provided to IIT Kanpur, we find that the issue is squarely covered by the decision of Hon'ble Supreme Court in the case of M/s SHAPOORJI PALLONJI & COMPANY PVT. LTD.2023 (79) G.S.T.L. 145 (S.C.) / (2023) 11 Centax 180 (S.C.) wherein following has been held:-
"14.Before we commence our analysis, it would be apt to juxtapose the relevant clauses from the Exemption Notification and the Clarification Notification for facility of appreciation :
Service Tax Appeal Nos.70357 of 2022 & 22 70292 of 2020 EXEMPTION CLARIFICATION NOTIFICATION NOTIFICATION "governmental "governmental authority"
authority" means a means an 2(s) authority board, 2(s) or an or a board or any other authority or any other body;
body established with
(i)Set up by an Act of
90% or more
Parliament or a State
participation by way of
Legislature; or
equity or control by
Government and set
(ii) established by
up by an Act of the Government,
Parliament or a State
Legislature to carry with 90% or more
out any function participation by way of
entrusted to a equity or control, to carry
municipality under out any function
article 243W of the entrusted to a
Constitution; municipality under article
243W of the Constitution;
15.Having read the two definitions, first and foremost, it
is necessary to ascertain the objective behind the
Clarification Notification which amended the Exemption Notification and re-defined "governmental authority". A bare perusal of the Exemption Notification reveals that the exemption therein was only extended to those entities, viz. board or authority or body, which fulfilled the three requisite conditions, i.e. : (a) having been established with 90% or more participation by way of equity or control by Government, (b) set up by an Act of the Parliament or a State Legislature, and (c) carrying out any function entrusted to a municipality under Article 243W of the Constitution. It is evident that the scope of the exemption was severely restricted to only a few entities. Although the reason for re-defining "governmental authority" has not been made available by the appellants, we presume that Service Tax Appeal Nos.70357 of 2022 & 23 70292 of 2020 unworkability of the scheme for grant of exemption because of the restricted definition of "governmental authority" was the trigger therefor and hence, the scope of the exemption was expanded to cover a larger section of entities answering the definition of "governmental authority". An amendment by way of the Clarification Notification was, therefore, introduced which expanded the definition of "governmental authority" and widened the exemption base for service tax to be provided even to an authority or a board or any other body, set up by an Act of Parliament or a State Legislature without the condition of having been established with 90% or more participation by way of equity or control by Government to carry out any function entrusted to a municipality under Article 243W of the Constitution.
16.While the aforesaid interpretation of amended clause 2(s) has been upheld by the Patna High Court, the appellants have countered the same by submitting that the amended definition of "governmental authority" as in clause 2(s) should be interpreted in a manner so as to make the long line under clause 2(s) applicable to both sub-clause (i) and sub-clause (ii). In other words, as per the appellants, to qualify as a "governmental authority"
under clause 2(s)(i), such authority, board or body must not only be a statutory authority set up by an Act of Parliament or a State Legislature but must also have 90% or more participation of the Government by way of equity or control to carry out any like function that a municipality under Article 243W of the Constitution is entrusted to discharge.
17.We have no hesitation to disagree with the latter interpretation sought to be placed by the appellants, for the reasons that follow.
18.In Superintendent & Legal Remembrancer, State of West Bengal v. Corporation of Calcutta [(1967) 2 SCR Service Tax Appeal Nos.70357 of 2022 & 24 70292 of 2020 170], a nine-judge Bench of this Court, relying upon Craies‟ On Statute Law (6th edn.), stated that where the language of a statute is clear, the words are in themselves precise and unambiguous, and a literal reading does not lead to absurd construction, the necessity for employing rules of interpretation disappears and reaches its vanishing point.
19.This Court in Union of India & Ors. v. Ind-Swift Laboratories Ltd. [(2011) 4 SCC 635 = 2011 (265) E.L.T. 3 (S.C.) = [2011] 30 STT 461 (SC)], held that harmonious construction is required to be given to a provision only when it is shrouded in ambiguity and lacks clarity, rather than when it is unequivocally clear and unambiguous.
20.What is plain and ambiguous from a bare reading of a provision under consideration must be interpreted in the same way as it has been stipulated and not in a way that it presumes deficiency and radically changes the meaning and context of the provision. This is the view expressed in the decision of a five-judge Bench of this Court in Commissioner of Sales Tax, U.P. v. Modi Sugar Mills Ltd. [(1961) 2 SCR 189]. The relevant passage therefrom reads as under :
........ In interpreting a taxing statute, "10. equitable considerations are entirely out of place. Nor can taxing statutes be interpreted on any presumptions or assumptions. The court must look squarely at the words of the statute and interpret them. It must interpret a taxing statute in the light of what is clearly expressed : it cannot imply anything which is not expressed; it cannot import provisions in the statutes so as to supply any assumed deficiency."
21.It is a well-established principle of statutory interpretation that any authority, entrusted with the function of legislating, legislates for a purpose; it can, thus, safely be assumed that it will not indulge in Service Tax Appeal Nos.70357 of 2022 & 25 70292 of 2020 unnecessary or pointless legislation. This Court, in Utkal Contractors & Joinery (P.) Ltd. v. State of Orissa [(1987) 3 SCC 279], lucidly explained thus :
........ It is again important to remember that "9. Parliament does not waste its breath unnecessarily. Just as Parliament is not expected to use unnecessary expressions, Parliament is also not expected to express itself unnecessarily. Even as Parliament does not use any word without meaning something, Parliament does not legislate where no legislation is called for. Parliament cannot be assumed to legislate for the sake of legislation; nor can it be assumed to make pointless legislation. Parliament does not indulge in legislation merely to state what it is unnecessary to state or to do what is already validly done. Parliament may not be assumed to legislate unnecessarily."
22.Having noticed some of the precedents in the field of interpretation of statutes, we now move on to a little bit of English grammar. The word "or" as well as the word "and"
is a conjunction; and it is well known that a conjunction is used to join words, phrases, or clauses. On how the conjunctions "or" and "and" are to be read, guidance could be drawn from authoritative texts and judicial decisions. As per Justice G.P. Singh‟s Principles of Statutory Interpretation, the word "or" is normally disjunctive while the word "and" is normally conjunctive. In English law, the position is clear as crystal, as explained by Lord Scrutton in Green v. Premier Glynrhonwy Slate Co. [(1928) 1 K.B. 561, page 569] that one does not read "or" as "and" in a statute unless one is obliged, because "or" does not generally mean "and" and "and" does not generally mean "or".
23.When the meaning of the provision in question is clear and unambiguous by the usage of "or" in clause 2(s), there remains no force in the submission of Ms. Bagchi Service Tax Appeal Nos.70357 of 2022 & 26 70292 of 2020 that "or" should be interpreted as "and". In our opinion, the word "or" employed in clause 2(s) manifests the legislative intent of prescribing an alternative. Going by the golden rule of interpretation that words should be read in their ordinary, natural, and grammatical meaning, the word "or" in clause 2(s) clearly appears to us to have been used to reflect the ordinary and normal sense, that is to denote an alternative, giving a choice; and, we cannot assign it a different meaning unless it leads to vagueness or makes clause 2(s) absolutely unworkable. We are fortified in our view by the decision of this Court in Sri Jeyaram Educational Trust v. A.G. Syed Mohideen [(2010) 2 SCC 513], where it was held thus :
It is now well settled that a provision of "11. a statute should have to be read as it is, in a natural manner, plain and straight, without adding, substituting or omitting any words. While doing so, the words used in the provision should be assigned and ascribed their natural, ordinary or popular meaning. Only when such plain and straight reading, or ascribing the natural and normal meaning to the words on such reading, leads to ambiguity, vagueness, uncertainty, or absurdity which were not obviously intended by the legislature or the lawmaker, a court should open its interpretation toolkit containing the settled rules of construction and interpretation, to arrive at the true meaning of the provision. While using the tools of interpretation, the court should remember that it is not the author of the statute who is empowered to amend, substitute or delete, so as to change the structure and contents. A court as an interpreter cannot alter or amend the law. It can only interpret the provision, to make it meaningful and workable so as to achieve the legislative object, when there is vagueness, ambiguity or absurdity. The purpose of interpretation is not to make a provision what the Judge thinks it should be, but to make it what the legislature intended it to be."
Service Tax Appeal Nos.70357 of 2022 & 27 70292 of 2020
24.In the present case, the word "or" between sub-
clauses (i) and (ii) indicates the independent and disjunctive nature of sub-clause (i), meaning thereby that "or" used after sub-clause (i) cannot be interpreted as "and" so as to tie it with the condition enumerated in the long line of clause 2(s) which is applicable only to sub- clause (ii).
25.Applying a different lens, let us test the worth of Ms. Bagchi‟s submission in the light of the punctuations in clause 2(s). It has been held by a Bench of nine Hon‟ble Judges of this Court in Kantaru Rajeevaru v. Indian Young Lawyers Association & Ors. [(2020) 9 SCC 121, para 18] that when a provision is carefully punctuated and there is doubt about its meaning, weight should undoubtedly be given to the punctuation; however, though a punctuation may have its uses in some cases, but it cannot certainly be regarded as a controlling element and cannot be allowed to control the plain meaning. While so observing, this Court considered several decisions as well as the punctuation comma in the relevant provision of the Supreme Court Rules, 2013.
26.What follows is that p unctuation, though a minor element, may be resorted to for the purpose of construction.
27.In the present case, the use of a semicolon is not a trivial matter but a deliberate inclusion with a clear intention to differentiate it from sub-clause (ii). Further, it can be observed upon a plain and literal reading of clause 2(s) that while there is a semicolon after sub-clause (i), sub-clause (ii) closes with a comma. This essentially supports the only possible construction that the use of a comma after sub-clause (ii) relates it with the long line provided after that and, by no stretch of imagination, the application of the long line can be extended to sub-clause
(i), the scope of which ends with the semicolon. We are, Service Tax Appeal Nos.70357 of 2022 & 28 70292 of 2020 therefore, of the opinion that the long line of clause 2(s) governs only sub-clause (ii) and not sub-clause (i) because of the simple reason that the introduction of semicolon after sub-clause (i), followed by the word "or", has established it as an independent category, thereby making it distinct from sub-clause (ii). If the author wanted both these parts to be read together, there is no plausible reason as to why it did not use the word "and" and without the punctuation semicolon. While the Clarification Notification introduced an amended version of clause 2(s), the whole canvas was open for the author to define "governmental authority" whichever way it wished; however, "governmental authority" was re-defined with a purpose to make the clause workable in contra-distinction to the earlier definition. Therefore, we cannot overstep and interpret "or" as "and" so as to allow the alternative outlined in clause 2(s) to vanish.
28.Let us consider the problem from a different angle. The revised definition of "governmental authority" and the few punctuations in the definition (two semicolons and two commas) and the conjunction „or‟ have been noticed above. Literally read, the conjunction „or‟ between sub- clauses (i) and (ii) clearly divides the two clauses in two parts with the first part completely independent of the second part. The first part is by itself complete and capable of operating independently. A construction leading to an anomalous result has to be avoided and to so avoid, it has to be held that the long line of clause 2(s) starting with "with 90%" and ending with "Constitution" qualifies sub- clause (ii); and, if the conjunction „or‟ is to be read as „and‟, meaning thereby that the portion "with 90% ... Constitution" has to be read as qualifying both sub-clauses
(i) and (ii), then the intention of redefining "governmental authority" would certainly be defeated. As discussed earlier, the purpose for which "governmental authority"
was re-defined must have been to make it workable. We Service Tax Appeal Nos.70357 of 2022 &
29 70292 of 2020 cannot, therefore, resort to a construction that would allow subsistence of the unworkability factor. Assuming what Ms. Bagchi contended is right, it was incumbent for the appellants to bring to our notice, if not by way of pleading, but at least with reference to the relevant statutes, which of the particular authorities/boards/bodies are created by legislation - Central or State - "with 90% or more participation by way of equity or control by Government". Each word in the definition clause has to be given some meaning and merely because promoting educational aspects is one of the functions of a municipality in terms of Article 243W of the Constitution read with Schedule XII appended thereto is no valid argument unless equity or control by the Government, to the extent of 90%, is shown to exist qua the relevant authority/board/body. Incidentally, neither is there any indication in the petition nor has Ms. Bagchi been able to disclose the identity of any such authority/board/other body which is covered by her argument. No such identified authority/board/body covered by the aforesaid construction of the definition of "governmental authority" in clause 2(s) of the Clarification Notification, which the appellants appeal to us to accept, having been brought to our notice, we are unable to find any fault in the decisions of the Patna High Court and the Orissa High Court extending the benefit of the Exemption Notification to the educational institutions, and a fortiori, to SPCL.
29.We need not draw guidance from any of the decisions cited by Ms. Bagchi, except one, on the question of construction of the relevant clause because none of those decisions had the occasion to deal with the issue emanating from the Exemption Notification and the Clarification Notification that we are tasked to consider.
30.Ms. Bagchi heavily relied on the decision of a five- judge Bench of this Court in Dilip Kumar (supra) to urge Service Tax Appeal Nos.70357 of 2022 & 30 70292 of 2020 that in case of any ambiguity in interpreting an exemption notification, the interpretation that favours the revenue must be adopted; also, the burden of proving applicability of the exemption notification would be on the assessee to show that his case comes within the parameters of the exemption clause or exemption notification. At the outset, we record that there is absolutely no quarrel with the proposition laid down therein. We, however, reject the contention of Ms. Bagchi based on Dilip Kumar (supra) because the ratio is not applicable to the facts and circumstances of this case. This, for the simple reason, that there exists no ambiguity insofar as the interpretation of clause 2(s) is concerned. We are endorsed in our opinion by the Latin maxim quoties in verbis nulla est ambiguitas, ibi nulla expositio contra verba expressa fienda est, which means that when there is no ambiguity in the words, then no exposition contrary to the words is to be made. It is, therefore, clear as a sunny day that there arises only one plausible construction of clause 2(s) which is the one the Patna High Court adopted, and which we are inclined to uphold.
31.Ms. Bagchi had submitted that the impugned judgment broadens the scope of the exemption to include vast number of statutory bodies; therefore, unfairly burdening the exchequer. We observe that the authority having the competence to issue a notification completed its job by re-defining "governmental authority" and now it is a task entrusted to the courts to interpret the law. It is, at this juncture, important to notice the law laid down by this Court, speaking through Hon‟ble O. Chinnappa Reddy, J. in Girdhari Lal & Sons v. Balbir Nath Mathur [(1986) 2 SCC 237]. The position of law was affirmed in the following terms :
Where different interpretations are likely "6. to be put on words and a question arises what an individual meant Service Tax Appeal Nos.70357 of 2022 & 31 70292 of 2020 when he used certain words, he may be asked to explain himself and he may do so and say that he meant one thing and not the other. But if it is the legislature that has expressed itself by making the laws and difficulties arise in interpreting what the legislature has said, a legislature cannot be asked to sit to resolve those difficulties. The legislatures, unlike individuals, cannot come forward to explain themselves as often as difficulties of interpretation arise. So the task of interpreting the laws by finding out what the legislature meant is allotted to the courts. Of course, where words are clear and unambiguous no question of construction may arise. Such words ordinarily speak for themselves. Since the words must have spoken as clearly to legislators as to judges, it may be safely presumed that the legislature intended what the words plainly say. This is the real basis of the so-called golden rule of construction that where the words of statutes are plain and unambiguous effect must be given to them. A court should give effect to plain words, not because there is any charm or magic in the plainness of such words but because plain words may be expected to convey plainly the intention of the legislature to others as well as judges."
32.Keeping the above-said ratio in mind, an interpretation of the relevant provision resulting in the expanded scope of its operation cannot in itself be sufficient to attribute ambiguity to the provision."
Thus, we find merit in the appeal filed by the appellant- assessee in this regard.
4.5 In respect of the services of Management, Maintenance or Repair, impugned order records as follows:-
"95 Management and Maintenance or Repair:
Now I take up the demands raised in both the show cause notices against the management and maintenance or repair services. According to definition of management, maintenance or repair services provided under notification Service Tax Appeal Nos.70357 of 2022 & 32 70292 of 2020 no. 7/2003 dt. 01.07.2003. "Maintenance of Repair" means any service provided by any person under a contract or an agreement in relation to maintenance or repair Including reconditioning or restoration or servicing of any goods excluding /another vehicle. It is abundantly clear from the activities of the party that they have provided services in this category such as electrical maintenance of the type annual maintenance contract rejuvenation of electrical installation, AMC for 33KVA substation, modification of existing capacitor etc. The aforesaid service is taxable service w.e.f. 01.07.2003 and the liability on this account has been accepted by the party but has paid an amount of Rs. 8,31,601/- only on account of service tax and interest as per records against the demand of Rs. 4,61,581 (including Ed Cess & SHE) in show cause notice dt. 23.04.2010 and Rs. 7,93,884 (770761 STax + Rs. 15415 Ed Cess + Rs. 7708 SHE) in show cause notice dt. 22.10.2010.
96. Under section 67 of the finance act, 1994 the value of taxable services under this category is the gross amount charged which includes the cost of parts and other material sold to the service receiver thus the party is liable to pay the Service Tax along with interest there on gross receipts.
In view of aforesaid provisions, I observe that the activities carried out by the party squarely fall with the ambit of taxable services of Management, Maintenance or Repair service, covered under erstwhile Section 65(105) (zzg) of the Finance Act, 1994.
97. In view of the above, I am of considered opinion that the proposed demand of Service Tax amounting to for Rs. 4,61,581/- vide SCN dated 23.04.2010 and Rs.793884/- vide SCN dated 22.10.2010 under the category on Management, Maintenance or Repair service provided by the party during the period 01.10.2004 to 31.03.2009 and 2009-10 is sustainable in the eye of law and the same is demandable and recoverable from them."
Service Tax Appeal Nos.70357 of 2022 & 33 70292 of 2020 4.6 Appellant do not dispute the levibility of service tax. However, appellant submit that amount of service tax due has been paid by them along with interest. The said amount should be adjusted against the demand made.
4.7 The observations made in para 96 cannot be said to be correct for the basic reason, the value of cost and other materials show to the service receiver or to be excluded from the gross receipts for arriving at the taxable value. This is the crux of the decision of Hon'ble Supreme Court in the case of Larsen and Tubro Ltd. (supra) wherein following has been held:
"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."
4.8 In the case of M/s Agrawal Color Advance Photo System [2020 (38) GSTL 298 (MP)] Hon'ble High Court has observed as follows:
Service Tax Appeal Nos.70357 of 2022 & 34 70292 of 2020
10. In view of the aforesaid factual background, a moot question before the Learned Authorities below was: as to whether the appellant-assessee was entitled to the benefit of Notification No. 12/2003-S.T., dated 20-6-2003. In order to appreciate the said controversy, it would be expedient to reproduce the relevant portion of the circular, which reads as under :-
"Notification No. 12/2003-S.T., dated 20-6-2003. - In exercise of the powers conferred by Section 93 of the Finance Act, 1994 (32 of 1994), the Central Government, being satisfied that it is necessary in the public interest so to do, hereby exempts so much of the value of all the taxable services, as is equal to the value of goods and materials sold by the service provider to the recipient of service, from the service tax leviable thereon under Section 66 of the said Act, subject to condition that there is documentary proof specifically indicating the value of the said goods and materials.
Provided that the said exemption shall apply only in such cases where -
(a) no credit of duty paid on such goods and materials sold, has been taken under the provisions of the Cenvat Credit Rules, 2004; or
(b) where such credit has been taken by the service provider on such goods and materials, such service provider has paid the amount equal to such credit availed before the sale of such goods and materials."
Perhaps there had been some representation from Punjab Color Lab Association, Jalandhar and thereafter, clarification was sought by certain photographic associations whether the value of materials consumed during the provision of service by the service provider for rendering the service is also excludable from the value of taxable service. Thereupon, a Clarificatory Circular M.F. (D.R.) F. No. 233/2/2003-CX, dated 3-3-2006 was issued, which reads, thus :-
Service Tax Appeal Nos.70357 of 2022 & 35 70292 of 2020 "3. The matter has been examined by the Board. The intention of the Notification No. 12/2003-S.T., dated 20-6-
2003 is to provide exemption only to the value of goods and material sold subject to documentary evidence of such sale being available. Therefore, in case, the goods are consumed during the provision of service and are not available for sale, the provision of the said notification would not be applicable. Therefore, in supersession of clarification to contrary, it is clarified that goods consumed during the provision of service, that are not available for sale, by the service provider would not be entitled to benefit under Notification No. 12/2003-S.T., dated 20-6-2003."
11. The contention of the assessee before the Tribunal was that the term "sale" in Notification dated 20-6-2003 includes "deemed sale" under Article 366(29A) of the Constitution and therefore, if a service contract is a works contract then no service tax can be charged on the goods component. The Tribunal while dealing with the arguments of both the sides and various pronouncements on the subject of valuation of photography services found that its earlier judgments required reconsideration and therefore, referred the matter to the Larger Bench. In respect of the Notification dated 20- 6-2003, the referring Bench was of the view that in a service of photography there is no sale of goods involved and service element is dominant. The word „sale‟ in the Notification has to be interpreted on the basis of its definition as given in Section 2(h) of the Act, which by virtue of Section 65(121) of the Finance Act is applicable to service tax. It was further opined that when there is no primary intention of the parties to sell paper, consumable or chemical in providing photography service there is no room left to plead [fiction of Article 366(29A)(b) of the Constitution] in absence of any such sale of these commodities as goods. It further rejected the contention and held that the word "sale" in Notification would not cover "deemed sale" under Article 366(29A) of the Constitution Service Tax Appeal Nos.70357 of 2022 & 36 70292 of 2020 and it is of no relevance inasmuch as Notification does not override statutory provision. The Larger Bench was in agreement with the said view when it held that expression "sold" in the Notification would not include "deemed sale" of goods and material consumed by the service provider while generating and providing service, unless an assessee has discharged burden of proof adducing evidence showing value of goods and material actually sold and satisfied the conditions of Notification. However, the Larger Bench opined that value of taxable service of photography depends on the facts and circumstances of each case as the Finance Act does not intend taxation of goods and materials sold in the course of providing all the taxable services.
12. There is no dispute to the proposition that the Notification does not override the statutory provision and hence, it is required to be seen as to whether the conclusion drawn by the Tribunal that term „sold‟ appearing in Notification has to be interpreted using the definition of „sale‟ in the Central Excise Act, 1944 and not as per the meaning of "deemed sale" under Article 366(29A)(b) of the Constitution, is correct or not.
13. From the aforesaid discussion, it would emerge that the crux of the substantial question of law No. 1 which has arisen for consideration is : "whether for the purposes of service tax the value of photography service can be determined separately from the value of certain consumables and chemicals which are used on the paper for printing the image and whether such printed photograph can be said to be a sale of goods in terms of Article 366(29A)(b) of the Constitution". In this regard, before considering the first limb of the contention of Learned Counsel for the appellants that in view of amended Article 366(29A) of the Constitution, the material and consumables used in photography will qualify as sale, it would be apt to refer to relevant clauses of the definition clause as Service Tax Appeal Nos.70357 of 2022 & 37 70292 of 2020 contained in Article 366(29A) of the Constitution and other enactments, which read as under :-
"366. (29A) „tax on the sale or purchase of goods‟ includes -
(a) *** *** *** (b) a tax on the transfer of property in goods (whether as
goods or in some other form) involved in the execution of a works contract;
*** *** *** The aforesaid definition of "sale" has been adopted by the M.P. VAT Act, 2002. Sub-clause (ii) of Section 2(u) of the said Act, which is relevant for the purposes of present controversy, is reproduced as under :-
"2(u) "Sale" with all its grammatical variations and cognate expressions means any transfer of property in goods for cash or deferred payment or for other valuable consideration and includes -
*** *** *** (ii) a transfer of property in goods whether as goods or in
some other form, involved in the execution of works contract;
Section 2(h) of the Central Excise Act, 1944 defines "sale"
and "purchase" as any transfer of possession for consideration by one person to another. Section 2(h) of the Act is reproduced as under :-
"2(h) "sale" and "purchase", with their grammatical variations and cognate expressions, mean any transfer of the possession of goods by one person to another in the ordinary course of trade or business for cash or deferred payment or other valuable consideration;"
14. According to the Learned Counsel for the appellants, the material and consumables are embedded in the photograph when it is transferred to the customers. The Larger Bench of the Tribunal erroneously held that the consumables and chemicals used for providing such service disappear when the photograph emerges and concluded that value of photography service includes all elements Service Tax Appeal Nos.70357 of 2022 & 38 70292 of 2020 which bring that to the deliverable stage. As noticed earlier, the stand of the appellants is that under sub-clause (b) of Clause (29A) of Article 366 of the Constitution, in execution of works contract, the tax which is paid on the sale or purchase of goods should be on the transfer of property in goods only. The photograph is completed through developing and printing process by using the consumables and chemicals, which are the essential ingredients without which the photography cannot be completed. Therefore, when value of photography paper upon which an image is printed and certain consumables and material with which the photography is done, can be separated from the photography service then both the elements cannot be remixed for the purposes of service tax particularly when the VAT is levied on the material, consumables and chemicals which are used in the photography service.
15. However, it needs to be examined whether Article 366(29A)(b) of the Constitution is attracted in the present case, for which, it is to be necessarily seen whether the photography service is a works contract.
16. This aspect of the matter has been considered by a three-Judge Bench of the Apex Court in Civil Appeal No. 1145/2006 (State of Karnataka, etc. v. M/s. Pro. Lab & Others) decided on 30th January, 2015 [2015 (321) E.L.T. 366 (S.C.)] wherein challenge put forth was to the constitutional validity of Entry 25 of Schedule-VI to the Karnataka Sales Tax Act, 1957. The Apex Court took note of six sub-clauses of Clause (29A) of Article 366 of the Constitution of India and elaborately discussing its earlier decisions and the case law on the subject, rejected the contention of the State that processing of photography was a contract for service simplicitor with no element of goods at all and, therefore, Entry 25 could not be saved by taking shelter under clause (29A) of Article 366 of the Constitution. It was further observed that Entry 54 of List II of Schedule VII of the Constitution of India empowers the State Service Tax Appeal Nos.70357 of 2022 & 39 70292 of 2020 Legislature to enact a law taxing sale of goods. Sales tax, being a subject matter into the State List, the State Legislature has the competency to legislate over the subject. The relevant extract contained in paras 18 to 23 of the said judgment reads as under :-
"18. It is amply clear from the above and hardly needs clarification that the Court was of the firm view that two Judges Bench judgment in Rainbow Colour Lab and Another v. State of Madhya Pradesh and Others (2000) 2 SCC 385 did not lay down the correct law as it referred to pre 46th Amendment judgments in arriving at its conclusions which had lost their validity. The Court also specifically commented that after 46th Amendment, State is empowered to levy sales tax on the material used even in those contracts where "the dominant intention of the contract is the rendering of a service, which will amount to a Works Contract".
19. In view of the above, the argument of the respondent assessees that Associated Cement Companies Ltd. v. Commissioner of Customs, (2001) 4 SCC 593, (ACC Ltd. case) did not over-rule Rainbow Colour Lab‟s case (supra) is, therefore, clearly misconceived. In fact, we are not saying so for the first time as a three-member Bench of this Court in M/s. Larsen and Toubro and Another v. State of Karnataka and another (2014) 1 SCC 708 has already stated that ACC Ltd. had expressly over-ruled Rainbow Colour Lab while holding that dominant intention test was no longer good test after 46th Constitutional Amendment. We may point out that Learned Counsel for the respondent assessees took courage to advance such an argument emboldened by certain observations made by two-member Bench in the case of C.K. Jidheesh v. Union of India, wherein the Court has remarked that the observations in ACC Ltd. were merely obiter. In Jidheesh, however, the Court did not notice that this very argument had been rejected earlier in Bharat Sanchar Nigam Ltd. v. Union of Service Tax Appeal Nos.70357 of 2022 & 40 70292 of 2020 India (2006) 3 SCC 1. Following discussion in Bharat Sanchar is amply demonstrative of the same :
"46. This conclusion was doubted in Associated Cement Companies Ltd. v. Commissioner of Customs, (2001) 4 SCC 593 saying :
"The conclusion arrived at in Rainbow Colour Lab case (2000) 2 SCC 385, in our opinion, runs counter to the express provision contained in Article 366(29A) as also of the Constitution Bench decision of this Court in Builders Assn., of India v. Union of India - (1989) 2 SCC 645.
47. We agree. After the 46th Amendment, the sale element of those contracts which are covered by the six sub-clauses of Clause (29A) of Article 366 are separable and may be subjected to sales tax by the States under Entry 54 of List II and there is no question of the dominant nature test applying. Therefore, in 2005, C.K. Jidheesh v. Union of India - (2005) 8 SCALE 784 held that the aforesaid observations in Associated Cement (supra) were merely obiter and that Rainbow Colour Lab (supra) was still good law, it was not correct. It is necessary to note that Associated Cement did not say that in all cases of composite transactions the 46th Amendment would apply"
20. In M/s. Larsen and Toubro, the Court, after extensive and elaborate discussion, once again specifically negated the argument predicated on dominant intention test having regard to the statement of law delineated in ACC Ltd. and Bharat Sanchar Nigam Ltd. cases. The reading of following passages from the said judgment is indicative of providing complete answer to the arguments of the respondent assessees herein :
"64. Whether contract involved a dominant intention to transfer the property in goods, in our view, is not at all material. It is not necessary to ascertain what is the dominant intention of the contract. Even if the dominant intention of the contract is not to transfer the property in goods and rather it is the rendering of service or the Service Tax Appeal Nos.70357 of 2022 & 41 70292 of 2020 ultimate transaction is transfer of immovable property, then also it is open to the States to levy sales tax on the materials used in such contract if it otherwise has elements of works contract. The view taken by a two-Judge Bench of this Court in Rainbow Colour Lab (supra) that the division of the contract after Forty-sixth Amendment can be made only if the works contract involved a dominant intention to transfer the property in goods and not in contracts where the transfer of property takes place as an incident of contract of service is no longer good law, Rainbow Colour Lab (supra) has been expressly overruled by a three-Judge Bench in Associated Cement.
65. Although, in Bharat Sanchar, the Court was concerned with sub-clause (d) of Clause (29A) of Article 366 but while dealing with the question as to whether the nature of transaction by which mobile phone connections are enjoyed is a sale or service or both, the three-Judge Bench did consider the scope of definition in Clause (29A) of Article
366. With reference to sub-clause (b) it said : "Sub-clause
(b) covers cases relating to works contract. This was the particular fact situation which the Court was faced with in Gannon Dunkerley-I (State of Madras v. Gannon Dunkerley & Co., AIR 1958 SC 560) and which the Court had held was not a sale. The effect in law of a transfer of property in goods involved in the execution of the works contract was by this amendment deemed to be a sale. To that extent the decision in Gannon Dunkerley-I was directly overcome". It then went on to say that all the sub-clauses of Article 366(29A) serve to bring transactions where essential ingredients of a „sale‟ as defined in the Sale of Goods Act, 1930 are absent, within the ambit of purchase or sale for the purposes of levy of sales tax.
66. It then clarified that Gannon Dunkerley-I survived the Forty-sixth Constitutional Amendment in two respects. First, with regard to the definition of "sale" for the purposes of the Constitution in general and for the purposes of Entry 54 of Service Tax Appeal Nos.70357 of 2022 & 42 70292 of 2020 List II in particular except to the extent that the clauses in Article 366(29A) operate and second, the dominant nature test would be confined to a composite transaction not covered by Article 366(29A). In other words, in Bharat Sanchar, this Court reiterated what was stated by this Court in Associated Cement that dominant nature test has no application to a composite transaction covered by the clauses of Article 366(29A). Leaving no ambiguity, it said that after the Forty-sixth Amendment, the sale element of those contracts which are covered by six sub-clauses of Clause (29A) of Article 366 are separable and may be subjected to sales tax by the States under Entry 54 of List II and there is no question of the dominant nature test applying.
67. In view of the statement of law in Associated Cement and Bharat Sanchar, the argument advanced on behalf of the Appellants that dominant nature test must be applied to find out the true nature of transaction as to whether there is a contract for sale of goods or the contract of service in a composite transaction covered by the clauses of Article 366(29A) has no merit and the same is rejected.
68. In Gannon Dunkerley-II (Gannon Dunkerley and Co. and others v. State of Rajasthan and others (1993) 1 SCC
364), this Court, inter alia, established the five following propositions : (i) as a result of Forty-sixth Amendment the contract which was single and indivisible has been altered by a legal fiction into a contract which is divisible into one for sale of goods and the other for supply of labour and service and as a result of such contract which was single and indivisible has been brought on par with a contract containing two separate agreements; (ii) if the legal fiction introduced by Article 366(29A)(b) is carried to its logical end, it follows that even in a single and indivisible works contract there is a deemed sale of the goods which are involved in the execution of a works contract. Such a deemed sale has all the incidents of the sale of goods Service Tax Appeal Nos.70357 of 2022 & 43 70292 of 2020 involved in the execution of a works contract where the contract is divisible into one for sale of goods and the other for supply of labour and services; (iii) in view of sub-clause
(b) of Clause (29A) of Article 366, the State legislatures are competent to impose tax on the transfer of property in goods involved in the execution of works contract. Under Article 286(3)(b), Parliament has been empowered to make a law specifying restrictions and conditions in regard to the system of levy, rates or incidents of such tax. This does not mean that the legislative power of the State cannot be exercised till the enactment of the law under Article 286(3)(b) by the Parliament. It only means that in the event of law having been made by Parliament under Article 286(3)(b), the exercise of the legislative power of the State under Entry 54 in List II to impose tax of the nature referred to in sub-clauses (b), (c) and (d) of Clause (29A) of Article 366 would be subject to restrictions and conditions in regard to the system of levy, rates and other incidents of tax contained in the said law; (iv) while enacting law imposing a tax on sale or purchase of goods under Entry 54 of the State List read with Article 366(29A)(b), it is permissible for the State legislature to make a law imposing tax on such a deemed sale which constitutes a sale in the course of the inter-State trade or commerce under Section 3 of the Central Sales Tax Act or outside under Section 4 of the Central Sales Tax Act or sale in the course of import or export under Section 5 of the Central Sales Tax Act; and (v) measure for the levy of tax contemplated by Article 366(29A)(b) is the value of the goods involved in the execution of a works contract. Though the tax is imposed on the transfer of property in goods involved in the execution of a works contract, the measure for levy of such imposition is the value of the goods involved in the execution of a works contract. Since, the taxable event is the transfer of property in goods involved in the execution of a works contract and the said transfer of property in such goods Service Tax Appeal Nos.70357 of 2022 & 44 70292 of 2020 takes place when the goods are incorporated in the works, the value of the goods which can constitute the measure for the levy of the tax has to be the value of the goods at the time of incorporation of the goods in works and not the cost of acquisition of the goods by the contractor.
69. In Gannon Dunkerley-II, sub-section (3) of Section 5 of the Rajasthan Sales Tax Act and Rule 29(2)(1) of the Rajasthan Sales Tax Rules were declared as unconstitutional and void. It was so declared because the Court found that Section 5(3) transgressed the limits of the legislative power conferred on the State legislature under Entry 54 of the State List. However, insofar as legal position after Forty- sixth Amendment is concerned, Gannon Dunkerley-II holds unambiguously that the States have now legislative power to impose tax on transfer of property in goods as goods or in some other form in the execution of works contract.
70. The Forty-sixth Amendment leaves no manner of doubt that the States have power to bifurcate the contract and levy sales tax on the value of the material involved in the execution of the works contract. The States are now empowered to levy sales tax on the material used in such contract. In other words, Clause (29A) of Article 366 empowers the States to levy tax on the deemed sale."
21. To sum up, it follows from the reading of the aforesaid judgment that after insertion of clause (29A) in Article 366, the Works Contract which was indivisible one by legal fiction, altered into a contract, is permitted to be bifurcated into two: one for "sale of goods" and other for "services", thereby making goods component of the contract exigible to sales tax. Further, while going into this exercise of divisibility, dominant intention behind such a contract, namely, whether it was for sale of goods or for services, is rendered otiose or immaterial. It follows, as a sequitur, that by virtue of clause (29A) of Article 366, the State Legislature is now empowered to segregate the goods part of the Works Contract and impose sales tax thereupon. It Service Tax Appeal Nos.70357 of 2022 & 45 70292 of 2020 may be noted that Entry 54, List II of the Constitution of India empowers the State Legislature to enact a law taxing sale of goods. Sales tax, being a subject-matter into the State List, the State Legislature has the competency to legislate over the subject.
22. Keeping in mind the aforesaid principle of law, the obvious conclusion would be that Entry 25 of Schedule VI to the Act which makes that part of processing and supplying of photographs, photo prints and photo negatives, which have "goods" component exigible to sales tax is constitutionally valid. Mr. Patil and Mr. Salman Khurshid, Learned Senior Counsel who argued for these assessees/respondents, made vehement plea to the effect that the processing of photographs etc. was essentially a service, wherein the cost of paper, chemical or other material used in processing and developing photographs, photo prints etc. was negligible. This argument, however, is founded on dominant intention theory which has been repeatedly rejected by this Court as no more valid in view of 46th Amendment to the Constitution.
23. It was also argued that photograph service can be exigible to sales tax only when the same is classifiable as Works Contract. For being classified as Works Contract the transaction under consideration has to be a composite transaction involving both goods and services. If a transaction involves only service i.e. work and labour then the same cannot be treated as Works Contract. It was contended that processing of photography was a contract for service simplicitor with no elements of goods at all and, therefore, Entry 25 could not be saved by taking shelter under clause (29A) of Article 366 of the Constitution. For this proposition, umbrage under the judgment in B.C. Kame‟s case (Assistant Sales Tax Officer and others v. B.C. Kame, Proprietor Kame Photo, AIR 1977 SC 1642) was sought to be taken wherein this Court held that the work involving taking a photograph, developing the negative or Service Tax Appeal Nos.70357 of 2022 & 46 70292 of 2020 doing other photographic work could not be treated as contract for sale of goods. Our attention was drawn to that portion of the judgment where the Court held that such a contract is for use of skill and labour by the photographer to bring about desired results inasmuch as a good photograph reveals not only the asthetic sense and artistic faculty of the photographer, it also reflects his skill and labour. Such an argument also has to be rejected for more than one reasons. In the first instance, it needs to be pointed out that the judgment in Kame‟s case was rendered before the 46th Constitutional Amendment. Keeping this in mind, the second aspect which needs to be noted is that the dispute therein was whether there is a contract of sale of goods or a contract for service. This matter was examined in the light of law prevailing at that time, as declared in Dunkerley‟s case as per which dominant intention of the contract was to be seen and further that such a contract was treated as not divisible. It is for this reason in BSNL and M/s. Larsen and Toubro cases, this Court specifically pointed out that Kame‟s case would not provide an answer to the issue at hand. On the contrary, legal position stands settled by the Constitution Bench of this Court in Kone Elevator India Pvt. Ltd. v. State of Tamil Nadu and Ors. (2014) 7 SCC 1. Following observations in that case are apt for this purpose :
"On the basis of the aforesaid elucidation, it has been deduced that a transfer of property in goods under Clause (29A)(b) of Article 366 is deemed to be a sale of goods involved in the execution of a Works Contract by the person making the transfer and the purchase of those goods by the person to whom such transfer is made. One thing is significant to note that in Larsen and Toubro (supra), it has been stated that after the constitutional amendment, the narrow meaning given to the term "works contract" in Gannon Dunkerley-I (supra) no longer survives at present.
It has been observed in the said case that even if in a Service Tax Appeal Nos.70357 of 2022 & 47 70292 of 2020 contract, besides the obligations of supply of goods and materials and performance of labour and services, some additional obligations are imposed, such contract does not cease to be works contract, for the additional obligations in the contract would not alter the nature of the contract so long as the contract provides for a contract for works and satisfies the primary description of works contract. It has been further held that once the characteristics or elements of works contract are satisfied in a contract, then irrespective of additional obligations, such contract would be covered by the term "works contract" because nothing in Article 366(29A)(b) limits the term "works contract" to contract for labour and service only."
17. The view expressed by the Apex Court in Bharat Sanchar Nigam Limited‟s case (supra) that after the 46th Amendment, the sale element of those contracts which are covered by the six sub-clauses of clause (29A) of Article 366 are separable and may be subjected to sales tax by the States under Entry 54 of List II and there is no question of the dominant nature test applying, was reiterated by the Apex Court in M/s. Pro. Lab‟s case (supra). Thus, the finding of the Tribunal that in Bharat Sanchar Nigam Limited‟s case (supra) the Apex Court has only given the passing remarks and did not overrule either C.K. Jidheesh (supra) or Rainbow Colour Lab and Another v. State of Madhya Pradesh and Others, (2000) 2 SCC 385 = 2001 (134) E.L.T. 332 (S.C.), is unsustainable, as it had been categorically held in Bharat Sanchar Nigam Limited‟s case (supra) that these judgments do not lay down correct law.
18. The next contention of the Learned Counsel for the appellants was that appellants having once paid the VAT under the State Act as works contractor on the material and chemicals consumed in photography service, cannot be charged service tax on the same value. To bolster his submission, he placed reliance upon the judgment in Safety Retreading Company Private Ltd. (supra). In the facts of the Service Tax Appeal Nos.70357 of 2022 & 48 70292 of 2020 said case, the assessee was engaged in business of tyres on job work basis and had been paying 30% service tax only on the labour component shown in invoices after deducting 70% towards material cost on the gross re-treading charges billed in terms of Notification No. 12/2003-S.T., dated 20-6- 2003. A show cause notice dated 24-1-2008 was issued to the assessee alleging suppression of value of taxable services with intention to evade payment of service tax and proposing recovery of service tax together with interest and penal action under the provisions of Sections 76, 77 and 78 of the Finance Act, 1994. The said deduction of 70% was denied by the Commissioner and demand of service tax was confirmed on the assessee along with interest and penalty. The appeal preferred by the assessee was considered and decided by a three-member Special Bench of the Tribunal reported as Safety Retreading Company (P) Ltd. v. Commissioner of Central Excise, Salem, (2012) 34 STT 64 (Chennai) = 2012 (26) S.T.R. 225 (Tribunal), wherein coupled with the Notification No. 12/2003-S.T., dated 20-6- 2003 a similar issue was considered by the Larger Bench of the Tribunal: "whether in a contract for retreading of tyres, service tax is leviable on the total amount charged for retreading including the value of the materials/goods that have been used and sold in the execution of the contract or exemption to material component therein can be granted". The question was whether maintenance and repair service can be treated as service under "works contract" for service tax purposes. The Appellate Tribunal by majority view, upheld the demand, inter alia, on the ground that „maintenance and repair service‟ being a specific service is to be treated as service under "works contract" for service tax purposes. On appeal, the Apex Court set aside the said majority view of the Special Bench of the Tribunal and held that Section 67 of the Finance Act clarifies that costs of parts or other material, if any, sold (deemed sale) to customer while providing maintenance or repair service is Service Tax Appeal Nos.70357 of 2022 & 49 70292 of 2020 excluded from service tax subject to furnishing adequate and satisfactory proof by the assessee and this position has been further clarified in Notification dated 20-6-2003 and C.B.E. & C. Circular dated 7-4-2004. It was held that component of gross turnover in respect of which assessee had paid taxes under local Act with which it has registered as works contractor is excluded from service tax.
19. In view of the law laid down by the Apex Court in M/s. Pro. Lab‟s case (supra), it can be safely held that photography service, which has both the elements of goods and services is covered under works contract. Thus, in a works contract which involves transfer of property, the provisions as contained in Article 366(29A) of the Constitution are attracted. Therefore, in the light of sub- clause (b) of Clause (29A) of Article 366 of the Constitution, in execution of a works contract when there is transfer of property even in some other form than in goods, the tax on such sale or purchase of goods is leviable. In this view of the matter, after the 46th Amendment, there is no question of dominant nature test applying in photography service and the works contract, which is covered by Clause (29A) of Article 366 of the Constitution where the element of goods can be separated, such contracts can be subjected to sales tax by the States under Entry 54 of List II of Schedule II. Once that is so, value of photographic paper and consumables cannot be included in the value of photography service for the purposes of imposition of service tax. Thus, in the light of the judgment of the Apex Court in M/s. Pro Lab (supra), wherein it is held that part of processing and supplying of photographs, photo prints and negatives, which have "goods" component exigible to sales tax is constitutionally valid, it is held that value of photography service has to be determined in isolation of cost of goods such as photography paper, consumables and chemicals with which image is printed, negatives and other material which has "goods" component liable to sales tax.
Service Tax Appeal Nos.70357 of 2022 & 50 70292 of 2020 Accordingly, the substantial question of law No. 1 is answered in favour of the assessee and against the Revenue.
4.9 The demand in respect of this needs to be worked out and adjusted against the amount already paid. For this limited purpose the matter needs to be remanded back to the Original Authority. The quantum of penalty if any imposable would be determined in case any amount of tax is due. 4.10 Assesee do not dispute the demand of service tax in respect of SOTG in the impugned order.
5.1 Appeal filed by the appellant is allowed as indicated 4.4 & 4.9.
5.2 Appeal filed by the revenue is dismissed as indicated in para 4.3.
(Order pronounced in open court on-04 April, 2025) (P.K. CHOUDHARY) MEMBER (JUDICIAL) (SANJIV SRIVASTAVA) MEMBER (TECHNICAL) akp