Custom, Excise & Service Tax Tribunal
Ahluwalia Contracts India Ltd vs Ce & Cgst Noida on 26 June, 2024
CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL
ALLAHABAD
REGIONAL BENCH - COURT NO.I
Service Tax Appeal No.70111 of 2020
(Arising out of Order-in-Appeal No.NOI-EXCUS-001-APP-1084-19-20 dated
06/11/2019 passed by Commissioner (Appeals) Central Goods & Service Tax,
Noida)
M/s Ahluwalia Contracts (I) Ltd., .....Appellant
(A-177, Okhla Industrial Area, Phase-I, New Delhi)
VERSUS
Commissioner of Central Excise &
CGST, Noida ....Respondent
(C-56/42, Renu Tower, Sector-62, Noida)
WITH
Service Tax Appeal No.70086 of 2022
(Arising out of Order-in-Original No.07/Comm/ST/GZB/21-22 dated
01/10/2021 passed by Commissioner, Central Goods & Service Tax,
Ghaziabad)
Commissioner of Central Excise &
CGST, Noida .....Appellant
(CGO-II Complex, Kamla Nehru Nagar, Ghaziabad)
VERSUS
M/s Ahluwalia Contracts (I) Ltd., ....Respondent
(16/2E, Industrial Area, Site-IV, Sahibabad, Ghaziabad)
AND
Service Tax Appeal No.70292 of 2022
(Arising out of Order-in-Original No.07/Comm/ST/GZB/21-22 dated
01/10/2021 passed by Commissioner, Central Goods & Service Tax,
Ghaziabad)
M/s Ahluwalia Contracts (I) Ltd., .....Appellant
(16/2E, Industrial Area, Site-IV, Sahibabad, Ghaziabad)
VERSUS
Commissioner of Central Excise &
CGST, Noida ....Respondent
(CGO-II Complex, Kamla Nehru Nagar, Ghaziabad)
APPEARANCE:
Ms Krati Singh, Advocate for the Assessee
Shri Santosh Kumar, Authorised Representative for the Revenue
CORAM: HON'BLE MR. P.K. CHOUDHARY, MEMBER (JUDICIAL)
HON'BLE MR. SANJIV SRIVASTAVA, MEMBER (TECHNICAL)
Service Tax Appeal Nos.70111 of 2020,
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FINAL ORDER NOs.70611-70613/2024
DATE OF HEARING : 26 June, 2024
DATE OF DECISION : 26 June, 2024
SANJIV SRIVASTAVA:
These appeals involve common issue hence are taken up
for consideration simultaneously.
1.2 Appeal No.ST/70111/2020 has been filed by the appellant
(assessee), challenging the Order-in-Appeal No.NOI-EXCUS-001-
APP-1084-19-20 DATED 16.11.2019 of the Commissioner
(Appeal) Goods and Service Tax, Noida. By the impugned order
following has been held:
―4.5 In the instant case, the appellant switched over, suo
motto, to the afore- stated scheme, but the department,
through the Circular 98/1/2008-ST dated 04.01.2008 and
128/10/2010-ST dated 24.08.2010 read with Notification
No. 32/2007-ST dated 22.05.2007 had clarified that
"Classification of a taxable service is determined based on
the nature of service provided whereas liability to pay
service tax is related to receipt of consideration. Vivisecting
single composite service and classifying the same under
two different taxable services depending upon the time of
receipt of the consideration is not legally sustainable."
4.6 In view of the above, the, appellant, who had paid
service tax prior to 1- paid 6-2007 for the taxable services,
namely, commercial or industrial construction service or
construction of complex service, was not entitled to change
the classification of the single composite service for the
purpose of payment of service tax on or after 1-6-2007 and
hence, was not entitled to avail of the Composition
Scheme.
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4.8 In the aforesaid decision, Hon'ble Supreme Court
While deciding the issue that whether service tax is leviable
on Works Contracts prior to 01.06.2007, held that prior to
01.06.2007, department was demanding service tax on
indivisible works contracts under various other categories
[commissioning or installation service, commercial
construction service, construction of complex service, etc.].
Further, there was neither any charge to tax on works
contract, nor any machinery for levy and assessment of
service tax on indivisible works contract prior to
01.06.2007. Works contract is a separate species of
contract and is distinct from services simpliciter contracts. I
observe that as per aforesaid decision, Hon'ble Supreme
Court held that there. would be no liability to service tax on
works contracts before 1.6.2007. In this case, the demand
relates to the period October- 2010 to February-2012 on
the ongoing projects prior to 01.06.2007
4.9 As regards the benefit of abatement under Notification
No. 01/2006 -ST dated 01.03.2006; the same may be
extended to the party subject to the fulfillment of the
conditions of the said Notification and accordingly demand
has to be re-quantified.
5. In the light of above narrated facts and circumstances; I
uphold the impugned order of the adjudicating authority
subject to the modification of the order to the extent as
discussed above and accordingly the appeal of the
appellant is disposed off.‖
1.3 Appeal No.ST/70292/2022 has been filed by the appellant
(assessee), and Appeal No.ST/70086/2022 filed by the revenue
against Order-in-Original No.07/Comm/ST/GZB/21-22 dated
06.10.2021 of the Commissioner Central Goods and Service Tax
Ghaziabad. By the impugned order following has been held:
―ORDER
(i) I hereby disallow classification/ switchover of service
under Works Contract as defined under Section
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65(105)(zzzza) of the Finance Act, 1994 read with Rule
2A of Service Tax (Determination of Value) Rules, 2006
in respect of contracts of M/s Capro Corporate Services,
M/s India Exposition Mart, M/s Pearl Infrastructure and
Rohit Surfactant. These contracts will continue to be
classified under Commercial or Industrial Construction/
Construction of |Residential Complex service. I allow
switchover to Works Contract Composition Scheme
under Notification No. 32/2007-ST dt. 22-05-2007 in
respect of contracts of M/s Ansal Plaza and M/s Ascot
Hotels.
(ii) I hereby confirm the demand of service tax amounting
to Rs. 14,56,97,708/ Rupees Fourteen Crore Fifty Six
Lac Ninety Seven Thousand Seven Hundred and Eight
Only) under proviso to Section 73(1) of the Finance Act,
1994 and order its recovery from the party
(iii) I order charging and recovery of interest under Section
75 of the Finance Act, 1994 on the above mentioned
confirmed amount of service tax
(iv) I hereby impose a penalty of Rs. 14,56,97,708/-
(Rupees Fourteen Crore Fifty Six Lac Ninety Seven
Thousand Seven Hundred and Eight Only) upon the
party under Section-78 of the Finance Act, 1994.
The amounts of service tax, interest and penalty adjudged
above should be paid forthwith by the party.‖
2.1 Appellant (assessee) is registered for providing/ receiving
taxable services under the category of Consulting Engineer,
Good Transport Operator, Commercial or Industrial Construction,
Construction of Residential Complex and Work Contracts
Services.
2.2 Appellant was providing taxable services under the
category of Commercial or Industrial Construction and
Construction of Residential Complex services in respect of work
orders obtained from M/s Ansal Plaza and Properties Ltd. for the
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projects namely M/s Ansal Plaza, Ansal Plaza Electricals, Ansal
Plaza sanitary, Ansal Plaza FOC, and M/s Ascot Hotels and M/s
Ascot Hotels, M/s Capro Corporate Services, M/s India Exposition
Mart, M/s Pearl Infrastructure, M/s Rohit Surfactant and M/s
Ascot Hotels. They were also availing of abatement as provided
by Notification No 01/2006-ST dated 01.03.2006. In all the
cases the work orders were issued prior to 31.05.2007 i.e. prior
to date of introduction of taxable category "Work Contract
Services" with effect from 01.06.2007.
2.3 After the introduction of the taxable category "Work
contract Services" appellant suo motto changed the classification
of the services provided under the above said work orders to
that category and started discharging the service tax determined
as per Works Contract (Composition Scheme for Payment of
Service Tax) Rules, 2007.
2.4 Subsequent to the objections raised by AGUP vide CERA
No 686/08-09, investigations were initiated against the appellant
and it was observed that-
Appellant assessee has resorted to willful misstatement
suppression of facts and contravention of the Finance Act
1994 and Rules made thereunder with intent to evade
payment of service tax in as much as:
o The said switchover in respect of the said ongoing
contracts from the category Commercial or Industrial
Constructions Services' and 'Construction of
Residential Complex Services' to 'Works Contract
Services', in defiance of the clear prohibition/
restriction for the same in terms of Notification No.
32/2007-S.T. dated 22.5.2007 as amended, read
with sub Rule 3(3) of the Works Contract
(Composition Scheme for Payment of Service Tax)
Rules 2007 was made deliberately by the party by
wilfully suppressing the material facts from the
department regarding the said switchover and
change of classification as at no time the said
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information in respect of ongoing contracts was
provided by the party on its own to the department
o misstated the amount against receipt of payment
against the Works Contract category in the ST-3
Returns filed by it during the relevant period as the
aforesaid amount was inclusive of the amount
received against the said ongoing contracts which
were under the 'Commercial or Industrial
Constructions Services' and 'Construction of
Residential Complex Services' category
o contravened the provision of the Notification No.
32/2007 -S.T dated 22.5.2007 as amended, and sub
Rule 3(3) of the Works Contract- (Composition
Scheme for Payment of Service Tax) Rules, 2007
read with C.B.E.C. Circular Nos. 98/1/2008- S.T.
dated 04.01.2008 & 128/10/2010 - S.T. dated
24.8.2010 and the provisions of Section 65,.66, 67,
68 of the Finance Act, 1994 read with Rule 6 of the
Service Tax Rules, 1994
misclassification in respect of the said ongoing contracts
from 'Commercial or Industrial Constructions Services' and
'Construction of Residential Complex Services' to 'Works
Contract Services' and deliberate payment of tax under
the 'Works Contract Services', by opting the Composite
Scheme by the party, led to the short payment of service
tax amounting to Rs. 15,27,02,511/-
for willful misstatement, suppression of facts, and other
contravention with intent to evade payment of service tax,
the said amount is liable to be demanded and recovered
along with the interest from the party under proviso to
Section 73 (1) of the Finance Act, 1994 read with Section
75 of the Finance Act, 1994 by invoking extended period.
and the party is also liable for penalty under Section 76,
77 and 78 of the Finance Act, 1994.
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2.5 By show cause notice dated 01.06.2011 appellant
(assessee) was called to Show as to why:-
(i) In respect of the said ongoing contracts (as on
01.6.2007), the switchover from the category
'Commercial or Industrial Constructions Services' and
Construction of Residential Complex Services' to the
'Works Contract Services' and the subsequent payment
of service tax under the said 'Works Contract
Composition Scheme' should not be denied to them as
discussed above. And accordingly such services
provided in respect of the said ongoing contracts
should not be classified and taxed under the category
of 'Commercial or Industrial Constructions Services'
and 'Construction of Residential Complex Services'
(ii) Service Tax amounting to Rs. 15,27,02,511 /- (Rs.
Fifteen Crore Twenty Seven Lac Two Thousand Five
Hundred Eleven only), short paid by the party by
resorting to wilful misstatement, suppression of facts
and other contraventions with intent to evade payment
of service tax, during the period June 2007 to
September 2010 on account of the said
misclassification should not be demanded and
recovered from them under proviso to Section 73 (1) of
the Finance Act, 1994,
(iii) Interest on delayed payment of Service Tax should not
be demanded under Section 75 of the Finance Act,
1994.
(iv) Penalty should not be imposed upon them under
Section 76, 77 & 78 of Finance Act, 1994 for
contravention of the Section 65, 66,67,68 of the said
Act read with Rule 6 of the Service Tax Rules, 1994.
2.6 Another show cause notice dated 24.05.2012 on the same
lines was issued to the appellant for the subsequent period
asking them to show cause as to why:
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(i) In respect of the said ongoing contracts (as on
01.6.2007), the switchover from the category
'Commercial or Industrial Constructions Services' and
Construction of Residential Complex Services' to the
'Works Contract Services' and the subsequent payment
of service tax under the said 'Works Contract
Composition Scheme' should not be denied to them as
discussed above. And accordingly such services
provided in respect of the said ongoing contracts
should not be classified and taxed under the category
of 'Commercial or Industrial Constructions Services'
and 'Construction of Residential Complex Services'
(ii) Service Tax amounting to Rs. 23,87,585/- (Rs. Twenty
Three Lac Eighty Seven Thousand Five Hundred and
Eighty Five only), short paid by the party during the
period June 2007 to September 2010 on account of the
said misclassification should not be demanded and
recovered from them under proviso to Section 73 (1) of
the Finance Act, 1994,
(iii) Interest on delayed payment of Service Tax should not
be demanded under Section 75 of the Finance Act,
1994.
(iv) Penalty should not be imposed upon them under
Section 76 & 77 of Finance Act, 1994 for contravention
of the provisions of Finance Act, 1994 and Service Tax
Rules, 1994.
2.7 Both the show cause notice were adjudicated and
determined by the lower authorities and matter travelled to
CESTAT. Vide-
Final Order No. A/54786/2014 dated 03.12.2014 mater in
respect of Show Cause Notice dated 24.05.2012 was
remanded back to the original authority observing as
follow:
―In the light of the foregoing we allow the appeal by way
of remand of the case to the primary adjudicating
Service Tax Appeal Nos.70111 of 2020,
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authority for de novo adjudication inter alia with the
following directions:
(1) With effect from 01.06.2007 the classification of the
service rendered will be determined in accordance with
the definitions of various services and if the classification
is determined to be under WORKS CONTRACT SERVICE ,
the benefit of composition Scheme will not be available in
respect of such contracts which commenced prior to
01.06.2007;
(2) If the appellants claim the benefit of Rule 2A of the
Service Tax (Determination of Value Rules), 2006 or any
other applicable exemption notification, the same should
be considered on merit.
(3) The benefit of Notification No. 1/2006-ST if otherwise
available should not be denied on the ground that Cenvat
credit of input services has been taken.‖
Final Order No. A/71745/2017 dated 28.08.2017 mater in
respect of Show Cause Notice dated 01.06.2011 was
remanded back to the original authority observing as
follow:
―Construction Service', ' Erection Commissioning and
Installation Service', etc,' with effect from 01/06/2007 on
introduction of the provisions for Works Contract' in the
Finance Act, 1994, the appellant classified their service
under Works Contract' with effect from 01/06/2007 and
accordingly, claimed the calculation of taxable service,
including abatement for material component. The same
was objected to by the Revenue, as it was believed by
Revenue that the appellant cannot change the classification
with effect from 1st June, 2007, of the ongoing ‗Works
Contract' or Construction Contracts' which admittedly are
Composite Contract. The Order-in- Original was passed on
03/08/2012 by the learned Commissioner. We find that the
law was not settled at the relevant time and the same
came to be settled finally by Hon'ble Supreme Court in its
Service Tax Appeal Nos.70111 of 2020,
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judgment in the case of M/s Larsen and Toubro Ltd.
reported at 2015 (39) STR 913 (SC).
3. Accordingly, we allow this appeal by way of remand
to the learned Commissioner with directions to re-
adjudicate the show cause notice, in the light of the
findings and law laid down by the Hon'ble Supreme Court
in the ruling of M/s Larsen and Toubro (supra). The
appellant is also directed to appear, with
their representation or the reply to show cause notice and
other evidences, as they want to rely before the
concerned Commissioner within a period of 60 days
from the receipt of a copy of this order and seek a
opportunity of hearing.‖
2.8 Both the show cause notices have again been determined
by the lower authorities in the remand proceedings as per the
impugned orders.
2.9 Aggrieved by the by both the impugned orders appellant
assessee has filed the appeals.
2.10 Aggrieved by certain portions of the impugned order dated
06.10.2021 revenue has filed the appeal.
3.1 We have heard Ms Krati Singh, Advocate for the appellant
(assessee) and Shri Santosh Kumar, Authorized Representative
for the revenue.
3.2 Arguing for the appellant learned counsel submits that:-
Impugned order dated 06.10.2021 has gone beyond the
show cause notice and should be set aside on this ground
itself.
Contracts executed by the appellant qualify as work
contracts.
It is settled law that once it is determined that the
contracts/ work orders qualify as work contract, the
demand under construction service is not tenable.
Appellant is entitled to avail the benefit provided under the
composition scheme.
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Switching from construction service to work contract
cannot be denied merely on the ground on the ground of
discharge of service tax under different head prior to
01.06.2007.
If the benefit of composition scheme is not admissible then
appellant should be allowed to avail the benefit of Rule 2A
of Valuation Rules.
Extended period of limitation cannot be invoked.
Impugned order dated 06.11.2019 is passed without
considering the remand directions.
Penalty and interest cannot be demanded from the
appellant.
3.3 Authorized Representative re-iterated the findings
recorded by the lower authority.
4.1 We have considered the impugned order along with the
submissions made in appeal and during course of arguments.
4.2 In the impugned order dated 06.12.2021, Commissioner
has after examination of each of the contract/ work order in
dispute recorded the findings contract/ work order wise
determining the nature of services provided under the said
contracts. The relevant excerpts from the impugned order are
reproduced below:
―6.7 On going through the records, I find that there are
following customers of the party on whose contracts the
demand is proposed in the SCN-
1. M/s Capro Corporate Services
2. M/s India Exposition Mart
3. M/s Ansal Plaza
4. M/s Pearl Infrastructure Projects Ltd.
5. M/s Rohit Surfactants Pvt. Ltd.
6. M/s Ascot Hotels
6.8 In case of contract of M/s Capro Corporate Services and
M/s India Exposition Mart the cement and steel were
provided by the vendor. Thus it appears that these were not
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specifically composite contracts in true sense. The
agreement dated 01-08-2005 in case of M/s India
Exposition Mart states that the service tax is to be paid
@3.37% which is inclusive in contract value. It further
suggests that both parties had treated it as simple
construction contract and accordingly entered into
agreement for payment of service tax. Therefore, the party
was receiving service tax under ' Construction service' so it
could not be classified under composite works contract
service. Further, in case of Capro, the party itself paid tax
under Construction service on 5-7-2007 despite filing option
on 2-7-2007 which shows that they themselves were not
sure about its classification under composite Works
Contract. I find that these contracts are more suitably
classifiable under Commercial or Industrial Construction/
construction of complex service as these are simple
contracts-
"Commercial or Industrial Construction" means
(a) construction of a new building or a civil structure or
a part thereof; or
(b) construction of pipeline or conduit; or
(c) completion and finishing services such as glazing,
plastering, painting, floor and wall tiling, wall
covering and wall papering, wood and metal joinery
and carpentry, fencing and railing, construction of
swimming pools, acoustic applications or fittings
and other similar services, in relation to building or
civil structure; or
(d) repair, alteration, renovation or restoration of, or
similar services in relation to, building or civil
structure, pipeline or conduit, which is -
(i) used, or to be used, primarily for; or
(ii) occupied or to be occupied, primarily with; or
(iii) engaged, or to be engaged, primarily in,
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commerce or industry, or work intended for commerce or
industry, but does not include such services provided in
respect of roads, airports, railways, transport terminals,
bridges, tunnels and dams;
(Section 65(25b) of the Finance Act, 1994)
"Taxable Service" means any service provided or to be
provided to any person, by any other person, in relation to
commercial or industrial construction
(Section 65 (105) (zzq) of the Finance Act, 1994)
"Construction of Complex" means
(a) construction of a new residential complex or a part
thereof; or
(b) completion and finishing services in relation to
residential complex such as glazing, plastering,
painting, floor and wall tiling, wall covering and wall
papering, wood and metal joinery and carpentry,
fencing and railing, construction of swimming pools,
acoustic applications or fittings and other similar
services; or
(c) repair, alteration, renovation or restoration of, or
similar services in relation to, residential complex;
(Section 65(30a) of the Finance. Act, 1994)
(ii)"Residential Complex" means any complex comprising of-
(i) a building or buildings, having more than twelve
residential units;
(ii) a common area; and
(iii) any one or more of facilities or services such as
park, lift, parking space, community hall, common
water supply or effluent treatment system, located
within a premises and the layout of such premises
is approved by an authority under any law for the
time being in force, but does not include a
complex which is constructed by a person directly
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engaging any other person for designing or
planning of the layout, and the construction of
such complex is intended for personal use as
residence by such person.
Explanation. - For the removal of doubts, it is hereby
declared that for the purposes of this clause,
(a) personal use includes permitting the complex for
use as residence by another person on rent or
without consideration;
(b) residential unit means a single house or a single
apartment intended for use as a place of
residence;
(Section 65/91a) of the Finance Act, 1994)
"Taxable Service" means any service provided or to
be provided to any person, by any other person, in
relation to construction of complex;
[Explanation.- For the purposes of this sub-clause,
construction of a complex which is intended for sale,
wholly or partly, by a builder or any person authorized
by the builder before, during or after construction
(except in cases for which no sum is received from or
on behalf of the prospective buyer by the builder or a
person authorized by the builder before the grant of
completion certificate by the authority competent to
issue such certificate under any law for the time
being in force) shall be deemed to be service provided
by the builder to the buyer;]
(Section 65 (105) (zzzh) of the Finance Act, 1994)
6.8.1 I find that the two contracts of M/s Capro Corporate
Services and M/s India Exposition Mart, as discussed
above fall under Commercial or Industrial Construction
service. As per provisions of Notification No. 01/2006-ST dt
01.03.2006, the service tax is payable at 33% of tax rate
subject to the condition that The gross amount charged
shall include the value of goods and materials supplied or
Service Tax Appeal Nos.70111 of 2020,
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provided or used by the provider of the construction service
for providing such service. Also, the CENVAT credit of duty
on inputs or capital goods or the CENVAT credit of service
tax on input services, used for providing such taxable
service is not allowed. Relevant portion of the Notification is
quoted as under
―G.S.R. (E). In exercise of the powers conferred by sub-
section (1) of section 93 of the Pinance Act, 1994 (32 of
1994) (hereinafter referred to as the Finance Act), the
Central Government, on being satisfied that it is necessary
in the public interest so to do, hereby exempts the taxable
service of the description specified In column (3) of the
Table below and specified in the relevant sub-clauses of
clause (105) of section 65 of the Finance Act, specified in
the corresponding entry in column (2) of the said Table,
from so much of the service tax as is in excess of the
service tax leviable thereon under section 66 of the said
Finance Act, calculated on a value which is equivalent to a
percentage specified in the corresponding entry in column
(5) of the said Table, of the gross amount charged by such
service provider for providing the said taxable service,
subject to the relevant conditions specified in the
corresponding entry in column (4) of the Table aforesaid:
S. Sub- Description Conditions Perce
No. clause of of taxable ntage
clause service
(105)
Section
65
7 zzq Commercial This exemption shall not apply in such cases 33
or Industrial where the taxable services provided are only
Construction completion and finishing services in relation
service to building or civil structure, referred to in
sub-clause (c) of clause (25b) of section 65
10 zzzh Construction of the Finance Act.
of
Explanation.- The gross amount charged
Complexes
shall include the value of goods and
materials supplied or provided or used by the
provider of the construction service for
providing such service.
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Provided that this notification shall not apply in cases
where,-
(i) the CENVAT credit of duty on inputs or capital goods
or the CENVAT credit of service tax on input services,
used for providing such taxable service, has been
taken under the provisions of the CENVAT Credit
Rules, 2004; or
(ii) the service provider has availed the benefit under the
notification of the Government of India in the Ministry
of Finance (Department of Revenue), No, 12/ 2003-
Service Tax, dated the 20th June, 2003[G.S.R, 503
(E), dated the 20th June, 2003).‖
5.8.2 I find that in the instant case, the value of free
supplied material has not been included. Also, the credit of
services has also been availed. Therefore, the benefit of this
notification is not available to the party and they are
required to pay the tax at applicable rate. They are liable to
pay differential service tax amounting to Rs. 7,17,62,041/-
as calculated under (as per available details in Annexure A
to the SCN).
......
Therefore total tax liability of the party is Rs. 71762041/- along with interest and penalty which is recoverable 6.9 Further, in case of contracts of M/s Pearl Infrastructure and Rohit Surfactant, there is only Letter of Intent (LOI) available on record which do not explicitly mention whether these are inclusive of all material or not. The party has also submitted same copies of LOI again. So the exact nature of contract is not ascertainable. The party has failed to establish that these are composite work contracts and they have failed to provide complete details of contract as per the provisions of Rule 3(3) of Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007. Therefore, I hold that these two contracts are also classifiable under Commercial or Industrial Construction/ Service Tax Appeal Nos.70111 of 2020, 17 70086 & 70292 of 2022 construction of complex service. As discussed above, the benefit of tax payment at 33% of applicable rate under Notification No. 01/2006 supra is not available to them in case of these two contracts as they have availed Cenvat of input services. Thus, they are liable to pay differential service tax amounting to Rs. 7,39,35,667/- as calculated under (as per available details in Annexure A to the SCN) .......
Therefore total tax liability of the party is Rs. 14,56,97,708/- (Rs 7,17,62,041 /- + 7,39,35,667/-) which is recoverable along with interest and penalty 6.10 In other cases, I hold that the option under Notification No. 32/2007-ST dt. 22-5- 2007 for composition work contract scheme is available to the party. As they were already discharging the service tax under this scheme, no liability arises in respect of remaining contracts.‖ 4.3 From the above it is evident that impugned order has recorded finding in respect of some specific contracts to effect that these contracts are not "Composite Work Contract" to be levied to service tax under the category of work contract services. The findings recorded by the adjudicating authority are challenged by the appellant stating as follows:
B. WITHOUT PREJUDICE CONTRACTS EXECUTED BY APPELLANT QUALIFY AS WORKS CONTRACT
1. It is submitted that the ongoing contracts entered by the Appellant are in the nature of works contract only and the same was also not disputed at the time of issuing the SCN or the order dated 03.08.2012. The dispute with respect to the nature of the contracts has only been raised at the time of issuing of the Impugned Order dated 06.10.2021.
2. In the Impugned Order dated 06.10.2021, the Adjudicating Authority held that the contracts in Service Tax Appeal Nos.70111 of 2020, 18 70086 & 70292 of 2022 respect of M/s Capro Corporate Services, M/s India Exposition Mart, M/s Pearl Infrastructure and M/s Rohit Surfactants Pvt. Ltd. are simple construction contracts and not the works contract and therefore, the Appellant was liable to pay service tax in respect of such contracts under the construction services.
3. Section 65(105) (zzzza) of the Act defines the terms works contract which provides for the following conditions: a. there must be transfer of property in goods involved in the execution of specified works contract; b. uch transfer of property in goods is leviable to tax as sale of goods; and c. the contract must be for the purpose of carrying out activities mentioned in clause (i) of the Explanation.
4. All the above mentioned conditions have been satisfied by all the ongoing contracts Contract-
wise submissions are made in below paragraphs:
M/s Caparo Corporate Services and M/s India Exposition Mart
5. In the Impugned Order dated 06.10.2021, the Adjudicating Authority held that the abovementioned contracts are not works contract as the cement and steel were provided by the vendor and not the Appellant. Further the tax under the category of construction service in case of Caparo Corpoate Service was paid on 05.07.2007 despite filing the option to opt for Composition Scheme on 02.07.2007 which shows that the vendor was not sure about the classification under composite works contract. Thus, it has been held that the services rendered under the said contracts are taxable under the category of construction service.
Service Tax Appeal Nos.70111 of 2020, 19 70086 & 70292 of 2022
6. It is submitted that the findings in the Impugned Order are erroneous. It is pertinent to note that for constructing a building, various goods viz. bricks, pipes, iron, steel, cement, wood, concrete, stone, etc. are used. As per this contract, the Appellant supplied all materials except steel and cement, which was required for construction. However, the fact that the majority of goods/materials are supplied by the Appellant and only two components i. e. cement & steel are supplied by the vendor (i.e.service recipient) was ignored in the Impugned Order dated 06.10.2021. Thus, this contract involves transfer of property in goods which was leviable to applicable VAT and was duly paid by the Appellant. Further, this contract is in respect of activities mentioned in clause (i)(b) of the Explanation. [refer contracts with India Exposition Mart Ltd. @ pg. 112 to 116of the Appeal Memo I and with Caparo Corpoate Service @ Pg. 223- 227]. Mere supply of two components would not alter the nature of the contract more so when majority of the material/goods are supplied by the Appellant only. Even the definition of works contract nowhere provides that the service provider shall supply all materials/goods and any contracts, where goods are partly supplied by the recipient, will be excluded from the definition of the works contract.
7. It is further submitted that payment of tax under the category of construction service on 05.07.2007 is a case of unintentional inadvertent error which is also evident from the fact that subsequently, the Appellant has always paid service tax on this contract under the Composition Scheme only. A single instance of Service Tax Appeal Nos.70111 of 2020, 20 70086 & 70292 of 2022 payment of service tax, which is also only due to an unintentional error, cannot be the basis to decide classification of this contract,.
8. Also, WCT TDS was also deducted by the service receivers which is permissible only in case of works contract. The same WCT TDS is adjusted towards liability of VAT of the Appellant as per the assessment orders
9. In light of the above, contracts with M/s Caparo Corporate Services and M/s India Exposition Mart, satisfies all the conditions of a works contract M/s Pearl Infrastructure Pvt. Ltd and Rohit Surfactant
10. The Assessee-Appellant was awarded the contract for construction of group housing vide the work order dated 24.03.2006. As per the said contract, the Assessee-Appellant was to provide all material (RMC, electrical goods, etc.), labour, etc. for execution of work. Thus this contract involves transfer of property in goods which was leviable to applicable VAT and was duly paid by the Assessee-Appellant (refer Annexure-17 of Appeal Memo I @ pg. 228- 250)
11. In the Impugned Order dated 06.10.2021, it has been held that the contract with Pearl Infrastructure is not a works contract as the nature of contract is not ascertainable from the Letter of Intent provided by the Assessee- Appellant. The said findings in the Impugned Order are erroneous. The nature of the contract, which is works contract, is evident from the tender documents, BOQ issued in this regard. Thus, the contract with Pearl Infrastructure is works contract Service Tax Appeal Nos.70111 of 2020, 21 70086 & 70292 of 2022
12. Similar findings were given in respect of the contract executed with M/s Rohit Surfactant which are erroneous and untenable in light of the above submissions
13. In view of the above, it is evident that all the contracts executed by the Assessee-Appellant qualify as works contract only. Further, as the Assessee-Appellant is providing services in relation to execution of works contract, the same are taxable as works contract services under Section 65(105) (zzzza) of the Act and not under construction services
14. It is settled principle of law that once it is determined that the contracts are works contract the demand under the construction services is not sustainable. Reliance is this regard is placed on the following cases Larsen & Toubro Ltd. [2015 (39) S.T.R. 913 (S.C.)] Lifeline Builders Pvt Ltd. [2023 (12) TMI 783 - CESTAT Allahabad] Real Value Promoters Pvt. Ltd., Ceebros Property Development, Prime Developers [2018 (9) TMI 1149- CESTAT Chennai] M/S. Srishti Constructions [2017 (12) TMI 172
- CESTAT Chandigarh] M/S Engineering Construction 2018 (9) TMI 39- CESTAT Allahabad Pioneer Fabrications Pvt.Ltd. [2016 (42) S.T.R. 563 (Tri. - All.)] Nand Ji Mishra Contractor [2024 (6) TMI 248- CESTAT Chandigarh] Service Tax Appeal Nos.70111 of 2020, 22 70086 & 70292 of 2022 Rajesh Coal Company [2024 (3) TMI 920 -
CESTAT Kolkata] Ashoka Bricks Industries (P) Limited [2024 (3) TMI 234-CESTAT Kolkata] M/s. Praveen Electrical Works [2024 (2) TMI 504-CESTAT Bangalore] Enexco technologies India Limited [2021 (8) TMI 1224 CESTAT Chandigarh] Afcons Infrastructure Ltd. [2022 (10) TMI 319- CESTAT Mumbai] 4.4 In case of Larsen and Tubro Ltd. [2015 (39) S.T.R. 913 (S.C.)], Hon'ble Supreme Court has clearly laid down the test in respect of classification of composite work contracts, under the categories of work Contract Services as defined by 65 (105)(zzza) of Finance Act, 1994 with effect from 01.06.2007. The relevant excerpts from the said decision are reproduced below:
―14. Crucial to the understanding and determination of the issue at hand is the second Gannon Dunkerley judgment which is reported in (1993) 1 SCC 364. By the aforesaid judgment, the modalities of taxing composite indivisible works contracts was gone into. This Court said :-
―On behalf of the contractors, it has been urged that under a law imposing a tax on the transfer of property in goods involved in the execution of a works contract under Entry 54 of the State List read with Article 366(29-A)(b), the tax is imposed on the goods which are involved in the execution of a works contract and the measure for levying such a tax can only be the value of the goods so involved and the value of the works contract cannot be made the measure for levying the tax. The submission is further that the value of such goods would be the cost of acquisition of the goods by the contractor and, therefore, Service Tax Appeal Nos.70111 of 2020, 23 70086 & 70292 of 2022 the measure for levy of tax can only be the cost at which the goods involved in the execution of a works contract were obtained by the contractor. On behalf of the States, it has been submitted that since the property in goods which are involved in the execution of a works contract passes only when the goods are incorporated in the works, the measure for the levy of the tax would be the value of the goods at the time of their incorporation in the works as well as the cost of incorporation of the goods in the works. We are in agreement with the submission that measure for the levy of the tax contemplated by Article 366(29-A)(b) is the value of the goods involved in the execution of a works contract. In Builders' Association case [(1989) 2 SCC 645 : 1989 SCC (Tax) 317 : (1989) 2 SCR 320] it has been pointed out that in Article 366(29-
A)(b), ―[t]he emphasis is on the transfer of property in goods (whether as goods or in some other form)‖. (SCC p. 669, para 32: SCR p. 347). This indicates that 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. We are, however, unable to agree with the contention urged on behalf of the contractors that the value of such goods for levying the tax can be assessed only on the basis of the cost of acquisition of the goods by the contractor. 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 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 the works and not the cost of acquisition of the goods by the contractor. We are also unable to accept the contention urged on behalf of the States that in addition to the value of the goods Service Tax Appeal Nos.70111 of 2020, 24 70086 & 70292 of 2022 involved in the execution of the works contract the cost of incorporation of the goods in the works can be included in the measure for levy of tax. Incorporation of the goods in the works forms part of the contract relating to work and labour which is distinct from the contract for transfer of property in goods and, therefore, the cost of incorporation of the goods in the works cannot be made a part of the measure for levy of tax contemplated by Article 366(29- A)(b).
Keeping in view the legal fiction introduced by the Forty- sixth Amendment whereby the works contract which was entire and indivisible has been altered into a contract which is divisible into one for sale of goods and other for supply of labour and services, the value of the goods involved in the execution of a works contract on which tax is leviable must exclude the charges which appertain to the contract for supply of labour and services. This would mean that labour charges for execution of works, [item No. (i)], amounts paid to a sub-contractor for labour and services [item No. (ii)], charges for planning, designing and architect's fees [item No. (iii)], charges for obtaining on hire or otherwise machinery and tools used in the execution of a works contract [item No. (iv)], and the cost of consumables such as water, electricity, fuel, etc. which are consumed in the process of execution of a works contract [item No. (v)] and other similar expenses for labour and services will have to be excluded as charges for supply of labour and services. The charges mentioned in item No. (vi) cannot, however, be excluded. The position of a contractor in relation to a transfer of property in goods in the execution of a works contract is not different from that of a dealer in goods who is liable to pay sales tax on the sale price charged by him from the customer for the goods sold. The said price includes the cost of bringing the goods to the place of sale.
Service Tax Appeal Nos.70111 of 2020, 25 70086 & 70292 of 2022 Similarly, for the purpose of ascertaining the value of goods which are involved in the execution of a works contract for the purpose of imposition of tax, the cost of transportation of the goods to the place of works has to be taken as part of the value of the said goods. The charges mentioned in item No. (vii) relate to the various expenses which form part of the cost of establishment of the contractor. Ordinarily the cost of establishment is included in the sale price charged by a dealer from the customer for the goods sold. Since a composite works contract involves supply of materials as well as supply of labour and services, the cost of establishment of the contractor would have to be apportioned between the part of the contract involving supply of materials and the part involving supply of labour and services. The cost of establishment of the contractor which is relatable to supply of labour and services cannot be included in the value of the goods involved in the execution of a contract and the cost of establishment which is relatable to supply of material involved in the execution of the works contract only can be included in the value of the goods. Similar apportionment will have to be made in respect of item No. (viii) relating to profits. The profits which are relatable to the supply of materials can be included in the value of the goods and the profits which are relatable to supply of labour and services will have to be excluded. This means that in respect of charges mentioned in item Nos. (vii) and (viii), the cost of establishment of the contractor as well as the profit earned by him to the extent the same are relatable to supply of labour and services will have to be excluded. The amount so deductible would have to be determined in the light of the facts of a particular case on the basis of the material produced by the contractor. The value of the goods involved in the execution of a works contract will, therefore, have to be determined by taking into account Service Tax Appeal Nos.70111 of 2020, 26 70086 & 70292 of 2022 the value of the entire works contract and deducting therefrom the charges towards labour and services which would cover --
(a) Labour charges for execution of the works;
(b) amount paid to a sub-contractor for labour and services;
(c) charges for planning, designing and architect's fees;
(d) charges for obtaining on hire or otherwise machinery and tools used for the execution of the works contract;
(e) cost of consumables such as water, electricity, fuel, etc. used in the execution of the works contract the property in which is not transferred in the course of execution of a works contract; and
(f) cost of establishment of the contractor to the extent it is relatable to supply of labour and services;
(g) other similar expenses relatable to supply of labour and services;
(h) profit earned by the contractor to the extent it is relatable to supply of labour and services.
The amounts deductible under these heads will have to be determined in the light of the facts of a particular case on the basis of the material produced by the contractor.
Normally, the contractor will be in a position to furnish the necessary material to establish the expenses that were incurred under the aforesaid heads of deduction for labour and services. But there may be cases where the contractor has not maintained proper accounts or the accounts maintained by him are not found to be worthy of credence by the assessing authority. In that event, a question would arise as to how the deduction towards the Service Tax Appeal Nos.70111 of 2020, 27 70086 & 70292 of 2022 aforesaid heads may be made. On behalf of the States, it has been urged that it would be permissible for the State to prescribe a formula on the basis of a fixed percentage of the value of the contract as expenses towards labour and services and the same may be deducted from the value of the works contract and that the said formula need not be uniform for all works contracts and may depend on the nature of the works contract. We find merit in this submission. In cases where the contractor does not maintain proper accounts or the accounts maintained by him are not found worthy of credence it would, in our view, be permissible for the State legislation to prescribe a formula for determining the charges for labour and services by fixing a particular percentage of the value of the works contract and to allow deduction of the amount thus determined from the value of the works contract for the purpose of determining the value of the goods involved in the execution of the works contract. It must, however, be ensured that the amount deductible under the formula that is prescribed for deduction towards charges for labour and services does not differ appreciably from the expenses for labour and services that would be incurred in normal circumstances in respect of that particular type of works contract. Since the expenses for labour and services would depend on the nature of the works contract and would not be the same for all types of works contracts, it would be permissible, indeed necessary, to prescribe varying scales for deduction on account of cost of labour and services for various types of works contracts.‖ (at paras 45, 47 and
49)
15. A reading of this judgment, on which counsel for the assessees heavily relied, would go to show that the separation of the value of goods contained in the execution of a works contract will have to be Service Tax Appeal Nos.70111 of 2020, 28 70086 & 70292 of 2022 determined by working from the value of the entire works contract and deducting therefrom charges towards labour and services. Such deductions are stated by the Constitution Bench to be eight in number. What is important in particular is the deductions which are to be made under sub-paras (f),
(g) and (h). Under each of these paras, a bifurcation has to be made by the charging Section itself so that the cost of establishment of the contractor is bifurcated into what is relatable to supply of labour and services. Similarly, all other expenses have also to be bifurcated insofar as they are relatable to supply of labour and services, and the same goes for the profit that is earned by the contractor. These deductions are ordinarily to be made from the contractor's accounts. However, if it is found that contractors have not maintained proper accounts, or their accounts are found to be not worthy of credence, it is left to the legislature to prescribe a formula on the basis of a fixed percentage of the value of the entire works contract as relatable to the labour and service element of it. This judgment, therefore, clearly and unmistakably holds that unless the splitting of an indivisible works contract is done taking into account the eight heads of deduction, the charge to tax that would be made would otherwise contain, apart from other things, the entire cost of establishment, other expenses, and profit earned by the contractor and would transgress into forbidden territory namely into such portion of such cost, expenses and profit as would be attributable in the works contract to the transfer of property in goods in such contract. This being the case, we feel that the learned counsel for the assessees are on firm ground when they state that the service tax charging section itself must lay down with specificity that the levy of Service Tax Appeal Nos.70111 of 2020, 29 70086 & 70292 of 2022 service tax can only be on works contracts, and the measure of tax can only be on that portion of works contracts which contain a service element which is to be derived from the gross amount charged for the works contract less the value of property in goods transferred in the execution of the works contract. This not having been done by the Finance Act, 1994, it is clear that any charge to tax under the five heads in Section 65(105) noticed above would only be of service contracts simpliciter and not composite indivisible works contracts.
16. At this stage, it is important to note the scheme of taxation under our Constitution. In the lists contained in the 7th Schedule to the Constitution, taxation entries are to be found only in lists I and II. This is for the reason that in our Constitutional scheme, taxation powers of the Centre and the States are mutually exclusive. There is no concurrent power of taxation. This being the case, the moment the levy contained in a taxing statute transgresses into a prohibited exclusive field, it is liable to be struck down. In the present case, the dichotomy is between sales tax leviable by the States and service tax leviable by the Centre. When it comes to composite indivisible works contracts, such contracts can be taxed by Parliament as well as State legislatures. Parliament can only tax the service element contained in these contracts, and the States can only tax the transfer of property in goods element contained in these contracts. Thus, it becomes very important to segregate the two elements completely for if some element of transfer of property in goods remains when a service tax is levied, the said levy would be found to be constitutionally infirm. This position is well reflected in Bharat Sanchar Nigam Limited v. Union of India, (2006) 3 SCC 1 = 2006 (2) S.T.R. 161 (S.C.), as follows :-
Service Tax Appeal Nos.70111 of 2020, 30 70086 & 70292 of 2022 ―No one denies the legislative competence of the States to levy sales tax on sales provided that the necessary concomitants of a sale are present in the transaction and the sale is distinctly discernible in the transaction. This does not however allow the State to entrench upon the Union List and tax services by including the cost of such service in the value of the goods. Even in those composite contracts which are by legal fiction deemed to be divisible under Article 366(29-A), the value of the goods involved in the execution of the whole transaction cannot be assessed to sales tax. As was said in Larsen & Toubro v. Union of India [(1993) 1 SCC 364] : (SCC p. 395, para 47) :-
―The cost of establishment of the contractor which is relatable to supply of labour and services cannot be included in the value of the goods involved in the execution of a contract and the cost of establishment which is relatable to supply of material involved in the execution of the works contract only can be included in the value of the goods.‖ For the same reason the Centre cannot include the value of the SIM cards, if they are found ultimately to be goods, in the cost of the service. As was held by us in Gujarat Ambuja Cements Ltd. v. Union of India [(2005) 4 SCC 214], SCC at p. 228, para 23 :-
―This mutual exclusivity which has been reflected in Article 246(1) means that taxing entries must be construed so as to maintain exclusivity. Although generally speaking, a liberal interpretation must be given to taxing entries, this would not bring within its purview a tax on subject-matter which a fair reading of the entry does not cover. If in substance, the statute is not referable to a field given to the State, the court will not by any principle of interpretation allow a statute not covered by it to intrude upon this field.‖ (at paras 88 and 89)
17. We find that the assessees are correct in their submission that a works contract is a separate species of Service Tax Appeal Nos.70111 of 2020, 31 70086 & 70292 of 2022 contract distinct from contracts for services simpliciter recognized by the world of commerce and law as such, and has to be taxed separately as such. In Gannon Dunkerley, 1959 SCR 379, this Court recognized works contracts as a separate species of contract as follows :-
―To avoid misconception, it must be stated that the above conclusion has reference to works contracts, which are entire and indivisible, as the contracts of the respondents have been held by the learned Judges of the Court below to be. The several forms which such kinds of contracts can assume are set out in Hudson on Building Contracts, at p.
165. It is possible that the parties might enter into distinct and separate contracts, one for the transfer of materials for money consideration, and the other for payment of remuneration for services and for work done. In such a case, there are really two agreements, though there is a single instrument embodying them, and the power of the State to separate the agreement to sell, from the agreement to do work and render service and to impose a tax thereon cannot be questioned, and will stand untouched by the present judgment.‖ (at page 427)
18. Similarly, in Kone Elevator India (P) Ltd. v. State of T.N. - (2014) 7 SCC 1 = 2014 (34) S.T.R. 641 (S.C.) = 2014 (304) E.L.T. 3 (S.C.), this Court held :-
―Coming to the stand and stance of the State of Haryana, as put forth by Mr. Mishra, the same suffers from two basic fallacies, first, the supply and installation of lift treating it as a contract for sale on the basis of the overwhelming component test, because there is a stipulation in the contract that the customer is obliged to undertake the work of civil construction and the bulk of the material used in construction belongs to the manufacturer, is not correct, as the subsequent discussion would show; and second, the Notification dated 17-5-2010 issued by the Government of Haryana, Excise and Taxation Department, whereby certain Service Tax Appeal Nos.70111 of 2020,
32 70086 & 70292 of 2022 rules of the Haryana Value Added Tax Rules, 2003 have been amended and a table has been annexed providing for ―Percentages for Works Contract and Job Works‖ under the heading ―Labour, service and other like charges as percentage of total value of the contract‖ specifying 15% for fabrication and installation of elevators (lifts) and escalators, is self-contradictory, for once it is treated as a composite contract invoking labour and service, as a natural corollary, it would be works contract and not a contract for sale. To elaborate, the submission that the element of labour and service can be deducted from the total contract value without treating the composite contract as a works contract is absolutely fallacious. In fact, it is an innovative subterfuge. We are inclined to think so as it would be frustrating the constitutional provision and, accordingly, we unhesitatingly repel the same.‖ (at para 60)
19. In Larsen & Toubro Ltd. v. State of Karnataka, (2014) 1 SCC 708 = 2014 (34) S.T.R. 481 (S.C.) = 2014 (303) E.L.T. 3 (S.C.), this Court stated :-
―In our opinion, the term ―works contract‖ in Article 366(29- A)(b) is amply wide and cannot be confined to a particular understanding of the term or to a particular form. The term encompasses a wide range and many varieties of contract.
Parliament had such wide meaning of ―works contract‖ in its view at the time of the Forty-sixth Amendment. The object of insertion of clause (29-A) in Article 366 was to enlarge the scope of the expression ―tax on sale or purchase of goods‖ and overcome Gannon Dunkerley (1) [State of Madras v. Gannon Dunkerley and Co. (Madras) Ltd., AIR 1958 SC 560 : 1959 SCR 379]. Seen thus, even if in a 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. The additional obligations in the contract would not alter the nature of contract so long as Service Tax Appeal Nos.70111 of 2020, 33 70086 & 70292 of 2022 the contract provides for a contract for works and satisfies the primary description of works contract. 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‖. Nothing in Article 366(29-A)(b) limits the term ―works contract‖ to contract for labour and service only. The learned Advocate General for Maharashtra was right in his submission that the term ―works contract‖ cannot be confined to a contract to provide labour and services but is a contract for undertaking or bringing into existence some ―works‖. We are also in agreement with the submission of Mr. K.N. Bhat that the term ―works contract‖ in Article 366(29-A)(b) takes within its fold all genre of works contract and is not restricted to one specie of contract to provide for labour and services alone. Parliament had all genre of works contract in view when clause (29-A) was inserted in Article 366.‖ (at para 72)
20. We also find that the assessees' argument that there is no charge to tax of works contracts in the Finance Act, 1994 is correct in view of what has been stated above.
21. This Court in Mathuram Agrawal v. State of M.P., (1999) 8 SCC 667, held :-
―Another question that arises for consideration in this connection is whether sub-section (1) of Section 127-A and the proviso to sub-section (2)(b) should be construed together and the annual letting values of all the buildings owned by a person to be taken together for determining the amount to be paid as tax in respect of each building. In our considered view this position cannot be accepted. The intention of the legislature in a taxation statute is to be gathered from the language of the provisions particularly where the language is plain and unambiguous. In a taxing Act it is not possible to assume any intention or governing purpose of the statute more than what is stated in the plain Service Tax Appeal Nos.70111 of 2020, 34 70086 & 70292 of 2022 language. It is not the economic results sought to be obtained by making the provision which is relevant in interpreting a fiscal statute. Equally impermissible is an interpretation which does not follow from the plain, unambiguous language of the statute. Words cannot be added to or substituted so as to give a meaning to the statute which will serve the spirit and intention of the legislature. The statute should clearly and unambiguously convey the three components of the tax law i.e. the subject of the tax, the person who is liable to pay the tax and the rate at which the tax is to be paid. If there is any ambiguity regarding any of these ingredients in a taxation statute then there is no tax in law. Then it is for the legislature to do the needful in the matter.
This construction, in our considered view, amounts to supplementing the charging section by including something which the provision does not state. The construction placed on the said provision does not flow from the plain language of the provision. The proviso requires the exempted property to be subjected to tax and for the purpose of valuing that property alone the value of the other properties is to be taken into consideration. But, if in doing so, the said property becomes taxable, the Act does not provide at what rate it would be taxable. One cannot determine the rateable value of the small property by aggregating and adding the value of other properties, and arrive at a figure which is more than possibly the value of the property itself. Moreover, what rate of tax is to be applied to such a property is also not indicated.‖ (at paras 12 and 16)
22. Equally, this Court in Govind Saran Ganga Saran v. CST, 1985 Supp SCC 205, held :-
―The components which enter into the concept of a tax are well known. The first is the character of the imposition known by its nature which prescribes the taxable event attracting the levy, the second is a clear indication of the Service Tax Appeal Nos.70111 of 2020, 35 70086 & 70292 of 2022 person on whom the levy is imposed and who is obliged to pay the tax, the third is the rate at which the tax is imposed, and the fourth is the measure or value to which the rate will be applied for computing the tax liability. If those components are not clearly and definitely ascertainable, it is difficult to say that the levy exists in point of law. Any uncertainty or vagueness in the legislative scheme defining any of those components of the levy will be fatal to its validity.‖ (at para 6)
23. To similar effect is this Court's judgment in CIT v. B.C. Srinivasa Setty, (1981) 2 SCC 460, held :-
―Section 45 charges the profits or gains arising from the transfer of a capital asset to income tax. The asset must be one which falls within the contemplation of the section. It must bear that quality which brings Section 45 into play. To determine whether the goodwill of a new business is such an asset, it is permissible, as we shall presently show, to refer to certain other sections of the head, ―Capital gains‖. Section 45 is a charging section. For the purpose of imposing the charge. Parliament has enacted detailed provisions in order to compute the profits or gains under that head. No existing principle or provision at variance with them can be applied for determining the chargeable profits and gains. All transactions encompassed by Section 45 must fall under the governance of its computation provisions. A transaction to which those provisions cannot be applied must be regarded as never intended by Section 45 to be the subject of the charge. This inference flows from the general arrangement of the provisions in the Income Tax Act, where under each head of income the charging provision is accompanied by a set of provisions for computing the income subject to that charge. The character of the computation provisions in each case bears a relationship to the nature of the charge. Thus the charging section and the computation provisions together constitute an integrated Service Tax Appeal Nos.70111 of 2020, 36 70086 & 70292 of 2022 code. When there is a case to which the computation provisions cannot apply at all, it is evident that such a case was not intended to fall within the charging section.
Otherwise one would be driven to conclude that while a certain income seems to fall within the charging section there is no scheme of computation for quantifying it. The legislative pattern discernible in the Act is against such a conclusion. It must be borne in mind that the legislative intent is presumed to run uniformly through the entire conspectus of provisions pertaining to each head of income. No doubt there is a qualitative difference between the charging provision and a computation provision. And ordinarily the operation of the charging provision cannot be affected by the construction of a particular computation provision. But the question here is whether it is possible to apply the computation provision at all if a certain interpretation is pressed on the charging provision. That pertains to the fundamental integrality of the statutory scheme provided for each head.‖ (at para 10)
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 Service Tax Appeal Nos.70111 of 2020, 37 70086 & 70292 of 2022 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."
4.5 From the above judgement it is evident that the services as defined 65 (105) (zzq) and 65 (105)(zzzh) of the Finance Act, 1994 are in relation to the contracts of services simpliciter, i.e. which do not involve any transfer in property. In the present case the execution of the contracts in all the acse undisputedly involved the transfer in the property and hence they qualify as composite work contract and are correctly classifiable under the category of "Work Contract Services." The hair splitting of the contract approach that has been adopted in the impugned order to find out whether some of the material for the execution of the contract has been provided by the service recipient is neither envisaged nor desirable. Such an approach has been rejected by the Hon'ble Apex Court by referring to the decision of Gannon Dunkerley in para 14 and subsequent paras. It is always possible that parties to contract agree that certain material will be provided by the service recipient for the execution of contract, but the contract needs to be examined as whole, and its nature will not change just for the reason of supply of some free material by the service recipient. If on whole the contract is for transfer of property along with the services then it is work contract service.
4.6 Adjudicating authority has in respect of all other contracts concluded that these are work contracts and has dropped the demand. Revenue has challenged this part of the order, without even specifying the reasons as to why these composite contracts are not work contracts. In the above referred decision by Service Tax Appeal Nos.70111 of 2020, 38 70086 & 70292 of 2022 referring to the speech of Hon'ble Finance Minister, Apex Court observed:
"25. In fact, by way of contrast, Section 67 post amendment (by the Finance Act, 2006) for the first time prescribes, in cases like the present, where the provision of service is for a consideration which is not ascertainable, to be the amount as may be determined in the prescribed manner.
26. We have already seen that Rule 2(A) framed pursuant to this power has followed the second Gannon Dunkerley case in segregating the ‗service' component of a works contract from the ‗goods' component. It begins by working downwards from the gross amount charged for the entire works contract and minusing from it the value of the property in goods transferred in the execution of such works contract. This is done by adopting the value that is adopted for the purpose of payment of VAT. The rule goes on to say that the service component of the works contract is to include the eight elements laid down in the second Gannon Dunkerley case including apportionment of the cost of establishment, other expenses and profit earned by the service provider as is relatable only to supply of labour and services. And, where value is not determined having regard to the aforesaid parameters, (namely, in those cases where the books of account of the contractor are not looked into for any reason) by determining in different works contracts how much shall be the percentage of the total amount charged for the works contract, attributable to the service element in such contracts. It is this scheme and this scheme alone which complies with constitutional requirements in that it bifurcates a composite indivisible works contract and takes care to see that no element attributable to the property in goods transferred pursuant to such contract, enters into computation of service tax.
Service Tax Appeal Nos.70111 of 2020,
39 70086 & 70292 of 2022
27. In fact, the speech made by the Hon'ble Finance Minister in moving the Bill to tax Composite Indivisible Works Contracts specifically stated :-
―State Governments levy a tax on the transfer of property in goods involved in the execution of a works contract. The value of services in a works contract should attract service tax. Hence, I propose to levy service tax on services involved in the execution of a works contract. However, I also propose an optional composition scheme under which service tax will be levied at only 2 per cent of the total value of the works contract.‖
28. Pursuant to the aforesaid speech, not only was the statute amended and rules framed, but a Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007 was also notified in which service providers could opt to pay service tax at percentages ranging from 2 to 4 of the gross value of the works contract."
4.7 Reference made by the revenue in their appeal to the circular No 98/1/2008-ST dated 04.01.2008 and Circular No 128/10/2010-ST dated 24.08.2010, for questioning the switch over allowed by the impugned order in respect of these contracts, is totally misplaced. The issue that needs to be examined was in respect of the correct classification of services. In the above decision Hon'ble Supreme Court further observed as follows:
30. It now remains to consider the judgment of the Delhi High Court in G.D. Builders.
31. In the aforesaid judgment, it was held that the levy of service tax in Section 65(105)(g), (zzd), (zzh), (zzq) and (zzzh) is good enough to tax indivisible composite works contracts. Various judgments were referred to which have no direct bearing on the point at issue. In paragraph 23 of this judgment, the second Gannon Dunkerley judgment is Service Tax Appeal Nos.70111 of 2020, 40 70086 & 70292 of 2022 referred to in passing without noticing any of the key paragraphs set out hereinabove in our judgment. Also, we find that the judgment in G.D. Builders (supra) went on to quote from the judgment in Mahim Patram Private Ltd. v.
Union of India, 2007 (3) SCC 668 = 2007 (7) S.T.R. 110 (S.C.), to arrive at the proposition that even when rules are not framed for computation of tax, tax would be leviable.
32. We are afraid that the Delhi High Court completely misread the judgment in Mahim Patram's case. This judgment concerned itself with works contracts being taxed under the Central Sales Tax Act. What was argued in that case was that in the absence of any rule under the provisions of the Central Act, the determination of sale price would be left to the whims and fancies of the assessing authority. This argument was repelled by this Court after setting out Sections 2(g) and 2(ja), which define ―sale‖ and ―works contract‖. The Court then went on to discuss Sections 9(2) and 13(3) of the Central Sales Tax Act. Section 9(2) of the Central Sales Tax Act provides :-
......
39. And the Orissa High Court in Larsen & Turbo v. State of Orissa, (2008) 012 VST 0031, held that machinery provisions cannot be provided by circulars and held that therefore the statute in question, being unworkable, assessments thereunder would be of no effect.
40. Finally, in para 31, the Delhi High Court holds :-
―The contention of the petitioners that the impugned notifications override the statutory provisions contained in Section 65(105), which defines the term ―taxable service‖, Section 66, which it is claimed is a charging section, and Section 67, the valuation provisions of the Finance Act, 1994, has to be rejected. We have, as already stated above, rejected the argument of the petitioners on Service Tax Appeal Nos.70111 of 2020, 41 70086 & 70292 of 2022 bifurcation/vivisect and held that as per the provisions of Section 65(105)(zzq) and (zzzh), service tax is payable and chargeable on the service element of the contract for construction of industrial and commercial complexes and contract for construction of complexes as specified and in case of a composite contract, the service element should be bifurcated and ascertained and then taxed. The contention that the petitioners are paying sales tax or VAT on material in relation to execution of the contract under composite contracts for construction of industrial/commercial complexes and construction contracts as specified under Section 65(105)(zzq) and (zzzh) therefore fails. The contention that there was/is no valid levy or the charging section is not applicable to composite contracts under clauses (zzq) and (zzzh) of Section 65(105) stands rejected.
But the petitioners have rightly submitted that only the service component can be brought to tax as per provisions of Section 67 which stipulates that value of taxable service is the ―gross amount charged‖ by the service provider for such services provided or to be provided by him and not the value of the goods provided by customers of service provider and the service tax cannot be charged on the value of the goods used in the contract.‖
41. We are afraid that there are several errors in this paragraph. The High Court first correctly holds that in the case of composite works contracts, the service elements should be bifurcated, ascertained and then taxed. The finding that this has, in fact, been done by the Finance Act, 1994 Act is wholly incorrect as it ignores the second Gannon Dunkerley decision of this Court. Further, the finding that Section 67 of the Finance Act, which speaks of "gross amount charged", only speaks of the "gross amount charged"
for service provided and not the gross amount of the works contract as a whole from which various Service Tax Appeal Nos.70111 of 2020,
42 70086 & 70292 of 2022 deductions have to be made to arrive at the service element in the said contract. We find therefore that this judgment is wholly incorrect in its conclusion that the Finance Act, 1994 contains both the charge and machinery for levy and assessment of service tax on indivisible works contracts.
43. We need only state that in view of our finding that the said Finance Act lays down no charge or machinery to levy and assess service tax on indivisible composite works contracts, such argument must fail. This is also for the simple reason that there is no subterfuge in entering into composite works contracts containing elements both of transfer of property in goods as well as labour and services.
44. We have been informed by counsel for the revenue that several exemption notifications have been granted qua service tax ―levied‖ by the 1994 Finance Act. We may only state that whichever judgments which are in appeal before us and have referred to and dealt with such notifications will have to be disregarded. Since the levy itself of service tax has been found to be non-existent, no question of any exemption would arise. With these observations, these appeals are disposed of.
4.8 Thus in this decision Hon'ble Supreme Court has concluded that service tax could not have been levied on the indivisible work contracts under any of the five categories in absence of any machinery provisions for determination of the value of service simpliciter. Thus even if the appellant has paid some taxes in respect of the same indivisible work contracts during the period prior to 01.06.2007, that payment could not be the reason to deny the benefits available to "work contract services". The issue of switch over, after this decision of Hon'ble Supreme Court has become redundant just for the reason that there was no legality of levy of service tax under these five categories on indivisible work contracts eve after claiming the deductions as provided by Service Tax Appeal Nos.70111 of 2020, 43 70086 & 70292 of 2022 various notifications and circulars. The issue that remains material is in respect of correct identification of the indivisible work contract services and their classification under the category of "work Contract Services".
4.9 As we have concluded that the contracts against which these demands are made are indivisible work contracts, and appellant was paying the service tax by classifying the services rendered against these contract under the category of work contract services, by availing the benefit of Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007 we do not find any merits in the impugned orders and a the appeal filed by revenue.
5.1 Appeals filed by the appellant (assessee) namely ST/70111/2020 & ST/70292/2022 are allowed.
5.2 Appeal field by revenue namely ST/70086/2022 is dismissed.
(Operative part of the order pronounced in open court) (P.K. CHOUDHARY) MEMBER (JUDICIAL) (SANJIV SRIVASTAVA) MEMBER (TECHNICAL) akp