Custom, Excise & Service Tax Tribunal
Ce & Cgst Noida vs Nitya Engineers Constructors on 29 July, 2024
CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL
ALLAHABAD
REGIONAL BENCH - COURT NO.I
Service Tax Appeal No.70291 of 2020
(Arising out of Order-in-Original No.19/Commissioner/GBN/2019-20 dated
11/03/2020 passed by Commissioner of Customs, Central Excise & Service
Tax, Noida)
Commissioner of Central Excise &
CGST, Noida .....Appellant
(C-56/42, Renu Tower, Sector-62, Noida-201306)
VERSUS
M/s Nitya Engineers Constructors, ....Respondent
(C-7, Sector-81, Noida-201306)
APPEARANCE:
Shri Santosh Kumar, Authorised Representative for the Appellant
None, for the Respondent
CORAM: HON'BLE MR. P.K. CHOUDHARY, MEMBER (JUDICIAL)
HON'BLE MR. SANJIV SRIVASTAVA, MEMBER (TECHNICAL)
FINAL ORDER NO.70745/2024
DATE OF HEARING : 29 July, 2024
DATE OF DECISION : 29 July, 2024
SANJIV SRIVASTAVA:
This appeal filed by revenue is directed against Order-in-
Original No.19/Commissioner/GBN/2019-20 dated 11/03/2020
passed by Commissioner of Customs, Central Excise & Service
Tax, Noida. By the impugned order following has been held:-
"ORDER
(i) The demand of service tax against M/s NEC, vide show
cause notice dated 20.10.2008 for Rs.1,32,15,393/- is
hereby dropped.
(ii) Demand of interest u/s 75 is also dropped herewith.
2 Service Tax Appeal No.70291 of 2020
(iii) The proposed penalty of Rs. 1,32,15,393/-u/S 78 of
the Finance Act is hereby dropped. No penalties are
imposable u/S 76 and 77 of the Finance Act, 1994.‖
2.1 This Tribunal vide Final Order No.71716 of 2017 dated
29.11.2017 remanded back the matter to the Original
Adjudicating Authority by observing as follows:-
―2. The appellant's contention is that they are undertaking
the services on turnkey project basis and as such would
fall under the category of works contract, which became
taxable only w.e.f. 01.06.2007. Reliance is placed upon the
Hon'ble Supreme Court decision in the case of Larsen and
Toubro Ltd. - 2015 39 STR 913 SC.
3. Inasmuch as the issue not stands finally decided, we set
aside the impugned order and remand the matter to the
adjudicating authority for fresh decision in the light of the
above declaration of law by the Hon'ble Apex Court. We
make it clear that all other issues are kept open and no
views are being expressed. Further, the appellant would be
given an opportunity to put forth their case, before the
finalization of the remanded proceedings."
Thus the case was remanded back to the adjudicating
authority.‖
2.2 Respondent is engaged in providing services of erection,
installation and commissioning to their clients by way of
installation of electrical or other equipment & devices that
included wiring and testing in relation to commissioning &
installation thereof under the cover of composite contract.
Revenue was under a belief that they have evaded payment of
service tax.
2.3 On the basis of specific intelligence, the premises of the
respondent was searched on 18.02.2008. Statement of Shri
Prashant Shrivastava proprietor of the said firm, present in the
firm, was recorded and certain documents were resumed during
the search. After completion of investigation show cause notice
dated 20.10.2008 was issued to the respondent asking them to
show cause as to why:-
3 Service Tax Appeal No.70291 of 2020
―i. A sum of Rs.1.32,15,393/-(Rs one crore thirty two
lacs fifteen thousand three hundred & ninety three only)
representing amount of Service Tax. Education Cess, &
S.&H.Edu Cess should not be recovered from him under
proviso to Sec 73 of the Finance Act-1994 along with
interest under Sec.75 of Finance Acl-1994.
ii. Penalty should not be imposed upon him under
section 76,77,78 of the Finance Act-1994 for his failure to
pay Service Tax as appears to have been payable by him
under Sec 66 read with Section-68 of Finance Acl-1994.‖
2.4 This show cause notice was adjudicated by the Original
Authority vide Order-in-Original No.40/Commr./Noida/2009-10
dated 30.03.2010. Aggrieved appellant filed appeal before this
Tribunal, which has been allowed, remanding the matter back for
denovo consideration by the Original Authority.
2.5 Original Authority in denovo proceedings dropped the
entire proceedings initiated against the respondent, as per the
impugned order referred in para-1 above. Aggrieved revenue
has filed this appeal.
2.6 In their appeal revenue has stated as follows:-
―4.3 Paragraph 11 of the SCN clearly mentions that on
being asked to submit copies of all contracts of jobs
undertaken/completed during the period 01.03.2003 to
31.03.2008, the proprietor categorically stated, in his
voluntary statement dated 26.09.08 recorded under
Section 14 of the Central Excise Act, 1944 read with
Section 83 of the Finance Act 1994, that he was unable to
produce any of these contracts as all of them were
destroyed in a massive fire which broke out in their office
premises on 10.05.08. The Adjudicating authority also
does not mention that any contract was produced before
him by the party and has simply accepted the contentions
of the party that all the contracts were composite in
nature. Thus the finding appears to be arbitrary and
therefore bad in law.
4 Service Tax Appeal No.70291 of 2020
4.4 Hon'ble CESTAT's order reads as -
"2. The appellant's contention (emphasis applied) is that
they are undertaking the services on turnkey project basis
and as such would fall under the category of Works
Contract, which became taxable only w.e.f. 01.06.2007.
Reliance is placed upon the Hon'ble Supreme Court
decision in the case of Larsen & Toubro Ltd-
2015(39)STR913(S.C.).
3. In as much as the issue not (sic.) stands finally decided,
we set aside the impugned order and remand the matter
to the adjudicating authority for fresh decision in the light
of the above declaration of law by the Hon'ble Apex Court.
We make it clear that all other issues are kept open and no
views are being expressed (Emphasis applied)...."
From the above it is crystal clear that the case was
remanded purely on the matter of principle involved which
was being contended by the party. The relevant physical
records, such as copies of contracts, appear to have
neither been placed nor examined by Hon'ble CESTAT. This
can be inferred from the operative portion of the order
which has a categorical caveat that "all the issues are kept
open and no views are being expressed". The very fact
that Hon'ble CESTAT felt it necessary to qualify their order
with the phrase "no views are being expressed" clearly
shows that actual merits of the particular case vis-à-vis the
records and documents were not examined and it was left
open for the adjudicating authority to go into details
unfettered.
The Adjudicating Authority was required to examine all the
contracts vis-à-vis the contention made by the party about
them being composite contracts and only then decide
about the applicability of the decision of Larsen & Toubro
Ltd. (supra). In the captioned Order-in-Original the
Adjudicating Authority has nowhere recorded that the
relevant contracts were placed before him by the party and
neither has he discussed about any contract nor has given
5 Service Tax Appeal No.70291 of 2020
any reason or finding as to the basis of his decision that all
the contracts during the period was composite in nature.
By arbitrarily treating all the contracts as composite
contract merely on the contention of the party, he has not
only failed to abide by the order of Hon'ble CESTAT, but
has passed an order purely on assumption and
presumption, thus making the order non-speaking and
illegal.
4.5 Paragraph 25 of the SCN refers to a specific contract
clause entered into by the party with M/s Silverline
Holdings Pvt. Ltd. against which the party had agreed to
absorb the prevalent rate of applicable service tax
@3.37%. The Adjudicating Authority has failed to examine
this specific case and appears to have included this
contract in the composite type, ignoring the fact that if the
party had absorbed the Service Tax amount (whether
applicable or not), he had effectively collected an amount
as Service Tax which was required to be deposited in
terms of Section 73A of the Finance Act 1994. Thus the
order is not proper.
4.6 The Adjudicating Authority has agreed that contracts
after 01.06.2007 fell under Works Contract and were
taxable. Thus the party was required to pay Service Tax on
all such contracts. However, by dropping the total demand
raised in the SCN (which included the period from
01.06.2007 to 31.03.2008), he has jeopardized the
undisputed payable government dues from 01.06.2007
too. He should have ascertained the amount of Service Tax
dues from 01.06.2007 and the same should have been
confirmed, and if deposited, as mentioned in Paragraph
7.10 of the Order-in-Original, should have been
appropriated. Since no details of payment of interest or
date of deposit of the said Service Tax has been
mentioned, it appears that appropriate interest ought to
have been ordered to be recovered under Section 75 of the
6 Service Tax Appeal No.70291 of 2020
Finance Act 1994 along with equivalent penalty under
Section 78, ibid.
4.7 Paragraph 22 of the SCN categorically states that the
proprietor of the company produced the Service Tax
Registration Certificate Copy which indicated that the date
of registration was 29.09.08. Accordingly, in the charging
portion of the SCN (Paragraph 26), it has been specifically
alleged that he had failed to obtain registration during the
material period, i.e. 01.07.03 to 31.03.08. So, the penal
provisions of Section 77, ibid ought to have been imposed.
4.8 Appropriate interest should have been confirmed under
Section 75, supra and penalty under Section 78, supra
should have been imposed on the amount not covered by
the decision of Larsen & Toubro (supra), after correct
determination and confirmation.‖
3.1 We have heard Shri Santosh Kumar learned Authorised
Representative appearing for the appellant-revenue.
Respondent-assessee is absent on call despite notice.
3.2 In terms of the Rule 21 of CESTAT Procedure Rule, 1982
as the issue involved in the present appeal is a very narrow
compass, matter is taken up for decision ex-parte.
4.1 We have considered the impugned orders along with the
submissions made in appeal and during the course of argument.
4.2 For dropping the proceedings against the respondent,
commissioner has recorded following findings:-
"As such the issue before me is to find out the implications,
if any, upon the instant matter, with regard to the decision
in the case of L & T as above. I now study the judgment in
the case of L & T and quote the same partially-
COMMISSIONER OF C. EX. & CUS.,KERAL ... Appellant
Versus
LARSEN & TOUBRO LTD. ... Respondent
WITH--------
7 Service Tax Appeal No.70291 of 2020
―1. This group of appeals is by both assessees and the
revenue and concerns itself with whether service tax can be
levied on indivisible works contracts prior to the introduction,
on 1st June, 2007, of the Finance Act, 2007 which expressly
makes such works contracts liable to service tax.
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5. This is the historical setting within which the present controversy arises.
6. Service tax was introduced by the Finance Act, 1994 and various services were set out in Section 65 thereof as being amenable to tax. The legislative competence of such tax is to be found in Article 248 read with Entry 97 of List I of the 7th Schedule to the Constitution of India. All the present cases are cases which arise before the 2007 amendment was made, which introduced the concept of ―works contract‖ as being a separate subject matter of taxation. Various amendments were made in the sections of the Finance Act by which ―works contracts‖ which were indivisible and composite were split so that only the labour and service element of such contracts would be taxed under the heading ―Service Tax‖.
7. Learned counsel for the revenue has essentially raised four arguments before us in which he assails the judgments of various Tribunals and High Courts which have decided against the revenue on this point. According to him, the 46th Amendment has itself divided works contracts by Article 366(29A)(b). After taking out the ―goods‖ element from such contracts, what remains is the ―labour and service‖ element which, according to him, has been subjected to tax by various entries in the Finance Act, 1994. Further, relying upon Section 23 of the Contract Act and Mcdowell and Company Ltd. v. Commercial Tax Officer, (1985) 2 SCC 230, he went on to argue that post 1994 all indivisible works contracts were made with a view to evade or avoid tax and that therefore being contrary to public policy, the principles in Mcdowell's judgment should apply to make such so-called indivisible contracts taxable under the Finance Act, 1994. According to him, the Finance Act, 1994 itself contains both the charge of 8 Service Tax Appeal No.70291 of 2020 tax as well as the machinery by which only the labour and service element in these indivisible contracts is taxable, it being his contention that the statute need not do what the constitutional amendment has already done - namely, split the indivisible works contract into a separate contract of transfer of property in goods involved in the execution of the works contract on the one hand, which is taxable by the States, and the labour and services element on the other, which is taxable, according to him, by the Central Government. Further, he argued that the fact that the 2007 Amendment Act has, in fact, defined works contract for the first time and sought to split it, and tax only the element of labour and service would make no difference because, according to him, whatever elements of works contracts were taxable under the Finance Act, 1994 would continue to be taxable and would be untouched by the said amendment.
8. On the other hand, learned counsel for the assessees assailed the judgments of the Tribunals and the High Courts against them, in particular the judgment in G.D. Builders v. UOI and Anr., 2013 (32) S.T.R. 673 (Del.), of the Delhi High Court. In answer to revenue's contention, learned counsel argued that a works contract is a separate species known to the world of commerce and law as such. That being so, an indivisible works contract would have to be split into its constituent parts by necessary legislation which would then contain, post splitting, a charge to service tax together with the necessary machinery to enforce such charge. According to learned counsel, not only was there no such charge pre-2007 but there were no machinery provisions as well to bring indivisible works contracts under the service tax net. According to learned counsel, what was taxable under the Finance Act, 1994 was only cases of pure service in which there was no goods element involved. Further, according to them, for various reasons, the sheet anchor of revenue's case, the Delhi High Court judgment in G.D. Builders (supra), was wholly incorrect, and the minority judgment of the judicial members of a Full Bench of the Delhi Tribunal in M/s. Larsen & Toubro Ltd. v. CST, Delhi, 2015-TIOL-527-CESTAT- DEL-LB = 2015 (38) S.T.R. 266 (Tri.-LB) = 2015 (318) E.L.T. 9 Service Tax Appeal No.70291 of 2020 633 (Tri.-LB), comprehensively discussed all the authorities that were relevant to this issue and arrived at the correct conclusion.
9. We have heard learned counsel for the parties. Before examining the contentions made on the both sides, it will be necessary to set out the Finance Act, 1994 insofar as it pertains to the levy of service tax.
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11. By the Finance Act, 2007, for the first time, Section 65(105)(zzzza) set out to tax the following :-
―(zzzza) to any person, by any other person in relation to the execution of a works contract, excluding works contract in respect of roads, airports, railways, transport terminals, bridges, tunnels and dams.
Explanation : For the purposes of this sub-clause, ―works contract‖ means a contract wherein, -
(i) Transfer of property in goods involved in the execution of such contract is leviable to tax as sale of goods, and
(ii) Such contract is for the purposes of carrying out, -
(a) Erection, commissioning or installation of plant, machinery, equipment or structures, whether pre-fabricated or otherwise, installation of electrical and electronic devices, plumbing, drain laying or other installations for transport of fluids, heating, ventilation or air-conditioning including related pipe work, duct work and sheet metal work, thermal insulation, sound insulation, fire proofing or water proofing, lift and escalator, fire escape staircases or elevators; or
(b) Construction of a new building or a civil structure or a part thereof, or of a pipeline or conduit, primarily for the purposes of commerce or industry; or
(c) Construction of a new residential complex or a part thereof; or 10 Service Tax Appeal No.70291 of 2020
(d) Completion and finishing services, repair, alteration, renovation or restoration of, or similar services, in relation to
(b) and (c); or
(e) Turnkey projects including engineering, procurement and construction or commissioning (EPC) projects;‖
12. Section 67 of the Finance Act, 1994 was amended to read as follows :-
"Valuation of taxable services for charging Service tax.
-
(1) Subject to the provisions of this Chapter, service tax chargeable on any taxable service with reference to its value shall, --
(i) in a case where the provision of service is for a consideration in money, be the gross amount charged by the service provider for such service provided or to be provided by him;
(ii) in a case where the provision of service is for a consideration not wholly or partly consisting of money, be such amount in money, with the addition of service tax charged, is equivalent to the consideration;
(iii) in a case where the provision of service is for a consideration which is not ascertainable, be the amount as may be determined in the prescribed manner.‖
13. Pursuant to the aforesaid, the Service Tax (Determination of Value) Rules, 2006 were made, Rule 2A of which reads as under :-
―2A. Subject to the provisions of section 67, the value of service portion in the execution of a works contract, referred to in clause (h) of section 66E of the Act, shall be determined in the following manner, namely :-
(i) Value of service portion in the execution of a works contract shall be equivalent to the gross amount charged for 11 Service Tax Appeal No.70291 of 2020 the works contract less the value of property in goods transferred in the execution of the said works contract.
Explanation. - For the purposes of this clause, -
(a) gross amount charged for the works contract shall not include value added tax or sales tax, as the case may be, paid or payable, if any, on transfer of property in goods involved in the execution of the said works contract;
(b) value of works contract service shall include, -
(i) labour charges for execution of the works;
(ii) amount paid to a sub-contractor for labour and services;
(iii) charges for planning, designing and architect's fees;
(iv) charges for obtaining on hire or otherwise, machinery and tools used for the execution of the works contract;
(v) cost of consumables such as water, electricity, fuel used in the execution of the works contract;
(vi) cost of establishment of the contractor relatable to supply of labour and services;
(vii) other similar expenses relatable to supply of labour and services; and
(viii) profit earned by the service provider relatable to supply of labour and services;
(c) where value added tax or sales tax has been paid or payable on the actual value of property in goods transferred in the execution of the works contract, then, such value adopted for the purposes of payment of value added tax or sales tax, shall be taken as the value of property in goods transferred in the execution of the said works contract for determination of the value of service portion in the execution of works contract under this clause.
12 Service Tax Appeal No.70291 of 2020
(ii) Where the value has not been determined under clause
(i), the person liable to pay tax on the service portion involved in the execution of the works contract shall determine the service tax payable in the following manner, namely :-
(A) in case of works contracts entered into for execution of original works, service tax shall be payable on forty per cent of the total amount charged for the works contract;
(B) in case of works contract entered into for maintenance or repair or reconditioning or restoration or servicing of any goods, service tax shall be payable on seventy per cent of the total amount charged for the works contract;
(C) in case of other works contracts, not covered under sub-
clauses (A) and (B) including maintenance, repair, completion and finishing services such as glazing, plastering, floor and wall tiling, installation of electrical fittings of an immovable' property, service tax shall be payable on sixty per cent of the total amount charged for the works contract.
Explanation I. - For the purposes of this rule, -
(a) ‖original works‖ means - (l) all new constructions; (ii) all types of additions and alterations to abandoned or
damaged structures on land that are required to make them workable;
(iii) erection, commissioning or installation of plant, machinery or equipment or structures, whether pre-fabricated or otherwise;
(d) ‖total amount‖ means the sum total of the gross amount charged for the works contract and the fair market value of all goods and services supplied in or in relation to the execution of the works contract, whether or not supplied under the same contract or any other contract, after deducting -
13 Service Tax Appeal No.70291 of 2020
(i) the amount charged for such goods or services, if any; and
(ii) the value added tax or sales tax, if any, levied thereon:
Provided that the fair market value of goods and services so supplied may be determined in accordance with the generally accepted accounting principles.
Explanation 2. - For the removal of doubts, it is clarified that the provider of taxable service shall not take Cenvat credit of duties or cess paid on any inputs, used in or in relation to the said works contract, under the provisions of Cenvat Credit Rules, 2004.‖
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.
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15. A reading of this judgment, on which counsel for the assessees heavily relied, would go to show that the separation of the value of goods contained in the execution of a works contract will have to be determined by working from the value of the entire works contract and deducting therefrom charges towards labour and services. Such deductions are stated by the Constitution Bench to be eight in number. What is important in particular is the deductions which are to be made under sub-paras (f), (g) and (h). Under each of these paras, a bifurcation has to be made by the charging Section itself so that the cost of establishment of the contractor is bifurcated into what is relatable to supply of labour and services. Similarly, all other expenses have also to be bifurcated insofar as they are relatable to supply of labour and services, and the same goes for the profit that is earned by the contractor. These deductions are ordinarily to be made 14 Service Tax Appeal No.70291 of 2020 from the contractor's accounts. However, if it is found that contractors have not maintained proper accounts, or their accounts are found to be not worthy of credence, it is left to the legislature to prescribe a formula on the basis of a fixed percentage of the value of the entire works contract as relatable to the labour and service element of it. This judgment, therefore, clearly and unmistakably holds that unless the splitting of an indivisible works contract is done taking into account the eight heads of deduction, the charge to tax that would be made would otherwise contain, apart from other things, the entire cost of establishment, other expenses, and profit earned by the contractor and would transgress into forbidden territory namely into such portion of such cost, expenses and profit as would be attributable in the works contract to the transfer of property in goods in such contract. This being the case, we feel that the learned counsel for the assessees are on firm ground when they state that the service tax charging section itself must lay down with specificity that the levy of service tax can only be on works contracts, and the measure of tax can only be on that portion of works contracts which contain a service element which is to be derived from the gross amount charged for the works contract less the value of property in goods transferred in the execution of the works contract. This not having been done by the Finance Act, 1994, it is clear that any charge to tax under the five heads in Section 65(105) noticed above would only be of service contracts simpliciter and not composite indivisible works contracts.
16. 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 15 Service Tax Appeal No.70291 of 2020 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.
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17. We find that the assessees are correct in their submission that a works contract is a separate species of 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 :-
16 Service Tax Appeal No.70291 of 2020 ―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 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.
17 Service Tax Appeal No.70291 of 2020 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 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
18 Service Tax Appeal No.70291 of 2020 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 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)
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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 19 Service Tax Appeal No.70291 of 2020 language of Section 65(105) which defines ―taxable service‖ as ―any service provided‖. All the services referred to in the said sub-clauses are service contracts simpliciter without any other element in them, such as for example, a service contract which is a commissioning and installation, or erection, commissioning and installation contract. Further, under Section 67, as has been pointed out above, the value of a taxable service is the gross amount charged by the service provider for such service rendered by him. This would unmistakably show that what is referred to in the charging provision is the taxation of service contracts simpliciter and not composite works contracts, such as are contained on the facts of the present cases. It will also be noticed that no attempt to remove the non-service elements from the composite works contracts has been made by any of the aforesaid Sections by deducting from the gross value of the works contract the value of property in goods transferred in the execution of a works contract.
25. In fact, by way of contrast, Section 67 post amendment (by the Finance Act, 2006) for the first time prescribes, in cases like the present, where the provision of service is for a consideration which is not ascertainable, to be the amount as may be determined in the prescribed manner.
26. We have already seen that Rule 2(A) framed pursuant to this power has followed the second Gannon Dunkerley case in segregating the ‗service' component of a works contract from the ‗goods' component. It begins by working downwards from the gross amount charged for the entire works contract and minusing from it the value of the property in goods transferred in the execution of such works contract. This is done by adopting the value that is adopted for the purpose of payment of VAT. The rule goes on to say that the service component of the works contract is to include the eight elements laid down in the second Gannon Dunkerley case including apportionment of the cost of establishment, other expenses and profit earned by the service provider as is relatable only to supply of labour and services. And, where value is not determined having regard to the aforesaid 20 Service Tax Appeal No.70291 of 2020 parameters, (namely, in those cases where the books of account of the contractor are not looked into for any reason) by determining in different works contracts how much shall be the percentage of the total amount charged for the works contract, attributable to the service element in such contracts. It is this scheme and this scheme alone which complies with constitutional requirements in that it bifurcates a composite indivisible works contract and takes care to see that no element attributable to the property in goods transferred pursuant to such contract, enters into computation of service tax.
27. In fact, the speech made by the Hon'ble Finance Minister in moving the Bill to tax Composite Indivisible Works Contracts specifically stated :-
―State Governments levy a tax on the transfer of property in goods involved in the execution of a works contract. The value of services in a works contract should attract service tax. Hence, I propose to levy service tax on services involved in the execution of a works contract. However, I also propose an optional composition scheme under which service tax will be levied at only 2 per cent of the total value of the works contract.‖
28. Pursuant to the aforesaid speech, not only was the statute amended and rules framed, but a Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007 was also notified in which service providers could opt to pay service tax at percentages ranging from 2 to 4 of the gross value of the works contract.
29. It is interesting to note that while introducing the concept of service tax on indivisible works contracts various exclusions are also made such as works contracts in respect of roads, airports, airways transport, bridges, tunnels, and dams. These infrastructure projects have been excluded and continue to be excluded presumably because they are conceived in the national interest. If learned counsel for the revenue were right, each of these excluded works contracts could be taxed under the five sub-heads of Section 65(105) 21 Service Tax Appeal No.70291 of 2020 contained in the Finance Act, 1994. For example, a works contract involving the construction of a bridge or dam or tunnel would presumably fall within Section 65(105)(zzd) as a contract which relates to erection, commissioning or installation. It is clear that such contracts were never intended to be the subject matter of service tax. Yet, if learned counsel for the revenue is right, such contracts, not being exempt under the Finance Act, 1994, would fall within its tentacles, which was never the intention of Parliament.
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40. Finally, in para 31, the Delhi High Court holds :-
―The contention of the petitioners that the impugned notifications override the statutory provisions contained in Section 65(105), which defines the term ―taxable service‖, Section 66, which it is claimed is a charging section, and Section 67, the valuation provisions of the Finance Act, 1994, has to be rejected. We have, as already stated above, rejected the argument of the petitioners on bifurcation/vivisect and held that as per the provisions of Section 65(105)(zzq) and (zzzh), service tax is payable and chargeable on the service element of the contract for construction of industrial and commercial complexes and contract for construction of complexes as specified and in case of a composite contract, the service element should be bifurcated and ascertained and then taxed. The contention that the petitioners are paying sales tax or VAT on material in relation to execution of the contract under composite contracts for construction of industrial/commercial complexes and construction contracts as specified under Section 65(105)(zzq) and (zzzh) therefore fails. The contention that there was/is no valid levy or the charging section is not applicable to composite contracts under clauses (zzq) and (zzzh) of Section 65(105) stands rejected. But the petitioners have rightly submitted that only the service component can be brought to tax as per provisions of Section 67 which stipulates that value of taxable service is the ―gross amount charged‖ by the service provider for such services provided or 22 Service Tax Appeal No.70291 of 2020 to be provided by him and not the value of the goods provided by customers of service provider and the service tax cannot be charged on the value of the goods used in the contract.‖
41. We are afraid that there are several errors in this paragraph. The High Court first correctly holds that in the case of composite works contracts, the service elements should be bifurcated, ascertained and then taxed. The finding that this has, in fact, been done by the Finance Act, 1994 Act is wholly incorrect as it ignores the second Gannon Dunkerley decision of this Court. Further, the finding that Section 67 of the Finance Act, which speaks of ―gross amount charged‖, only speaks of the ―gross amount charged‖ for service provided and not the gross amount of the works contract as a whole from which various deductions have to be made to arrive at the service element in the said contract. We find therefore that this judgment is wholly incorrect in its conclusion that the Finance Act, 1994 contains both the charge and machinery for levy and assessment of service tax on indivisible works contracts.
42. It remains to consider the argument of Shri Radhakrishnan that post 1994 all indivisible works contracts would be contrary to public policy, being hit by Section 23 of the Indian Contract Act, and hit by Mcdowell's case.
43. We need only state that in view of our finding that the said Finance Act lays down no charge or machinery to levy and assess service tax on indivisible 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 23 Service Tax Appeal No.70291 of 2020 been found to be non-existent, no question of any exemption would arise. With these observations, these appeals are disposed of.
45. We, therefore, allow all the appeals of the assessees before us and dismiss all the appeals of the revenue.‖ (emphasis supplied) I find that with this decision by the Hon'ble Supreme Court, the issue that Whether Service tax can be levied on indivisible Works Contracts prior to its introduction on June 1, 2007' was finally settled.
7.3 Now I shall endeavor to find out, on the basis of records available, the nature and compass of the services provided by the party. The contracts, profile brochures, and completion certificates from customers, etc., Indicate that M/s. NEC were claiming themselves to be a leading "Electrical Contractor" in Northern India, which undertook electrical contracts that included Supply, installation, erection, testing & commissioning of electrical substation equipment up to 33 KV (Transformers, H.T. Panels etc.), Power distribution system, Internal & external electrification for housing, Public address & Telecommunication system, Fire detection & Telecommunication system, UPS system, and Pre-paid electricity Metering system.
7.4 It has been alleged in the SCN that M/s. NEC were providing services of "erection & commission or installation" to their clients by way of installation of electrical or other equipment & devices that included wiring and testing in relation to commissioning & installation thereof. Hence M/s. NEC are alleged to have evaded payment of Service Tax leviable on such services under the provisions of Finance Act, 1994 and Rules made there under.
The party have stated that their contracts are indivisible, composite work contracts which include sale and service components where the primary motive of the firm is to supply the equipment.
24 Service Tax Appeal No.70291 of 2020 The party's submission consists of the following -
The Services provided by the Noticee are not covered under Erection, Commissioning or Installation Service. They are primarily engaged in supply of goods and installation thereof. The primary intention of the Firm was to supply the equipment on turnkey basis and installation thereof. Further the application of Notification 19/2003 is optional. An optional provision of an exemption notification cannot be used to tax an activity which per se is not taxable in terms of the charging section of the Finance Act. Further it is well established principal of law that an exemption notification cannot be interpreted in a way so as to create duty liability, which is not there. The Contracts of their Firm are work contract/ turnkey contracts where primary objective is supply of goods. The Turnkey Contracts are indivisible contracts, where the sale and service portions cannot be vivisected to charge service tax on service portion. The Turnkey Contracts were not liable to service ax prior to June 1, 2007, In view of the above, no penalty can be imposed and no interest is payable.
The party contended that they are engaged in the business of supply, erection, commissioning and installation on turnkey basis of electrical equipment and devices. The Services provided by them are not covered under Erection, Commissioning or Installation Service. The scope of Section 65(39a) is restricted purely to the service of erection, commissioning or installation only and does not include any activity which involves supply of the equipment as well. The party has elaborated the meaning of "works contract" and the fact that their activity is nothing but "works contract". They have submitted from the dictionary meanings and definition provided under the Finance Act of the term 'works contract' that turnkey contracts are works contract which includes supply of the goods along with services. The Noticee also submitted that the word "turnkey" means involving a complete product or service ready for use. A turnkey contract implies contract providing a complete product along with service so that product is made ready to be used by the person receiving it. Thus the contracts entered into by them are turnkey contract (a kind of works contract) as in most of the 25 Service Tax Appeal No.70291 of 2020 contracts services have been provided alongwith supply of goods and a lump sum amount is charged from the clients. They have also quoted from the cases of S.I. Corpn. (P.) Ltd. Vs. Board of Revenue, Trivandrum [(1961)12 STC 3441 and State of Madras Vs. Richardson & Cruddas Ltd. [(1968) 21 STC 2451, to put forth their point of view that the Turnkey Contracts were not liable to service tax prior to June 1, 2007.‖
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7.6 I find that the department, has ascertained the service tax liability (under 'ECIS") of the party, as per Notification No. 19/2003 dated 21.08.2003 which provides abatement to the extent of 67% of the gross amount charged for the services, in case the contract involves providing erection, commissioning or installation service along with supply of plant, machinery, equipment etc and as such allowed an abatement of 67% from the gross value of the works executed during the relevant period. i.e, the department acknowledged that the services undertaken by the party were services plus supply of goods that is why an abatement w.r.t the materials supplied (@ 67% as envisaged in the said Notification) has been given while ascertaining the service tax. Thus the department concurs with the fact that the party did not perform 'services alone' and that theirs was composite contracts La performance of services alongwith supply of materials necessary for performance of such services.
7.7 Vide his statement dt. 26.09.08 recorded before the Superintendent (A.E.) under sec. 14 of the Central Excise Act- 1944 as made applicable to Service Tax matters vide section 83 of Finance Act-1994, Shri Prashant Shrivastava deposed, that all the contracts undertaken by him necessarily involved supply of goods and does not undertake any contract exclusively for services. M/s NEC was also paying Works Contract Tax to the Govt. of Uttar Pradesh against transfer of goods to the client on the value of composite contracts of supply of goods & provision of aforesaid services. The said Works contract Tax is deducted by the clients at source at the time of making payment to 177'S NEC and is also deposited to the State exchequer directly. I find 26 Service Tax Appeal No.70291 of 2020 that this fact has not been proved otherwise by the department, further it is seen that in a post budget letter issued by the CBEC under F. No. B1/16/2007-TRU dated May 22, 2007 following clarification in respect of works contract is given:
"9.8 Presently, erection, commissioning or installation service (section 85(106)(zzd)), commercial or industrial construction service [section 65(105)(zzq)) and construction of complex service [Section 65(105)(zzzh)) are separate taxable services.
9.9 Various trade and industry associations have raised apprehension inrespect of classification of a contract either under the newly introduced works contract service or under erection, commissioning or installation and commercial or residential construction services.
9.10 Contracts which are treated as works contract for the purpose of levy of VAT/sales tax shall also be treated as works contract for the purpose of levy of service tax. This is clear from the definition under section 65(105) (zzzza)."
(Emphasis supplied) 7.8 I find that in a similar case - Real Value Promoters Pvt. Ltd. Vs. Comm. Of GST & Central Excise, Chennai, appeal No. ST/723/2010 Final Order Nos.42436-42438/2018 dated 18.09.2018, issued by the Hon'ble CESTAT Chennai it has been decided-
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7.4 The taxable service of works contract was introduced with effect from 1.6.2007 by insertion of section 65(105)(zzzza). The Explanation to the said provision also contained the definition of ―works contract‖. Section 65(105)(zzzza) read as under:- ―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 27 Service Tax Appeal No.70291 of 2020 dams. Explanation. - For the purposes of this sub-clause, ―works contract‖ means a contract wherein, - (i) transfer of property in goods involved in the execution of such contract is leviable to tax as sale of goods, and (ii) such contract is for the purposes of carrying out, - (a) erection, commissioning or installation of plant, machinery, equipment or structures, whether prefabricated or otherwise, installation of electrical and electronic devices, plumbing, drain laying or other installations for transport of fluids, heating, ventilation or airconditioning including related pipe work, duct work and sheet metal work, thermal insulation, sound insulation, fire proofing or water proofing, lift and escalator, fire escape staircases or elevators; or (b) construction of a new building or a civil structure or a part thereof, or of a pipeline or conduit, primarily for the purposes of commerce or industry; or (c) construction of a new residential complex or a part thereof; or (d) completion and finishing services, repair, alteration, renovation or restoration of, or similar services, in relation to (b) and (c); or (e) turnkey projects including engineering, procurement and construction or commissioning (EPC) projects‖ 7.5 There was considerable litigation on the issue whether service tax can be levied on indivisible works contract prior to its introduction from 1.6.2007 which was finally settled by the Hon‟ble Apex Court in the case of Commissioner of Central Excise Vs. Larsen & Toubro Ltd. reported in 2015 (39) STR 390 (SC). The Hon‟ble Apex Court held that the taxable services of „consulting engineer‟ under section 65(105)(g) of the Finance Act; erection, „commission and installation services‟ under section 65(105)(zzd) of the said Act; „technical testing and analysis‟ under section 65(105)(zzh) ibid; „construction services‟ under section 65(105)(zzq); construction of complex services under section 65(105)(zzzh) would refer only to service contracts simpliciter and not to composite works contracts; that these five taxable services only would qualify without any other element. The Hon‟ble Supreme Court also observed that with introduction of works contract service as a separate taxable service, statutory mechanism to exclude the value of transfer of property of goods has been prescribed. The Apex Court held that since the Finance Act had not laid down any charge or 28 Service Tax Appeal No.70291 of 2020 machinery to levy and assess service tax on indivisible works contract prior to 1.6.2007, the levy on such composite works contract prior to that date has no constitutional validity.
7.6 The Larsen & Toubro (supra) judgment has been followed by this Tribunal in many numbers of cases to set aside the demand of service tax on services like commercial or industrial construction service, construction of complex service etc. involving composite contract of both material supply as well as service element prior to 1.6.2007.
7.7 In the present appeal also, there is no dispute that the construction activities are in the nature of composite works contract. The appellants being involved in the construction of the same projects prior to and after 1.6.2007, for example, even in the show cause notice dated 20.10.2009 (relating to Appeal No. ST/723/2010), taxable value has been calculated at 33% of gross amount received which is an implicit admission that that activity involved both material supply as well as value services. Another ground for demand is that the appellants have not exercised their option for payment of service tax under Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007. In any case, the show cause notices implicitly agree that the work performed by the appellant is in the nature of composite works contract only. Based on the Hon'ble Apex Court judgment in Larsen & Toubro, such composite works contract then will not be liable to service tax levy prior to 1.6.2007. On the same ratio, such composite contracts even for the period after 1.6.2007 disputed in these appeals will still have to be held as composite works contract only and not pure service simpliciter contracts that could be classified under commercial or industrial construction service, or construction of complex service. To put in another way, to merit being classified as CICS or CCS, the service provider concerned will be rendering only service simpliciter without any other element in them namely without any material or goods supply involved. That is definitely not the case in the facts of these appeals. The activities of the appellants will therefore continue to be in the nature of composite works contract services and hence even after 1.6.2007 for the periods disputed in these appeals they 29 Service Tax Appeal No.70291 of 2020 cannot be brought within the fold of commercial or industrial construction service or construction of complex service as proposed in the show cause notices and confirmed in the impugned orders.
7.8 On the contrary, being composite works contracts, they will necessarily fall within the ambit of works contract service as defined under section 65(105)(zzzza) ibid. It is possibly with this intent in mind that the lawmakers have included in the definition of works contract, erection and commissioning service, commercial or industrial construction service, construction of complex service and in addition turnkey projects including EPC projects within the definition of Works Contract Service.
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7.10 The issue was analyzed by the Hon‟ble Apex Court in Larsen & Toubro case (supra) and held that there can be no levy of service tax on composite contracts (involving both service and supply of goods) prior to 1.6.2007. This read together with the budget speech as above would lead to the strong conclusion that composite contracts were brought within the ambit of levy of service tax only with effect from 1.6.2007 by introduction of Section 65(105)(zzzza) i.e. Works Contract Services. As pointed out by the ld. counsels for appellants, there is no change in the definition of CICS/CCS/RCS after 1.6.2007. Therefore only those contracts which were service simpliciter (not involving supply of goods) would be subject to levy of service tax under CICS / CCS / RCS prior to 1.6.2007 and after. Our view is supported by the fact that the method / scheme for discharging service tax on the service portion of composite contract was introduced only in 2007.
8. In the light of the discussions, findings and conclusions above and in particular, relying on the ratios of the case laws cited supra, we hold as under
a. The services provided by the appellant in respect of the projects executed by them for the period prior to 1.6.2007 being 30 Service Tax Appeal No.70291 of 2020 in the nature of composite works contract cannot be brought within the fold of commercial or industrial construction service or construction of complex service in the light of the Hon"ble Supreme Court judgment in Larsen & Toubro (supra) upto 1.6.2007 b. For the period after 1.6.2007, service tax liability under category of commercial or industrial construction service" under Section 65(105)(zzzh) Ibid, Construction of Complex Service under Section 65(105)(zzzq) will continue to be attracted only if the activities are in the nature of services" simpliciter.
c. For activities of construction of new building or civil structure of new residential complex etc. Involving indivisible composite contract, such services will require to be exigible to service tax liabilities under Works Contract Service" as defined under section 65(105)(zzzza) ibid.
d. The show cause notices in all these cases prior to 1.6.2007 and subsequent to that date for the periods in dispute, proposing service tax liability on the impugned services involving composite works contract, under Commercial or Industrial Construction Service" or Construction of Complex Service, cannot therefore sustain. In respect of any contract which is a composite contract, service tax cannot be demanded under CICS/CCS for the periods also after 1.6.2007 for the periods in dispute in these appeals. For this very reason, the proceedings in all these appeals cannot sustain.
10. The impugned orders are therefore set aside and appeals allowed with consequential benefit, if any, as per law"
(emphasis supplied) 7.9 In another similar matter - Orient Poles Vs. Comm. Of GST & C.Ex., Chennai, appeal No. ST/397/2011, Final Order Nos. 42770-42778/2018 dt. 29.10.2018, Hon'ble CESTAT, Chennai decided-
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31 Service Tax Appeal No.70291 of 2020
5. After hearing both sides, it is brought to light that the period involved in the present case is July 2007 to September 2011. The demand has been raised in the show cause notice under ECIS. The contract entered between the appellant and the service recipient is a composite contract which involves both supply of materials as well as rendering of service. The Tribunal in the case of Real Value Promoters Ltd. (supra) had occasion to analyse the issue regarding demand of service tax under construction of residential complex services, commercial or industrial construction service and construction of complex service. The Tribunal has held that prior to 1.6.2007, levy of service tax can be under the above categories only for contracts which are purely for services. That after 1.6.2007, the above categories would be applicable only if the contracts are purely services and which are not composite contracts. Further, it was held that after 1.6.2007, demand in respect of composite contracts would fall under works contract service only. The relevant portion of the said decision is reproduced as under-
7.8 On the contrary, being composite works contracts, they will necessarily fall within the ambit of works contract service as defined under section 65(105)(zzzza) ibid. It is possibly with this intent in mind that the lawmakers have included in the definition of works contract, erection and commissioning service, commercial or industrial construction service, construction of complex service and in addition turnkey projects including EPC projects within the definition of Works Contract Service.
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7.10 The issue was analyzed by the Hon'ble Apex Court in Larsen & Toubro case (supra) and held that there can be no levy of service tax on composite contracts (involving both service and supply of goods) prior to 1.6.2007. This read together with the budget speech as above would lead to the strong conclusion that composite contracts were brought within the ambit of levy of service tax only with effect from 1.6.2007 by introduction of Section 65(105)(zzzza) le. Works Contract Services. As pointed out by the Id. counsels for appellants, there is no change in the definition of CICS/CCS/RCS after 1.6.2007. Therefore only those 32 Service Tax Appeal No.70291 of 2020 contracts which were service simpliciter (not involving supply of goods) would be subject to levy of service tax under CICS/CCS/RCS prior to 1.6.2007 and after. Our view is supported by the fact that the method/scheme for discharging service tax on the service portion of composite contract was introduced only in 2007.
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7.13 We find sustenance in arriving at this conclusion by a number of decisions of the Tribunal in which it has held as under.-
a. In the case of Commissioner, Service Tax, New Delhi Vs. Swadeshi Construction Company-2018-TIOL-1096-CESTAT-DEL, the Tribunal in para 7 has held as under-
7. We note that in the present case, the SCN was issued on 27.05.2011. On that date, both the tax entries, namely, Commercial or Industrial Construction Service and Works Contract Service, were available in the Finance Act, 1994. The SCN did mention this in the first para itself. However, the proposal for tax demand was specifically made under Commercial or Industrial Construction Service under Section 65 (105) (zzq) of the Finance Act, 1994. In such situation, we note that it cannot be a case of simple mentioning of wrong provisions of law as submitted by the Revenue. Apparently, the tax liability of composite works contract is to be considered under works contract services only as per legal position settled by the Hon'ble Apex Court in M/s L&T Limited Even in the appeal, the Revenue submitted that the respondent were engaged in construction services liable to tax under tax entry 65(105) (xxq). The grievance of the Revenue is with reference to commercial nature of the construction undertaken by the respondent and not on the correct classification of taxable activity."
b. in the case of Skyway Infra Projects Pvt. Ltd. Vs. Commissioner of Service Tax, Mumbai-2018-TIOL-360-CESTAT- MUM, in respect of identical issue for the period from 2005 to 2012, the Tribunal in para 7 has held as under- 7. On careful 33 Service Tax Appeal No.70291 of 2020 consideration of the submissions made by both the sides, we find that the issue falls for consideration is whether the services rendered by the appellant in respect of 52 contracts entered with various Govt. authorities need to be taxed under MMRC/CICS/ECIS or otherwise. It is on record and undisputed that the adjudicating authority has specifically held that all the 52 contracts which has been executed by the appellants are with material. Learned Counsel was correct in bringing to our notice that the said findings of the adjudicating authority that the appellant is eligible for abatement of 67% of the value of the goods is in itself the acceptance of the fact that the contracts were executed with material. It is also on record that the Revenue has not contested these findings of the adjudicating authority before the Tribunal. If that be so, even when the Revenue authorities are accepting the facts that the contracts executed by the appellant are nothing but works contracts, for the period in question, entire case of the Revenue in the show-cause notice stands demolished by the Apex Court in the case of Larsen & Toubro Ltd. (supra). In the said judgment, their Lordships have very categorically laid down the law that the works contract cannot be vivisected for the confirmation of demand under various other services. On this ground itself, the entire demand confirmed by the adjudicating authority is liable to be set aside and we do so."
5. Following the above decision, we are of the considered opinion that the demand of service tax under ECIS cannot sustain after the period 1.6.2007 The denial of CENVAT credit on rent-a-cab service being prior to 1.4.2011 is unjustified and the assessees are eligible to avail CENVAT credit on the same.
6. From the discussions made above, we hold that the impugned orders cannot sustain and are set aside. The appeals filed by the assessee are allowed with consequential relief, if any. The appeals filed by Revenue are dismissed. The cross-objections filed by the assessee are disposed accordingly. The miscellaneous application filed by Revenue for change of cause title is allowed."
(emphasis supplied) 34 Service Tax Appeal No.70291 of 2020 7.10 In view of the declaration of law by the Hon'ble Supreme Court in the case of L & T, as elaborated above, the Services of the Noticee involved in the composite contracts do not get covered under the definition of erection, commissioning or installation (ECIS), since it is evident that the Services have been provided alongwith supply of the goods. And again as per the above decision the services (alongwith the supply of the material/composite contracts) performed by the party is works contract service' which is taxable from 01.06.2007. It is emphasized that such type of composite contracts, are to be covered under works contract service only, and not under 'ECIS' In view of the above the demand of service tax against the party under 'ECIS' is liable to be dropped.
The SCN, alleging the services of the party, to be 'ECIS', covers the period of 2003-04 to 2007-08. As elaborated above, the services of the party, ie. 'works contract service' are liable to be taxed from 01.06.2007 onwards. In this regard, the party vide letter dated 22/23.12.2009 informed the department that -
"Nitya Engineers under composite contracts supplies equipment, parts & other material (herein after "the Supplies") and undertakes installation, commissioning (hereinafter "the Services") thereof against composite rates. Rate are not ascertainable separately for the Supplies and the Services and therefore, the Firm has applied the compounded rate of service tax as provided under the Works Contract (Composition Scheme Payment of Service Tax) Rules, 2007 for computing service tax payable. The customers deduct WCT charges (under VAT Laws) and TDS (under Income Tax) from gross amount and remit net payment to the Firm. For computing service tax the Firm has deducted WCT deductions from gross value and calculated service tax treating the differential amount as value inclusive of service tax."
Vide above letter dated 22/23.12.2009 the party also informed, alongwith detailed chart, that they have deposited service tax on works contract service.
35 Service Tax Appeal No.70291 of 2020 Further, the party vide it's letter dated 23.02.2010 intimated that the service tax for the period 01.06.2007 to 31.03.2008 (and also for 2008-09) stands deposited w.r.t 'works contract service'. They have provided a detailed chart and service tax returns for relevant period regarding this. Now as per the discussion above, I arrive at the conclusion -
(i) The demand under 'ECIS' for Rs. 1,32,15,393/- for the period 2003-04 to 2007-08 issued vide SCN dated 20.10.2008 is liable to be dropped.
(ii) When there is no service tax applicable there can be no interest and penalty As such, demand of interest and the proposed penalties u/s 76, 77 and 78 of the Finance Act, 1994 are liable to be dropped.
(iii) As per the party's submission, they deposited service tax (and interest) under 'works contract service', which became liable upon them from 01.06.2007 onwards.
(iv) Taking a decision on something which is not in the periphery of SCN would be improper and unjust, precisely for this reason I refrain from delving into the issue of accuracy or otherwise, of the data submitted by the party, as aforesaid, regarding works contract service, for the period 01.06.2007 to 31.03.2008 (and onwards). In any case, the jurisdictional Range/Division had been fully empowered to check this.‖ 4.3 We also find merits in the findings recorded by the Commissioner for the reason that show cause notice itself contain a chart initiated abatement prescribed towards the material supplied along with the provisions of these services has been shown. The said chart is reproduced below, which is the basis for this demand being made:-
36 Service Tax Appeal No.70291 of 2020 abatemen Total Value t amount of net value S& chargeabl Educati prescribed Rat Edu Service no. contracts H e to Serv. o n cess Financi period in Gross under e of . Service Tax Period of excluding Ed Tax under includin al Year % Receipts Notificatio Ser. Ces Tax including days value Ces Sec.67 of g S&H n Tax s Ed.Cess materials s F.Act- Ed.Cess No.19/200 S.H.Ed.Ces 1994 3 21.08.03 s 01.04.03 To 90 24.7% 3757699 2517658 1240041 30.06.03 01.07.03 2003- To 04 275 75.3% 11481859 7692845 37890(3 8% 3508346 280668 280668 31.03.08 ) Total 365 100 15239558 10210504 5029054 8% 3509346 280668 280668 01.04.04 To actual 1980610 1327009 653601 8% 605186 48415 48415 10.09.04 2004- 10.09.04 10
05 To actual 31678956 21224901 10454055 2% 9486439 948644 18973 967617 % 31.03.05 Total 33659566 22551909 11107657 10091625 997059 18973 1016032 2005- 10 Total 48410348 32434933 15975415 2% 14496747 1449675 28993 1478668 06 % 01.04.06 10 To 17 4.7% 6572802 4403778 2169025 2% 1968262 196826 3937 200763 % 17.04.06 2006- 18.04.06 13454912 12 07 70 348 95.3% 90147916 44401212 2% 39559170 4747100 94942 4842042 9 % 31.03.07 14112193 Total 365 365 94551694 46570237 43120590 4943927 98879 5042805 1 01.04.07 12 To 39 10.7% 15900939 10653629 5247310 2% 4675080 561010 11220 572230 % 10.05.07 2007- 11.05.07 1329 12 08 To 326 89.3% 89053412 43862129 2% 1% 39037138 4684457 140534 4824990 5541 % 31.03.08 14881648 Total 365 99707042 49109438 45471702 5245466 151754 5397220 0 38724788 25945608 12779180 11668901 1291679 13215393 Total 298599 3 2 1 0 4 /-
4.4 Since show cause notice do not dispute that the services provided by the respondent were along with the supply of goods, they were not services simpliciter to be classified as erection, commissioning and installation services but were work contract services, as has been held by Hon'ble Supreme Court in the case of Larsen and Toubro Ltd.- 2015 (39) STR 913 (SC). We do not find any merits in this appeal filed by the Revenue. 4.5 We also observed that in this case, appeal has been filed by the revenue stating that Commissioner has failed to call for each contract to determine whether the said contracts were associated with supply of the goods are not to be classified as 'Work Contract Service', we do not find any merits in this argument, as the premises of the respondent was searched on 18.02.2008 and revenue has resumed all the documents which were relevant for the purpose of computation of this demand including the contracts, if that was not so then what would have been the basis for granting the abatement in the show cause notice towards supply of material. When the show cause notice 37 Service Tax Appeal No.70291 of 2020 itself admits that the services provided were associated with the supply of material/ goods we do not find any merits in the submissions made in appeal.
4.6 A fire in the respondent's premises accrued three months later after the search, there were sufficient time that all contracts could have been called for by the revenue for their scrutiny and examination and opinion made while issuing the show cause notice. If the revenue had arrived at this conclusion that the appellant was supplying goods along with the services rendered without perusal of the contracts, they cannot in second round of litigation challenge the order on the ground that the said contracts were not called again by the adjudicating authority in de novo proceedings. The basis of the demand in show cause notice cannot be altered by relook at the contracts in remand proceedings to the detriment of the noticee. 4.7 In view of the above, we do not find any merits in this appeal filed by the revenue.
5.1 Appeal is dismissed.
(Operative part of the order pronounced in open court) (P.K. CHOUDHARY) MEMBER (JUDICIAL) (SANJIV SRIVASTAVA) MEMBER (TECHNICAL) akp