2017 (2) TMI 1311 - AT - Central Excise

Works contract service - construction activity - whether appellant is liable to service tax in respect of the contracts executed for the period from 10.9.2004 to 31.5.2007? - Held that - Law relating to levy of service tax on work contract was enacted with effect from 1.6.2007. Although theory of equivalence was enacted in section 67 of the Finance Act, 1994 with effect from 18.5.2006 to determine the value of the services involved in works contract, law relating to the levy of service tax on works contract was enacted with effect form 1.6.2007 - There shall be no levy of service tax on the indivisible works contract executed from 10.9.2004 to 31.5.2007. But for the period thereafter, appellant shall be governed by section 67 of the Finance Act, 1994 for determination of value of service involved in the works contract made taxable with from 01.06.2007 and by the composition scheme, if any, opted by it if otherwise not deniable to such scheme. Penalty - Held that - in view of the confusion of the law relating to leviability of service tax on works contract, there shall be no penalty. Appeal allowed in part and part matter on remand.

Summary

Issues involved:
1. Taxability of works contract before and after 1.6.2007
2. Applicability of composition scheme for the period from 1.6.2007 to 30.9.2007
3. Penalty imposition for confusion regarding the levy of service tax on works contract

Detailed Analysis:
1. The appellant argued that works contract was not taxable before 1.6.2007 and, therefore, they should not be liable for service tax on construction activities carried out during that period. Citing Section 65(105) (ZZZZA) of the Finance Act, 1994, which was introduced from 1.6.2007, it was contended that works contract service was specifically brought into the scope of taxation from that date. Relying on the precedent set by the case of Commissioner of Central Excise, Kerala Vs. Larsen & Toubro Ltd., it was asserted that the appellant should not be liable for service tax on contracts executed between 10.9.2004 and 31.5.2007.

2. Regarding the period from 1.6.2007 to 30.9.2007, the appellant claimed to have opted for the composition scheme. It was argued that any levy, if applicable, should be in accordance with the rules governing such a scheme.

3. The revenue supported the adjudication, and after hearing both sides and examining the records, the Tribunal analyzed the law related to the levy of service tax on works contracts. It was noted that the legislation concerning the levy of service tax on works contracts came into effect from 1.6.2007. Section 67 of the Finance Act, 1994, introduced the theory of equivalence to determine the value of services in works contracts. The Tribunal determined that the appellant should be governed by Section 67 of the Act for assessing the value of services in works contracts from 1.6.2007 onwards. Additionally, if the appellant had chosen the composition scheme, the adjudicating authority was directed to verify the eligibility of the appellant under the law for such a scheme and, if eligible, to extend that benefit.

4. The Tribunal ruled that there would be no levy of service tax on indivisible works contracts executed between 10.9.2004 and 31.5.2007. However, for contracts made taxable from 1.6.2007 onwards, the appellant would be subject to Section 67 of the Finance Act, 1994, for determining the value of services in the works contracts. The Tribunal also specified that if the appellant had opted for the composition scheme, the eligibility and fulfillment of conditions for the scheme would be examined.

5. Concerning penalties, due to the confusion surrounding the levy of service tax on works contracts, the Tribunal decided not to impose any penalties. The appeal was partly allowed and partly remanded to the adjudicating authority with specific directions.

This detailed analysis of the judgment addresses the issues raised and the Tribunal's rulings on each aspect of the case.