2015 (10) TMI 1302 - AT - Service Tax

Refund of Service Tax on works contract prior to 1-6-2007 Appellants have discharged the liability by mistake Refund claim rejected by Revenue on the grounds that the works contract awarded to first appellant is divisible one Held That - Service tax liability on works contract cannot be imposed prior to 1.6.2007 by vivisecting the contract and taxing individually the services Appeals allowed and impugned order set aside Decision made in case of Larsen and Tourbo Ltd. & others 2015 (8) TMI 749 - SUPREME COURT followed Decided in favour of the Appellant.

Summary

Issues:
1. Dispute over service tax liability on a lump-sum turnkey project contract.
2. Whether the contract is a works contract or divisible contract.
3. Applicability of service tax on works contract prior to 1/06/2007.

Analysis:
1. The case involved two appeals and a cross objection by the Revenue concerning the service tax liability on a lump-sum turnkey project contract for setting up a Nitric Acid plant. The appellants initially paid the tax but later claimed a refund upon realizing the tax liability might not apply. The lower authorities rejected the refund claims, leading to the dispute.

2. The appellant argued that the contract was a works contract, citing a recent Supreme Court judgment on composite works contracts. The departmental representative contended that the contract was divisible based on payment stages. However, the Tribunal found that the contract was a turnkey project and considered it a works contract, emphasizing that the service tax liability on works contracts could only be imposed post-1/06/2007.

3. The Tribunal examined the contract details, noting the lump-sum nature and the components covered under the contract. Referring to the Supreme Court judgment, the Tribunal highlighted the need to bifurcate the value of goods and services in a works contract. The Tribunal emphasized that the service tax could only be levied on service contracts, not composite works contracts. It further clarified that exclusions existed for certain infrastructure projects under the Finance Act, 1994.

4. Based on the Apex Court's rulings and the specific provisions of the Finance Act, 1994, the Tribunal concluded that the service tax liability on works contracts could not be imposed before 1/06/2007 by dissecting the contract and taxing individual services. Consequently, the impugned order was set aside, and the appeals were allowed with any consequential relief. The cross objection filed by the Revenue was also disposed of accordingly.