2015 (11) TMI 1489 - AT - Service Tax

Demand of service tax - Commercial and Industrial Constructions Service - whether the respondent herein is liable to discharge the service tax during the period 10.09.2004 to 31.03.2008 on an amount received by him towards the work executed which the department feels falls under the category of Commercial and Industrial Constructions Service while the respondent feels that the work is executed under a works contract hence would be liable for tax only from 01.06.2007 - Held that - penalty which is sought to be imposed is unwarranted in as much the entire issue of whether the composite contract/works contract should be vivisected or not was the question of dispute before the judicial forum. The five Members full Bench of the Tribunal has concluded the issue in March 2015 hence the issue being a question of classification and the valuation, we are of the view that the respondent could be entertained a bonafide belief as to non-applicability of service tax on the contract executed by them. We find that the respondent had a reasonable cause of non-discharging the service tax for the material period in question. By invoking the provisions of Section 80 of the Finance Act, 1994, we waive the imposition of penalty under Section 76 of the Finance Act, 1994. - Petition disposed of.

Summary

Issues Involved:
1. Liability to discharge service tax on work executed under "Commercial and Industrial Constructions Service" or "works contract" from a specific period.
2. Whether the demand is time-barred.
3. Imposition of penalty under Section 76 of the Finance Act, 1994.

Analysis:

Issue 1: Liability for Service Tax
The main issue in this case revolved around determining the liability of the respondent to discharge service tax on the work executed. The department contended that the work fell under "Commercial and Industrial Constructions Service," while the respondent argued it was a "works contract," making them liable for tax only from a certain date. The Tribunal referred to a previous case involving Larsen and Toubro Ltd., where it was held that even works contracts entered into before a specific date could be vivisected for service tax purposes. Following this precedent, the Tribunal ruled in favor of the Revenue, upholding the service tax liability on the respondent for the service portion of the contract.

Issue 2: Time-Barred Demand
The respondent raised the argument that the entire demand was time-barred. However, the Tribunal found no merit in this argument as there was no evidence to suggest that the respondent had informed the department about the activities. Therefore, the Tribunal dismissed the contention of the demand being time-barred.

Issue 3: Penalty Imposition
Regarding the imposition of penalty under Section 76 of the Finance Act, 1994, the Tribunal considered the respondent's argument that they had a bona fide belief in the non-applicability of service tax on the contract. Given that the issue of vivisecting composite contracts was a matter of dispute until a full Bench of the Tribunal concluded it in March 2015, the Tribunal waived the penalty under Section 76. By invoking the provisions of Section 80 of the Finance Act, 1994, the Tribunal decided not to impose the penalty, considering the respondent's reasonable cause for not discharging the service tax during the material period.

In conclusion, the Tribunal allowed the Revenue's appeal, setting aside the impugned order and upholding the service tax liability on the respondent for the service portion of the contract. The Cross Objection filed by the respondent was also disposed of accordingly.