2016 (3) TMI 104 - AT - Service Tax

Demand of service tax prior to 1.6.2007 - Works contract - Appellant providing services for design, manufacture, supply, installation, testing and commissioning of environmental control systems and tunnel ventilation system to DMRC - Held that as per the decision of the Supreme Court in C.C.E. & Cus., Kerala vs. Larsen & Toubro Ltd. 2015 (8) TMI 749 - SUPREME COURT, composite works contracts involving rendition of services coupled with deemed supply of goods by accretion are not taxable services prior to 1.6.2007, either under commercial or industrial construction service, construction of complex service, or erection, commissioning or installation service. Works contract is defined and enumerated to be a taxable service with effect from 1.6.2007 by insertion of Section 65(105(zzzza) of the Finance Act, 1994.This service was defined as a service provided or to be provided to any person , by any other person in relation to the execution of a works contract, excluding works contract in respect of railways. However, since the works contract in respect of railways is excluded by the specific and unambiguous exclusionary clause in Section 65(105) (zzzza) of the Act, the reasoning and conclusion by the ld. Adjudicating authority that only works contracts pertaining to constructing of railway lines for railways is excluded is clearly erroneous and amounts to legislation rather than adjudication on a true , fair and good faith of interpretation of the provision. Therefore, as the appellant had provided an excluded species of works contract service to DMRC, service tax is not leviable. - Decided in favour of appellant

Summary

Issues involved:
1. Disposal of the main appeal at the stage of a stay application.
2. Confirmation of service tax demand for works contract services during specific periods.
3. Interpretation of the definition of works contract service under Section 65(105)(zzzza) of the Finance Act, 1994.
4. Exclusion of works contract services in respect of railways from taxation.
5. Application of the decision in C.C.E. & Cus., Kerala vs. Larsen & Toubro Ltd.

Analysis:

1. The Tribunal disposed of the main appeal after hearing both parties, despite objections from the Respondent's counsel, directing them to make submissions on merits. The appeal was against an adjudication order confirming a substantial service tax demand for works contract services during specific periods.

2. The appellant had provided services related to environmental control systems and tunnel ventilation systems to a government entity under various agreements. The Commissioner alleged that these services fell within the definition of works contract service under the Finance Act, 1994, and hence were taxable.

3. The Tribunal analyzed the definition of works contract service under Section 65(105)(zzzza) of the Finance Act, 1994. The appellant contended that their services were not taxable under works contract service prior to a specific date, which was rejected by the Commissioner. The Tribunal examined the scope of works contract services and the applicability of the definition to the services provided by the appellant.

4. The Tribunal considered the exclusionary clause in Section 65(105)(zzzza) of the Act, which excludes works contract services in respect of railways from taxation. The Commissioner's interpretation that only works contracts related to constructing railway lines for railways were excluded was deemed erroneous. The Tribunal held that the appellant's services to the government entity constituted an excluded species of works contract service, making them non-taxable.

5. Referring to the decision in C.C.E. & Cus., Kerala vs. Larsen & Toubro Ltd., the Tribunal emphasized that composite works contracts involving services and deemed supply of goods were not taxable services before a specific date. The Tribunal concluded that the appellant's services fell within the ambit of works contract service but were excluded due to the specific exclusionary clause related to works contract services in respect of railways.

In conclusion, the Tribunal allowed the appeal, quashed the impugned order, and declared that no tax was leviable on the appellant for providing excluded works contract services to the government entity.