2019 (11) TMI 1594 - AT - Service Tax

Taxability - works contract - deemed service - non-levy of tax on sale owing exclusion of export - HELD THAT - While discarding the taxability as provider of works contract service , owing to the non-conformity the specific activity enumerated therein, the adjudication order has not been able to establish that the claim of being works contract is not tenable. On the contrary, the supply of goods that lose their identity in the object worked upon is a foundation that has been accepted. The transaction is, undoubtedly, in pursuance of works contract and though, by lack of jurisdiction, not taxable under Finance Act, 1994 is yet saved from total exclusion owing to voluntary vivisection of the service simpliciter. Such discharge of liability is sufficient compliance of levy on taxable services under Finance Act, 1994. There is, thus, no need to ascertain eligibility for abatement of cost of materials and excludability of the demand by the bar of limitation. The differential tax sought to be recovered in the impugned order is without authority of law and must be set aside - Appeal allowed - decided in favor of appellant.

Issues Involved:
1. Classification of the appellant's services under 'works contract' versus 'management, maintenance, or repair services'.
2. Applicability of service tax on the materials used in the services.
3. Compliance with Notification No. 12/2003-ST for abatement of material costs.
4. Jurisdictional authority and constitutional constraints in taxing 'works contracts'.
5. Bar of limitation for the demand of differential tax.

Issue-wise Detailed Analysis:

1. Classification of Services:
The appellant, M/s APM Terminals India Pvt Ltd, argued that their services fall under 'works contract', which involves the transfer of property in goods and is constitutionally a 'deemed sale'. The adjudicating authority, however, classified the services under 'management, maintenance, or repair services' taxable under section 65(105)(zzg) of the Finance Act, 1994. The appellant contended that this classification was incorrect, as their activities should be considered 'works contract' and thus outside the purview of service tax under List I of the Seventh Schedule of the Constitution of India.

2. Applicability of Service Tax on Materials:
The appellant was issued three show cause notices for recovery of amounts collected towards materials used in rendering services. The adjudicating authority added the material cost to the 'gross amount charged' by the service provider, invoking section 67 of the Finance Act, 1994. The appellant argued that they had already discharged their liability on the labor component and that the material costs should not be taxed under service tax.

3. Compliance with Notification No. 12/2003-ST:
The appellant claimed compliance with Notification No. 12/2003-ST, which provides for abatement of materials supplied along with services subject to specified conditions. The adjudicating authority, however, found that the appellant did not provide evidence of discharge of liability on the sale of such materials, thus confirming the demand in full.

4. Jurisdictional Authority and Constitutional Constraints:
The appellant relied on the Supreme Court's decision in Commissioner of Central Excise & Customs, Kerala v. Larsen & Toubro Ltd, which emphasized the division of power to tax between the Centre and the States. The court held that 'works contracts' involve both service and goods elements, and only the service element can be taxed by the Centre. The decision highlighted that the Finance Act, 1994 did not lay down a mechanism for vivisection of 'works contracts' to tax only the service component, making the demand for service tax on the entire contract constitutionally infirm.

5. Bar of Limitation:
The appellant also argued that the demand for differential tax was barred by limitation. However, the tribunal found that since the transaction was a 'works contract' and not taxable under the Finance Act, 1994, the question of limitation did not arise.

Conclusion:
The tribunal concluded that the appellant's services fell under 'works contract', which involves the transfer of property in goods and is outside the purview of service tax under the Finance Act, 1994. The adjudicating authority's classification and demand for service tax on the material cost were found to be without legal authority. The tribunal allowed the appeal, setting aside the differential tax demand and penalties imposed on the appellant. The tribunal also noted that the appellant's voluntary discharge of liability on the labor component was sufficient compliance with the levy on taxable services under the Finance Act, 1994.

(Order pronounced in the open court on 29/11/2019)

← Previous Next →