2019 (7) TMI 1785 - AT - Service Tax

Non-imposition of penalty by the adjudicating authority - works contract service - construction of complex service or a contract which involved both rendition of service and transfer/deemed transfer of the materials used in the construction - HELD THAT - The Hon ble Apex Court in COMMISSIONER, CENTRAL EXCISE CUSTOMS VERSUS M/S LARSEN TOUBRO LTD. AND OTHERS 2015 (8) TMI 749 - SUPREME COURT held that works contract is a separate specie of contract known in the commercial parlance and it cannot be equated with sales of goods or with the services. Therefore, it can be charged to service tax only when the charge has been created on works contract services and not before. Accordingly, no service tax can be levied on works contract service prior to 01.06.2007 on any service rendered along with transfer/deemed transfer of goods - The legal position, which is now well settled is that if the services are rendered along with transfer/deemed transfer of goods, such contract can only be charged as works contract service under Section 65 (105) (zzzza) with effect from 01.06.2007 if such contract falls within this clause. They cannot be charged the service tax under any other Head either prior to 01.06.2007 or thereafter. It could not be able to make out in this case from the records whether in the contract in question, there was deemed/transferred of materials also along with rendition of services. If so, the contract squarely falls under works contract services and can be charged under this Head only. If it does not fall under Works Contract Service , then no tax can be levied under this or any other head. On the other hand, if the contract pertains to service simplicitor and involves no transfer/deemed transfer of materials, then it can be charged to service tax under construction of complex services. Consequently, the demand needs to be re-worked along with interest and penalty also needs to be re-calculated. Matter remanded back to the original authority to decide the issue afresh after examining the nature of contract in the case and following the ratio laid down by the Hon ble Supreme Court in the case of Larsen Toubro Ltd. - appeal allowed by way of remand.

Summary

Issues:
Challenge to non-imposition of penalty by adjudicating authority, confirmation of demand, imposition of penalty under Sections 76, 77 & 78 of the Finance Act, 1994, nature of contract - works contract service or construction of complex service.

Analysis:

1. Challenge to Non-Imposition of Penalty:
The Revenue challenged the non-imposition of penalty under Section 76 by the adjudicating authority. The impugned order confirmed the demand, interest, and imposed penalties under Sections 77 and 78 of the Finance Act, 1994. The Revenue contended that the assessee rendered construction of complex service liable to service tax, while the appellant argued they were only liable under works contract service from 01.06.2007. The Tribunal noted the absence of clarity regarding the nature of the contract in question, whether it involved only services or transfer/deemed transfer of materials, crucial for determining the tax liability.

2. Nature of Works Contract Service:
The Tribunal discussed the historical context of the power to levy sales tax on works contracts, citing the State of Madras Vs. Gannon Dunkerley & Co. case. It highlighted the evolution of the legislative framework, emphasizing the distinction between works contract service and sales of goods or services. The Tribunal noted the amendment to the Constitution enabling States to tax goods used in works contracts and the subsequent introduction of works contract service under the Finance Act, 2007. It referenced the Larsen & Toubro Ltd. case, clarifying that service tax on works contract service could only be levied after 01.06.2007.

3. Decision and Remand:
The Tribunal concluded that the contract's nature, whether involving transfer/deemed transfer of materials, was pivotal in determining tax liability. If the contract fell under works contract service, it could be charged as such; otherwise, if it was a service simplicitor, it could be taxed under construction of complex services. Due to the lack of clarity, the matter was remanded to the original authority for a fresh examination based on the principles established by the Supreme Court in the Larsen & Toubro Ltd. case. Both appeals were allowed by remand to the original authority for further consideration.

In summary, the judgment addressed the challenges related to penalty imposition, confirmed demand, and the nature of the contract determining tax liability under works contract service or construction of complex services. The Tribunal's detailed analysis underscored the legal framework governing works contracts and the need for clarity on the contract's nature to ascertain the appropriate tax treatment, leading to the remand of the matter for fresh consideration.