2016 (9) TMI 634 - AT - Service Tax

Demand alongwith interest and penalty - differential tax - works contract entered by appellants in April, 2007 but providing commercial and industrial construction service to their clients prior to April, 2007 also - discharged their duty liability under composite scheme at the rate of 2% in the month of April, 2007 on the advance received by them from their client - Held that - the work contract was introduced as a taxable service with effect from 1.6.2007. The Hon ble Supreme Court in the case of Commissioner of Central Excise, Kerala vs Larsen & Toubro Ltd. 2015 (8) TMI 749 - SUPREME COURT has held that works contract were not taxable prior to 1.6.2007. Therefore, prior to the said date, there was no requirement under the law to pay any service tax. Hence, the demand of differential tax, when there was no obligation to pay any tax during the relevant period would not be sustainable. For the period subsequent to 1.6.2007, the appellant has already discharged their tax liability correctly in accordance with the composite scheme. Therefore, impugned order confirming the differential demand and interest and imposing penalty is required to be set aside. - Decided in favour of appellant

Summary

Issues:
1. Applicability of composite scheme for service tax on construction services.
2. Denial of abatement benefit.
3. Tax liability for works contract pre and post 1.6.2007.

Issue 1: Applicability of composite scheme for service tax on construction services:
The appellant was registered for providing construction services and paid service tax under a composite scheme at 2% rate in April 2007. The Revenue contended that the works contract entered into during April 2007 should be considered ongoing work falling under commercial or industrial construction services, thus disqualifying the appellant from availing the composite scheme. The adjudicating authority confirmed the demand, but the Commissioner (Appeals) granted partial abatement. The Tribunal noted that works contract was made taxable from 1.6.2007, and prior to this date, there was no obligation to pay service tax on works contracts. Therefore, demanding differential tax for the period before 1.6.2007 was deemed unsustainable.

Issue 2: Denial of abatement benefit:
The show cause notice proposed to deny the benefit of abatement under notification No. 1/2006-ST due to free supplied items by the service recipient. The Commissioner (Appeals) confirmed a demand of ?1,57,671 along with interest and penalty, albeit granting some abatement. The Tribunal, however, held that since there was no requirement to pay service tax on works contracts before 1.6.2007, the demand for differential tax, interest, and penalty was unjustified. Consequently, the Tribunal set aside the impugned order and allowed the appeal with consequential relief.

Issue 3: Tax liability for works contract pre and post 1.6.2007:
The Tribunal emphasized that works contracts were not taxable before 1.6.2007, as per a Supreme Court ruling. The appellant correctly discharged their tax liability post 1.6.2007 under the composite scheme. Therefore, the Tribunal concluded that the lower authorities' order confirming the differential demand, interest, and penalty was erroneous. Consequently, the Tribunal set aside the impugned order and allowed the appeal with consequential relief, ruling in favor of the appellant.

In conclusion, the Tribunal found that the demand for service tax on works contracts before 1.6.2007 was unsustainable, and the appellant had correctly discharged their tax liability post that date. The impugned order was set aside, and the appeal was allowed with consequential relief.