2016 (9) TMI 1238 - AT - Service Tax

Construction of complex service - period 16.06.2005 to 31.12.2006 - appellant engaged in construction of residential complexes - whether comes under indivisible works contract which merits classification under the category of works contract service - Held that - in this case, it is seen, that the contract is an indivisible contract involving both transfer of property of goods and services and that appropriate sales tax/VAT is paid for the value of the goods involved in the execution of the works contract. It is also seen that the Learned Commissioner has merely confirmed demand only under construction of complex service. As per Explanation to Section 65(105)(zzzza), we find that the legislature has clarified that where the activity involves both transfer of property in goods to the service recipient, which is leviable to tax as sale of goods and also construction service, such activity would be classifiable as works contract services . The issue regarding demand s sustainability under construction of complex services for an activity that merits classification under works contract services is no longer res-integra in view of the Hon ble Supreme Court s judgment in the case of Commissioner of Central Excise and Customs, Kerala Vs. Larsen and Toubro Ltd. 2015 (8) TMI 749 - SUPREME COURT . The Honourable Supreme Court in its judgment has held that prior to 01/06/2007, there was no section specifically levying service tax on works contract and accordingly, no service tax can be imposed on works contract services entered prior to 01/06/2007. Accordingly, we are of the view that the works contract is subject to levy of service tax only with effect from 01/06/2007 and the demand of service tax under construction of complex service is being set aside. Since the original demand itself is being set aside, demand of interest under Section 75 and penalty under Section 76 of the Finance Act, 1994 is also being set aside. As regards imposition of penalty under Section 77 of the Finance Act, 1994, we find that penalty is unsustainable as the issue as to whether the activity of construction of complex would fall under construction service or works contract service has always been under dispute and hence we find that there is a reasonable cause for not taking registration within the prescribed time limit. Invokation of extended period of limitation - Imposition of penalty under Section 78 of the Finance Act, 1994 - Held that - it is found that there have been conflicting views prevalent on the issue and that the issue has attained finality only after the Supreme Court verdict in 2015. In view of the conflicting views being prevalent, we find that there is no suppression/fraud/contravention with an intention to evade payment of tax and accordingly, invocation of extended period of limitation also fails and consequently penalty under Section 78 is set aside. - Decided in favour of assessee

Summary

Issues Involved:
1. Whether the demand is correct for the period between 16/06/2005 to 31/12/2006 under taxable service of construction of complex for the indivisible works contract which merits classification under the category works contract service.
2. Whether the facts of this case invoking extended period of limitation is correct.

Detailed Analysis:

Issue 1: Classification and Taxability of Services
The appellants argued that their services fall under the category of "works contract," which was introduced as a taxable service only from 01/06/2007. The demand pertains to a period prior to this date, making the demand erroneous. They cited the Hon'ble Supreme Court's decision in CCE & Cus, Cochin vs. Larsen and Toubro Ltd., which held that prior to 01/06/2007, there was no machinery to levy service tax on works contracts. The Tribunal noted that the contract in question was an indivisible contract involving both transfer of property and services, and appropriate sales tax/VAT was paid for the value of goods involved. The Tribunal found that the legislature clarified that activities involving both transfer of property in goods and construction services should be classifiable as "works contract services."

The Tribunal referred to the Supreme Court's judgment in Commissioner of Central Excise and Customs, Kerala Vs. Larsen and Toubro Ltd., which stated that prior to 01/06/2007, service tax could not be imposed on works contract services. The Tribunal concluded that the demand under construction of complex services for the period in question was not sustainable.

Issue 2: Invocation of Extended Period of Limitation
The Tribunal examined whether the invocation of the extended period of limitation was correct. It was noted that the issue of whether the activity of construction of complex would fall under construction service or works contract service had always been under dispute. The Tribunal found that there was a reasonable cause for not taking registration within the prescribed time limit due to the conflicting views prevalent on the issue. The Tribunal concluded that there was no suppression, fraud, or contravention with an intention to evade payment of tax, thus failing the invocation of the extended period of limitation.

Conclusion:
The Tribunal set aside the demand of service tax under construction of complex service for the period prior to 01/06/2007. Consequently, the demand of interest under Section 75 and penalty under Sections 76 and 78 of the Finance Act, 1994, were also set aside. The Tribunal found the penalty under Section 77 unsustainable due to the reasonable cause for not taking registration within the prescribed time limit. The appeal filed by the appellant-assessee was allowed with consequential relief, if any.

Operative Part:
The impugned order was set aside, and the appeal was allowed with consequential relief. The operative part of the order was pronounced in open court on 15.07.2016.