2016 (10) TMI 655 - AT - Service Tax

Levy of service tax - commercial or industrial construction service - works contract - whether such an activity would fall under works contract or any other service prior to 01/06/2007? - Held that - the decision in the case of Commissioner of Central Excise & Customs vs. Larsen & Toubro Ltd relied upon. The ratio of the judgment is that prior to 01/06/2007, if an assessee is operating under works contract no service tax is payable under any other head and since works contract service came to statute w.e.f. 01/06/2007 the tax liability arises from that date. Taxability for the period after 01/06/2007 - Held that - the appellant is liable to discharge service tax under the category of works contract service ; with all the consequent relief available to them under works contract service like composition scheme, etc. We uphold the liability to discharge service tax under works contract service post 01/06/2007 with interest. Levy of penalty - Held that - the appellant was under bonafide belief and no fraudulent intention involved - provisions of Section 80 of the Finance Act, 1994 attracted - penalty not levied. Appeal dismissed - decided partly in favor of appellant.

Summary

Issues: Taxability of services rendered by the appellant, classification under works contract or commercial/industrial construction service, applicability of tax liability pre and post 01/06/2007, penalty imposition

In this judgment by the Appellate Tribunal CESTAT Mumbai, the issue at hand was the taxability of services provided by the appellant between 10/09/2004 to 31/03/2008. The revenue authorities contended that the services fell under 'commercial or industrial construction services' as per Section 65(25b) of the Finance Act, 1994, while the appellant argued that they should be classified as 'works contract' and that they had discharged VAT on the contracts. The adjudicating authority and the first appellate authority upheld the demands under 'commercial or industrial construction service.' However, the Tribunal noted that the appellant's plea regarding works contract classification was not properly considered by the lower authorities.

The Tribunal referred to a Supreme Court judgment in the case of Commissioner of Central Excise & Customs vs. Larsen & Toubro Ltd, which established that prior to 01/06/2007, if an assessee operated under works contract, no service tax was payable under any other category. Therefore, the demands raised under 'commercial or industrial construction service' for the period before 01/06/2007 were deemed unsustainable and set aside by the Tribunal.

Regarding the service tax liability post 01/06/2007, the Tribunal ruled that the appellant was liable to pay service tax under 'works contract service' and directed them to discharge the same within 30 days. The Tribunal also specified that the appellant could avail relief under works contract service like the composition scheme. As for penalties, the Tribunal considered that the issue of tax liability on works contract services was unsettled until the apex Court's decision, and thus, the appellant could have had a genuine belief regarding the non-taxability of their services. Therefore, no penalty was imposed on the appellant under Section 80 of the Finance Act, 1994.

In conclusion, the Tribunal disposed of the appeal by setting aside the demands for the period before 01/06/2007, upholding the service tax liability under works contract service post 01/06/2007, and waiving the penalty due to the appellant's bona fide belief.