2017 (1) TMI 36 - AT - Service Tax

Composite works contract - commercial construction, erection, commissioning or installation of plant machinery and equipment services in connection with construction of petrol pumps for oil companies - sale of goods in property and also rendering of service - Held that - The Hon ble Supreme Court in the case of Larsen & Toubro Ltd. 2015 (8) TMI 749 - SUPREME COURT held that such contracts are liable to service tax only w.e.f. 01/06/2007 when a new tax entry under the category of works contract service was introduced for the first time in the Finance Act, 1994. Accordingly, we find that the service tax liability confirmed against the appellants for the period prior to 01/06/2007 is not legally sustainable. Eligibility of composition rate - Held that - On fulfillment of the conditions laid down therein for availing the composition rate of tax, the tax liability of the appellants has to be re-worked and demanded. Non-filing of request for such composition scheme cannot be held as a reason for denial of such concession Time Bar - Held that - It is seen that with the introduction works contract service as a separate tax entry w.e.f. 01/06/2007 though the tax liability on works contract was specified by name, even thereafter the dispute continued about vivisecting the contract for valuing tax purpose - invoking extended period for alleging fraud etc. is not legally sustainable. As such, the service tax liability under works contract service against the appellants shall be restricted to normal period as applicable under Section 73 of the Finance Act, 1994. On the same reasoning, penalties imposed on the appellants are also set aside in terms of Section 80 of the Finance Act, 1994. Appeal disposed off - decided partly in favor of appellant.

Summary

Issues:
Service tax liability on composite works contract prior to 01/06/2007, eligibility for composition rate on works contract service from 01/06/2007, time-barred demand for service tax liability.

Analysis:

Service Tax Liability on Composite Works Contract Prior to 01/06/2007:
The appeals dealt with the service tax liability of appellants engaged in providing construction services for petrol pumps. The appellants argued that the service provided was part of a composite works contract involving supply of materials and services, and thus not liable to service tax before 01/06/2007, citing a Supreme Court judgment. The Tribunal agreed, stating that service tax liability before 01/06/2007 was not legally sustainable for such contracts.

Eligibility for Composition Rate on Works Contract Service from 01/06/2007:
The appellants also contended that they should be eligible for the composition rate available for works contract services from 01/06/2007. The Tribunal held that denial of the composition rate cannot be justified if the conditions for availing it are met. Referring to previous tribunal decisions, the Tribunal ruled that the appellants' tax liability should be re-calculated based on the composition scheme, regardless of the failure to file a request for the scheme.

Time-Barred Demand for Service Tax Liability:
Regarding the time-barred demand for service tax liability, the Tribunal acknowledged the extensive litigation and uncertainties surrounding service tax on composite works contracts. It found that invoking the extended period for alleging fraud or collusion was not legally sustainable, limiting the service tax liability to the normal period under Section 73 of the Finance Act, 1994. Consequently, the penalties imposed on the appellants were also set aside under Section 80 of the Act.

In conclusion, the Tribunal disposed of the appeals in favor of the appellants based on the above findings, emphasizing the legal principles established by previous court decisions and clarifications on service tax liabilities related to composite works contracts.