2017 (1) TMI 1079 - AT - Service Tax

Works contract service - Benefit of abatement under N/N. 15/2004-ST dated 10.09.2004 and N/N. 01/2006-ST dated 01.03.2006 - denial on the ground that upon initiation of enquiry proceedings, since the appellant had discharged the service tax liability on the value of free supply material, the case of the appellant falls outside the scope and purview of the above notifications for claiming such abatement - Held that - The Hon ble Supreme Court in the case of Larson and Turbo Ltd. 2015 (8) TMI 749 - SUPREME COURT have 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, 1944 - the service tax liability confirmed by the Department against the appellant for the period 01.06.2007 is not legally sustainable. Extended period of limitation - the period of dispute involved in this case is from 16.06.2005 to 30.09.2007 and the SCN was issued by the Department on 02.09.2009, which is beyond the period of one year from the relevant date - Held that - The issue regarding service tax liability on composite works contract was highly contentious and there were divergent views by different judicial forums - In such circumstances, invoking extended period of limitation for alleging fraud, suppression etc. is not legally sustainable. Therefore, the service tax demand is not sustainable even after the period 01.06.2007. Demand set aside - appeal allowed - decided in favor of appellant.

Summary

Issues:
Service tax liability on composite works contract involving supply of materials and rendering of service; Validity of service tax demand for the period before and after 01.06.2007; Applicability of abetment under specific notifications; Time limitation for recovery proceedings.

Analysis:
The appeal challenged an order confirming a service tax demand of ?86,67,605 along with interest, penalties imposed under Section 77 and 78 of the Finance Act, 1994. The appellant had paid service tax on Commercial or Industrial Construction Services and Construction of Complex Services with a 67% abetment during 16.06.2005 to 30.09.2007. The Department denied abetment claiming the appellant discharged service tax liability on free supply material, falling outside the notification scope. The appellant argued that pre-01.06.2007 services were not taxable based on a Supreme Court judgment and post-01.06.2007 recovery was time-barred. The respondent supported the impugned order.

The Tribunal noted the contract involved goods transfer and service rendering, constituting works contracts service. Referring to the Supreme Court's decision in Larson and Turbo Ltd., it held works contracts were taxable from 01.06.2007 under a new tax entry. Thus, the service tax liability post-01.06.2007 was deemed unsustainable. The dispute period was 16.06.2005 to 30.09.2007, with the Department issuing a show-cause notice on 02.09.2009, exceeding the one-year limitation. Given the contentious nature of the service tax liability on composite works contracts, the Tribunal found invoking extended limitation for fraud or suppression unsustainable. Consequently, it set aside the impugned order, allowing the appeal in favor of the appellant.

The Tribunal's decision was based on the differentiation of service tax liability pre and post 01.06.2007 for works contracts services, the one-year limitation period for recovery proceedings, and the lack of legal sustainability for penalties imposed. The judgment emphasized the legal position established by the Supreme Court, resolving the contentious issue and providing clarity on the tax liability for the appellant's services.