2017 (2) TMI 21 - AT - Service Tax

Works contract - Erection, Commissioning and Installation Services - liability of tax for the period 01.10.2004 to 31.03.2009 - benefit of N/N. 1/2006-ST - denial on the ground that certain plant, machinery and equipment were supplied by the recipient of service - Held that - the appellant executed composite works contract but service tax liability will arise with effect from 01.6.2007 as held by the Hon ble Supreme Court in Larsen & Toubro Limited 2015 (8) TMI 749 - SUPREME COURT - the appellant not liable to service tax paid up to that date, in respect of composite works contract involving supply of materials and labour. The appellants were registered with the department and were discharging service tax under the category of Construction service. The proceedings initiated now are to re-classify the service under Erection, Commissioning and Installation Service - the appellants were registered with the department and discharging service tax under a different category of service. There can be no allegation of fraud, collusion or willful mistake to invoke the extended period. We find that the demand, if any, should be limited to a normal period under the category of Works Contract as claimed and admitted by the appellant - no penalty shall be leviable on the appellant and appellants are rightly eligible for waiver of penalties under section 80 of the Finance Act, 1994. Appeal disposed off - decided partly in favor of appellant.

Summary

Issues:
Classification of service for service tax liability under Erection, Commissioning and Installation Services for the period 01.10.2004 to 31.03.2009. Applicability of exemption notifications. Allegation of fraud, collusion, or willful mistake to invoke the extended period for demand and penalty under section 76, 77, and 78 of the Finance Act, 1994.

Issue 1: Classification of Service for Service Tax Liability
The appellants contended that the contracts with M/s. HPCL were composite involving supply of materials and labor for construction activities. They argued that the services should be classified under "Works Contract Services" from 01.06.2007, based on directives from Central Excise officers. The appellants voluntarily deposited service tax from 23.01.2007, treating the services as Commercial Construction Services under specific notifications. The Tribunal noted the composite nature of the contracts, acknowledging the supply of materials and labor. Relying on a Supreme Court judgment, the Tribunal held that service tax liability would arise only from 01.06.2007. The appellants were found not liable for service tax paid before that date. The Tribunal emphasized that the issue was a question of interpretation, and the demand for an extended period was deemed unsustainable.

Issue 2: Applicability of Exemption Notifications
The lower authorities denied exemption under notification 1/2006-ST, citing the supply of certain plant, machinery, and equipment by the recipient of service. However, the Tribunal observed that the appellants executed composite works contracts, and service tax liability would arise only from 01.06.2007. The Tribunal referenced a Supreme Court decision to support this conclusion. It was noted that the appellants were registered with the department and paying service tax under a different category. The demand, if any, was limited to the normal period under the Works Contract category, and no penalty was levied. The appellants were deemed eligible for penalty waiver under section 80 of the Finance Act, 1994.

Issue 3: Allegation of Fraud, Collusion, or Willful Mistake
The Tribunal found no evidence of fraud, collusion, or willful mistake by the appellants to justify invoking the extended period for demand and penalty under the Finance Act, 1994. Considering the facts and registration status of the appellants, the Tribunal concluded that there was no basis for alleging misconduct. Consequently, the demand was restricted to the normal period, and no penalty was imposed on the appellants.

In conclusion, the Tribunal ruled in favor of the appellants, holding that the service tax liability should be classified under Works Contract Services from 01.06.2007 onwards. The demand was limited to the normal period, and no penalties were levied, with the appellants eligible for penalty waiver under section 80 of the Finance Act, 1994.