2017 (4) TMI 1177 - AT - Service Tax

Composite works contract - The appellant carried out construction of external/internal works for electrical sub-stations and also laying overhead cables along with various other connected activities - Revenue entertained a view that the activities carried out by the appellant are liable to be taxed under the category of Erection, Commissioning or Installation services in terms of Section 65(39a) of FA, 1994 - Held that - it is clear that these contracts are of composite nature involving both supply of materials as well as provisions of service. In such situation, these activities cannot be categorized as simple service contract to be subjected to service tax prior to 1.6.2007 - there is no liability for the appellant to pay service tax on these composite works contract prior to 1.6.2007. Extended period of limitation - Held that - there is ground for the appellant to have bonafide belief regarding non-liability as to service tax - there is no ground for invoking demand for extended period - the penalties imposed on the appellant are to be held as non-sustainable. Jurisdiction - Held that - The appellants are having registered office at Bhopal and they are registered with the Service Tax Department at Bhopal. They do have a branch office at Jhansi but were not registered in Jhansi. The contracts were executed in the name of registered office and work executed by the appellant. The Jhansi office dealt with the billing or other connected activities does not have impact of shifting of jurisdiction regarding the appellant s liability as a party to the contract of service. The liability of the appellant to service tax shall be restricted to the normal period under Works Contract Service. The same shall be worked out by the jurisdictional officers based on the documents and the bills submitted by the appellant - appeal allowed by way of remand.

Summary

Issues:
1. Tax liability of the appellant in respect of composite works contract
2. Sustainability of the demand for the extended period
3. Jurisdictional issue regarding the contracts executed by the Jhansi branch office

Analysis:
1. Tax Liability of the Appellant:
The appellant argued that the contracts in question were of a composite nature involving both supply of materials and provision of services, making them ineligible for taxation solely as service contracts. Citing the decision of the Hon'ble Supreme Court in Larsen & Toubro Ltd., it was contended that no tax liability existed for the period before 1.6.2007. The Tribunal agreed, holding that the contracts were indeed composite in nature and not solely service contracts. Therefore, the appellant was not liable to pay service tax on these composite works contracts before 1.6.2007.

2. Sustainability of the Demand for Extended Period:
The appellant contended that they had a bona fide belief in non-liability to tax, as they were advised by IRCON, the main contractor for the Defence Ministry, that no service tax liability would arise in connection with the work on Defence Ministry accommodations. The Tribunal found merit in this argument, noting that the legal position regarding service tax liability of composite works contracts had only been settled by the Supreme Court recently. As a result, the demand for the extended period was deemed unsustainable, and the penalties imposed on the appellant were set aside.

3. Jurisdictional Issue:
Regarding the jurisdictional issue raised by the appellant concerning contracts executed by their Jhansi branch office, the Revenue argued that the appellant's registered office in Bhopal and registration with the Service Tax Department there established jurisdiction. The Tribunal concurred, emphasizing that the location of the branch office did not alter the jurisdiction, as the contracts were executed by the appellant as a corporate entity. The Tribunal referred to a previous decision to support this stance. Consequently, the Tribunal found no merit in the appellant's contention, upholding the lower authorities' handling of the jurisdictional matter.

In conclusion, the Tribunal restricted the appellant's liability to service tax to the normal period under Works Contract Service, to be determined by the jurisdictional officers based on the provided documents and bills. The penalties imposed on the appellant were set aside, and the appeal was disposed of accordingly.