2017 (9) TMI 32 - AT - Service Tax

Supply, erection and commissioning of lifts / elevators for residential and commercial buildings - Works contract service - Levy of service tax prior to 1.6.2007 - Held that - In the case of Larsen & Toubro 2015 (8) TMI 749 - SUPREME COURT , the Hon ble Apex Court as held that works contract prior to 1.6.2007 are not subject to levy of service tax - Following the principles laid down, the demand prior to 1.6.2007 is unsustainable and therefore requires to be set aside. A small portion of the demand pertains to 1.6.2007 to 31.7.2007 - Since the appellant has paid service tax on 15% of the contract value and has discharged VAT on the remaining portion, we are of the view that any differential service tax demand beyond that already discharged for the period 1.6.2007 to 31.7.2007 is unsustainable and requires to be set aside, which we hereby do. The demand of CENVAT credit to the tune of ₹ 2,51,202/- also is seen to have been utilized by the appellant for payment of service tax prior to March 2007, during which period works contract service was held not to be liable to service tax, demand set aside. Penalties - Held that - The demands for differential tax liability / recovery of credit having been set aside, the penalties imposed will also not sustain. Appeal allowed - decided partly in favor of appellant.

Summary

Issues:
- Demand of service tax on the entire product value
- Classification of services as works contract
- Discharge of VAT/sales tax and service tax on contract value
- Utilization of CENVAT credit
- Imposition of penalties

Analysis:

Demand of service tax on the entire product value:
The appellants were engaged in the supply, erection, and commissioning of lifts/elevators for buildings. A show cause notice was issued demanding differential duty for not discharging service tax on the entire product value at a rate of 33%. The original authority confirmed the demand, interest, and penalties. However, the appellant argued that for the period from 16.6.2005 to 30.5.2007, the demand of service tax was unsustainable based on legal judgments. The Tribunal held that prior to 1.6.2007, works contract services were not subject to service tax, following the judgments in relevant cases.

Classification of services as works contract:
The appellant contended that the services provided should be classified as works contract services based on legal precedents. The Tribunal referred to judgments establishing that the manufacture, supply, and installation of lifts are indeed works contract services. This classification influenced the decision on the demand of service tax for the relevant periods.

Discharge of VAT/sales tax and service tax on contract value:
Regarding the period from 1.6.2007 to 31.7.2007, the appellant had paid VAT/sales tax on 85% of the contract value and service tax on 15%. The department raised a demand for service tax on 33% of the gross amount. The appellant argued that as per relevant rules and legal judgments, they were not liable to pay service tax on the portion already subjected to VAT. The Tribunal agreed, setting aside the differential service tax demand for this period.

Utilization of CENVAT credit:
The appellant had utilized CENVAT credit for payment of service tax during a period when service tax was not payable. The Tribunal found this demand of CENVAT credit unsustainable, as the credit had been appropriately utilized during a period when works contract service was not liable to service tax.

Imposition of penalties:
Since the demands for differential tax liability and recovery of credit were set aside, the penalties imposed were also not sustained. The Tribunal modified the impugned order, setting aside the demand of service tax for the period prior to 1.6.2007 and the differential duty demand for the subsequent period. The appeal was partly allowed in favor of the appellant.