2017 (9) TMI 1001 - AT - Service Tax

Classification of services - commercial or industrial construction service or works contract service - Held that - the construction service provided by the appellant is with material and they have also paid the VAT tax on works contract service. They have taken the registration under Works Contract on 1.7.2008 which has been accepted by the department. In these facts, the demand raised under commercial or industrial construction service is wrong. The adjudicating authority also extended the benefit of abatement N/N. 15/ 04-Service Tax, 19/05-ST dated 7.8.2005 and 1/2006-ST. This clearly shows that the service in question is of works contract service, which was not taxable upto 1.6.2007 - demand for the period upto 1.6.2007 set aside. As regards the period after 1.6.2007, since the demand was raised under commercial or industrial construction service, whereas admittedly the service is correctly classifiable under works contract service, the demand raised under wrong head of service cannot sustain. Appeal allowed - decided in favor of appellant.

Summary

Issues Involved: Classification of service under 'Commercial & Industrial Construction Service' or 'Works Contract Service'; Applicability of abatement notification; Imposition of penalties under sections 76, 77, and 78.

Classification of Service: The appellant provided construction service along with material, and the adjudicating authority allowed abatement of 67% under Notification No. 1/2006-Service Tax. The appellant discharged VAT tax liability on works contract service, making it correctly classifiable under 'works contract service'. Before 1.6.2007, works contract service was not taxable, as established in the case of L&T Ltd. After 1.6.2007, the demand raised under 'commercial and industrial construction service' was incorrect, as the correct classification was 'works contract service'. The demand under the wrong classification was deemed unsustainable.

Applicability of Abatement Notification: The appellant's service was found to be of works contract nature, supported by the fact that the construction service was provided with material and VAT tax on works contract was paid. The benefit of abatement notifications was extended, indicating that the service was works contract service, which was not taxable until 1.6.2007. Therefore, the demand for the period up to 1.6.2007 was set aside based on the Supreme Court judgment in L&T Ltd.

Imposition of Penalties: The appellant argued that since the entire service tax demand along with interest was paid, penalties under sections 76 and 78 should not have been imposed. The penalties were reduced by the Commissioner (Appeals) on the grounds that the service tax was paid under the regular course. The Tribunal found that the demand under 'commercial or industrial construction service' was incorrect, leading to the penalties not being sustainable. The demand under this classification was set aside, and the appeal was allowed.

This judgment highlights the importance of correctly classifying services for tax purposes, the impact of abatement notifications on tax liabilities, and the consideration of timely tax payments in penalty imposition decisions.