2017 (10) TMI 452 - AT - Service Tax

Works contract service - recipients are municipal corporations and government bodies - appellant claims that they were not liable to tax as the projects executed by them are excluded in the definition of works contract service by Explanation (ii)(b) in section 65(105)(zzzza) of Finance Act, 1994 as the recipients are municipal corporations and government bodies - Held that - much after the issue of the impugned order a finality on the nature and taxability of this much-litigated service has emerged with the decision of the Hon ble Supreme Court in Commissioner of Service Tax v. Larsen & Toubro Ltd 2015 (8) TMI 749 - SUPREME COURT . While clarifying that the taxability of works contract service arises only after 1st June 2007, the decision also made it amply clear that the activities enumerated therein, to the extent originally listed as separate taxable services in section 65(105) of Finance Act, 1994, were ever intended to be taxed only on providing services simpliciter. Consequently, composite contracts are liable to be taxed only with effect from 1st June 2007 when works contract services was legislated into Finance Act, 1994 by express incorporation of section 65(105)(zzzza). In order to ascertain whether the contention of the appellant that their contracts for sewage treatment plant/water treatment plants, would fall within the specifically described components of section 65(105)(zzzzd) of Finance Act, 1994, each of these will have to be scrutinized - appeal allowed by way of remand.

Summary

Issues: Tax liability on turnkey projects under works contract service.

Analysis:
1. The Commissioner confirmed a demand for service tax on the appellant for the period from April 2008 to June 2012, along with interest and penalties under the Finance Act, 1994.

2. The appellant argued that they were not liable for tax as their projects were excluded from the definition of "works contract service" due to the involvement of municipal corporations and government bodies as recipients. However, the impugned order held that the exemption by exclusion did not apply to turnkey projects, including engineering, procurement, construction, or commissioning projects. The order emphasized that the activities in the contract, from designing to commissioning, could not be segregated to fit the distinct activities listed in the definition of "works contract."

3. The Tribunal referred to a Supreme Court decision in Commissioner of Service Tax v. Larsen & Toubro Ltd, which clarified that taxability of works contract service arises only after June 1, 2007. The decision highlighted that composite contracts were only taxable from this date, and vivisecting such contracts for tax purposes was no longer valid. The legislative intent was to expand the scope of works contract service by adding new taxable activities under section 65(105)(zzzzd)(ii)(e) of the Finance Act, 1994. The Tribunal concluded that the appellant's contracts for sewage treatment plants/water treatment plants needed further scrutiny to determine tax liability under the relevant sections.

4. The Tribunal set aside the impugned order and remanded the matter to the original authority for a fresh determination, with all issues left open for consideration. The appeal was allowed by way of remand.

5. The judgment was pronounced on September 6, 2017, by the Tribunal.