2017 (12) TMI 553 - AT - Service Tax

Erection, commissioning or installation service - Composite contract or otherwise - Held that - the legal principal that composite works contract are liable to be taxed under Finance Act, 1994 only w.e.f. 01/06/2007 is a well settled - Hon ble Supreme Court in Larsen & Toubro Ltd. 2015 (8) TMI 749 - SUPREME COURT has held that the service tax liability will not arise prior to 01/06/2007. Composition scheme - Held that - the value of free supply materials given by the clients are not to be considered to decide the eligibility of the appellant on such scheme. The scheme is eligible to the composite work contract subject to the conditions mentioned therein with reference to option and also non-availment of Cenvat credit etc. This can be verified and allowed to the appellant on satisfactory completion of the conditions. Appeal allowed by way of remand.

Issues:
1. Service tax liability for erection, commissioning, or installation service.
2. Applicability of works contract service.
3. Eligibility for composition scheme.
4. Consideration of free supply materials in composition scheme.
5. Sustainability of demand for extended period and penalties.

Analysis:

Service Tax Liability:
The appeals involved a common dispute regarding the service tax liability for the period 2004-2005 to 2008-2009 under the category of erection, commissioning, or installation service. The lower authorities had confirmed the service tax liability and imposed penalties. The appellants contended that their service fell under the category of 'works contract service' and should only be taxed from 01/06/2007 as per a decision of the Hon'ble Supreme Court. The Tribunal found that composite works contracts are taxable only from 01/06/2007, as established by the Supreme Court. However, it directed the Original Authority to verify each contract to ensure they are composite in nature.

Works Contract Service Applicability:
The Tribunal acknowledged that the legal principle that composite works contracts are taxable under the Finance Act, 1994 only from 01/06/2007 was well-settled based on the Supreme Court's decision. It emphasized the need for verification by the Original Authority to confirm the composite nature of each contract.

Eligibility for Composition Scheme:
Regarding the eligibility of the appellants for the composition scheme, the Tribunal clarified that the value of free supply materials provided by clients should not be considered in determining the eligibility for the scheme. The appellants could avail the scheme subject to fulfilling the specified conditions, which would be verified for compliance.

Consideration of Free Supply Materials:
The Tribunal highlighted that the value of free supply materials should not be factored into the decision on the eligibility of the appellants for the composition scheme. The scheme's applicability was subject to meeting the prescribed conditions, such as opting for it and not availing Cenvat credit. Verification of compliance was deemed necessary for approval.

Sustainability of Demand and Penalties:
The Tribunal concluded that the demands for the extended period and penalties were not sustainable in the circumstances of the cases. It noted that the tax liability on composite works contracts had been definitively settled by the Supreme Court. Considering legal developments and interpretation issues, the Tribunal restricted applicable demands to the normal period from the relevant date and set aside the imposed penalties. The appeals were allowed for a re-verification of facts and a fresh decision, granting the appellants an opportunity to present their case adequately.

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