2018 (4) TMI 1469 - AT - Service Tax

Construction services - Department was of the view that the Service Tax was not paid in full by the appellant - Held that - for the period up to 31/05/2007, no Service Tax will be payable by the appellant since the construction activity undertaken by them is in the nature of composite works contracts in which the transfer to property in goods involved in the execution of such contracts is liable to tax as sale of goods - the demand for the period up to 31/05/2007 set aside. Extended period of limitation - Held that - In principle no Service Tax can be charged in respect of construction work for Government departments such as residential house for police but we are of the view that individual contracts are required to be scrutinized before such benefit is extended. For this purpose the issue is remanded to the adjudicating authority for passing de novo decision. Appeal allowed in part and part matter on remand.

Summary

Issues Involved:
Service Tax liability on construction activities for the disputed period; Applicability of Service Tax on composite works contracts; Justification of demand for the extended period under Section 73; Taxability of works contracts for construction of Government buildings; Scrutiny of individual contracts for Service Tax liability.

Analysis:

1. Service Tax Liability on Construction Activities:
The appellant was engaged in construction activities under various categories during the disputed period. The Department alleged non-payment of full Service Tax, leading to a demand of ?1,35,15,887 along with interest and penalties. The appellant contended that certain construction works were under composite contracts involving both services and goods, making them liable to Service Tax only from 01/06/2007 as per a Supreme Court judgment. The Tribunal acknowledged this argument and set aside the demand for the period up to 31/05/2007.

2. Applicability of Service Tax on Composite Works Contracts:
The appellant argued that the taxability of works contracts was a subject of dispute until clarified by the Supreme Court. They cited cases where demands for the extended period were set aside due to the evolving nature of works contract taxation. The Tribunal, following precedent, held that demands within the extended period were not sustainable due to the historical ambiguity in tax treatment of works contracts.

3. Justification of Demand for the Extended Period under Section 73:
The Department contended that clarity existed in the statute from 01/06/2007 regarding works contract taxation, justifying the demand for the extended period. However, the Tribunal found that the appellant's failure to pay Service Tax post-clarification did not warrant invoking the extended period for recovery, especially for contracts related to construction of Government buildings.

4. Taxability of Works Contracts for Construction of Government Buildings:
While the Department argued for the liability of Service Tax on all contracts post-clarification, they acknowledged that construction for Government buildings might be exempt. The Tribunal agreed in principle but directed a detailed scrutiny of individual contracts to determine the applicability of Service Tax, remanding the issue to the adjudicating authority for further assessment.

In conclusion, the Tribunal set aside the demand for the period up to 31/05/2007 and within the extended period, while remanding the decision on demands within the normal time limit for further review based on the scrutiny of individual contracts related to construction for Government departments.