2018 (6) TMI 129 - AT - Service Tax

Construction of service - Composite Contracts - Construction of residential complex in Hydel power project colony for the power generation company which they use for residence of their staff working on the said dam - Construction of peripherals of construction of hydro electricity dams - Supply of Construction equipments/machinery to be used in construction of dams and residential complex - Penalty - Held that - The residential complex which has been constructed by the appellant is for the personal use of the staff of the services recipient therefore in the light of decision in the case of Mall Enterprises 2015 (11) TMI 333 - CESTAT MUMBAI as residential complex has been constructed for the personal use the demand of service tax is not sustainable - demand set aside. Construction of peripherals of construction of hydro electricity dams - Held that - The construction and residential construction for items namely Hydel tail/tunnel approach road construction of cooling water sump desilting tank power channel and water conductor and construction of hydel project are in respect of dam and the same is exempt from payment of service tax - demand set aside. Supply of Tangible goods - Supply of Construction equipments/machinery to be used in construction of dams and residential complex - Held that - The appellant is required to pay service tax on the said supply of tangible goods under the category of supply of tangible goods therefore demand in respect of supply of tangible goods is confirmed - further the appellant has not recovered any amount towards service tax therefore the payment received by the appellant on supply of tangible goods shall be treated as cum tax price and the appellant is entitled for the benefit of the same - A demand of 2, 33, 756/ on account of supply of tangible goods is confirmed but the appellant shall be entitled for the benefit of cum tax. Penalty - Held that - As the appellant was under bona-fide belief that the supply of tangible goods is used in respect of dam therefore they are not liable to pay service tax. In that circumstances benefit of section 80 of the Finance Act 1994 is given to the appellant - penalty set aside. Appeal disposed off.

Summary

Issues:
- Classification of services provided by the appellant under construction contracts
- Liability to pay service tax on supply of tangible goods

Analysis:

Issue 1: Classification of services provided by the appellant under construction contracts
The appellant was engaged in construction activities for a residential complex, industrial buildings, and supply of goods between October 2006 to March 2012. The revenue contended that the appellant was liable to pay service tax under specific sections of the Finance Act, 1994. The appellant argued that the services provided were under composite contracts, classifiable as Works Contract Service based on a Supreme Court decision. The Tribunal agreed that the construction of the residential complex for personal use and construction related to hydel projects were not taxable. The demand for service tax on these activities was set aside, citing relevant case laws and exemptions.

Issue 2: Liability to pay service tax on supply of tangible goods
Regarding the supply of tangible goods, the appellant believed that the activities related to hydel power, dams, and tunnels were not taxable. The Tribunal confirmed the demand for service tax on the supply of tangible goods but granted the appellant the benefit of cum tax price due to their bona fide belief. The appellant was also granted the benefit of Section 80 of the Finance Act, resulting in no penalty being imposed. The Tribunal disposed of the appeal by setting aside certain demands while confirming the demand for supply of tangible goods but granting relief to the appellant in terms of cum tax treatment and penalties.

This judgment by the Appellate Tribunal CESTAT Chandigarh provides a detailed analysis of the issues related to the classification of services under construction contracts and the liability to pay service tax on the supply of tangible goods. The decision highlights the importance of proper classification, relevant case laws, exemptions, and considerations for bona fide beliefs in determining tax liabilities in such cases.