2018 (6) TMI 932 - AT - Service Tax

Commercial or Industrial Construction Service - appellant had not registered themselves with the department in order to file ST-3 returns periodically - non-payment of Service tax - demand of service tax alongwith Interest and penalty - Construction service for commercial concern during the period from April 2005 to December 2006 - Construction services provided to Common Effluent Treatment Plant (CETP) as sub-contracted to M/s. Enkem Engineers Pvt. Ltd. for the period April 2005 to September 2008 - Construction services provided to common effluent treatment plant directly for the period April 2005 to September 2008 - Works Contract Services. Held that - It is seen that the department has given the benefit of abatement of 67% on the composite contract value. This establishes that the activities fall within the works contract service. Therefore, the period prior to 1.6.2007 cannot be subject to levy of service tax as laid down by the Hon ble Supreme Court in the case of Commissioner of Central Excise Vs. Larsen & Toubro Ltd. 2015 (8) TMI 749 - SUPREME COURT - demand for the period prior to 1.6.2007 set aside. Demand for the period after 1.6.2007 upto 30.9.2008 - case of appellant is that the activities / construction were for non- commercial purposes and hence not taxable - Held that - Works contract service would cover all construction activities whether commercial or non-commercial if such construction activities fall within the definition of Section 65(zzza) of the Finance Act, 1994 - The service tax demand is on the appellant who is a contractor. Further, the ETP cannot be considered as non-commercial one, since the ultimate beneficiary is the dyeing units who are the polluters - the contention that CETP is not installed for commercial purpose and therefore would not fall within Commercial or Industrial Construction Service is not tenable. We also do not find any merit in the argument of the ld. counsel that Board Circular No.80/2004-ST dated 17.9.2004 is in support of the appellant and that construction does not fall within the category of commercial construction - The demand for the period from 1.6.2007 to 30.9.2008 is sustainable Time Limitation - Held that - Since the appellant has not taken registration or paid the service tax even after being pointed out by the department, it is seen that the adjudicating authority has confirmed the demand for extended period also - The issue being interpretational one, the penalty requires to be set aside. Appeal allowed in part.

Issues Involved:
1. Non-registration and non-filing of ST-3 returns by the appellant.
2. Service tax demand on construction services for commercial concerns.
3. Service tax demand on construction services provided to Common Effluent Treatment Plants (CETPs).
4. Classification of services under Works Contract Service (WCS).
5. Applicability of service tax for the period prior to and after 1.6.2007.
6. Interpretation of services as commercial or non-commercial.
7. Invocation of extended period of limitation.
8. Imposition of penalties.

Issue-wise Detailed Analysis:

1. Non-registration and Non-filing of ST-3 Returns:
The appellants were engaged in providing construction services but failed to register with the department and file ST-3 returns for the period from April 2005 to September 2008. Consequently, a show cause notice was issued to recover service tax along with interest and penalties.

2. Service Tax Demand on Construction Services for Commercial Concerns:
The appellant paid the service tax of ?12,50,990/- along with interest before the issuance of the show cause notice for services rendered to commercial concerns from April 2005 to December 2006. The demand and penalties on this count were contested, asserting that pre-payment negates the need for further penalties.

3. Service Tax Demand on Construction Services Provided to CETPs:
The appellant provided construction services to CETPs both as a sub-contractor and directly. The appellant argued that these services fall under Works Contract Service (WCS) and are taxable only from 1.6.2007. The adjudicating authority, however, confirmed the tax for the period prior to 1.6.2007 as well.

4. Classification of Services under Works Contract Service (WCS):
The appellant contended that the contracts were composite in nature, involving both materials and services, thus falling under WCS. The department allowed abatement of 67% on the composite contract value, confirming that the activities fall within WCS. Consequently, the period prior to 1.6.2007 cannot be subject to service tax as per the Supreme Court ruling in Commissioner of Central Excise Vs. Larsen & Toubro Ltd.

5. Applicability of Service Tax for the Period Prior to and After 1.6.2007:
For the period after 1.6.2007, the appellant argued that the construction of CETPs is not for commercial purposes and thus not taxable. However, the Tribunal held that WCS covers all construction activities, whether commercial or non-commercial, if they fall within the definition of Section 65(zzza) of the Finance Act, 1994.

6. Interpretation of Services as Commercial or Non-commercial:
The appellant argued that CETPs serve public interest and are not primarily for commerce or industry. The Tribunal, however, found that the primary use of CETPs is for treating effluents from commercial establishments, thus falling under commercial construction. The argument that CETPs are non-commercial was not accepted.

7. Invocation of Extended Period of Limitation:
The Tribunal upheld the adjudicating authority's decision to invoke the extended period of limitation, as the appellant failed to register or pay service tax even after being pointed out by the department. The demand for the extended period was confirmed.

8. Imposition of Penalties:
The Tribunal found merit in the appellant's argument that the issue was interpretational in nature and set aside the penalties imposed under section 78 of the Act. The construction activities were exempt from excise duty and customs duty, leading the appellants to believe they were non-commercial and exempt from service tax.

Conclusion:
The impugned order was modified to set aside the demand prior to 1.6.2007 and the penalties imposed under section 78 of the Act. The demand for service tax from 1.6.2007 to 30.9.2008 was upheld. The appeal was partly allowed with consequential relief, if any.

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