2018 (6) TMI 1005 - AT - Service Tax

Classification of services - production, supply and installation of structural glazing, sliding doors and window to residential buildings - whether classified under the category of construction of complex service or under erection commissioning and installation ? - benefit of abatement. Held that - The conclusion reached by the appellate authority is erroneous. Just because VAT is paid at composite rate, it cannot be said that there is no sale of goods involved. In the instant case, it is seen that the major amount charged by the appellate relates to the value of material - the activity involved, apart from service, supply of goods and it was a composite activity. Since demand has not been raised under correct head, it cannot be sustained. Reliance placed in the case of URC Construction (P) Ltd. 2017 (1) TMI 1363 - CESTAT CHENNAI , where it was held that the entry under Section 65(105)(zzd) is liable to be invoked only for construction simpliciter. Therefore, there is no scope for vivisection to isolate the service component of the contract. Extended period of limitation - Held that - It is seen that the practice was in complete knowledge of Revenue as the appellants had in their letter dated 2.6.2006 in response to summons dt. 7.11.2005 elaborately described their activities and their views on the issue - extended period of limitation cannot be invoked. Demand cannot sustain - appeal allowed - decided in favor of appellant.

Summary

Issues:
Appeal against demand of Service Tax, interest, and penalty under Sections 76, 77, and 78 of the Finance Act, 1994.

Analysis:

Issue 1: Classification of Services
The appellant, engaged in manufacturing and service provision, faced a demand for Service Tax under 'construction of complex service' instead of 'erection commissioning and installation service.' The appellant argued that since they paid VAT on the entire transaction as a works contract, no demand should exist before 1.6.2007. They emphasized that their activity remained a works contract and cited relevant case law to support their stance.

Issue 2: Exclusion of Value of Goods
The appellant contended that their contract was composite, involving the sale of goods in the execution of the work contract. They claimed entitlement to exclude the value of goods on which VAT was paid. They cited legal precedents to reinforce their position, emphasizing the reduction of value of goods from the assessable value.

Issue 3: Extended Period of Limitation
The appellant argued against the invocation of the extended period of limitation, highlighting their detailed communication with Revenue in 2006 regarding their activities and tax liability. They asserted that Revenue was aware of their operations, precluding any allegations of suppression or mis-declaration.

Judgment Analysis:
The Tribunal found the Commissioner's conclusion erroneous, emphasizing that the payment of VAT at a composite rate did not negate the existence of a sale of goods. Citing relevant details submitted by the appellant, the Tribunal noted the composite nature of the activity involving both service and goods supply. Relying on legal precedents, the Tribunal held that the activity was not taxable before 1.6.2007 and classified as works contract service thereafter. The Tribunal also referenced a case where demand under an incorrect category was deemed unsustainable. Considering the appellant's proactive communication with Revenue in 2006, the Tribunal rejected the invocation of the extended period of limitation, ultimately allowing the appeal against the demand for Service Tax, interest, and penalty.

This comprehensive analysis highlights the key legal arguments, case law references, and the Tribunal's reasoning leading to the favorable judgment for the appellant.