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2018 (7) TMI 1798 - AT - Service TaxWorks Contract - sale or service? - mutual exclusivity - Benefit of N/N. 12/2003 ST dated 20.06.2003 - appellants are procuring cement, steel, fittings and fixtures etc which are consumed in the providing of services. They are discharging duty of sales tax as well as service tax in the ratio 70% and 30% respectively on the total value of the property - Department contended that the items are consumed by them in the course of providing services and such consumption do not tantamount to sale, therefore, the benefit of the Notification is not available to them. Held that - What the appellants are executing are nothing but Works Contract and as such their case is squarely covered by the Hon ble Supreme Court judgment in the case of M/s. Larson & Toubro 2015 (8) TMI 749 - SUPREME COURT , where it was held that Works Contract came to be taxed under service tax only w.e.f. 01.06.2007 and that Section 65(105) of Finance Act 94 had levied service tax only on contracts simplicitor and not contested in the Works Contract. There was no charging Section specifically levying service tax only on Works Contract and moreover on tax the service element derived from the gross amount charged for Works Contract less value of property and goods transported under exclusion of Works Contract - Demands in the case of the appellants as far as they pertain to a period prior 01.06.2007 are liable to be set aside. Demands for the month of June 2007 - Held that - The Larger Bench in the case of appellants themselves 2009 (9) TMI 342 - CESTAT, BANGALORE has held the mutual exclusivity of service tax and sales tax and the powers to tax assigned by the Constitution to the States and Centre respectively on sales and services - the impugned demand of differential duty relating to value of materials supplied in the course of provision of construction of commercial or industrial buildings and construction of residential complex services is not sustainable - demand set aside. Appeal allowed - decided in favor of appellant.
Issues:
1. Availability of benefit under Notification No. 12/2003 ST for service tax on consumed items. 2. Classification of services provided by the appellants as Works Contract Service. 3. Tax liability on service element derived from gross amount charged for Works Contract. 4. Impugned demand of differential duty for the month of June 2007. 5. Principles of fiscal federalism in relation to taxing powers of Centre and States. Analysis: Issue 1: Availability of benefit under Notification No. 12/2003 ST The appellants, engaged in Commercial or Industrial Construction Service, were consuming items like cement and steel in providing services. The Department contended that such consumption did not amount to sale, thus challenging the appellants' eligibility for benefits under Notification No. 12/2003 ST. The Commissioner adjudicated show-cause notices demanding service tax and levied penalties under the Finance Act, 1994. Issue 2: Classification of services as Works Contract Service The appellants argued that their activities involved a Works Contract Service, citing legal precedents. They emphasized that the cost of materials consumed for providing services should not be included in the value of services if VAT was already paid on such materials. The Tribunal found that the appellants' activities fell under Works Contract, as per the Supreme Court judgment in M/s. Larsen & Toubro Ltd. Issue 3: Tax liability on service element from Works Contract The Tribunal noted that prior to June 1, 2007, there was no specific provision to levy service tax on Works Contract Service. The demands related to the period before this date were set aside based on legal interpretations and precedents. Issue 4: Impugned demand of differential duty for June 2007 Regarding the demands for June 2007, the Tribunal highlighted the mutual exclusivity of service tax and sales tax, emphasizing the constitutional division of taxing powers between the Centre and States. The demand for differential duty was deemed unsustainable due to principles of fiscal federalism. Issue 5: Principles of fiscal federalism The Tribunal emphasized that the decision to collect service tax on materials already subject to State VAT was contrary to the principles of fiscal federalism. The appeals of the appellants succeeded on merits, leading to the allowance of the appeals without any imposition of fines or penalties. In conclusion, the Tribunal allowed the appeals, setting aside the demands and penalties, based on the classification of services as Works Contract and the application of principles of fiscal federalism in taxing powers division between the Centre and States.
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