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2018 (11) TMI 1465 - AT - Service TaxCommercial Construction services - eligibility for abatement of 67% of the taxable value - Department was of the view that cum-tax benefit has to be calculated first and then abatement should be taken on such value - present case is from April 2007 to March 2009 - Held that - The contracts entered between the appellant and the service recipient is a composite contract which involves both supply of materials as well as rendering of service. The Tribunal in the case of Real Value Promoters Ltd. 2018 (9) TMI 1149 - CESTAT CHENNAI had occasion to analyse the issue regarding demand of service tax under construction of residential complex services, commercial or industrial construction service and construction of complex service. The Tribunal has held that prior to 1.6.2007, levy of service tax can be under the above categories only for contracts which are purely for services. That after 1.6.2007, the above categories would be applicable only if the contracts are purely services and which are not composite contracts. Further, it was held that after 1.6.2007, demand in respect of composite contracts would fall under works contract service only. The demand of service tax under commercial or industrial construction service (residential complex) cannot sustain after the period 1.6.2007 - The levy of service tax prior to 1.6.2007 cannot also sustain by application of the decision of the Hon ble Supreme Court in the case of Larsen & Toubro Ltd. 2015 (8) TMI 749 - SUPREME COURT . Appeal allowed - decided in favor of appellant.
Issues Involved:
1. Eligibility for abatement of 67% of the taxable value. 2. Calculation of cum-tax benefit. 3. Classification of services under commercial or industrial construction service versus works contract service. 4. Applicability of service tax on composite contracts prior to 1.6.2007 and after 1.6.2007. Detailed Analysis: Issue 1: Eligibility for Abatement of 67% of the Taxable Value The appellants were paying service tax under the head commercial construction service and claimed eligibility for abatement of 67% of the taxable value as per Notification No. 1/2006 dated 1.3.2006. The department contended that the cum-tax benefit must be calculated first before applying the abatement. The original authority confirmed the demand, interest, and penalties, which was upheld by the Commissioner (Appeals). However, the adjudicating authority dropped the demand in the second appeal, which was later set aside by the Commissioner (Appeals). Issue 2: Calculation of Cum-Tax Benefit The department's view was that the cum-tax benefit should be calculated first, and then the abatement should be taken on such value. This led to the issuance of show cause notices proposing to demand service tax along with interest and penalties. The original authority and the Commissioner (Appeals) upheld this view for the first appeal period from April 2007 to September 2007. Issue 3: Classification of Services The appellant argued that the activity undertaken falls under works contract service, involving execution of composite contracts, making the demand under commercial or industrial construction service unsustainable. The Tribunal in Real Value Promoters Ltd. Vs. CCE – 2018-TIOL-2867-CESTAT, Chennai, held that prior to 1.6.2007, service tax could only be levied on pure service contracts, and after 1.6.2007, composite contracts should be classified under works contract service. This was supported by the Union Finance Minister’s budget speech in 2007 and the Hon’ble Apex Court’s decision in Larsen & Toubro case, which emphasized that composite contracts were brought under service tax ambit only from 1.6.2007. Issue 4: Applicability of Service Tax on Composite Contracts The Tribunal referred to several cases, including Commissioner, Service Tax, New Delhi Vs. Swadeshi Construction Company and Skyway Infra Projects Pvt. Ltd. Vs. Commissioner of Service Tax, Mumbai, which consistently held that composite contracts could not be taxed under commercial or industrial construction service prior to 1.6.2007. After 1.6.2007, such contracts fell under works contract service. The Tribunal concluded that the demand for service tax under commercial or industrial construction service or construction of complex service could not sustain for composite contracts both before and after 1.6.2007. Conclusion: The Tribunal held that the demand of service tax under commercial or industrial construction service (residential complex) could not sustain after 1.6.2007, and the levy of service tax prior to 1.6.2007 could not sustain by the application of the Hon’ble Supreme Court’s decision in Larsen & Toubro Ltd. The impugned orders were set aside, and the appeals were allowed with consequential relief. Operative Portion: The operative portion of the order was pronounced in open court, affirming the Tribunal’s decision to set aside the impugned orders and allow the appeals with consequential relief.
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