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2019 (5) TMI 1135 - AT - Service TaxClassification of service - Construction of Complex Service or Works Contract Service - supply of material coupled with the provision of work and labour - Composite Works Contract - DDA had undertaken a competitive bid process for selecting private entity to undertake the implementation of the project for the development of Residential Facility to be used to provide accommodation for athletes and officials participating in the CWG and thereafter dispose of as apartments for residential purposes. HELD THAT - DDA had undertaken a competitive bid process for selecting private entity to undertake the implementation of the project for the development of Residential Facility to be used to provide accommodation for athletes and officials participating in the CWG and thereafter dispose of as apartments for residential purposes. For this purpose, a site comprising 11 hectares located adjacent to the Akshardham Temple was identified and DDA selected the Appellant as Project Developer for undertaking the implementation of the project. DDA further agreed to grant to the Project Developer and the Project Developer agreed to accept from DDA exclusive developer rights to the development of the Project on the Project Site as per the terms and conditions of the agreement. The responsibility of the Appellant under the PDA included construction of residential units, which necessarily involves supply of material coupled with the provision for work and labour. The materials have to be supplied as per the given specifications and work and labour have to be in accordance with the Good Industry Practices as per Clause 8.8 of the agreement. The activity undertaken by the Appellant under PDA would, therefore, qualify as a composite and indivisible works contract and by no means can be said to be Service simplicitor. The show cause notice was, however, issued to the Appellant alleging that the Appellant is providing CCS services under Section 65(105)(zzzh) of the Act. The Supreme Court in COMMISSIONER, CENTRAL EXCISE CUSTOMS VERSUS M/S LARSEN TOUBRO LTD. AND OTHERS 2015 (8) TMI 749 - SUPREME COURT examined as to whether Works Contract Service can be classified under Section 65(105)(zzzh) and held that the scope of Section 65(105) (zzzh) is limited to cover contract of service simplicitor only and not a composite works contract. The Supreme Court noticed that it is only w.e.f 01 June, 2007 that Section 65(105)(zzzza) was introduced to cover composite works contract and so works contract cannot be covered under any other category of services prior to 01 June, 2007. Composite Works Contract cannot be taxed under CCS under Section 65(105) (zzzh) as the scope is limited to cover contract of service simplicitor only. The position that comes out very clearly, therefore, is that even prior to 01 June, 2007 and post 01 June, 2007, the nature of service rendered by the Appellant to DDA was Works Contract Service and not CCS. The show cause notice alleged that the Appellant was providing CCS service to DDA and the demand has also been confirmed under this category by the adjudicating authority. The impugned order, therefore, deserves to be set aside for this reason alone since the demand made under a particular category of service found to be incorrect in a subsequent proceeding, cannot be sustained. The nature of the services provided by the Appellant to DDA would fall under Works Contract Service since it was an indivisible works contract and it is only when work is undertaken as a contract of service simplicitor, that it would fall under the category of CCS - Demand set aside - appeal allowed - decided in favor of appellant.
Issues Involved:
1. Classification of the service provided by the Appellant: Whether it falls under 'Construction of Complex Service' (CCS) or 'Works Contract Service' (WCS). 2. Validity of the demand under the CCS category. 3. Applicability of the extended period of limitation. 4. Valuation of the service provided. 5. Provision of service by the Appellant to DDA. 6. Impact of VAT payment by the sub-contractor on the classification of the service. 7. Relevance of GST provisions to the case. Detailed Analysis: 1. Classification of the Service Provided by the Appellant The primary issue was whether the service provided by the Appellant falls under 'Construction of Complex Service' (CCS) or 'Works Contract Service' (WCS). The Tribunal examined the terms of the Project Development Agreement (PDA) and concluded that the service rendered by the Appellant involved both supply of materials and provision of work and labor. This qualifies as a composite and indivisible works contract rather than a service simplicitor. The Tribunal relied on the Supreme Court’s judgment in *Commissioner of Central Excise & Customs, Kerala vs Larsen & Toubro Ltd.*, which held that a composite works contract cannot be taxed under CCS as its scope is limited to service contracts simplicitor. 2. Validity of the Demand under the CCS Category The Tribunal found that the demand was incorrectly raised under the CCS category. The show cause notice alleged that the Appellant was providing CCS services under Section 65(105)(zzzh) of the Finance Act, 1994. However, the Tribunal held that the nature of the service rendered by the Appellant was a works contract service, not CCS. Consequently, the demand under the CCS category was invalid and the impugned order was set aside. 3. Applicability of the Extended Period of Limitation The Tribunal did not find it necessary to examine the applicability of the extended period of limitation under the proviso to Section 73(1) of the Act, as the primary issue regarding the incorrect classification of the service was decided in favor of the Appellant. 4. Valuation of the Service Provided The Tribunal did not delve into the valuation of the service provided by the Appellant, as the primary issue of incorrect classification was sufficient to set aside the impugned order. The valuation method adopted by the Commissioner was deemed arbitrary by the Appellant, but this issue was not further examined. 5. Provision of Service by the Appellant to DDA The Appellant argued that it did not render any service to DDA as both entities had come together for a common purpose, and none was working for the other. The Tribunal did not find it necessary to examine this argument in detail, as the primary issue regarding the nature of the service was decided in favor of the Appellant. 6. Impact of VAT Payment by the Sub-Contractor on the Classification of the Service The Department contended that since VAT on the sale of goods was paid by the sub-contractor, the activities would not involve any sale and, therefore, would not be works contract service. The Tribunal rejected this contention, stating that the demand of VAT is not material; what is required to be seen is the supply of goods coupled with the provision of service. The payment of VAT by the sub-contractor was sufficient to classify the service as a works contract. 7. Relevance of GST Provisions to the Case The Department argued that under the new GST regime, the transfer of development rights is considered taxable. The Tribunal dismissed this argument, stating that the service provided by the Appellant must be examined under the provisions of the Finance Act, 1994, and not under the GST regime. Conclusion The Tribunal set aside the impugned order dated 30 October 2013, confirming that the service provided by the Appellant was a works contract service and not a construction of complex service. Consequently, the demand raised under the CCS category was invalid. The appeal was allowed, and the order was pronounced in the open court on 29.04.2019.
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