2019 (6) TMI 628 - AT - Service Tax

Classification of services - works contract service or not - composite contracts or not - Wrongful payment of service tax - HELD THAT - The contracts on which the service tax has been demanded by the impugned order-in-original, are contracts of composite nature where the transfer of property as well as service components are involved. It has already been held by Hon ble Apex Court in the case of COMMISSIONER, CENTRAL EXCISE CUSTOMS VERSUS M/S LARSEN TOUBRO LTD. AND OTHERS 2015 (8) TMI 749 - SUPREME COURT held that any contract which involves transfer of the property as well as service component same has to be classified as the work contract service and same will not be entitled for the classification as the service simplicitor - Considering the views of the Apex Court and of the fact that a new service under the category of work contract service was got enacted by the Finance Act since 1 June 2007, it is held that where both transfer of the property as well as the service component were involved in the respective contracts of the appellant, same are not taxable under the service tax simplicitor category and need to be classified under the work contract service and service tax need to be demanded accordingly. On the purchases which involved both transfer of the property in contract as well as the service component, the appellant was entitled to avail the composition scheme for payment of the work contract. The learned Adjudicating Authority has erred in holding that the appellant was not entitled to switch over to work contract service from the respective services in respect of the ongoing contract/purchase after 1 June 2007 to pay service tax under work contract composition scheme. The Adjudicating Authority should examine every contract which are subject matter of the present service tax demand to ascertain whether a contract is a composite indivisible work contract or not - appeal allowed by way of remand.

Summary

Issues:
Classification of service for service tax liability, applicability of composition scheme for payment of service tax, classification of contracts under work contract service, entitlement to switch over to work contract service.

Analysis:
The appellant, engaged in construction services, faced a demand for service tax due to a change in classification from commercial/industrial construction service to work contract service. The Department alleged incorrect payment under the composition scheme for projects ongoing before 1 June 2007. The Commissioner confirmed the demand, imposing penalties under the Finance Act. The appellant argued that their contracts were composite involving both service and property transfer, thus falling under work contract service post-June 2007. They cited a Supreme Court judgment supporting their stance. The Tribunal noted that composite contracts involving property transfer and service were not taxable under service tax pre-June 2007. They held that post-June 2007, such contracts should be classified under work contract service, allowing the appellant to avail the composition scheme for reduced service tax rates.

The Tribunal remanded the matter to the Adjudicating Authority for re-examination, instructing them to determine the classification of each contract. Contracts deemed composite and involving property transfer were to be classified under work contract service for service tax purposes post-June 2007. Contracts solely for service provision without property transfer were to be taxed accordingly. The appellant was directed to cooperate in the re-adjudication process, to be completed within three months. The appeal was allowed for remand with the specified directions.