2020 (11) TMI 798 - HC - Service Tax

Works Contract Services - business of construction of buildings and civil structures for last several decades - It is the case of the petitioner that, services rendered by the petitioner were actually in the nature of Works Contract because petitioner entered into a contract with its client, wherein, transfer of property in goods involved in execution of such contract was leviable to tax - period from October, 2005 to March, 2006 - HELD THAT - It emerges on record that the petitioner no.1 was rendering services classifiable as works contract . This fact has neither been disputed by the Commissioner nor by the Tribunal. That only because the petitioner no.1 registered itself for the service tax under the head of commercial / industrial construction services , the petitioner cannot be fasten its liability to pay service tax on the services rendered by it as work contract services. W.e.f. 01.06.2007 by entering (zzzza) in subsection 105 of Section 65 of the Act,1994 was introduced for the first time by the Finance Act, 2007 to cover the person as taxable person in relation to the execution of the works contract in respect of roads, airports, railways, transport terminals, bridges, tunnels and dams. The Apex Court in GANNON DUNKERLEY CO. VERSUS STATE OF RAJASTHAN LARSEN TOUBRO LTD. UNION OF INDIA 1992 (11) TMI 254 - SUPREME COURT was of the opinion that the service tax charging Section itself must lay down with specificity that the levy of the service tax can only be on works contracts, and the measure of tax only be on that portion of works contracts which contain a service element which is to be derived from the gross amount charged for the works contract less the value of the property in goods transferred in the execution of the works contract. In such circumstances, the Apex Court held that when the legislature has introduced the concept of service tax on indivisible works contracts then such contracts were never intended to the subject matter of the service tax, and therefore, such contracts, not being exempt under the Finance Act, 1994, cannot be said to fall within its tentacles, as which was never the intention of Parliament. The Apex Court, therefore, held that the levy of service tax on works contract was non-existent prior to 01.06.2007. The contention raised on behalf of the respondents that as the petitioner had voluntarily registered under the head of commercial /industrial construction services , the petitioner is liable to pay service tax, is not tenable as the petitioner cannot be held to be liable to pay service tax prior to 01.06.2007, where, it is not in dispute that the petitioner was rendering works contract service . Petition allowed.

Summary

Issues Involved:
1. Jurisdiction of the Tribunal
2. Classification of Services
3. Applicability of Service Tax on Works Contract Services Prior to 01.06.2007
4. Violation of Principles of Natural Justice
5. Entitlement to Cenvat Credit and Abatement Notification

Detailed Analysis:

1. Jurisdiction of the Tribunal:
The Tribunal's decision in Service Tax Appeal No. 107/2009 was challenged for being contrary to the Supreme Court's judgment in the case of Larsen & Toubro Ltd. and other precedents. The Tribunal was found to have acted without jurisdiction by not adhering to the established legal position that service tax on works contract services was not leviable before 01.06.2007.

2. Classification of Services:
The petitioner argued that their services were in the nature of 'works contract' and not 'commercial or industrial construction services.' Despite being registered under the latter category, the petitioner contended that the correct classification should be 'works contract services,' which was only taxable from 01.06.2007. The Tribunal failed to consider this classification properly, leading to an erroneous decision.

3. Applicability of Service Tax on Works Contract Services Prior to 01.06.2007:
The Supreme Court in Larsen & Toubro Ltd. held that service tax on works contract services was applicable only from 01.06.2007. The Tribunal's decision to levy service tax on the petitioner for the period prior to this date was contrary to this binding precedent. The Tribunal's failure to follow the Supreme Court's judgment and other consistent decisions from various High Courts and Tribunals constituted a jurisdictional error.

4. Violation of Principles of Natural Justice:
The Tribunal's decision was also challenged on the grounds of violating principles of natural justice. The petitioner argued that the Tribunal did not consider the submission that the services rendered were 'works contract services' and not 'commercial or industrial construction services.' Additionally, the Tribunal's decision to remand the matter for verifying the applicability of the notification dated 01.03.2006 was seen as a breach of judicial propriety.

5. Entitlement to Cenvat Credit and Abatement Notification:
The petitioner had availed Cenvat credit on Goods Transport Agency (GTA) services and claimed abatement under Notification No. 1/2006-ST dated 01.03.2006. The adjudicating authority denied the benefit of this notification, arguing that the petitioner had violated its conditions by availing Cenvat credit. The Tribunal upheld this view, but the petitioner contended that the credit taken was for services availed before March 2006 and not for the construction services provided in March 2006. The Tribunal's decision to remand the matter for verification of Cenvat credit reversal was seen as unnecessary given the established non-liability for service tax on works contracts prior to 01.06.2007.

Conclusion:
The High Court quashed the Tribunal's order in Service Tax Appeal No. 107/2009 and the related Show Cause Notice, holding that the petitioner was not liable to pay service tax on works contract services for the period prior to 01.06.2007. The Court emphasized adherence to the Supreme Court's judgment in Larsen & Toubro Ltd. and other consistent precedents, highlighting the Tribunal's jurisdictional error and violation of natural justice principles. The petition was allowed, and the rule was made absolute, with no order as to costs.