2022 (1) TMI 1126 - AT - Service Tax

Levy of service tax - construction of residential complex service and goods transport service - composite services - activities undertaken for the construction of residential flats for individuals fall within the clarification issued by the Board vide Circular No. 108/2/2009-ST dated 29.1.2009 - period January 2009 to January 2010 - HELD THAT - It is not in dispute that the construction services are composite in nature involving both supply of goods and rendering service. The definition of works contract was introduced under sec. 65(105)(zzzza) with effect from 1.6.2007. The service portion in the composite work contract was specifically made taxable under works contract service with effect from 1.6.2007. The manner of determination of the value of such service portion is prescribed vide Rule 2(A) of Service Tax (Determination of Value) Rules, 2006 framed under sec. 94(2) of the Act. Alternatively in the form of Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007 was introduced to pay service tax at a lesser rate on the gross amount (including the value of transfer of property in the goods). The issue as to whether a composite contract which has both transfer of property in goods as well as rendering of service would fall under CICS / CCS / CRCS was examined and finally settled by the Hon'ble Supreme Court in the case of COMMISSIONER, CENTRAL EXCISE CUSTOMS VERSUS M/S LARSEN TOUBRO LTD. AND OTHERS 2015 (8) TMI 749 - SUPREME COURT . The Hon'ble Supreme Court observed that the service classified under CICS and CCS as defined under clause (zzzq) and (zzzh) of section 65(105) would cover only pure service contracts which does not involve any transfer of property in goods. The demand under construction of residential complex service cannot sustain and requires to be set aside - Appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Applicability of Circular No. 108/2/2009-ST dated 29.1.2009 on liability to pay service tax for construction of residential complexes.
2. Interpretation of composite nature of construction services involving both supply of goods and service.
3. Determination of tax liability under works contract service for composite contracts.
4. Analysis of relevant case laws on service tax liability for construction services.
5. Decision on the appeal against the demand for service tax under construction of residential complex service.

Issue 1: Applicability of Circular No. 108/2/2009-ST dated 29.1.2009:
The appellants ceased paying service tax for construction services from January 2009 based on Circular No. 108/2/2009-ST. The department issued a Show Cause Notice for service tax from January 2009 to January 2010. The adjudicating authority initially dropped the proceedings, citing the Circular's applicability. However, the Commissioner (Appeals) disagreed, leading to the appeal.

Issue 2: Interpretation of composite nature of construction services:
The appellant argued that the services provided were composite in nature involving both goods supply and services. They relied on a previous decision to support their claim that demand for service tax under various categories cannot be sustained for composite contracts. The Tribunal examined the issue and concluded that for composite contracts involving both goods and services, the demand for service tax under specific categories may not be applicable.

Issue 3: Determination of tax liability under works contract service:
The Tribunal delved into the definition of works contract service under section 65(105)(zzzza) and related rules. It highlighted the introduction of works contract service and the specific taxation of the service portion in composite contracts. The Tribunal referred to a Supreme Court decision and a previous case to clarify the tax liability under works contract service for composite contracts involving both goods and services.

Issue 4: Analysis of relevant case laws on service tax liability:
The Tribunal referenced Circulars and case laws to analyze the applicability of service tax liability to construction services. It highlighted the importance of distinguishing between pure service contracts and composite contracts involving transfer of property in goods. The Tribunal emphasized that for composite contracts, the demand for service tax under specific categories may not be sustainable.

Issue 5: Decision on the appeal against the demand for service tax:
After considering the arguments, case laws, and evidence presented, the Tribunal concluded that the demand under construction of residential complex service could not be sustained. Consequently, the impugned order was set aside, and the appeal was allowed with any consequential relief.

This detailed analysis of the judgment from the Appellate Tribunal CESTAT CHENNAI provides a comprehensive understanding of the issues involved and the Tribunal's decision on each aspect of the case.