2022 (8) TMI 168 - SC - Service Tax

Levy of Service Tax - Composite Works Contracts prior to the introduction of the Finance Act, 2007, by which the Finance Act, 1994 came to be amended to introduce Section 65(105)(zzzza) pertaining to Works Contracts - whether for the period prior to introduction of the Finance Act, 2007, the service tax would be leviable on the Composite Works Contracts? As per M.R. SHAH, J. HELD THAT - It is observed and held in the decision of 2020 (3) TMI 1324 - SUPREME COURT that even the rule of overruling the judgments should be applied with great caution, and only when the previous decision is manifestly wrong, as, for instance, if it proceeded upon a mistaken assumption of the continuance of a repealed or expired Statute, or is contrary to a decision of another court which the court is bound to follow; not, upon a mere suggestion, that some or all of the members of the court might later arrive at a different conclusion if the matter was res integra. It is further observed that otherwise there would be great danger of want of continuity in the interpretation of law. It is further observed and held that the decisions rendered by a coordinate Bench is binding on the subsequent Benches of equal or lesser strength and a coordinate Bench of the same strength cannot take a contrary view than what has been held by another coordinate Bench unless it is shown to be per incuriam. In Saurashtra Cement Chemical Industries Ltd. and another Vs. Union of India and others, 2000 (10) TMI 954 - SUPREME COURT this Court refused to indulge on the question of delegated legislation in taxing statute since the authority of the legislature in introducing the statute in question, i.e., Mines and Minerals (Regulation and Development) Act, 1957 could not be doubted and in any event, was a settled proposition of law for more than a decade. Applying the doctrine of stare decisis, the Court rejected the plea to reconsider the decision in State of Madhya Pradesh v. Mahalaxmi Fabric Mills Ltd., 1995 (2) TMI 435 - SUPREME COURT holding that The Central Legislature introduced the legislation (MMRD Act) in the year 1957 and several hundreds and thousands of cases have already been dealt with on the basis thereof and the effect of a declaration of a contra law would be totally disastrous affecting the very basics of the revenue jurisprudence. It is true that the doctrine has no statutory sanction but it is a rule of convenience, expediency, prudence and above all the public policy. It is to be observed in its observance rather than in its breach to serve the people and subserve the ends of justice. In view of the binding decision of this Court in the case of Larsen and Toubro Limited 2013 (9) TMI 853 - SUPREME COURT , the assessee is not liable to pay the service tax till the date of amendment of the provision on the indivisible/composite works contracts and therefore, the said appeals also deserve to be allowed and the assessment orders levying the service tax are to be set aside. Appeal dismissed. As per J. B.V. NAGARATHNA Speaking about the mutually exclusive taxation and powers of the Centre and the State, the dichotomy between the sales tax leviable by the State and service tax leviable by the Centre was emphasised by this Court in the aforesaid judgment. In the context of composite indivisible works contract, only Parliament can tax the service element contained in these contracts and State only can tax the transfer of property in goods element contained in these contracts. Thus, it is important to segregate the two elements completely for the purpose of taxation. Hence, it was held that works contract is a separate species of contract distinct from contracts for service simpliciter recognised in the world of commerce and law as such and has to be taxed separately as such. Referring to the decision of works contract in Gannon Dunkerley I 1992 (11) TMI 254 - SUPREME COURT Kone Elevator India (P) Limited 2014 (5) TMI 265 - SUPREME COURT , Larsen Toubro Ltd. and others vs. State of Karnataka 2013 (9) TMI 853 - SUPREME COURT all arising under the Sales Tax law, it was emphasised that there was no charging section to tax works contract in the Finance Act, 1994 i.e. until the amendment made with the insertion of subclause (zzzza) to clause 105 of Section 65 of the Finance Act, 1994. Further, in Larsen Toubro Ltd. 1992 (11) TMI 254 - SUPREME COURT the correctness of the judgment in G.D. Builders vs. Union of India 2013 (11) TMI 1004 - DELHI HIGH COURT was also considered. In the said case, it was held by the Delhi High Court that Section 65(105)(g), (zzd), (zzh), (zzq) and (zzzh) were good enough to tax indivisible composite works contract and that even when rules are yet to be framed for computation of taxes, taxes would be leviable. This proposition was based on the judgment in Mahim Patram (P) Ltd. vs. Union of India 2007 (2) TMI 73 - SUPREME COURT . It was observed that in G.D. Builders 2013 (11) TMI 1004 - DELHI HIGH COURT there was a misreading of Mahim Patram which was a case related to tax under the Central Sales Tax Act; that in Mahim Patra, it was observed that under Section 9(2) of the Central Sales Tax Act power is conferred on officers of various States to utilise the machinery provided under the provisions of the States sales tax statutes for the purposes of levy and assessment of Central Sales Tax under the Central Act. That Rules could also be made in exercise of power under Section 13(3) of the Central Sales Tax Act as a result of which the necessary machinery for the assessment of Central Sales Tax was found to be there. Therefore, even in the absence of Rules made under the Central Sale Tax Act the machinery provided under the State Sales Tax statute for the purpose of levy and assessment Central Sales tax under the Central Act could be utilized and the same is different from saying that no Rules being framed at all under the Central Sale Tax Act. The definition of Works contract inserted for the first time by virtue of Section 65(105)(zzzza) under the Finance Act, 2007 assumes significance and has to be applied w.e.f. 1st June, 2007. Thus, on and from the enforcement of the amendment in the Financial Year 2007, i.e. 1st June, 2007 the tax on the service component of works contract became leviable. Therefore, till then it was not so leviable as there was no concept of works contract under the said Act. The judgment in Larsen and Toubro Ltd. has been correctly decided and does not call for a reconsideration insofar as the period prior to 1st June, 2007 is concerned - appeal dismissed.

Summary

Issues Involved:
1. Levy of service tax on Composite Works Contracts prior to the Finance Act, 2007.
2. Validity of the High Court of Karnataka's judgment.
3. Validity of the High Court of Delhi's judgment.
4. Validity of the Guwahati High Court's judgment.
5. Validity of CESTAT judgments.
6. Request for reconsideration of the judgment in Larsen and Toubro Limited (2016).

Detailed Analysis:

1. Levy of Service Tax on Composite Works Contracts Prior to the Finance Act, 2007:
The primary issue was whether service tax could be levied on Composite Works Contracts before the Finance Act, 2007, which introduced Section 65(105)(zzzza) to the Finance Act, 1994. The judgment concluded that service tax was not leviable on Composite Works Contracts prior to the 2007 amendment. The court reiterated the decision in Commissioner, Central Excise and Customs, Kerala Vs. Larsen and Toubro Limited, (2016) 1 SCC 170, which held that service tax on indivisible works contracts was not applicable before the Finance Act, 2007.

2. Validity of the High Court of Karnataka's Judgment:
The High Court of Karnataka dismissed the writ appeals filed by M/s. Total Environment Building Systems Pvt. Ltd., confirming the assessment orders levying service tax on the ground of alternative remedy available. The Supreme Court set aside this judgment, holding that the assessee was not liable to pay service tax on indivisible/composite works contracts before the 2007 amendment.

3. Validity of the High Court of Delhi's Judgment:
The High Court of Delhi dismissed writ petitions filed by YFC Projects Pvt. Ltd., G.D. Builders, and NBCC based on its earlier decision in G.D. Builders Vs. Union of India, which was later overruled by the Supreme Court in Larsen and Toubro Limited. The Supreme Court quashed these judgments, stating that the High Court's reliance on G.D. Builders was incorrect.

4. Validity of the Guwahati High Court's Judgment:
The Guwahati High Court's judgment was challenged by NBCC. The Supreme Court allowed the appeals, setting aside the High Court's judgment, reiterating that service tax was not leviable on indivisible/composite works contracts prior to the Finance Act, 2007.

5. Validity of CESTAT Judgments:
Several appeals were filed against the CESTAT judgments, including those by M/s. Larsen and Toubro Limited and M/s. L&T Hydrocarbon Engineering Limited. The Supreme Court allowed these appeals, setting aside the CESTAT's orders, aligning with the principle that service tax was not applicable to indivisible/composite works contracts before the 2007 amendment.

6. Request for Reconsideration of the Judgment in Larsen and Toubro Limited (2016):
The Revenue sought reconsideration of the Larsen and Toubro Limited judgment, arguing that the decision was fundamentally erroneous. The Supreme Court declined this request, emphasizing the principle of stare decisis and the need for consistency in judicial decisions. The court highlighted that the decision in Larsen and Toubro Limited had been consistently followed and had attained finality.

Conclusion:
The Supreme Court allowed the appeals filed by the assessees, setting aside the judgments of the respective High Courts and Tribunals that had held service tax was leviable on indivisible/composite works contracts before the Finance Act, 2007. The court dismissed the appeal filed by the Revenue, affirming that service tax was not applicable to such contracts before the 2007 amendment. The principle of stare decisis was upheld, ensuring consistency and certainty in the interpretation of tax laws.