2022 (9) TMI 390 - AT - Service Tax

Classification of services - Works Contract Service or Commercial or Industrial Construction Service - demand of service tax on works contract till June 2007 was payable or otherwise? - inclusion of value of material supply free of cost by the service recipient - extended period of limitation - HELD THAT - As regard the issue that whether the free supply material needs to be included in the services of Commercial or Industrial Construction Service , the issue is no longer res- integra as held by the Hon ble Supreme court in the case of COMMISSIONER OF SERVICE TAX ETC. VERSUS M/S. BHAYANA BUILDERS (P) LTD. ETC. 2018 (2) TMI 1325 - SUPREME COURT that the value of free supply material need not to be included in the gross value service in order to avail the benefit of abatement. Therefore, as per the fact since the appellant has provided the service along with material their services are clearly classified as works contract service. The appellant subsequently started paying service tax on works contract service which is not disputed by the department. The Works contract service was not taxable prior to 01.06.2007 in the light of the Hon ble Supreme Court judgment in the case of COMMISSIONER, CENTRAL EXCISE CUSTOMS VERSUS M/S LARSEN TOUBRO LTD. AND OTHERS 2015 (8) TMI 749 - SUPREME COURT therefore, the demand prior to 01.06.2007 is clearly unsustainable as held by the Apex Court. Demand under Commercial or Industrial Construction Service post 01.06.2207 - HELD THAT - The SCN as well as the adjudication order was passed classifying the service under Commercial or Industrial Construction Service whereas the service of the appellant is classified under works contract service. On this fact the demand raised under Commercial or Industrial Construction Service will not sustain being proposed and confirmed under the wrong classification whereas the services are correctly classifiable under works contract service - when no demand was raised under Works Contract Service post 01.06.2007, the demand raised under CICS/CCS will not be sustained. Since the issue is decided on merit of this case, other issues raised by the appellant such as abatement valuation, limitation etc. are not addressed. Appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Classification of services provided by the appellant as Works Contract Service or Commercial or Industrial Construction Service (CICS)
2. Whether demand raised under CICS is justifiable if the service falls under Works Contract Service
3. Payability of service tax on works contract service till June 2007

Analysis:

1. The first issue to be decided was the classification of services provided by the appellant. The appellant argued that their contract was a composite one involving both material and service, thus falling under Works Contract Service (WCS). The Supreme Court's judgment in the case of Bhayana Builders clarified that the value of free supply material need not be included in the gross value of service for availing abatement. The tribunal agreed that the services provided by the appellant were indeed works contract services, and the appellant had started paying service tax on works contract service, which was undisputed by the department. The demand for works contract service prior to June 2007 was deemed unsustainable based on the Supreme Court's judgment in the case of Larsen & Toubro.

2. Regarding the demand under Commercial or Industrial Construction Service post-June 2007, the tribunal found that the demand was classified incorrectly as CICS instead of WCS. The tribunal cited the Real Value Promoters Limited case, stating that demands raised under CICS/CCS on composite contracts post-June 2007 were not sustainable. As no demand was raised under Works Contract Service post-June 2007, the demand under CICS/CCS was deemed unsustainable. The tribunal did not address other issues raised by the appellant, such as abatement valuation and limitation, as the main issue was decided on merit.

3. The appellant also argued against the extended period of limitation, stating that they had not suppressed any material facts and had maintained necessary records. Citing relevant judgments, the appellant contended that the demand was time-barred. Additionally, the appellant challenged the sustainability of interest and penalties, arguing that penalties under sections 76 and 78 were mutually exclusive. The insertion of Section 78 of the Finance Act, 2008, was highlighted to support the argument that penalty under Section 76 was not imposable.

In conclusion, the tribunal found the demand of service tax raised by the lower authorities unsustainable and set aside the impugned order, allowing the appeal with consequential relief.