2022 (10) TMI 196 - AT - Service Tax

Levy of Service Tax - construction of compound wall/fencing as well as development and maintenance of green belt around water tank mains and adjoining reservoir and pumping station lands as security agents services - sub-contracting - HELD THAT - It is on record that the appellant, having provided certain services that are clearly recognizable as security agency services , has discharged tax liability on the consideration received from the sub-contractor next, and above, in hierarchy of such delegation. As far as the invoices raised by appellant on the same recipient of services, and which are in dispute here, are concerned, we have already rendered a finding that the nature of the service has not been identified. In the absence of such identification, the inclusion thereof in a composite service and, the applicability of the judicial decisions led by either side or the resort to section 65A of Finance Act, 1994 is not only academic but also a non-starter. The adjudicating authority has not paid careful attention to the two relevant definitions in section 65(105)(w) and section 65(94) of Finance Act, 1994; both , with reference to security, are qualified by the expression in any manner which, by such concatenated existence and circular consequence, has to be read in the restricted context of that which in common parlance is associated with security agency - Taking that definition of 'security agency' into section 65(105)(w) of Finance Act, 1994 would lead to the outcome of every compound wall/fence put up by any person to be that of security agency ; consequently and by extension, every civil project would be activity of security agency , thereby rendering construction service or work contract service in section 65 of Finance Act, 1994 to be superfluous. Fencing/compound wall are, after all, intended as safeguard against encroachment by neighbour, taken over by squatters or ingress by thieves. That, surely, cannot be the intent of section 65 of Finance Act, 1994. It is found that the hierarchical assumptions on which the demand has been established has collapsed on itself. The demand cannot sustain and, consequently, the impugned order also does not - appeal allowed.

Summary

Issues:
1. Tax liability under section 73 of Finance Act, 1994 for the period from April 2009 to March 2012.
2. Classification of services rendered by the appellant as 'security agents services' and inclusion in assessable value of taxable service.
3. Interpretation of the scope of 'security agency service' defined in section 65(94) of Finance Act, 1994.
4. Legal protection of premises belonging to Municipal Corporation and the nature of services rendered by the appellant.
5. Application of judicial decisions and circulars in determining tax liability.
6. Interpretation of definitions in section 65(105)(w) and section 65(94) of Finance Act, 1994.

Analysis:
1. The appellant contested the tax liability imposed under section 73 of the Finance Act, 1994, arguing that the adjudicating authority misapplied the law and ignored common sense in extracting tax. The dispute arose from the appellant's subcontracting work related to construction and maintenance activities, which were classified as 'security agents services' by the tax authorities.
2. The appellant's counsel argued that the activities of construction and protective surveillance were distinct and should be assessed separately. The tax authorities relied on the broad interpretation of 'in any manner' in defining security agency services to include the work undertaken by the appellant. However, the appellant contended that the intent of the contract and the nature of services provided should determine the tax liability.
3. The legal backdrop for the proceedings was provided by the definitions of 'taxable service' and 'security agency' in sections 65(105)(w) and 65(94) of the Finance Act, 1994. The appellant challenged the inclusion of their civil works in the assessable value of taxable services, emphasizing the need for a clear legal and logical basis for such an approach.
4. The appellant highlighted that the erection of a compound wall alone did not constitute the protection of premises belonging to the Municipal Corporation, and the nature of services provided by the appellant was inaccurately presumed by the tax authorities. The appellant's invoicing structure and contractual relationships were crucial in determining the actual nature of the services rendered.
5. Both parties referenced various judicial decisions and circulars to support their arguments regarding the interpretation of contracts, indivisibility of services, and the scope of taxable services. The appellant emphasized the need for a specific identification of services to determine tax liability accurately.
6. The Tribunal analyzed the definitions in the Finance Act, particularly the qualifying phrase 'in any manner,' to restrict the interpretation of security agency services. The broad interpretation advocated by the tax authorities would have far-reaching implications, potentially encompassing all civil construction activities as security agency services. The Tribunal concluded that the hierarchical assumptions underlying the tax demand were flawed, leading to the dismissal of the demand and the appeal being allowed.