2023 (5) TMI 525 - HC - Service Tax

Levy of Service Tax - Works Contract Service - whether the petitioner is liable to pay service tax, in addition to the tax paid by the petitioner, in respect of the said contracts? - HELD THAT - The question whether the composite contracts were taxable under the service tax prior to 01.06.2007, is no longer res integra. The Supreme Court in the case of COMMISSIONER, CENTRAL EXCISE CUSTOMS VERSUS M/S LARSEN TOUBRO LTD. AND OTHERS 2015 (8) TMI 749 - SUPREME COURT had referred to taxable services covered under Sub-clause (g),(zzd), (zzh), (zzq) and (zzzh) of Section 65(105) of the Act and authoritatively held that the said taxable services referred only to service contracts simpliciter and not to composite works contracts. Admittedly, the challenge raised by the petitioner to the validity of Sub-clause (zzq) and (zzzh) of Section 65(105) of the Act, is squarely covered by the decision of the Supreme Court in Commissioner, Central Excise and Customs, Kerala v. Larsen and Toubro Limited - In view of the law laid down by the Supreme Court in Commissioner, Central Excise and Customs, Kerala v. Larsen and Toubro Limited, the impugned order-in-original dated 30.11.2012, which proceeds on the basis that composite contracts involving transfer of goods as well as services were covered under the taxable services under Sub-clause (zzq) and (zzzh) of Section 65(105) of the Act, cannot be sustained. Matter remanded to the Adjudicating Authority to adjudicate the show cause notices afresh - petition allowed by way of remand.

Summary

Issues involved:
The issues involved in this case are the liability of the petitioner to pay service tax on construction contracts and the validity of Sub-clause (zzq) and (zzzh) of Section 65(105) of the Finance Act, 1994.

Details of the Judgment:

Issue 1: Liability to pay service tax on construction contracts
The petitioner, engaged in civil construction works, contested the demand of service tax raised by the Adjudicating Authority. The controversy revolved around whether the petitioner was liable to pay service tax on the contracts for construction projects. The Adjudicating Authority confirmed a demand of service tax of &8377;4,91,85,132/- along with interest and penalties, after granting a 67% exemption due to the contracts being composite contracts.

Issue 2: Validity of Sub-clause (zzq) and (zzzh) of Section 65(105)
The petitioner challenged the validity of Sub-clause (zzq) and (zzzh) of Section 65(105) of the Finance Act, 1994, which brought commercial and industrial construction services under the purview of service tax. The Supreme Court, in a previous case, had authoritatively held that the taxable services referred to in the Act covered only service contracts and not composite works contracts involving transfer of goods and services. The Supreme Court's decision rendered the impugned order-in-original unsustainable as it incorrectly treated composite contracts as taxable under Sub-clause (zzq) and (zzzh) of Section 65(105) of the Act.

Conclusion:
In light of the Supreme Court's ruling, the High Court set aside the impugned order-in-original dated 30.11.2012 and remanded the matter to the Adjudicating Authority for fresh adjudication. The High Court disposed of the petition accordingly, directing a reassessment of the show cause notices in accordance with the law laid down by the Supreme Court.