2024 (1) TMI 251 - AT - Service Tax

Classification of service - Works Contract Service or commercial or Industrial Construction Service? - activity of construction of roads, buildings etc - facts not verified properly - violation of principles of natural justice - HELD THAT - The aspect that whether service is classifiable under work contract service has not been examined properly by the Adjudicating authority. Whether a service is classified as work contract service depends on various facts such as whether the contract is executed with service and material both, whether the appellant has paid the State VAT, etc. Therefore, since the aspects of work contract service has not been examined properly by the Adjudicating Authority, the entire matter needs to be reconsidered. As regard the appellant s claim that the Adjudicating Authority has given hypothetical finding that the appellant could have entered in a single contract i.e. construction of building and road - in this regard prima facie view is that the finding of the adjudicating authority in this regard is not correct. For the purpose of levy of service tax individual contract has to be taken in account. Accordingly, the service tax demand can be determined. Therefore, merely on assumption that the appellant have entered into two separate contracts intentionally to evade the service tax is prima facie not tenable - however since the important aspect of works contract service needs to be reconsidered, the matter needs to be decided a fresh. Appeal allowed by way of remand.

Summary

Issues involved:
1. Classification of service tax on construction of road under "commercial and industrial construction service" due to possibility of entering into a composite contract.
2. Taxability of construction of roads, buildings, etc. under "commercial and industrial construction service" as a works contract service.
3. Demand of service tax on "Earth work" under "site formation and clearance, excavation and earthmoving and demolition" service.
4. Invocation of larger period of limitation and imposition of penalty for suppression of facts related to construction of road.

Issue 1:
The appellant argued that the construction work should be classified under "Works Contract Service" instead of "commercial or Industrial Construction Service" due to the nature of the work. They contended that the demand was not sustainable solely based on this ground. The Tribunal found that the proper classification as "work contract service" was not adequately examined by the Adjudicating authority, necessitating a reconsideration of the matter.

Issue 2:
Regarding the possibility of entering into a single composite contract for building and road construction, the Tribunal disagreed with the hypothetical finding that the appellant intentionally split the contracts to evade service tax. They emphasized that individual contracts should be considered for service tax purposes. The Tribunal concluded that the matter should be decided afresh, considering the key aspect of works contract service.

Issue 3:
The demand for service tax on "Earth work" was challenged by the appellant, arguing that it should be classified under a works contract service involving both material and service. The Tribunal did not provide a specific ruling on this issue in the summarized judgment.

Issue 4:
Regarding the invocation of a larger period of limitation and imposition of penalty for suppression of facts, the Tribunal did not uphold the findings of the Adjudicating authority. The Tribunal set aside the impugned order and remanded the case back to the Adjudicating Authority for a fresh decision, considering the legal principles cited by the appellant in various judgments.

This summary highlights the key legal issues involved in the judgment and the Tribunal's decision to remand the case for further consideration based on the proper classification of the construction services under the relevant tax categories.