2024 (4) TMI 475 - AT - Service Tax

Classification of service - Works Contract service - erection, commissioning or installation service - exemption from service tax under N/N. 25/2012 (S.No. 12), dated 20.6.2012 - period October 2010 to March 2015 - HELD THAT - Appellant are required to erect poles and for this purpose, dig pits, prepare concrete base as per specifications and install the poles. The appellant was not required to supply the poles but it was required to provide the materials towards construction of the base. It also required the appellant to ensure that the quality of the materials used were as specified. Thus, there was use of materials in these contracts though not supply of poles themselves. In this case, since the appellant was required to use cement and concrete as per the contracts, they squarely fall under the definition of works contracts under section 65B (54) of the Finance Act. Therefore, the SCN, the OIO and the impugned order were incorrect in assuming that they were not works contracts. The demand, interest and penalties in the impugned order therefore, cannot be sustained. The impugned order is set aside - appeal allowed.

Summary

Issues Involved: Determination of whether the contracts were Works contracts or contracts for purely service. Assessment of service tax liability, interest, and penalties u/s 77 and 78 of the Finance Act, 1994.

Summary:

Issue 1: Service Tax Liability on Works Contracts

The appellant, an electrical contractor, appealed against the order-in-appeal dated 28.7.2017 rejecting their appeal and upholding the order-in-original dated 22.12.2016 demanding service tax of Rs. 10,12,080/- for the period October 2010 to March 2015. The appellant contended that their contracts involved the use of materials, falling under Works Contracts as defined in section 65B(54) of the Finance Act. The department argued that the contracts were purely service contracts, necessitating service tax on the gross amounts received. The contracts required the appellant to erect poles, prepare bases, and use specified materials, indicating works contracts. The Tribunal found that the contracts fulfilled the criteria of works contracts as defined in section 65B(54), involving the transfer of property of goods and the use of materials, thus setting aside the impugned order and relieving the appellant from the demand, interest, and penalties.

Issue 2: Interest and Penalties u/s 77 and 78 of the Finance Act, 1994

The Additional Commissioner issued a Show Cause Notice demanding service tax, interest, and proposing penalties u/s 77 and 78 of the Finance Act, 1994. The impugned order confirmed these proposals. The appellant argued that as the contracts were works contracts, the interest and penalties were unjustified. The Tribunal, based on the definition of works contracts and the use of materials in executing the contracts, concluded that the demands, interest, and penalties in the impugned order were incorrect, ultimately allowing the appeal and setting aside the impugned order dated 28.07.2017, providing consequential relief to the appellant.

(Order pronounced in open court on 12/04/2024.)