2009 (8) TMI 174 - AT - Service Tax

Demand of service tax is on the cost of materials used in rendering the commercial or industrial construction service from 16-6-2005 to 31-3-2006 - According to the assessee, on cost of material, sale tax was paid, so it was not included in value of service - This argument of the assessee may be good for the period from 1-6-2007 when the works contract concept made its way into the domain of service tax for the first time. Prior to 1-6-2007, the assessee was rendering a service which squarely fell within the ambit of construction service upto 15-6-2005 and commercial or industrial construction services thereafter upto 31-3-2006. The assessee has never disputed this fact. We are not impressed with their present attempt to escape tax liability for the period upto 31-3-2006 on the strength of a doctrine which was introduced on 1-6-2007 with prospective effect since materials sold to service recipient as evidencd by invoices showing cost of materials separately and sales tax paid thereon, benefit of exemption under notification 12/2003-S.T. is admissible In respect of tax liability on the commercial or industrial construction service rendered as sub-contractor, Circular dated 23-8-2007 stting sub-contractors as liable to pay service tax oppressive and hence, having prospective effect only - the assessee should not be asked to pay service tax if main contractor has paid the tax - however, their claim for abatement under Notification 1/2006 ST dated 1-3-2006 should be considered if appellant held liable to pay tax -

Issues Involved:

1. Demand of service tax and education cess.
2. Classification of services under "construction service" and "commercial or industrial construction service."
3. Applicability of "works contract" and its taxability prior to 1-6-2007.
4. Claim for exemption under Notification 12/2003-ST.
5. Liability of sub-contractors to pay service tax.
6. Plea of limitation.

Issue-wise Analysis:

1. Demand of Service Tax and Education Cess:
The appeal challenges the demand of Rs. 63,28,217/- comprising service tax of Rs. 62,04,135/- and education cess of Rs. 1,24,082/- confirmed against the assessee for the period 10-9-2004 to 31-12-2006. Penalties imposed on the assessee are also under challenge. The service tax demand is under "construction service" [Section 65 (30a) of the Finance Act, 1994] up to 15-6-2005 and under "commercial or industrial construction service" [Section 65(25b) of the Act] from 16-6-2005.

2. Classification of Services:
The Commissioner charged service tax on the gross amount paid to the assessee by NTPC and M/s. Punj Lloyd Ltd. The assessee contested that the contracts executed were "works contracts" covered under Explanation to clause (zzzza) of Section 65(105) of the Finance Act, 1994, introduced from 1-6-2007. It was contended that prior to this date, they were not liable to pay service tax under "commercial or industrial construction service."

3. Applicability of "Works Contract":
The assessee argued that the taxable service relating to works contract was introduced with effect from 1-6-2007, and hence, they were not liable to pay service tax prior to this date. The Tribunal found that the services rendered by the appellant were covered by "construction service" up to 15-6-2005 and "commercial or industrial construction service" thereafter up to 31-3-2006, and the introduction of "works contract" with prospective effect did not absolve the tax liability for the period prior to 1-6-2007.

4. Claim for Exemption under Notification 12/2003-ST:
The assessee claimed exemption under Notification 12/2003-ST, which exempts the value of goods and materials sold by the service provider to the recipient of service. The Tribunal found merit in the assessee's claim as the materials were actually sold to the service recipient, and sale tax was paid on these materials. Therefore, the benefit of Notification 12/2003-ST was extended to the assessee, nullifying the demand for the service rendered to NTPC.

5. Liability of Sub-contractors to Pay Service Tax:
For the service rendered to M/s. Punj Lloyd Ltd., the assessee, as a sub-contractor, argued that they were not liable to pay service tax as the main contractor paid the tax. The Tribunal referred to CBEC circulars which clarified that sub-contractors were not required to pay service tax if the main contractor paid such tax. The Tribunal held that the assessee should not be asked to pay service tax if they can prove that the main contractor paid service tax on the same service for the same period.

6. Plea of Limitation:
The plea of limitation was raised by the assessee against a part of the demand of service tax. However, the Tribunal did not specifically address this issue in the judgment, focusing instead on the applicability of exemptions and the classification of services.

Conclusion:
The Tribunal set aside the demand of service tax and penalties related to the service rendered to NTPC, granting the benefit of Notification 12/2003-ST. For the service rendered to M/s. Punj Lloyd Ltd., the case was remanded to the adjudicating authority to verify if the main contractor paid the service tax. If proven, the assessee would not be liable to pay service tax; otherwise, the assessee's claim for abatement under Notification 1/2006-ST should be considered. The appeal was disposed of in these terms.

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