2024 (5) TMI 1342 - AT - Service Tax

Work orders/contracts involved supply of materials - Benefit of abatement under Notification No. 1/2006 - Whether the contracts entered into were in the nature of works contracts and if they are divisible in nature - HELD THAT - Works contract service was brought within the tax net w.e.f. 01.06.2007 with the insertion of Section 65 (105) (zzzza) to the Finance Act, 1994. The statute does not qualify the liability to tax or otherwise, on any conditions, in the case of composite contracts like the extent of supply portion or the service portion, which according to us is like attempting to vivisect/dissect the understanding of the parties to the contract, which is not permissible. This has been held so by the Apex court in the case of Bharat Sanchar Nigam Ltd. Vs. Union of India 2006 (3) TMI 1 - SUPREME COURT . Looked from this perspective, we are of the view that since the period involved in this appeal is from October 2006 to September 2011 which is prior to 01.07.2012 which is the date of insertion of explanation to Section 65B, the composite contracts involved in the present appeal were not amenable to service tax, as per the law laid down by the Apex court in the case of CCE Vs. Larsen Toubro Ltd. 2015 (8) TMI 749 - SUPREME COURT . We find that the dictum in the above decision has been consistently followed by all the CESTAT benches, in the orders relied upon by the appellant during the course arguments before us. Thus, we are of the view that the demand in the present appeal is clearly unsustainable and consequently, we set aside the impugned order and allow the appeal with consequential benefits if any, as per law.

Summary

Issues involved:
The issue involved in this case is whether the contracts entered into were in the nature of works contracts and if they are divisible in nature.

Summary:
The Appellate Tribunal CESTAT Chennai considered a case where the appellant, a public limited company, was alleged to have wrongly availed the benefit of abatement under Notification No. 1/2006. The revenue claimed that the appellant had not fulfilled the requirements to avail the benefit of the notification. The original authority upheld the tax demand on the appellant, concluding that the contracts were not purely labor contracts but involved supply of materials as well. The appellant contended that the contracts were composite and indivisible, and the sale of goods/materials involved had already suffered State tax. The Tribunal, after considering the arguments and legal precedents, found that the contracts involved were not amenable to service tax for the period in question. Citing relevant case law, the Tribunal set aside the impugned order and allowed the appeal.

In conclusion, the Tribunal ruled in favor of the appellant, stating that the demand in the present appeal was unsustainable. The impugned order was set aside, and the appeal was allowed with any consequential benefits as per the law.

This judgment highlights the importance of correctly interpreting the nature of contracts and the applicability of tax laws in such cases. The Tribunal's decision was based on legal precedents and the specific circumstances of the case, ultimately providing relief to the appellant.