2024 (7) TMI 106 - AT - Service Tax

Classification of service - Commercial or Industrial Construction Services or not for the period prior to 01.07.2012 - rendering construction services to Department of Atomic Energy, M/s Hindustan Aeronautics Limited and M/s Bharat Earth Movers Limited - HELD THAT - It is brought out from the facts that the assessee has rendered construction services to M/s. HAL and M/s. Bharath Earth Movers Ltd. The types of work executed have been listed in para 3.2 of the show cause notice dated 23.04.2012. on perusal of these work orders it is very much clear that the construction works are composite in nature involving both supply of goods as well as rendition of services. Moreover, for quantifying the demand, the department had allowed 67% abatement as per Notification 1/2006 which establishes that the work executed are composite in nature. As per the decision rendered by the Apex court in the case of CCE Vs. Larsen Toubro 2015 (8) TMI 749 - SUPREME COURT and followed by Real Value Promoters Pvt Ltd., 2018 (9) TMI 1149 - CESTAT CHENNAI the demand of service tax for rendering construction service which are composite in nature can be only under works contract services. In the present case, the demand raised under CICS, therefore cannot sustain. The decision in the case of Real Value Promoters was applied by the Tribunal in the case of Jain Housing Construction Limited versus the Commissioner of Service Tax, Chennai 2023 (2) TMI 1044 - CESTAT CHENNAI whereby the demand raised under Construction of Residential Complex services for the period prior to 01.07.2012 was set aside - Though the department filed appeal against the said order before the Hon ble Apex Court, the decision of the Tribunal was sustained by Hon ble Apex Court by dismissing the department appeal as reported in 2023 (9) TMI 816 - SC ORDER . After appreciating the facts, and following the above decisions it is held that the demand raised under CICS for the disputed period cannot sustain and requires to be set aside. The impugned order is set aside - appeal of assessee allowed.

Summary

Issues Involved:
1. Classification of services rendered by the assessee.
2. Liability of service tax on services rendered to public sector undertakings.
3. Imposition of penalties under Section 78 of the Finance Act, 1994.

Detailed Analysis:

1. Classification of Services Rendered by the Assessee:
The primary issue was whether the demand of service tax under the classification of Commercial or Industrial Construction Services (CICS) is sustainable. The assessee argued that the contracts executed were composite in nature, involving both supply of goods and services, and should fall under Works Contract Services (WCS). The Tribunal noted that the department allowed a 67% abatement as per Notification No.1/2006, indicating the composite nature of the contracts. Citing the Supreme Court decision in CCE Vs. Larsen & Toubro and the Tribunal's decision in Real Value Promoters Pvt. Ltd., it was concluded that composite contracts should be classified under WCS. Therefore, the demand under CICS could not be sustained.

2. Liability of Service Tax on Services Rendered to Public Sector Undertakings:
The assessee contended that services rendered to M/s. HAL and M/s. Bharat Earth Movers Ltd., both public sector undertakings under the Defence Ministry, should not attract service tax as these entities are not commercial concerns. The assessee relied on Circular No. 80/10/2004, which clarifies that constructions provided to government buildings are non-commercial and not subject to service tax. However, this argument was countered by the department, stating that the nature of the service provided falls under CICS, and the public sector status of the recipient does not exempt the service from tax.

3. Imposition of Penalties under Section 78 of the Finance Act, 1994:
The department appealed against the non-imposition of penalties under Section 78 by the adjudicating authority. The assessee argued there was no suppression of facts, as they had accounted for the amounts received and did not discharge service tax based on a bona fide belief that services to public sector undertakings were not taxable. The Tribunal, having already determined that the demand under CICS was unsustainable, found the department's appeal for penalties to be without merit and dismissed it.

Conclusion:
The Tribunal held that the demand of service tax under CICS for the disputed period could not be sustained and required to be set aside. Consequently, the appeals filed by the assessee were allowed with consequential reliefs, and the appeal filed by the department was dismissed.