2024 (8) TMI 609 - AT - Service Tax

Classification of service - works contract service or not - whether the Commissioner was legally correct dropping the demand of Rs. 1,12,10,641/- along with interest and penalty? - Eligibility for exemption from service tax for services rendered to Delhi Development Authority (DDA) - HELD THAT - For the period prior to 01.07.2012, it is settled law that any agreement which involved supply of materials as per specifications with provision of material and labour would qualify as composite and indivisible Works Contract, prior and post 01.06.2007. However, in the instant case, the impugned order has observed that the appellant had been awarded the following four contracts which the Department was aware. It has been recorded by the Commissioner that the appellant was not provided with any material by DDA, the contractee, nor did the work involve construction of any residential complex. It is also noted that the Commissioner, in the impugned order, has carefully considered the three contracts and has relied on CBEC Circular No. 138/07/2011 dated 06.05.2011 to hold that services received by Works Contract Service providers from their sub-contractors are classifiable under respective sub-clauses of Section 65(105) of the Finance Act, 1994 - the Commissioner was correct in holding that the services provided by the appellant was correctly classifiable under Works Contract Service. In order to extend the benefit of any exemption from service tax, it is essential that copies of the agreements are examined in totality. Further, it is found that it is a fact that even though DDA was created by the Parliament in exercise of the powers conferred under Article 53(3)(b) of the Constitution, it is still a juristic entity separate from the State and does not fall within the scope of a Central/State Government or Local Authority - without the requisite details/information regarding the projects completed by the respondent, the conclusion arrived at by the adjudicating authority is open to debate. Therefore, it would be appropriate to remand the matter giving an opportunity to the respondent to satisfy that the work undertaken by them is non-commercial in nature and is eligible for exemption from payment of service tax. Appeal allowed in part by way of remand.

Summary

Issues Involved:
1. Classification of services provided by the respondent.
2. Applicability of service tax on the construction of boundary wall for Commonwealth Games village.
3. Eligibility for exemption from service tax for services rendered to Delhi Development Authority (DDA).

Issue-Wise Detailed Analysis:

1. Classification of Services Provided by the Respondent:
The core issue revolved around whether the services provided by the respondent fell under "Works Contract Services" as per the Finance Act, 1994. The Commissioner had previously determined that the respondent's activities, which involved executing composite contracts for the development of civil structures, were indeed "Works Contract Services." This classification was based on the Supreme Court's judgment in Larsen & Toubro v. State of Karnataka. The Tribunal upheld this classification, noting that the services provided by the respondent were correctly classified under "Works Contract Services" and not under "Commercial or Industrial Construction service."

2. Applicability of Service Tax on the Construction of Boundary Wall for Commonwealth Games Village:
The Department contested the Commissioner's decision to drop the service tax demand for Rs. 31,717,267/- related to the construction of a boundary wall for the Commonwealth Games village. The Commissioner had concluded that the services were rendered to DDA, a government authority engaged primarily in non-commercial activities, thus exempting them from service tax. The Tribunal found this conclusion erroneous, noting that DDA also undertakes commercial activities. The Tribunal emphasized that the Commonwealth Games village included commercial zones and that residential apartments were sold to private individuals, indicating the commercial nature of the property. Consequently, the Tribunal held that the Commissioner's conclusion was debatable and required further examination of the contracts to determine the commercial nature of the services provided.

3. Eligibility for Exemption from Service Tax for Services Rendered to DDA:
The Commissioner had exempted the respondent from service tax for services rendered to DDA, classifying them as non-commercial activities. The Tribunal disagreed, stating that DDA, although created by Parliament, is a juristic entity separate from the State and does not automatically qualify for service tax exemption. The Tribunal highlighted the necessity of examining the contracts in totality to ascertain the nature of the work and its eligibility for exemption. The Tribunal remanded the matter, instructing the adjudicating authority to give the respondent an opportunity to prove that the work undertaken was non-commercial and eligible for exemption from service tax.

Conclusion:
The Tribunal upheld the classification of the respondent's services as "Works Contract Services" but found the Commissioner's exemption of service tax on the construction of the boundary wall for the Commonwealth Games village to be erroneous. The case was remanded for further examination of the contracts to determine the commercial nature of the services and eligibility for exemption. The appeal was partially allowed by way of remand.

(Order pronounced in the open Court on 09.08.2024)