2024 (12) TMI 1143 - AT - Service Tax

Classification of services provided by the appellants as Works Contract Service - taxability prior to 01.06.2007 - Issuance of two consecutive SCN - Extended period of limitation. Classification of services provided by the appellants as Works Contract Service - taxability prior to 01.06.2007 - HELD THAT - The works undertaken by the appellants are Works Contract as defined under Heading 65(105)(zzzza) and are taxable only w.e.f. 01.06.2007. This being the position, argument of the Department that the projects were not of commercial nature would not be of any help. Hon ble Courts and the Tribunals have been continuously holding that such contracts involving service and material components are taxable only from 01.06.2007. Issuance of two consecutive SCN - Extended period of limitation - HELD THAT - The first Show Cause Notice covered the period of 10.09.2004 to 31.03.2010 and the second Show Cause Notice covered the period 2007-08 to 2011-12. Revenue has erred not only in issuing two consecutive Show Cause Notices invoking the extended period but also covered a period which was common to both the Show Cause Notices. No particular suppression of facts etc. with intent to evade payment of duty has been evidenced against the appellants - Extended period cannot be invoked. Appeal allowed.

Issues Involved:

1. Classification of services provided by the appellants as "Works Contract Service" and its taxability prior to 01.06.2007.
2. Invocation of the extended period of limitation under Section 73(1) of the Finance Act.
3. Applicability of service tax on projects undertaken for non-commercial purposes.
4. Eligibility for abatement and composition scheme under the Service Tax (Determination of Value) Rules, 2006.
5. Liability of sub-contractors when the main contractor has discharged the service tax liability.

Issue-wise Detailed Analysis:

1. Classification of Services as "Works Contract Service":

The appellants contended that the services provided by them were "Works Contract Services," which became taxable only from 01.06.2007. The appellants argued that since the services were provided along with the supply of materials, they should not be taxed under any other category prior to this date. The judgment referenced the Supreme Court's decision in Larsen & Toubro, which held that works contracts involving both service and material components are distinct and taxable only from 01.06.2007. Consequently, the Tribunal agreed with the appellants that the services rendered before this date should not be classified under "Commercial and Industrial Construction Service" or "Construction of Residential Complex Service."

2. Invocation of Extended Period of Limitation:

The appellants challenged the invocation of the extended period of limitation, arguing that there was no suppression of facts as they had informed the Department about their services in 2008. The Tribunal upheld this view, citing the Nizam Sugar Factory case, which established that when all relevant facts were known to the authorities at the time of issuing the first show cause notice, the extended period could not be invoked for subsequent notices. The Tribunal found that the Department had erred in issuing two consecutive show cause notices covering overlapping periods without evidence of intent to evade tax.

3. Applicability of Service Tax on Non-Commercial Projects:

The appellants argued that certain projects were non-commercial, undertaken for a State Government Authority, and thus exempt from service tax. The Tribunal referred to the CBEC Circular No. 80/2004-ST, which clarified that constructions for non-commercial purposes, such as those for charitable or governmental use, are not taxable. The Tribunal found that the Department failed to demonstrate how the residential complex projects were for commercial or industrial purposes, thereby supporting the appellants' claim of non-commercial nature.

4. Eligibility for Abatement and Composition Scheme:

The appellants claimed eligibility for a 67% abatement on the gross value charged, as provided under Notification No. 1/2006-ST. The Tribunal noted that the appellants had registered for VAT and discharged applicable taxes, supporting their claim for abatement. Furthermore, the Tribunal found that the procedural lapse of not formally opting for the Works Contract Composition Scheme did not negate the appellants' substantive rights to the scheme's benefits.

5. Liability of Sub-contractors:

The Tribunal addressed the issue of whether sub-contractors are liable for service tax when the main contractor has already discharged the liability. The Tribunal upheld the view that if the main contractor pays the service tax, it cannot be demanded again from the sub-contractor, referencing precedents such as Jaipuria Infrastructure Developers Pvt. Ltd. and Urvi Construction. This supported the appellants' position that the service tax demand on them was unsustainable.

Conclusion:

The Tribunal allowed the appeal filed by the appellants, setting aside the demand of Rs. 51,02,914/- confirmed against them in respect of the first show cause notice, and dismissed the appeal filed by the Revenue challenging the dropping of proceedings in the second show cause notice. The decision reaffirmed the principles regarding the classification of works contracts, the non-invocation of the extended period without evidence of suppression, and the non-taxability of non-commercial projects.

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