2024 (12) TMI 1405 - AT - Service Tax

Classification of services - Commercial or Industrial Construction Services or Works Contract Service - non-payment of service tax - recovery of service tax with interest and penalty - whether the appellant is required to discharge service tax during the period 16.05.2008 to 31.03.2008 in rendering services of the nature of interior works such as construction of partitions, false ceilings, plastering, tiling of floor and wall involved both material as well as service component? HELD THAT - The issue of levy of service tax on composite contracts for the period prior to 01.06.2007 involving both material as well as service, which is in the nature of Works Contract Service is no more res integra and covered by the judgment of the Hon ble Supreme Court in the case of Total Environment Building Systems Pvt. Ltd. Vs. Deputy Commissioner of Commercial Taxes 2022 (8) TMI 168 - SUPREME COURT where it was held that ' The definition of Works contract inserted for the first time by virtue of Section 65(105)(zzzza) under the Finance Act, 2007 assumes significance and has to be applied w.e.f. 1st June, 2007. Thus, on and from the enforcement of the amendment in the Financial Year 2007, i.e. 1st June, 2007 the tax on the service component of works contract became leviable. Therefore, till then it was not so leviable as there was no concept of works contract under the said Act.' Conclusion - There are force in the contention of the learned advocate for the appellant that for the period prior to 01.06.2007, Works Contract Service cannot be subjected to service tax levy. However, for the period after 01.06.2007, the services rendered by the appellant attracts service tax under Works Contract Service. Both sides fairly admit that to ascertain the liability for the period 01.06.2007 to 31.03.2008, the matter needs to be remanded to the adjudicating authority. Appeal is allowed by way of remand.

1. ISSUES PRESENTED and CONSIDERED

The legal judgment revolves around the following core issues:

Whether the appellant is liable to pay service tax for the period from 16.05.2005 to 31.03.2008 for services rendered under the category of "Commercial or Industrial Construction Services" or "Works Contract Service".
Whether the services provided by the appellant prior to 01.06.2007 fall under the category of "Works Contract Service" and thus are exempt from service tax.
Whether the appellant is entitled to adjustments or refunds for the service tax already paid for the period after 01.06.2007.
Whether penalties imposed by the Commissioner of Central Excise are justified given the nature of the service tax dispute.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Liability to Pay Service Tax (16.05.2005 to 31.03.2008)

Relevant Legal Framework and Precedents: The appellant was charged under Section 65(25b) of the Finance Act, 1994, for non-payment of service tax on "Commercial or Industrial Construction Services". The appellant argued that their services were "Works Contract Service", which became taxable only from 01.06.2007.
Court's Interpretation and Reasoning: The court referred to the Supreme Court's judgment in Total Environment Building Systems Pvt. Ltd. and other cases, which established that "Works Contract Service" was not taxable prior to 01.06.2007.
Key Evidence and Findings: The appellant provided VAT returns and contracts indicating that their services were composite in nature, involving both goods and services, thus qualifying as "Works Contract Service".
Application of Law to Facts: The court found that the appellant's services prior to 01.06.2007 were indeed "Works Contract Service" and not subject to service tax.
Treatment of Competing Arguments: The court rejected the respondent's argument that the appellant's services were taxable under "Commercial or Industrial Construction Services" for the entire period.
Conclusions: The court concluded that the appellant was not liable for service tax prior to 01.06.2007.

Issue 2: Adjustments and Refunds for Service Tax Paid (Post 01.06.2007)

Relevant Legal Framework and Precedents: The Finance Act, 1994, as amended, allowed for the taxation of "Works Contract Service" from 01.06.2007.
Court's Interpretation and Reasoning: The court acknowledged the appellant's payment of Rs.31,95,998/- and agreed that adjustments should be made for the period after 01.06.2007.
Key Evidence and Findings: The appellant had already paid VAT and partially paid service tax for the relevant period.
Application of Law to Facts: The court decided to remand the case to the adjudicating authority to compute the exact service tax liability for the period after 01.06.2007.
Treatment of Competing Arguments: Both parties agreed that further computation was necessary to determine the exact liability.
Conclusions: The court remanded the case for recalculation of service tax liability for the period after 01.06.2007.

Issue 3: Justification of Penalties

Relevant Legal Framework and Precedents: Penalties were imposed under the Finance Act, 1994, for non-payment of service tax.
Court's Interpretation and Reasoning: The court noted that the issue was related to the interpretation of law and was settled by the Supreme Court, thus penalties were not justified.
Key Evidence and Findings: The appellant's actions were based on a reasonable interpretation of the law at the time.
Application of Law to Facts: The court found no grounds for penalties given the settled nature of the legal issue.
Treatment of Competing Arguments: The court dismissed the respondent's argument for penalties, citing the Supreme Court's judgment.
Conclusions: No penalties were imposed on the appellant.

3. SIGNIFICANT HOLDINGS

Core Principles Established: The court reaffirmed that "Works Contract Service" was not taxable prior to 01.06.2007, following the Supreme Court's decision in Larsen & Toubro Limited and other cases.
Final Determinations on Each Issue:
- The appellant is not liable for service tax prior to 01.06.2007.
- The case is remanded to determine the exact service tax liability for the period after 01.06.2007, with adjustments for amounts already paid.
- No penalties are imposed due to the interpretative nature of the legal issue.
Verbatim Quotes of Crucial Legal Reasoning: "On the principle of stare decisis, we are of the firm view that the judgment of this Court in the case of Larsen and Toubro Limited neither needs to be revisited, nor referred to a Larger Bench of this Court as prayed."