2025 (1) TMI 75 - AT - Service Tax

Classification of service - Erection, Commissioning and Installation service or Commercial or Industrial Construction service - abatement claim rejected on the ground that the appellant has not included the value of free supply material in the taxable value - revenue neutrality. HELD THAT - Iit is an admitted fact that the major portion of the demand is confirmed under the category of 'Commercial or Industrial Construction' Services. Further, lying of long-distance gas pipeline can only be considered as a 'Works Contract service'. Moreover, abatement was denied by the original authority on the ground that some of the goods are supplied by the main contractor. The issue of inclusion of the value of free supply material in the taxable value is covered in the case of COMMISSIONER OF SERVICE TAX ETC. VERSUS M/S. BHAYANA BUILDERS (P) LTD. ETC. 2018 (2) TMI 1325 - SUPREME COURT - in this case the period involved is 01.06.2005 to 30.09.2006. As per the judgment of the Hon ble Supreme Court in the case of COMMISSIONER, CENTRAL EXCISE CUSTOMS VERSUS M/S LARSEN TOUBRO LTD. AND OTHERS 2015 (8) TMI 749 - SUPREME COURT , the activity of the appellant can be considered only as a works contract since it involved supply of goods and services and prior to 01.06.2007 the activity is not taxable under the category of 'Commercial or Industrial Construction Service'. Conclusion - The activity is not taxable under the category of 'Commercial or Industrial Construction Service' prior to 01.06.2007 as the activity involved supply of goods and services.

1. ISSUES PRESENTED and CONSIDERED

The legal judgment in question involves several core issues:

Whether the appellant was liable to pay service tax under the category of 'Commercial or Industrial Construction' services for the period before 01.06.2007.
Whether the appellant was entitled to abatement for the value of free supply materials not included in the taxable value.
Whether the services rendered by the appellant as a subcontractor were subject to service tax when the main contractor had already paid the tax.
The applicability of penalties under sections 76 and 78 of the Finance Act, 1994.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Liability under 'Commercial or Industrial Construction' Services

Relevant Legal Framework and Precedents: The appellant's activities were scrutinized under the Finance Act, 1994, particularly focusing on the service tax liabilities for 'Commercial or Industrial Construction' services. The legal precedent set by the Hon'ble Supreme Court in the case of Larsen and Toubro Ltd. clarified that such activities before 01.06.2007 are not taxable under this category.
Court's Interpretation and Reasoning: The Tribunal noted that the appellant's activities involved a 'Works Contract' service, which includes both services and supply of materials. The court emphasized that, prior to 01.06.2007, such contracts were not taxable under the 'Commercial or Industrial Construction' category.
Key Evidence and Findings: The appellant acted as a subcontractor for M/s. L&T Ltd., and the main contractor had already paid the service tax on the entire value, including the appellant's service element.
Application of Law to Facts: The Tribunal applied the Supreme Court's judgment in Larsen and Toubro Ltd., determining that the appellant's activities were not taxable under the disputed category for the specified period.
Treatment of Competing Arguments: The Tribunal considered the appellant's argument that they were a subcontractor and not liable for additional service tax, given the main contractor's tax payments.
Conclusions: The demand for service tax under 'Commercial or Industrial Construction' services was found unsustainable and was set aside.

Issue 2: Abatement for Free Supply Materials

Relevant Legal Framework and Precedents: The issue of abatement was examined in light of Tribunal decisions in M/s Bhayana Builders (P) Limited and others, which were affirmed by the Supreme Court.
Court's Interpretation and Reasoning: The Tribunal held that the value of free supply materials should not be included in the taxable value for service tax purposes.
Key Evidence and Findings: The adjudication authority initially denied abatement because the appellant did not include the value of free supply materials in their taxable value.
Application of Law to Facts: The Tribunal applied the precedent from Bhayana Builders, concluding that the appellant was entitled to abatement.
Treatment of Competing Arguments: The Tribunal rejected the Revenue's stance that abatement was improperly claimed, supporting the appellant's position with established legal precedents.
Conclusions: The denial of abatement was overturned, supporting the appellant's claim.

Issue 3: Subcontractor Service Tax Liability

Relevant Legal Framework and Precedents: The appellant's role as a subcontractor was examined under the Finance Act, 1994, and relevant case law, including the decision in M/s. Subhash Khandelwal & Sons.
Court's Interpretation and Reasoning: The Tribunal agreed with the appellant's argument that as a subcontractor, they were not liable for additional service tax when the main contractor had already paid it.
Key Evidence and Findings: The main contractor, M/s. L&T, had informed the appellant that they were covering the service tax, thus negating the appellant's liability.
Application of Law to Facts: The Tribunal applied the legal principle that subcontractors are not liable for service tax if the main contractor has already paid it.
Treatment of Competing Arguments: The Tribunal found the appellant's argument compelling and aligned with existing legal interpretations.
Conclusions: The Tribunal ruled in favor of the appellant, negating the service tax demand on subcontractor services.

Issue 4: Applicability of Penalties

Relevant Legal Framework and Precedents: The penalties under sections 76 and 78 of the Finance Act, 1994, were considered.
Court's Interpretation and Reasoning: The Tribunal found that the appellant had not deliberately suppressed facts or contravened any provisions with the intent to evade tax.
Key Evidence and Findings: The appellant had paid service tax as required and had been informed by the main contractor that they were not liable for additional payments.
Application of Law to Facts: The Tribunal applied the principle that penalties are not justified when there is no intent to evade tax.
Treatment of Competing Arguments: The Tribunal sided with the appellant, finding no grounds for imposing penalties.
Conclusions: The penalties imposed were found unwarranted and were set aside.

3. SIGNIFICANT HOLDINGS

Preserve Verbatim Quotes of Crucial Legal Reasoning: "In view of the above facts and, as per the judgment of the Hon'ble Supreme Court in the case of M/s. Larsen and Toubro Ltd., the activity of the appellant can be considered only as a works contract since it involved supply of goods and services and prior to 01.06.2007 the activity is not taxable under the category of 'Commercial or Industrial Construction Service'."
Core Principles Established: The Tribunal reaffirmed that activities involving works contracts before 01.06.2007 are not taxable under 'Commercial or Industrial Construction' services, and subcontractors are not liable for service tax if the main contractor has paid it.
Final Determinations on Each Issue: The Tribunal set aside the impugned orders, ruling in favor of the appellant on all issues, and allowed the appeals with consequential relief.