2025 (1) TMI 845 - AT - Service Tax

Classification of the service provided by the appellant - to be classified under Construction of Complex Service (CCS) or WCS? - whether the demand of Service Tax on the Appellant under WCS is in order? - HELD THAT - From the documents placed on record, there is a finding that insofar as the construction of projects was concerned, the Appellant had got itself registered with the State VAT department and paid applicable VAT. The effect is that the construction activity, as a builder, involved both service of construction as well as supply of materials; that being sale, applicable VAT stood remitted. So, the said activity clearly involved a composite contract hence, the service was covered under WCS. Supreme Court in COMMISSIONER, CENTRAL EXCISE CUSTOMS VERSUS M/S LARSEN TOUBRO LTD. AND OTHERS 2015 (8) TMI 749 - SUPREME COURT has clearly held that composite contracts where transfer of property in goods is involved shall be classifiable only under Works Contract Service and not under CCS/CICS. Conclusion - The appellant's services were classifiable under WCS, but the demand for differential tax should only apply to the normal period. The penalty under Section 78 was set aside. Appeal allowed in part.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal question considered in this judgment is whether the demand of Service Tax on the appellant under Works Contract Service (WCS) is appropriate and lawful. This involves determining the correct classification of the service provided by the appellant-whether it should be classified under Construction of Complex Service (CCS) or WCS.

2. ISSUE-WISE DETAILED ANALYSIS

Relevant Legal Framework and Precedents:

The legal framework centers on the classification of services under the Finance Act, 1994, specifically Section 65/105(zzzza), which defines Works Contract Service. The appellant initially classified its services under CCS and claimed benefits under Notification No. 1/2006-ST. The Revenue's position was influenced by the Supreme Court decision in Larsen & Toubro Ltd., which clarified that composite contracts involving the transfer of property in goods are classifiable under WCS.

Court's Interpretation and Reasoning:

The court examined whether the appellant's construction activities, which involved both service provision and the supply of materials (subject to VAT), constituted a composite contract. The court referred to the Supreme Court's ruling in Larsen & Toubro Ltd., which established that such contracts fall under WCS. The court found that the appellant's activities met the criteria for WCS, as they involved the transfer of property in goods.

Key Evidence and Findings:

The appellant was registered with the State VAT department and paid VAT on materials used in construction, indicating a composite contract. The appellant also paid Service Tax on a portion of the gross amount charged, aligning with Rule 2A of the Service Tax (Determination of Value) Rules, 2006, which was introduced retrospectively.

Application of Law to Facts:

The court applied the legal principles from the Larsen & Toubro Ltd. case to the facts, determining that the appellant's construction activities were indeed composite contracts. Therefore, the correct classification was under WCS, not CCS.

Treatment of Competing Arguments:

The appellant argued that its classification under CCS was justified and that the demand for differential tax was based on an incorrect interpretation. The Revenue countered that the classification should be under WCS, as supported by the Supreme Court's decision. The court sided with the Revenue's interpretation but limited the demand to the normal period, rejecting the extended period of limitation.

Conclusions:

The court concluded that the appellant's services were correctly classifiable under WCS. However, the demand for differential tax was limited to the normal period, and penalties under Section 78 were not sustainable.

3. SIGNIFICANT HOLDINGS

Preserve Verbatim Quotes of Crucial Legal Reasoning:

"Composite contracts where transfer of property in goods is involved shall be classifiable only under Works Contract Service and not under CCS/CICS."

Core Principles Established:

The judgment reinforced the principle that composite contracts involving both service provision and the transfer of goods are to be classified under WCS, as established by the Supreme Court in Larsen & Toubro Ltd.

Final Determinations on Each Issue:

The court determined that the appellant's services were classifiable under WCS, but the demand for differential tax should only apply to the normal period. The penalty under Section 78 was set aside.