2025 (1) TMI 1040 - AT - Service Tax

Taxability - services of construction of road by the appellant as a sub-contractor - construction and fixing of tiles in water reservoir by the appellant as a sub-contractor - service tax under reverse charge mechanism on the transportation service received from individual truck owners - interest - penalty. Services of construction of road by the appellant as a sub-contractor - HELD THAT - The submission of the appellant that service tax cannot be demanded for the pre-negative list period without classifying the service deserves to be accepted. In fact the impugned order mentions the service tax as being demanded under construction services/ works contract services. The demand is vague and deserves to be set aside on this ground alone. Construction and fixing of tiles in water reservoir by the appellant as a sub-contractor - HELD THAT - There is nothing on record in the show cause notice or in the submissions made by the department to establish that these two services were rendered as services simpliciter. It has been held by the Supreme Court in Larsen Toubro 2015 (8) TMI 749 - SUPREME COURT that the charge of service tax under various heads of section 65 (105) other than section 65 (105) (zzzza) is only a charge of services simpliciter. Therefore there cannot be any demand of service tax under any head other than under works contract services. There is no specific demand under works contract services - This charging section specifically excludes works contracts in respect of roads as well as the works contracts in respect of dams . Therefore the demand of service tax either on the construction of roads or on the tiling of the reservoir for dams cannot be sustained. Demand of service under reverse charge mechanism on GTA service - HELD THAT - Section 65 (50a) defines goods transport agency as any person who provides service in relation to transportation of goods by road and issues a consignment note by whatever name called. Section 65 (105)(zzq) defines goods transport agency service as a service provided to any person by goods transport agency in relation to transport of goods by road in a goods carriage. Unless the service provider is a goods transport agency its services are not taxable either at the hands of the service provider or at the hand of service recipient because such services are out of the purview of the charging section. In order for an organisation to be a goods transport agency it must issue consignment notes. It is a well settled legal position that individual truck owners who do not issue consignment notes are not covered by the definition of goods transport agency and the services rendered by them are not exigible to service tax. Interest and penalty - The demand of service tax under reverse charge mechanism on roads transport agency services on the services rendered by the individual truck owners also cannot be sustained. Since the demand of service tax cannot be sustained the demand of interest and penalty also need to be set aside. Conclusion - The demand of service tax either on the construction of roads or on the tiling of the reservoir for dams cannot be sustained. The demand of service tax under reverse charge mechanism on roads transport agency services on the services rendered by the individual truck owners also cannot be sustained. Since the demand of service tax cannot be sustained the demand of interest and penalty also need to be set aside. The impugned order is set aside - appeal allowed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment are:

• Whether the appellant is liable to pay service tax on the construction of roads and fixing of tiles in water reservoirs under the category of "works contracts services" or "construction services".
• Whether the demand for service tax under the reverse charge mechanism for services received from individual truck owners is justified.
• The applicability of penalties under sections 76, 77, and 78 of the Finance Act, 1994.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Taxability of Construction Services

• Relevant Legal Framework and Precedents: The Finance Act, 1994, particularly section 65(105)(zzzza), which defines "works contract" and excludes certain contracts like those for roads and dams from service tax. The Supreme Court's judgment in Larsen & Toubro which clarifies the taxability of works contracts.
• Court's Interpretation and Reasoning: The court noted that the show cause notice lacked clarity in classifying the services, which is crucial for determining taxability. The court emphasized that services rendered along with materials fall under "works contract" and not under "construction services".
• Key Evidence and Findings: The appellant provided work orders and contracts indicating the provision of services along with materials, supporting their claim of rendering "works contract services".
• Application of Law to Facts: The court applied section 65(105)(zzzza) to conclude that the construction of roads and tiling in water reservoirs are excluded from service tax as they involve works contracts related to roads and dams.
• Treatment of Competing Arguments: The department's lack of evidence to classify the services as "services simpliciter" was noted, and the appellant's argument of exclusion under the works contract was upheld.
• Conclusions: The demand for service tax on the construction of roads and fixing of tiles in water reservoirs was set aside.

Issue 2: Service Tax under Reverse Charge on Transportation Services

• Relevant Legal Framework and Precedents: Sections 65(50a) and 65(105)(zzq) of the Finance Act, which define "goods transport agency" and the associated services.
• Court's Interpretation and Reasoning: The court highlighted that only services provided by a "goods transport agency", which issues consignment notes, are taxable. Individual truck owners who do not issue such notes are not considered "goods transport agencies".
• Key Evidence and Findings: The appellant demonstrated that transportation services were received from individual truck owners, who did not issue consignment notes.
• Application of Law to Facts: The court concluded that services received from individual truck owners are not taxable under the reverse charge mechanism as they do not qualify as services from a "goods transport agency".
• Treatment of Competing Arguments: The appellant's settlement under VCES for services received from goods transport agencies was acknowledged, and no further tax was deemed payable.
• Conclusions: The demand for service tax under the reverse charge mechanism on transportation services received from individual truck owners was not sustained.

3. SIGNIFICANT HOLDINGS

• Preserve Verbatim Quotes of Crucial Legal Reasoning: "The submission of the learned counsel for the appellant that service tax cannot be demanded for the pre-negative list period without classifying the service deserves to be accepted."
• Core Principles Established: Service tax demands must clearly classify the services in question. Works contracts related to roads and dams are excluded from service tax under section 65(105)(zzzza).
• Final Determinations on Each Issue: The appeal was allowed, the impugned order was set aside, and the appellant was granted consequential relief. The court found no liability for service tax on the construction of roads and water reservoirs or under the reverse charge mechanism for transportation services from individual truck owners.