2015 (12) TMI 1357 - AT - Service Tax

Demand of service tax - composite works contract - Erection, Commissioning and Installation service for the period 01.07.2003 to 31.03.2006. - Held that - Adjudicating authority has recorded that the scope of work mentioned in tender documents includes supply, erection, testing and commissioning of electrical sub-stations and external electrification works. After recording such finding, the adjudicating authority has vivisected the said contract and charged service tax liability under erection, installation and commission services. We find that the issue is no more res integra as has been decided by the Apex Court in the case of Larsen and Toubro and Ors. reported at 2015 (8) TMI 749 - SUPREME COURT - the said contract cannot be vivisected. - impugned order is unsustainable and liable to be set aside - Decided in favour of assessee.

Summary

Issues involved: Determination of service tax liability under the category of "Erection, Commissioning and Installation" for the period 01.07.2003 to 31.03.2006 in a case where the appellant claimed to be engaged in executing electrical contracts, including supply, erection, testing, and commissioning of electrical sub-stations, cabling, and wiring, arguing that the contracts were composite and should be treated as "Works Contract."

Analysis:

1. The primary issue in this case revolved around the service tax liability of the appellant under the category of "Erection, Commissioning and Installation" for a specific period. The appellant contended that they were involved in executing composite electrical contracts, including various services like supply, erection, testing, and commissioning, which they argued should be treated as a single "Works Contract." They highlighted that they had been discharging service tax liability appropriately from a certain date. The adjudicating authority, however, vivisected the contract and imposed service tax liability under specific services, leading to a dispute.

2. Upon reviewing the impugned order, the tribunal noted that the adjudicating authority had vivisected the contract and charged service tax liability under "erection, installation, and commission" services, contrary to the appellant's argument of the contract being a composite works contract falling under the category of "Works Contract." The tribunal referred to a decision by the Apex Court in the case of Larsen and Toubro and Ors., which emphasized that the taxable services referred to in the charging section of the Finance Act, 1994, pertained to service contracts simpliciter and not composite works contracts. The court highlighted that the intention was to tax service contracts without other elements, and exclusions were made for specific infrastructure projects in the national interest.

3. Based on the legal interpretation provided by the Apex Court and considering the facts and circumstances of the case, the tribunal concluded that the impugned order was unsustainable. The tribunal held that the vivisection of the contract by the adjudicating authority was incorrect, and the service tax liability should not have been imposed under specific services but treated as a composite works contract. Consequently, the tribunal set aside the impugned order and allowed the appeal in favor of the appellant.

In conclusion, the judgment clarified the distinction between service contracts and composite works contracts for the purpose of determining service tax liability, emphasizing the need to consider the nature of the contract and the intention of the legislation. The decision provided clarity on the taxation of composite works contracts and highlighted the importance of interpreting statutory provisions in line with legislative intent.