2018 (9) TMI 2086 - AT - Service Tax

Classification of services - project/ work executed for hydro-electric project alongwith material - classifiable under Works Contract Service or under CICS - whether the said work falls under the exclusion clause under the definition of works contract service? - construction made by the respondent-assessee for educational institution (not for commercial purpose). Works contract service or not? - HELD THAT - A perusal of the order in original and other documents shows that contracts in dispute are composite contracts in which both goods are supplied and services are provided. Further on the composite nature of contracts, involving supply of goods and services, there is no dispute raised by the Revenue. The issue that composite contracts involving supply of goods and services, are works contract has been settled by the Apex court in the case of COMMISSIONER, CENTRAL EXCISE CUSTOMS VERSUS M/S LARSEN TOUBRO LTD. AND OTHERS 2015 (8) TMI 749 - SUPREME COURT . Further, the Hon ble Supreme Court has held that only contracts of service simpliciter without involving goods, will be covered in the sub clauses of 65(105) - thus, the service in dispute which are composite in nature, are correctly classified under works contract service . Commissioner has correctly dropped the demand for the period prior to 01.06.2007 as the works contract were not taxable prior to 01.06.2007. For the period post 01.06.2007 also demand cannot be confirmed under Commercial or Industrial Construction service under which demand was proposed in the show cause notice, as such lead will cover only service contract simpliciter, not the composite contract. Thus, the demand is not maintainable under Commercial or Industrial Construction service for the entire period in dispute. Whether the construction of Hydro Electric project is not in respect of tunnels or dams, and thus not excluded from entry of Commercial or Industrial Construction Service or works contract service ? - HELD THAT - In the present case in the order in original, the Commissioner has discussed in detail that services in question are in respect of dams and tunnels. Since the services provided in dispute are in respect of dam and tunnel, the same is excluded from the definition of Commercial or Industrial Construction Service , and not taxable. Thus, the order passed by the Commissioner is correct and maintained, on this issue. Demand of service tax on construction of educational institute - HELD THAT - Revenue has not appreciated the definition of Commercial or Industrial Construction service. A perusal of definition shows that to decide the taxability under said service, user of the building, so constructed, is relevant. Clarification has been issued by CBEC Circular No. 80/10/2004-ST, dated 17.09.2004, wherein it is clarified that leviability of service tax would depend upon whether the building or civil structure is used or to be used for commerce or industry - Revenue in the appeal has not produced any evidence to show that building constructed by the Respondent are not used for educational purpose and same are used for commercial purpose. In the absence of any evidence, the finding of the Commissioner is correct and maintained. Moreover, the ground on which appeal is filed is not sustainable in terms of the definition itself. The appeals filed by the Revenue are dismissed and cross-objection filed by the respondent is disposed of.

Summary

Issues Involved:
1. Classification of services rendered for hydro-electric projects.
2. Taxability of construction services for educational institutions.
3. Applicability of the exclusion clause under the definition of "Works Contract Service" and "Commercial or Industrial Construction Service".
4. Classification of composite contracts involving supply of goods and services.

Issue-Wise Detailed Analysis:

1. Classification of Services Rendered for Hydro-Electric Projects:
The Revenue challenged the classification of services rendered for hydro-electric projects, arguing that such services should fall under "Commercial or Industrial Construction Service" (CICS) rather than "Works Contract Service" (WCS). The respondent-assessee contended that the construction related to dams and tunnels, which are excluded from the definition of CICS. The Tribunal upheld the Commissioner’s decision, emphasizing that the contracts were composite in nature, involving both goods and services, and thus correctly classified under WCS. The Tribunal referenced the Supreme Court’s decision in Commissioner v. Larsen & Toubro Limited, which clarified that composite works contracts involving supply of goods and services are to be classified under WCS and not under service contracts simpliciter.

2. Taxability of Construction Services for Educational Institutions:
The Revenue argued that the construction services for educational institutions were provided for consideration and thus should be considered commercial and taxable. The Tribunal, however, upheld the Commissioner’s finding that the buildings constructed were used for educational purposes and not for commercial purposes. The Tribunal referred to the CBEC Circular No. 80/10/2004-ST, which clarified that the taxability of construction services depends on whether the building is used for commerce or industry. Since the Revenue failed to provide evidence that the buildings were used for commercial purposes, the Tribunal maintained that the construction services for educational institutions were not taxable under CICS.

3. Applicability of the Exclusion Clause:
The Tribunal examined whether the construction of dams and tunnels related to hydro-electric projects falls under the exclusion clause of CICS and WCS. The Tribunal noted that the definition of CICS explicitly excludes services provided in respect of roads, airports, railways, transport terminals, bridges, tunnels, and dams. The Tribunal referenced the Larger Bench decision in Lanco Infratech Ltd. v. CCE, Hyderabad, which held that construction of canals and laying of pipelines integrated into dam projects are excluded from the scope of WCS. The Tribunal concluded that the services in question were indeed in respect of dams and tunnels and thus excluded from the definition of CICS, making them non-taxable.

4. Classification of Composite Contracts:
The Tribunal confirmed that the contracts in dispute were composite in nature, involving both supply of goods and services. The Tribunal reiterated the Supreme Court’s ruling in Commissioner v. Larsen & Toubro Limited, which established that composite works contracts are to be classified under WCS. The Tribunal found that the Commissioner correctly dropped the demand for the period prior to 01.06.2007, as WCS was not taxable before that date. For the period post 01.06.2007, the demand could not be confirmed under CICS, as it only covers service contracts simpliciter, not composite contracts. The Tribunal cited several decisions supporting this view, including URC Construction (P) Limited v. Commissioner and Srishti Constructions v. Commissioner.

Conclusion:
The Tribunal dismissed the appeals filed by the Revenue and upheld the Commissioner’s order. The Tribunal concluded that the services in dispute were correctly classified under WCS, the construction of dams and tunnels related to hydro-electric projects was excluded from the definition of CICS, and the construction services for educational institutions were not taxable as they were not used for commercial purposes. The cross-objection filed by the respondent was disposed of, and the respondent-assessee was entitled to consequential benefits.