2016 (3) TMI 783 - AT - Service Tax

Liability of Service tax prior to 1.6.2007 - Works Contract - Held that - it is now settled by the Supreme Court in the case of Commissioner, Central Excise & Customs Versus M/s Larsen & Toubro Ltd. and others 2015 (8) TMI 749 - SUPREME COURT that works contract was not liable to service tax prior to 1.6.2007. It is also settled by the CESTAT judgment in the case of Bhayana Builders (P) Ltd. vs. CST, Delhi 2013 (9) TMI 294 - CESTAT NEW DELHI (LB) , that in the case of free supply of some goods by the service recipient abatement under Notification like 15/2004-ST is admissible even if the value of such goods is not included in the assessable value. Therefore, no service tax is leviable.

Summary

Issues:
1. Whether service tax is leviable on contracts involving erection, commissioning, or installation services during the period prior to 1.6.2007?
2. Whether abatement under Notification No.1/2006-ST is admissible for contracts involving free supply of goods by the service recipient?
3. Whether contracts categorized as pure sweat contracts, without any supply of goods, are liable to service tax under ECIS?

Analysis:

Issue 1:
The Revenue's appeal contested the dropping of demand under erection, commissioning, or installation service, arguing that the service was rendered under a composite contract not liable to service tax prior to 1.6.2007. The Revenue claimed that abatement under Notification No.1/2006-ST was wrongly allowed despite the non-inclusion of the value of free supplies by the service recipient. However, it was acknowledged that the value of service in the composite contract was identifiable. The Tribunal noted that the denial of abatement due to free supply of materials was no longer valid based on a previous CESTAT judgment. The Revenue contended that some contracts were pure sweat contracts with no supply of goods, thus falling under ECIS for service tax levy.

Issue 2:
The respondent argued that all contracts were works contracts and cited a Supreme Court judgment involving Larsen & Toubro Ltd., stating that works contracts were liable to service tax before 1.6.2007. The Tribunal considered the submissions and referenced the Supreme Court's decision in the Larsen & Toubro Ltd. case, affirming that works contracts were not subject to service tax before 1.6.2007. Additionally, the CESTAT judgment in the Bhayana Builders (P) Ltd. case clarified that abatement under Notification 15/2004-ST was permissible even if the value of free goods was not included in the assessable value.

Issue 3:
In light of the above considerations, the Tribunal concluded that no service tax was applicable to works contracts before 1.6.2007. The case was remanded for fresh adjudication solely for contracts categorized as pure sweat contracts without any supply of goods, which were not considered works contracts. A miscellaneous application for early hearing of the appeal was also disposed of.

This judgment clarifies the taxability of different types of contracts involving services and goods, providing insights into the applicability of service tax under various circumstances.