2018 (8) TMI 627 - AT - Service Tax

Whether differential service tax liability needs to be discharged by the appellant herein for the period April, 2007 and May, 2007 without extending benefit of abatement of N/N. 01/2006 and for the subsequent period whether ash dyke constructed by the appellant would fall under the works contract services or site formation and clearance services? Held that - The entire contract which has been entered into by the appellant with Lanco Infratech Ltd is nothing but a works contract and will remain so. If it is so, the law settled by the Apex Court in the case of Larsen and Toubro Ltd 2015 (8) TMI 749 - SUPREME COURT in respect of such kind of works contract is that they remain works contract pre and post 01.06.2007, would cover the issue in favour of appellant and demand of differential service tax liability for the period April and May, 2007 and after June, 2007 a works contract. The adjudicating authority in the case in hand has misdirected his finding to record that construction of ash dyke cannot be considered as works contract and benefit of the Works Contract (composition scheme for payment of Service Tax) Rules, 2007 cannot be extended. The findings recorded by the adjudicating authority on the confirmation of the demand of differential duty under this category are correct and does not require any interference - The demand of ₹ 72,08,553/- along with interest is upheld. Penalty - Held that - The issue of whether the activity would fall under the category of construction of road or otherwise is an issue of interpretation of Notification No. 17/2005-ST. - the appellant could have entertained a bona fide belief that they are eligible for the benefit of Notification No.17/2005-ST. - Penalties set aside. Appeal disposed off.

Summary

Issues:
1. Differential service tax liability for the period April 2007 to March 2009.
2. Classification of the construction of ash dyke as works contract or site formation services.
3. Taxability of services rendered for site formation and clearance, excavation, and earth moving for a thermal power project.
4. Interpretation of Notification No. 17/2005-ST regarding the construction of roads.

Analysis:
1. The appeals addressed the demand for service tax on the appellant for the period April 2007 to March 2009. The appellant contended that the contract with Lanco Infratech Ltd constituted a works contract, and they had discharged VAT on the activity. Referring to the Larsen and Tubro Ltd case, the appellant argued that works contracts cannot be vivisected to impose service tax. The tribunal found the entire contract to be a works contract, holding in favor of the appellant and setting aside the demand for differential service tax liability.

2. The issue of whether the construction of ash dyke by the appellant constituted a works contract or site formation services was examined. The tribunal concluded that the contract with Lanco Infratech Ltd was indeed a works contract based on the agreement and works order, contrary to the adjudicating authority's findings. The tribunal held that the construction of the ash dyke fell under works contract services, overturning the previous decision.

3. Regarding the taxability of services provided for site formation and clearance, excavation, and earth moving for a thermal power project, the tribunal analyzed the contract details. It was determined that the appellant's activities did not constitute the construction of roads as per Notification No. 17/2005-ST. The demand for differential duty was upheld, but the penalties imposed on the appellant were set aside due to a genuine interpretation issue.

4. The interpretation of Notification No. 17/2005-ST concerning the construction of roads was crucial in the judgment. The tribunal clarified that the appellant's activities for the thermal power project did not align with the definition of road construction under the notification. The demand for duty was confirmed, but penalties were waived due to the genuine belief of eligibility for the notification's benefit.

In conclusion, the tribunal disposed of the appeals based on the analysis of each issue, ultimately setting aside the demand for service tax liability in certain instances while upholding it in others, with penalties being waived in cases of genuine interpretation issues.