2018 (9) TMI 1149 - AT - Service Tax

Construction Services - composite Works Contracts - pure services - Department was of the view that such payment is not proper for the reason that the services cannot be classified as Works Contract Service and also because appellants have not exercised their option for payment of service tax under Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007. Held that - The services provided by the appellant in respect of the projects executed by them for the period prior to 1.6.2007 being in the nature of composite works contract cannot be brought within the fold of commercial or industrial construction service or construction of complex service - For the period after 1.6.2007, service tax liability under category of commercial or industrial construction service‟ under Section 65(105)(zzzh) ibid, Construction of Complex Service‟ under Section 65(105)(zzzq) will continue to be attracted only if the activities are in the nature of services‟ simpliciter. For activities of construction of new building or civil structure or new residential complex etc. involving indivisible composite contract, such services will require to be exigible to service tax liabilities under Works Contract Service‟ as defined under section 65(105)(zzzza) ibid - The show cause notices in all these cases prior to 1.6.2007 and subsequent to that date for the periods in dispute, proposing service tax liability on the impugned services involving composite works contract, under Commercial or Industrial Construction Service‟ or Construction of Complex‟ Service, cannot therefore sustain. In respect of any contract which is a composite contract, service tax cannot be demanded under CICS / CCS for the periods also after 1.6.2007 for the periods in dispute. Demand raised for the reason that appellants did not intimate the department about their intention to opt for payment of service tax under composition scheme under Works Contract Service - Held that - The Tribunal in the case of Vaishno Associates Vs. Commissioner of Central Excise 2018 (3) TMI 417 - CESTAT NEW DELHI had occasion to consider this issue and held for sole reason of not filing the intimation opting to pay service under Works Contract Service, the demand cannot sustain. Appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
1. Classification of services under Commercial or Industrial Construction Services (CICS), Construction of Complex Services (CCS), and Works Contract Service (WCS).
2. Tax liability for composite contracts before and after 1.6.2007.
3. Requirement of intimation for opting under the Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007.

Detailed Analysis:

1. Classification of Services:
The appellant M/s. Real Value Promoters (P) Ltd. and other appellants were involved in constructing commercial and residential projects. The department issued show cause notices alleging short-payment of service tax under CICS and CCS. The appellants argued that their services should be classified under WCS post 1.6.2007. The Tribunal noted that the correct classification of service is crucial due to different tax implications. It was emphasized that composite contracts involving transfer of property in goods should be classified under WCS as per the Supreme Court's decision in CCE Vs. Larsen & Toubro Ltd.

2. Tax Liability for Composite Contracts:
The Tribunal examined the tax liability for composite contracts before and after 1.6.2007:
- Before 1.6.2007: The Supreme Court in Larsen & Toubro held that composite works contracts were not taxable under CICS or CCS before 1.6.2007. The Tribunal followed this precedent, stating that such contracts could not be taxed under CICS or CCS as they involved both service and goods components.
- After 1.6.2007: The Tribunal clarified that even after 1.6.2007, composite contracts should be classified under WCS and not under CICS or CCS. The introduction of WCS provided a statutory mechanism to exclude the value of goods from the taxable value of services. The Tribunal cited several decisions supporting this view, including URC Constructions Vs CCE and Mantri Developers VS CCE.

3. Requirement of Intimation for Composition Scheme:
The department contended that the appellants had not exercised their option for payment under the composition scheme by intimating the department. The Tribunal referred to the decision in Vaishno Associates Vs. Commissioner of Central Excise, which held that non-intimation was a procedural lapse and should be condoned. The Tribunal concluded that the demand could not be sustained solely on the ground of non-intimation.

Conclusion:
The Tribunal set aside the impugned orders and allowed the appeals with consequential benefits. It held that:
- Services provided by the appellants before 1.6.2007, being in the nature of composite works contracts, could not be taxed under CICS or CCS.
- For the period after 1.6.2007, composite contracts should be classified under WCS and not under CICS or CCS.
- The demand could not be sustained solely due to non-intimation for opting under the composition scheme.

The judgment underscored the importance of correct classification and procedural compliance in determining service tax liabilities for construction services.