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2018 (10) TMI 402 - AT - Service TaxConstruction of commercial or industrial construction service - Workd Contract Service - benefit of Abatement of 67% - pure services or composite contracts - non-discharge of tax appropriately on the construction activities - period involved in the present case is from October 2004 to March 2009 - demand with Interest and penalties. Held that - The contracts entered between the appellant and the service recipient is a composite contract which involves both supply of materials as well as rendering of service. The Tribunal in the case of Real Value Promoters Ltd. 2018 (9) TMI 1149 - CESTAT CHENNAI had occasion to analyse the issue regarding demand of service tax under construction of residential complex services, commercial or industrial construction service and construction of complex service. The Tribunal has held that prior to 1.6.2007, levy of service tax can be under the above categories only for contracts which are purely for services. That after 1.6.2007, the above categories would be applicable only if the contracts are purely services and which are not composite contracts - the demand of service tax under commercial or industrial construction service (residential complex) cannot sustain after the period 1.6.2007. The levy of service tax prior to 1.6.2007 cannot also sustain by application of the decision of the Hon ble Supreme Court in the case of Larsen & Toubro Ltd. 2015 (8) TMI 749 - SUPREME COURT . Appeal allowed - decided in favor of appellant.
Issues Involved:
1. Demand of service tax under construction of commercial or industrial construction service (residential complex service). 2. Imposition of penalties under various sections of the Finance Act, 1994. Issue-wise Analysis: 1. Demand of Service Tax: - Background: The appellants were involved in the construction of residential complexes during the periods 2006-08 and April 2009. They entered into construction agreements with clients for flats but did not discharge appropriate service tax on these activities. Show cause notices were issued demanding service tax under commercial or industrial construction service (construction of residential complex) along with interest and penalties. - Appellant’s Argument: The appellants contended that since the transfer of property was involved, the activities should be taxed under works contract service as per Section 65 (105)(zzzza) of the Finance Act, 1994, effective from 01.06.2007. They argued that the demand prior to this date was unsustainable, citing the Supreme Court decision in CCE, Kerala v. Larsen & Toubro Ltd (2015) which clarified that composite contracts could not be taxed under the earlier provisions. - Tribunal’s Analysis: The Tribunal, referencing the Real Value Promoters Ltd. case, held that prior to 1.6.2007, service tax could only be levied on pure service contracts and not on composite contracts. After 1.6.2007, composite contracts fell under the works contract service category. The Tribunal reiterated that the demand under construction of residential complex services was unsustainable both before and after 1.6.2007 for composite contracts. 2. Imposition of Penalties: - Background: Penalties were imposed under various sections, including Section 76 and Section 78 of the Finance Act, 1994. The original authority had not imposed a penalty under Section 76, but the Commissioner (Appeals) later imposed it. - Appellant’s Argument: The appellants argued that since the demand for service tax was not sustainable, the penalties imposed were also not sustainable. - Tribunal’s Analysis: Given that the demand for service tax itself was found to be unsustainable, the Tribunal concluded that the penalties imposed under Sections 76 and 78 could not be upheld. Conclusion: The Tribunal set aside the impugned orders, holding that the demand for service tax under commercial or industrial construction service (residential complex) was unsustainable for the periods before and after 1.6.2007. Consequently, the penalties imposed were also set aside. The appeals were allowed with consequential relief.
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