2019 (1) TMI 380 - AT - Service Tax

Valuation - Maintenance and Repair Services - Composite works contract - wrong availment of N/N. 12/203-ST - allowance of notional abatement of 60%/70% under N/N. 12/2003-ST - demand of service tax on GTA Services - applicability of the judgment of the Hon ble Supreme Court in the case of Larsen Toubro Ltd 2015 (8) TMI 749 - SUPREME COURT before 01.06.2007 - Held that - The contracts were indivisible works contracts involving both transfer of materials and rendition of services. The materials which they have used in this factual matrix are certainly not merely consumables such as gas, welding electrodes etc., but materials which have gone into the execution of the contracts. They have been asked to remove old steel sheets and replace them with new ones. Under such circumstances, the new steel sheets which they have installed can be deemed to have been sold to the service recipient as a part of the indivisible contracts - The exigibility of Service Tax was not argued before the adjudicating authority nor was considered by him in the impugned orders. Related to this question, exigibility of the services rendered by the appellant post 01.06.2007 in terms of Sec.65(105)(zzzza) of the Finance Act, 1994 this is also an issue which was not examined by the adjudicating authority while passing the impugned orders. Hence, this needs to be examined before the appeal can be considered by this Bench. Whether the appellant would be eligible for exemption N/N. 12/2003- ST? - Held that - We agree with the learned department representative that any exemption notification should be strictly construed. The appellant had produced only documents to show that they have purchased materials but nothing to show that they have used the same in execution of the contracts and it is for this reason the adjudicating authority did not allow the abatement under this notification - Nevertheless when a demand of duty is being made in the show cause notice which cannot sustain if the services are not exigible to Service Tax at all and this issue needs to be examined. This is a fit case to be remanded back to the original authority to enable them to examine the matters and pass a reasoned order, after following principles of natural justice - appeal allowed by way of remand.

Issues Involved:
1. Whether the appellant had entered into composite works contracts involving supply of materials as well as rendition of necessary services in these contracts.
2. Whether these contracts were exigible to service tax before 01.06.2007 as per the judgment of the Hon'ble Supreme Court in the case of Larsen & Toubro Ltd.
3. Whether these services were exigible to service tax post 01.06.2007 in terms of Sec.65(105)(zzzza).
4. If the services were exigible to service tax, whether the appellant was entitled to the benefit of exemption notification 12/2003-ST during the relevant period considering that they had not produced any evidence to show that they have sold the materials but have only produced evidence to show that they have purchased the materials used in the contract.

Detailed Analysis:

1. Composite Works Contracts:
The appellant engaged in the business of overhauling ships argued that their services involved not only repair but also the use of new steel sheets, thus constituting composite, indivisible work contracts involving the transfer of property in materials as well as rendering necessary services. The adjudicating authority had denied abatement under notification 12/2003-ST on the grounds that the appellant only produced evidence of material purchases, not usage or sale to service recipients. The Tribunal noted that the contracts appeared to be indivisible works contracts involving both materials and services, and the materials used were not merely consumables but integral to the execution of the contracts.

2. Exigibility Before 01.06.2007:
The appellant contended that service tax liability on works contracts was settled by the Hon'ble Supreme Court in the case of Larsen & Toubro Ltd, which held that an indivisible works contract became exigible to service tax only from 01.06.2007. The Tribunal acknowledged that this issue was not argued before the adjudicating authority and needed examination to determine if the services rendered by the appellant were exigible to service tax before 01.06.2007.

3. Exigibility Post 01.06.2007:
The appellant argued that post 01.06.2007, their services of maintenance and repair of ships were not covered under Sec.65(105)(zzzza) and thus not exigible to service tax. The Tribunal noted that this issue was also not examined by the adjudicating authority and required further scrutiny to determine the taxability of the services rendered by the appellant post 01.06.2007.

4. Entitlement to Exemption Notification 12/2003-ST:
The appellant sought the benefit of exemption notification 12/2003-ST, which exempts the value of goods and materials sold by the service provider to the recipient of the service. The adjudicating authority denied this benefit as the appellant did not provide evidence of material sales to service recipients. The Tribunal agreed that exemption notifications must be strictly construed and noted that the appellant only provided purchase evidence, not usage in execution or sales. However, the Tribunal allowed the appellant to produce the necessary evidence upon remand.

Remand Directions:
The Tribunal remanded the case back to the original authority to:
- Examine the exigibility of services rendered by the appellant before 01.06.2007 in light of the Larsen & Toubro Ltd judgment.
- Determine the taxability of services post 01.06.2007 under Sec.65(105)(zzzza).
- Reassess the appellant's entitlement to abatement under notification 12/2003-ST based on the evidence of material usage in contract execution.

The appeals were allowed by way of remand to the original authority to decide the matter following the principles of natural justice.

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