2019 (3) TMI 955 - AT - Service Tax

Valuation - Commercial or Industrial Construction Service - inclusion of free supplies in assessable value - composite contracts - demand is for the period from 2005-06 to 2009-10 - Held that - Though the appellants have received free supplies of cement and steel from the customers, the use of other materials by the appellants for execution of the Works Contract would make it a composite contract, which involves both supplies of materials and rendering of services. The decision of M/s. Larsen Touboro Ltd., 2015 (8) TMI 749 - SUPREME COURT will be applicable for the period prior to 01.06.2007 and, therefore, the demand prior to 01.06.2007 cannot sustain - the decision in the case of M/s. Real Value Promoters Pvt. Ltd., 2018 (9) TMI 1149 - CESTAT CHENNAI would be applicable for the period after 01.06.2007 for the reason the Tribunal has held that the demand under CICS cannot sustain in contracts of composite nature. Appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Whether service tax on Construction Services rendered in respect of Commercial or Industrial Construction Service [CICS] was correctly demanded?
2. Whether the contracts were composite in nature involving both supply of materials and rendering of services?
3. Whether the demand for service tax can sustain based on the facts and legal basis presented?

Analysis:
1. The case involved a dispute regarding the payment of service tax on Construction Services provided under Commercial or Industrial Construction Service [CICS]. The appellants were alleged to have not paid service tax on the full amount received for the services rendered from 2005-6 to 2009-10. The original authority confirmed the demand, interest, and penalties, leading the appellants to appeal before the Tribunal.

2. The appellants argued that the contracts were composite in nature, involving both the supply of materials and the rendering of services. They contended that they had received free supplies of steel and cement from the client, but had also procured other necessary materials like bricks, blue metals, sand, stones, and electricals for the execution of the work order. The appellants maintained that these contracts should be treated as Works Contracts, as evidenced by their Balance Sheet, Profit & Loss Account, and VAT assessment orders for the relevant period.

3. The Revenue, on the other hand, supported the findings of the impugned order, emphasizing that the appellants had received significant free supplies of cement and steel, which were not included in the taxable value declared for service tax purposes. The Revenue argued that the appellants could not claim the shelter of composite contracts when they had received substantial portions of the consideration in the form of free supplies.

4. After hearing both sides, the Tribunal analyzed the submissions and evidence presented. It was observed that the appellants had indeed procured and used various materials for the execution of Works Contracts, as evidenced by their financial documents and VAT assessment orders. The Tribunal applied legal precedents to conclude that the demand for service tax under CICS could not sustain in contracts of composite nature. Therefore, the Tribunal set aside the impugned order, allowing the appeal with consequential reliefs.

In conclusion, the Tribunal ruled in favor of the appellants, determining that the demand for service tax could not sustain on factual or legal grounds, given the composite nature of the contracts involving both supply of materials and rendering of services.