2023 (5) TMI 764 - AT - Service Tax

Classification of services - activity of preparation of site for the power plant - site formation and clearance, excavation and earthmoving and demolition services or not - payment of service tax through credit also rejected on the ground that the invoices against which credit was availed were not issued to the Bhilai premises of the appellant - CENVAT Credit. HELD THAT - What transpires from a perusal of Annexure A (containing description of the work to be carried and amount to be paid) is that the work order is a composite contract comprising services as well as goods. This would be clear from serial no. 6 of annexure which mentions Earth work in excavation for levelling and grading using borrowed good earth . It specifies that borrowed good earth has to be arranged by the contractor at its own cost. There can be no manner of doubt that the work order comprises both the service element as well as the goods element. The Supreme Court in Larsen Toubro 2015 (8) TMI 749 - SUPREME COURT drew a distinction between the service contracts simpliciter and a composite works contracts which would involve both services and goods and held that it is only w.e.f. June 01, 2007 that composite contracts can be subjected to levy of service tax and not before this date. It has been found as a fact that the work order in the present case, involves both supply of services as also goods. It is, therefore, a composite contract. In view of the decisions of the Supreme Court in Larsen Toubro it has to be held that the services performed by the appellant under the work order would fall in the category of works contract service and not site formation service. The finding of the Commissioner on this issue, therefore, cannot be sustained and is set aside. Whether the appellant would be justified in availing CENVAT credit? - HELD THAT - The Commissioner had examined documents to ascertain whether the appellant was justified in availing CENVAT credit, but in view of the finding recorded in this order that the appellant would not be liable to pay service tax, the appellant cannot avail the benefit of rule 3(l) of 2004 Rules. Penalty - HELD THAT - Learned counsel for the appellant, however, pointed out that the appellant had reversed the CENVAT credit availed by it and, therefore, this issue is only academic in nature. Learned counsel for the appellant also submitted that in any view of the matter the penalty imposed on the appellant for wrong availment of CENVAT credit needs to be set aside - This submission of learned counsel for the appellant deserves to be accepted. The issue of tax liability of a sub-contractor in cases where the main contractor had paid service tax was subject matter to litigation and, therefore, no mala fides can be attributed to the appellant. The penalty imposed on the appellant, therefore, deserves to be set aside. Interest - HELD THAT - Interest cannot be imposed on the appellant as demand of service tax is not sustainable and credit was reversed by the appellant. The confirmation of demand of service tax deserves to be set aside and is set aside. The imposition of penalty and interest also deserves to be set aside and is set aside - Appeal allowed.

Summary

Issues Involved:
1. Classification of services provided by the appellant.
2. Admissibility of CENVAT credit.
3. Imposition of penalty and interest.

Summary:

Issue 1: Classification of Services Provided by the Appellant

The appellant, an infrastructure construction company, was subcontracted by BHEL to perform land development activities. The Commissioner, in the order dated July 17, 2015, classified these activities under "site formation and clearance, excavation and earthmoving and demolition" services, taxable under section 65(105)(zzza) of the Finance Act, 1944. The appellant contended that the services should fall under "works contract" service, which became taxable only from June 01, 2007. The Tribunal referred to the Supreme Court judgments in *Larsen & Toubro Ltd.* and *Total Environment Building Systems Pvt. Ltd.*, which distinguish between service contracts simpliciter and composite works contracts involving both services and goods. It was held that the work order was a composite contract, and thus, the services provided by the appellant should be classified under "works contract" service, not "site formation" service. Consequently, the Commissioner's finding on this issue was set aside.

Issue 2: Admissibility of CENVAT Credit

The Commissioner initially denied the appellant's CENVAT credit on technical grounds, stating that the invoices were not issued to the appellant's Bhilai premises and some invoices were merely commercial invoices. However, since the appellant's services were reclassified under "works contract" and not liable for service tax, the appellant could not avail the benefit of rule 3(l) of the CENVAT Credit Rules, 2004. The appellant had already reversed the CENVAT credit availed, making this issue academic in nature.

Issue 3: Imposition of Penalty and Interest

The Tribunal found that the issue of tax liability for sub-contractors where the main contractor had paid service tax was under litigation, and thus, no mala fides could be attributed to the appellant. Consequently, the penalty imposed on the appellant for wrong availment of CENVAT credit was set aside. Furthermore, interest could not be imposed as the demand for service tax was not sustainable, and the credit was reversed by the appellant.

Conclusion:

The appeal was allowed, setting aside the confirmation of the demand for service tax, the imposition of penalty, and interest. The adjudicating authority's findings were overturned, and the appellant's classification under "works contract" service was upheld.