2023 (11) TMI 683 - AT - Service Tax

Levy of Service Tax - Erection, Commissioning or Installation services - Appellant engaged as a sub-contractor by M/s Simplex Infrastructure Main contractor which had been awarded a contract for construction of New International Terminal building complex at Jaipur Airport - HELD THAT - The reasoning given by the Commissioner (Appeals) that the services rendered by the appellant would not fall under works contract service for the reason that the appellant had not discharged the VAT liability on the transfer of goods involved in the execution of the contract is not correct. Classification of a service would depend upon the nature of service provided and not on whether VAT had been discharged on the goods portion of the contract. Such being the position, the order dated 27.03.2018 passed by the Commissioner (Appeals) deserves to be set aside and is set aside - Appeal allowed.

Summary

Issues involved: Classification of services under works contract service u/s 65(105) (zzzza) of the Finance Act, 1994 versus erection, commissioning, or installation services u/s 65(105) (zzd) of the Finance Act.

The appellant, a sub-contractor engaged by a main contractor for supplying and installing heating, ventilation, and air conditioning system, contested the demand of service tax with interest and penalty imposed by the Additional Commissioner. The dispute revolved around whether the services provided by the appellant should be classified as works contract services or erection, commissioning, or installation services.

The Additional Commissioner held that the appellant had provided erection, commissioning, or installation services due to non-payment of VAT on the property transferred under the contract. However, the appellant argued that the nature of the service performed should determine the classification, not the VAT payment. The Commissioner (Appeals) upheld the Additional Commissioner's decision based on the VAT issue.

The Tribunal, considering the submissions and previous legal precedents, concluded that the services rendered by the appellant should indeed be classified as works contract service. Citing the Supreme Court decision in Larsen and Toubro case, the Tribunal emphasized that works contract is distinct from other types of contracts and should be taxed separately. Additionally, a Division Bench of the Tribunal in another case reiterated that composite services should be classified only as works contract services from the introduction of such service in 2007.

Therefore, the Tribunal set aside the Commissioner (Appeals) order, ruling in favor of the appellant and allowing the appeal. The Tribunal emphasized that the classification of services should be based on the nature of service provided, not on the VAT payment for the goods portion of the contract.