2025 (3) TMI 1319 - AT - Service Tax

Classification of services - Works Contract service or Commercial or Industrial Construction Services? - invocation of extended period of limitation - HELD THAT - In the instant case there is no dispute that the work undertaken by the appellants was construction activity involving both labour and material. Appellants were registered contractors with Kerala Sales Tax Authorities and also paid Sales Tax/VAT under the Kerala Sales Tax Act and Kerala VAT Act on the activities under dispute. Therefore the first condition of the definition of works contract service is satisfied. Since the issue is squarely covered by the judgment of the Hon ble Supreme Court in the case of Larsen Toubro Ltd. 2015 (8) TMI 749 - SUPREME COURT the activities carried out by the appellant is falling under works contract service and they are not liable to pay service tax prior to 01.06.2007. As regarding demand of service tax from 01.06.2007 since the appellant paid due amount under works contract service the demand confirmed as per the impugned order under Commercial or Industrial Construction Service is unsustainable. Conclusion - The demand for service tax under Commercial or Industrial Construction Service is unsustainable for the period prior to 01.06.2007. The invocation of the extended period of limitation is also found to be unsustainable due to the absence of evidence of suppression of facts by the appellant. Appeal allowed.

Summary

ISSUES PRESENTED and CONSIDERED

The primary issue considered was whether the activities carried out by the appellant fell under the category of 'Works Contract Service' and whether they were liable to pay service tax under 'Commercial or Industrial Construction Services' for the period from 2004-2005 to September 2007. Additionally, the issue of whether the extended period of limitation could be invoked for the demand was also considered.

ISSUE-WISE DETAILED ANALYSIS

Relevant Legal Framework and Precedents

The legal framework involved the classification of services under the Finance Act, 1994, specifically whether the services rendered were 'Works Contract Service' or 'Commercial or Industrial Construction Services'. The precedents considered included the Supreme Court judgment in the case of Larsen & Toubro Ltd., which clarified the classification of works contract services.

Court's Interpretation and Reasoning

The Tribunal interpreted that the activities carried out by the appellant involved construction work that included both labor and material, thus meeting the definition of 'works contract service'. The Tribunal relied on the Supreme Court's decision in Larsen & Toubro Ltd., which established that works contract services were not liable for service tax prior to 01.06.2007.

Key Evidence and Findings

The evidence included registration details of the appellant with the Kerala Sales Tax Authorities and payment of Sales Tax/VAT under the Kerala Sales Tax Act and Kerala VAT Act. Invoices and audit reports under the Kerala Value Added Tax (KVAT) were also considered, supporting the classification under 'Works Contract Service'.

Application of Law to Facts

The Tribunal applied the legal principles from the Larsen & Toubro Ltd. case to the facts, concluding that the appellant's activities were indeed 'works contract service'. Therefore, they were not liable to pay service tax under 'Commercial or Industrial Construction Services' for the period prior to 01.06.2007.

Treatment of Competing Arguments

The appellant argued that their services were misclassified and that the demand was barred by limitation. The Revenue contended that once registered and taxed under 'Commercial or Industrial Construction Service', the appellant could not claim otherwise. The Tribunal found the appellant's argument persuasive, supported by legal precedents and the absence of evidence of suppression of facts.

Conclusions

The Tribunal concluded that the activities were correctly classified as 'works contract service' and not liable for service tax prior to 01.06.2007. The demand for the period after 01.06.2007 under 'Commercial or Industrial Construction Service' was unsustainable since the appellant had paid the due amount under the correct classification.

SIGNIFICANT HOLDINGS

The Tribunal held that the activities carried out by the appellant fell under 'works contract service', and they were not liable to pay service tax under 'Commercial or Industrial Construction Services' for the period before 01.06.2007. The Tribunal set aside the impugned order, allowing the appeal.

Preserve verbatim quotes of crucial legal reasoning

"Since the issue is squarely covered by the judgment of the Hon'ble Supreme Court in the case of Larsen & Toubro Ltd., the activities carried out by the appellant is falling under 'works contract service' and they are not liable to pay service tax prior to 01.06.2007."

Core Principles Established

The core principle established is that activities involving both labor and material, classified as 'works contract service', are not subject to service tax prior to 01.06.2007, as per the Supreme Court's interpretation in Larsen & Toubro Ltd.

Final Determinations on Each Issue

The Tribunal determined that the demand for service tax under 'Commercial or Industrial Construction Service' was unsustainable for the period prior to 01.06.2007. The invocation of the extended period of limitation was also found to be unsustainable due to the absence of evidence of suppression of facts by the appellant.