2025 (4) TMI 773 - HC - Service Tax

Demand of service tax from the respondent/assessee under the category Site Formation Services and Construction of Industrial and Commercial Services for the period from 16.6.2005 to 31.3.2008 - Invocation of extended period of limitation - HELD THAT - The learned tribunal examined the facts of the case and found that the contract is clearly a comprehensive contract for the purposes mentioned above and the activity done by the assessee is in relation to commissioning of coal and not for site formation. The learned tribunal also referred to two decisions of the Co-ordinate Bench of the learned tribunal. Reference has been made to the decision of the Hon ble Supreme Court in the case of Larsen Toubro Ltd. 2015 (8) TMI 749 - SUPREME COURT wherein the Hon ble Supreme Court held finding that Section 67 of the Finance Act which speaks of gross amount charged only speaks of the gross amount charged for service provided and not the gross amount of the works contract as a whole from which various deductions have to be made to arrive at the service element in the said contract. We find therefore that this judgment is wholly incorrect In its conclusion that the Finance Act 1994 contains both the charge and machinery for levy and assessment of service tax on indivisible works contracts. The tribunal accepted the case of the assessee and held that no service tax is payable and the question of imposing penalty also does not arise. Extended period of limitation - HELD THAT - The department is required to show that there was omission and failure and suppression of material fact with an intent to evade payment of service tax. This having not been clearly spelt out in the show-cause notice the case of the department cannot be improved at the stage of adjudication nor has it been done so in the instant case. Therefore this is a case where the extended period of limitation could not have been invoked by the department. Conclusion - i) The composite contracts should not be artificially bifurcated for service tax purposes. ii) No service tax was payable for mining-related services prior to 01.06.2007 as clarified by the circular and legislative amendments. iii) The extended period of limitation could not be invoked without clear evidence of intent to evade tax which was not present in this case. Appeal dismissed.

Summary

ISSUES PRESENTED and CONSIDERED

The central issues considered in this judgment involve the applicability of service tax under specific categories for the period between 16.06.2005 and 31.03.2008, and the legitimacy of invoking the extended period of limitation. The questions of law presented include:

a) Whether the services related to mining during the specified period should be classified under "Site Formation and Clearance, Excavation and Earth Moving and Demolition Services" as per Section 65 of the Finance Act, 1994.

b) Whether the construction of residential buildings by the respondent falls under "Construction of Complex Services" and is chargeable to service tax from 16.06.2005 as per Section 65 of the Finance Act, 1994.

c) Whether the inclusion of "Mining Service" and "Works Construction Service" from 01.06.2007 clarifies the chargeability of services rendered under mining and residential building construction.

d) Whether the Tribunal erred by not considering a circular dated 12.11.2007, which clarifies the taxability of services related to mining prior to 01.06.2007.

ISSUE-WISE DETAILED ANALYSIS

Issue a and d: The classification of services related to mining and the applicability of service tax for the period from 16.06.2005 to 31.03.2008.

- Relevant legal framework and precedents: The Finance Act, 1994, Section 65 defines taxable services. The Tribunal relied on the Supreme Court's decision in Larsen & Toubro Ltd., which emphasized the distinction between service contracts and composite works contracts. The circular dated 12.11.2007 clarified that mining activities were taxable from 01.06.2007.

- Court's interpretation and reasoning: The Tribunal found that the contract executed by the assessee was a composite contract primarily for coal commissioning, not site formation. It referenced the Supreme Court's decision, highlighting that composite contracts should not be artificially bifurcated for taxation purposes.

- Key evidence and findings: The Tribunal noted that the assessee's services were composite and inseparable, involving mining operations as defined under the Mines and Minerals (Development and Regulation) Act, 1957. The Tribunal found the Department's attempt to bifurcate services for taxation purposes unjustified.

- Application of law to facts: The Tribunal applied the Supreme Court's precedent, concluding that the services rendered were part of a composite contract not subject to service tax prior to 01.06.2007.

- Treatment of competing arguments: The Department's argument for bifurcation was rejected based on the composite nature of the contract and the Supreme Court's guidance on taxing composite works contracts.

- Conclusions: The Tribunal concluded that no service tax was payable for the period in question, and the circular supported this view by clarifying non-taxability prior to 01.06.2007.

Issue b and c: The classification of construction services and the effect of amendments on service tax applicability.

- Relevant legal framework and precedents: Section 65 of the Finance Act, 1994, as amended, defines "Construction of Complex Services." The inclusion of "Mining Service" and "Works Construction Service" from 01.06.2007 was considered.

- Court's interpretation and reasoning: The Tribunal found that the construction activities were part of a comprehensive contract, not separately taxable under "Construction of Complex Services." The amendments clarified the scope of taxable services but did not retroactively apply to the period before 01.06.2007.

- Key evidence and findings: The Tribunal referred to work orders and the nature of services, confirming they were composite and not subject to separate taxation.

- Application of law to facts: The Tribunal applied the legal framework to the facts, determining that the services rendered were not taxable under the specified categories before the amendments took effect.

- Treatment of competing arguments: The Department's argument for separate taxation was dismissed based on the comprehensive nature of the contract and the timing of legislative amendments.

- Conclusions: The Tribunal concluded that the services were not taxable under the specified categories for the period in question, and the amendments did not apply retroactively.

Significant Holdings

- The Tribunal affirmed that composite contracts should not be artificially bifurcated for service tax purposes, following the Supreme Court's precedent in Larsen & Toubro Ltd.

- The Tribunal held that no service tax was payable for mining-related services prior to 01.06.2007, as clarified by the circular and legislative amendments.

- The Tribunal determined that the extended period of limitation could not be invoked without clear evidence of intent to evade tax, which was not present in this case.

- The appeal was dismissed, and the substantial questions of law were answered against the appellant/department, affirming the Tribunal's decision.