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TMI Blog2016 (9) TMI 1238X X X X Extracts X X X X X X X X Extracts X X X X ..... works contract services is no longer res-integra in view of the Hon’ble Supreme Court's judgment in the case of Commissioner of Central Excise and Customs, Kerala Vs. Larsen and Toubro Ltd. [2015 (8) TMI 749 - SUPREME COURT]. The Honourable Supreme Court in its judgment has held that prior to 01/06/2007, there was no section specifically levying service tax on works contract and accordingly, no service tax can be imposed on works contract services entered prior to 01/06/2007. Accordingly, we are of the view that the works contract is subject to levy of service tax only with effect from 01/06/2007 and the demand of service tax under construction of complex service is being set aside. Since the original demand itself is being set aside, demand of interest under Section 75 and penalty under Section 76 of the Finance Act, 1994 is also being set aside. As regards imposition of penalty under Section 77 of the Finance Act, 1994, we find that penalty is unsustainable as the issue as to whether the activity of construction of complex would fall under construction service or works contract service has always been under dispute and hence we find that there is a reasonable cause for not ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sidered the basic tenet which provides for what is service , cannot be sale and vice versa. When construction industry is subjected to sales tax connoting the element of sale , there cannot any justification for construing the same as service also. As service tax can be levied only on services, the Learned Commissioner grossly erred in subjecting the business of the appellants to ervice tax also, over and above the burden of sales tax , which is already being shouldered by the appellants. 3.1 He also submitted that the activity undertaken by the appellant will fall under the category of Works Contract. A works contract is a contract where there is an agreement, under a single integrated contract, between the parties for transfer of property in goods, whether as goods or in some other form, along with work and labour. Service Tax on works contract service was introduced with effect from 01.06.2007. In the present case the demand pertains to period prior to that. Hence, the demand made by the Commissioner is erroneous.The appellants had placed reliance on the decision of the Hon ble Supreme Court in the case of CCE Cus, Cochin vs. Larsen and Toubro Ltd. reported ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e decided in the instant appeal are as follows: (i) Whether the demand is correct on law for the period between 16/06/2005 to 31/12/2006 under taxable service of construction of complex for the indivisible works contract which merits classification under the category works contract service. (ii) Whether the facts of this case invoking extended period of limitation is correct. The appellant, in their grounds of appeal and in their oral submissions as well, have submitted that the services rendered by them would fall under the category of works contract. The said category of service was introduced only from 01/06/2007. In this case, it is seen from the submissions made by both sides, that the contract is an indivisible contract involving both transfer of property of goods and services and that appropriate sales tax/VAT is paid for the value of the goods involved in the execution of the works contract. It is also seen that the Learned Commissioner has merely confirmed demand only under construction of complex service. As per Explanation to Section 65(105)(zzzza), we find that the legislature has clarified that where the activity involves both transfer of property in goods t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... execution of a works contract. 25. In fact, by way of contrast, Section 67 post amendment (by the Finance Act, 2006) for the first time prescribes, in cases like the present, where the provision of service is for a consideration which is not ascertainable, to be the amount as may be determined in the prescribed manner. 26. We have already seen that Rule 2(A) framed pursuant to this power has followed the second Gannon Dunkerley case in segregating the service component of a works contract from the goods component. It begins by working downwards from the gross amount charged for the entire works contract and minusing from it the value of the property in goods transferred in the execution of such works contract. This is done by adopting the value that is adopted for the purpose of payment of VAT. The rule goes on to say that the service component of the works contract is to include the eight elements laid down in the second Gannon Dunkerley case including apportionment of the cost of establishment, other expenses and profit earned by the service provider as is relatable only to supply of labour and services. And, where value is not determined having regard to the afore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x. Yet, if learned counsel for the revenue is right, such contracts, not being exempt under the Finance Act, 1994, would fall within its tentacles, which was never the intention of Parliament. The ratio of the aforesaid principle was also followed in the case of Commissioner of Central Excise, Goa Versus R.K. Construction 2016 (41) S.T.R. 879 (Tri. - Mumbai). 7. We find that the Learned Commissioner in the instant case, has not examined the liability to tax for the period under question based upon the nature of services contracted by the Appellant. As we have already pointed out, all construction activities would not automatically invite liability to tax prior to 01/06/2007 when the activity merits classification under works contract. Accordingly, we are of the view that the works contract is subject to levy of service only with effect from 01/06/2007 and the demand of service tax under construction of complex service is being set aside. Since the original demand itself is being set aside, demand of interest under Section 75 and penalty under Section 76 of the Finance Act, 1994 is also being set aside. 8. As regards imposition of penalty under Section 77 of the Fina ..... 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