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TMI Blog2023 (6) TMI 1308X X X X Extracts X X X X X X X X Extracts X X X X ..... eals, which are legal in nature therefore, the same are taken on record and applications filed by the appellant are allowed. 2. The Appellant has filed these appeals and having a common issue therefore both the appeals are taken together for disposal. 3. The facts of the case are that the appellant is engaged in maintenance and repair services of Heavy Earth Moving Machinery which also entail supply of spare part in respect of such repair. For the purpose of said activity, the appellant entered into long term comprehensive maintenance and repair contracts with Tata Iron & Steel Company in relation to the heavy earth moving machineries like Rear Dump Truck, Dozers etc. procured by TISCO from M/s. Caterpillar India Ltd. and M/s. Caterpillar Singalore. 4. As per the agreement the appellant were charging repair and maintenance fees for supply of spare parts. Ground Engaging Tools fees for supply of ground engaging spare parts replaced during repairs and maintenance, manpower fees for supply of labour charges and on site supports fees towards logistics charges. For the initial years of the contract as the equipment is new, therefore, consideration for spare parts was more than actual ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2012, the service portion of the work contract service computable under Rule 2A(i) of the Valuation Rules. It is his contention that the appellant had arrived at the value of service portion in execution of work contract by excluding entire value of goods in relation to works contract on which VAT has been paid. As the value of goods supplied is ascertainable and VAT has been paid by them, therefore, Rule 2A(i)(c) of the Valuation Rules is applicable to the facts of the present case, therefore, the provision of Rule 2A(ii) of the Valuation Rules adopted by the Revenue is not applicable to the facts of the present case. He further submitted that VAT and Service Tax are mutually exclusive and Service Tax cannot be levied on goods. Finally, he submitted that extended period of limitation is not invocable. 8. On the other hand, the Ld.Authorized Representative for the department reiterated the finding of the impugned orders and supported the same. 9. Heard the parties and considered the submissions. 10. On consideration of the arguments advanced before us the following issues emerge:- (a) Whether the appellant is liable to pay Service Tax on the differential amount of consideratio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... following :- "(zzzza) to any person, by any other person in relation to the execution of a works contract, excluding works contract in respect of roads, airports, railways, transport terminals, bridges, tunnels and dams. Explanation : For the purposes of this sub-clause, "works contract" means a contract wherein, - (i) Transfer of property in goods involved in the execution of such contract is leviable to tax as sale of goods, and (ii) Such contract is for the purposes of carrying out, - (a) Erection, commissioning or installation of plant, machinery, equipment or structures, whether pre-fabricated or otherwise, installation of electrical and electronic devices, plumbing, drain laying or other installations for transport of fluids, heating, ventilation or air-conditioning including related pipe work, duct work and sheet metal work, thermal insulation, sound insulation, fire proofing or water proofing, lift and escalator, fire escape staircases or elevators; or (b) Construction of a new building or a civil structure or a part thereof, or of a pipeline or conduit, primarily for the purposes of commerce or industry; or (c) Construction of a new residential complex or a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g from the gross value of the works contract the value of property in goods transferred in the 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 supp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat it has to be examined whether the work to be performed would actually fall under the category of 'site formation' service. 'Site formation' has been defined in section 65(97a) of the Finance Act in the following manner : "(97a) site formation and clearance, excavation and earthmoving and demolition" includes, - (i) drilling, boring and core extraction services for construction, geophysical, geological or similar purposes; or (ii) soil stabilization; or (iii) horizontal drilling for the passage of cables or drain pipes; or (iv) land reclamation work; or (v) contaminated top soil stripping work; or (vi) demolition and wrecking of building, structure or road, but does not include such services provided in relation to agriculture, irrigation, watershed development and drilling, digging, repairing, renovating or restoring of water sources or water bodies;]" 22. The Supreme Court in Larsen & Toubro in paragraph 24 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ovider as is relatable only to supply of labour and services. And, where value is not determined having regard to the aforesaid parameters, (namely, in those cases where the books of account of the contractor are not looked into for any reason) by determining in different works contracts how much shall be the percentage of the total amount charged for the works contract, attributable to the service element in such contracts. It is this scheme and this scheme alone which complies with constitutional requirements in that it bifurcates a composite indivisible works contract and takes care to see that no element attributable to the property in goods transferred pursuant to such contract, enters into computation of service tax. 40. Finally, in para 31, the Delhi High Court holds :- "The contention of the petitioners that the impugned notifications override the statutory provisions contained in Section 65(105), which defines the term "taxable service", Section 66, which it is claimed is a charging section, and Section 67, the valuation provisions of the Finance Act, 1994, has to be rejected. We have, as already stated above, rejected the argument of the petitioners on bifurcation/vivis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onsible for collecting the service tax" for the Government; (iii) Section 67 of the Act provides for the value of taxable service which is to be subjected to 5% service tax; and (iv) Section 68 of the Act provides for the collection and payment mechanism for service tax. It is necessary to trace the evolution of charging service tax on works contract as discerned by this Court in the aforesaid judgments. While considering the rival contentions of the parties, it is also necessary to examine the issue of levying service tax on contracts said to be in the nature of works contract, both prior to, and following the introduction of an express charging provision to impose tax on works contract although we are concerned with the period prior to the definition of works contract w.e.f. 1st June, 2007 to Finance Act, 1994. This is with reference to the following judgments : (a) xxxxxxxx xxxxxxxx xxxxxxxx (b) xxxxxxxx xxxxxxxx xxxxxxxx (c) xxxxxxxx xxxxxxxx xxxxxxxx (d) xxxxxxxx xxxxxxxx xxxxxxxx (e) xxxxxxxx xxxxxxxx xxxxxxxx (f) Thus, Works Contract Services were brought under the service tax net as per an amendment to of the Finance Act, 1994 by introduction of Clause (zz ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (zzzza) is not clarificatory in nature. Having found that the Service Tax was not at all leviable on service element of a works contract, Parliament felt the need for the amendment and was so incorporated by the Finance Act, 2007. 27. Thus, the judgment in Larsen and Toubro Ltd. (supra) has been correctly decided and does not call for a re-consideration insofar as the period prior to 1st June, 2007 is concerned. In view of the above discussion, I agree with the result arrived at by His Lordship M.R. Shah J. vis-a-vis allowing all civil appeals under consideration except Civil Appeal No. 6792 of 2010 which is dismissed. No costs." 24. 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 and Total Environment Building Systems 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." 13. As it has been hel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provider relatable to supply of labour and services; (c) where value added tax or sales tax has been paid or payable on the actual value of property in goods transferred in the execution of the works contract, then, such value adopted for the purposes of payment of value added tax or sales tax, shall be taken as the value of property in goods transferred in the execution of the said works contract for determination of the value of service portion in the execution of works contract under this clause; (ii) Where the value has not been determined under clause (i), the person liable to pay tax on the service portion involved in the execution of the works contract shall determine the service tax payable in the following manner, namely :- (A) in case of works contracts entered into for execution of original works, service tax shall be payable on forty per cent of the total amount charged for the works contract; [Provided that where the amount charged for works contract includes the value of goods as well as land or undivided share of land, the service tax shall be payable on thirty per cent. of the total amount charged for the works contract.] [(B) in case of works contract, n ..... 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