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ST – Composite contracts or Works contracts even after 01.06.2007 cannot be taxed under ‘Construction of Complex Services’: CESTAT

2019-TIOL-2287-CESTAT-HYD

IN THE CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL
REGIONAL BENCH, HYDERABAD
DIVISION BENCH
COURT NO. I

Service Tax Appeal No.1806 of 2011

Arising out of Order-in-Original No. 06/2011-Adjn. ST (Commr.), Dated: 23.03.2011
Passed by Commissioner of Customs, Central Excise and Service Tax, Hyderabad

Date of Hearing: 09.07.2019
Date of Decision: 09.07.2019

SAI TEJA CONSTRUCTIONS
172/D, VENGALRAO NAGAR
IST FLOOR, A P HOUSING BOARD
HYDERABAD – 500038

Vs

COMMISSIONER OF SERVICE TAX
HYDERABAD SERVICE TAX
11-5-423/1/A, SITARAM PRASAD TOWERS
RED HILLS, HYDERABAD – 500004, TELANGANA

Appellant Rep by: Shri P Venkata Prasad, CA 
Respondent Rep by: Shri A V L N Chary, Superintendent AR

CORAM: S S Garg, Member (J)
P V Subba Rao, Member (T)

ST – The assessee is engaged in construction activity, inter-alia, construction of non-commercial motive buildings and residential buildings for the government and they entered into an agreement with Andhra Pradesh State Housing Corporation Limited for construction of 992 residential houses – The scope of contract included supply of material and labour for the construction – The Department entertained a view that assessee is liable to pay service tax on Commercial and Residential Construction service which the assessee is not paying – The Apex Court in case of Larsen & Toubro Limited – 2015-TIOL-187-SC-ST has settled the issue regarding Works Contract which includes supply of material and labour for construction and the same is taxable only from 01.06.2007 – Even various decisions of the Tribunal have consistently held that composite contracts or works contracts even after 01.06.2007 cannot be taxed under “Construction of Complex Services” under section 65 (105)(zzzh) of FA, 1992 – The issue is squarely covered in favour of assessee and by following the ratio of said decisions, the impugned order is not sustainable, same is set aside: CESTAT

Appeal allowed

Case laws cited:

CCE vs. Larsen & Toubro Limited – 2015-TIOL-187-SC-ST… Para 5

CCE Belgaum vs. Mahakoshal Beverages Pvt. Ltd. [2014(33)S.T.R 616 (Kar.)]… Para 5

CCE vs. R.K. Construction – 2015-TIOL-2560-CESTAT-MUM … Para 5

Real Value Promoters Pvt. Ltd. vs. CGST & CE – 2018-TIOL-2867-CESTAT-MAD… Para 5

URC Construction (P) Ltd. vs. CCE,Salem – 2017-TIOL-1214-CESTAT-MAD … Para 5

CST vs. Swadeshi Construction Company – 2018-TIOL-1096-CESTAT-DEL… Para 5

Macro Marvel Projects Ltd. vs. Commissioner – 2008-TIOL-1927-CESTAT-MAD… Para 6

A.S. Sikarwar vs. CCE, Indore – 2012-TIOL-2017-CESTAT-DEL … Para 6

Baba Construction Pvt. Ltd. Vs. Commissioner [2018(15)G.S.T.L. 345… Para 6

FINAL ORDER NO. A/30617/2019

Per: S S Garg:

1. The present appeal is directed against the impugned order dated 23.03.2011 passed by the Commissioner of Customs, Central Excise & Service Tax, Hyderabad whereby the Commissioner confirmed the demand of an amount of Rs. 65,13,737/- being the service tax on the Construction of Complex service rendered by the appellant for the period 11/06 to 06/09 under section 73(1) of the Finance Act, 1994, along with interest under section 75 of the Finance Act, 1994 and equal amount of penalty under section 78 and also penalty under section 76 of the Finance Act, 1994. The Commissioner also imposed penalty of Rs. 5,000/- on M/s Saiteja Constructions, the appellants herein, under section 77(2) of the Finance Act, 1994.

2. Briefly, the facts of the present case are that the appellant is engaged in the construction activity, inter-alia, construction of non-commercial motive buildings, residential buildings for the government and they entered into an agreement with Andhra Pradesh State Housing Corporation Limited for construction of 992 residential houses of (G+1) pattern at Kokat (V), Yalal (M), Tandur Municipality, Ranga Reddy District under the Urban Permanent Housing-II Programme under RAJIV GRUHAKALPA HOUSING Scheme and for the construction of 1,056 houses (G+1) pattern at Tandur Municipality, Ranga Reddy District under Urban Permanent Housing-II programme under INDIRAMMA Scheme. The scope of the contract included supply of material and labour for the construction.

3. The Department entertained a view that the appellant is liable to pay service tax on Commercial and Residential Construction service which the appellant is not paying. On these allegations, a show cause notice dated 24.03.2010 was issued to the appellant proposing to demand service tax under the category of “Construction of Complex Service (COCS)” under section 65(105)(zzzh) of Finance Act, 1994 covering the period November 2006 to June 2009 and thereafter periodical show cause notice was issued on 20.10.2010 covering the period from July 2009 to September 2010. After following due process, the adjudicating authority vide the impugned order, confirmed the demand as proposed in the show cause notice in toto. Aggrieved by this impugned order, appellant filed this appeal before the Tribunal.

4. Heard both sides and perused the records.

5. Ld. CA appearing for the appellant submits that the impugned order is not sustainable in law as the same has been passed without properly appreciating the facts and the law. He further submitted that the impugned order is contrary to the binding judicial precedents. He further submitted that it is an admitted fact that the contract between the appellant and the Andhra Pradesh State Housing Corporation Limited involves both supply of material and labour and is aptly classifiable under the category of “Works Contract Service” rather than “Construction of Residential Complex Service” which was not liable for service tax as Works Contract Service was not taxable prior to 01.06.2007, in view of the judgment of Hon’ble Apex Court in the case of CCE vs. Larsen & Toubro Limited as reported at [2015(39)S.T.R. 913 (S.C.)] = 2015-TIOL-187-SC-ST. He further submitted that the demand made after 01.06.2007 under the category of “COCS” would not sustain as the only possible classification is “Works Contract Service”. He further submitted that once the impugned work do not confirm to the service category of Construction of Commercial Complex as proposed in the show cause notice, then the entire demand fails. He further submitted that the issue is no more res-integra and has been settled by various decisions of the Tribunals. For this submission, he relied on the following case laws:

(a) CCE Belgaum vs. Mahakoshal Beverages Pvt. Ltd. [2014(33)S.T.R 616 (Kar.)]

(b) CCE vs. R.K. Construction [2016(41)S.T.R. 879 (Tri.-Mumbai)] = 2015-TIOL-2560-CESTAT-MUM

(c) Real Value Promoters Pvt. Ltd. vs. CGST & CE – 2018-TIOL-2867-CESTAT-MAD

(d) URC Construction (P) Ltd. vs. CCE,Salem [2017(50)S.T.R. 147 (Tri.- Chennai) = 2017-TIOL-1214-CESTAT-MAD

(e) CST vs. Swadeshi Construction Company – 2018-TIOL-1096-CESTAT-DEL

6. Ld. CA further submits that in the present case, each residential house is independent with the pattern Ground plus one (G+1) which means that there are only two units in each such building and the same cannot be treated as residential complex as it is not a building containing more than 12 units and each independent house in itself is one unit and as the building of the independent house is a single unit and therefore it can never be called as building having more than 12 units and therefore the fundamental requirement to construe as ‘residential complex’ was not satisfied. In support of his submission, he also relied upon the following case laws:

(i) Macro Marvel Projects Ltd. vs. Commissioner [2008(12)S.T.R. 603 (Tribunal) = 2008-TIOL-1927-CESTAT-MAD and affirmed by the Hon’ble Apex Court as reported at [2012(25)S.T.R. J154 (S.C.).

(ii) A.S. Sikarwar vs. CCE, Indore [2012(28)S.T.R. 479 (Tri.-Del.)] = 2012-TIOL-2017-CESTAT-DEL

(iii) Baba Construction Pvt. Ltd. Vs. Commissioner [2018(15)G.S.T.L. 345 and affirmed by the Hon’ble Apex Court as reported in [2018(15) G.S.T.L. J120 (S.C.)].

7. He also submitted that the residential houses constructed by the appellant were meant for weaker section of the society for their dwelling purpose as part of welfare scheme of the State Government. These units were allotted and not sold. He also submitted that the extended period of limitation was wrongly revoked in the present case as the issue involves interpretation of the provisions.

8. On the other hand, Ld. DR defended the impugned order.

9. After hearing both sides and perusal of records, we find that Hon’ble Apex Court in the case of Larsen & Toubro Limited (cited supra) has settled the issue regarding the Works Contract which includes supply of material and labour for construction and the same is taxable only from 01.06.2007. Further, we find that even for the period after 01.06.2007, various decisions of the Tribunal have consistently held that composite contracts or works contracts even after 01.06.2007 cannot be taxed under “Construction of Complex Services” under section 65 (105)(zzzh) of the Finance Act, 1992. Further, we find that in the case of Mahakoshal Beverages Pvt. Ltd. (cited supra), the Hon’ble High Court of Karnataka, under identical circumstances, has held in para 5 which is reproduced below:

“We have carefully considered the contentions urged by the learned counsel for the appellant. It is clear from the perusal of the show cause notice that as culled out above that what was proposed was to impose Service Tax amount of Rs. 90,96,501/- u/s 73(1)(a) of the Finance Act. In view of the explanation submitted in response to the show cause notice, the original authority held that the tax could not have been leviable under the said Act u/s 73(1)(a). However, the original authority proceeded to impose the tax under the head ‘Business Auxiliary Service’ which is taxable u/s 73(1)(d) and 73(1)(e). The fact that there was no proposal in the show cause notice to include the income as auxiliary business service is indisputable in view of the contents of the show cause notice and therefore in the absence of any notice issued to the respondent in view of the provisions of Section 73, it is clear that imposition of tax and consequently interest and penalty cannot be sustained and the same has been rightly set aside by the Tribunal. As no order to treat the income as Business Auxiliary Service had been passed without proposing the same to the respondent in the show cause notice, the order passed by the Tribunal is justified and substantial question of law has to be answered against the revenue”.

10. Further, we find that in the case of Prime Developers Limited vs. CCE [2018-TIOL-2867-CESTAT-MAD.], the Division Bench of Chennai Tribunal in identical circumstances has held as under:

“In the light of the discussions, findings and conclusions above and in particular, relying on the ratios of the case laws cited supra, we hold as under:-

a. The services provided by the appellant in respect of the projects executed by them for the period prior to 1.6.2007 being in the nature of composite works contract cannot be brought within the fold of commercial or industrial construction service or construction of complex service in the light of the Hon’ble Supreme Court judgment in Larsen & Toubro (supra) upto 1.6.2007

b. For the period after 1.6.2007, service tax liability under category of ‘commercial or industrial construction service’ under Section 65(105)(zzzh) ibid, ‘Construction of Complex Service’ under Section 65(105)(zzzq) will continue to be attracted only if the activities are in the nature of services’ simpliciter.

c. For activities of construction of new building or civil structure or new residential complex etc. involving indivisible composite contract, such services will require to be exigible to service tax liabilities under ‘Works Contract Service’ as defined under section 65(105)(zzzza) ibid.

d. The show cause notices in all these cases prior to 1.6.2007 and subsequent to that date for the periods in dispute, proposing service tax liability on the impugned services involving composite works contract, under ‘Commercial or Industrial Construction Service’ or’ Construction of Complex’ Service, cannot therefore sustain. In respect of any contract which is a composite contract, service tax cannot be demanded under CICS/CCS for the periods also after 1.6.2007 for the periods in dispute in these appeals. For this very reason, the proceedings in all these appeals cannot sustain.”

11. In view of our discussions above, we are of the considered view that the issue involved in the present case is squarely covered in favour of the appellant by various decisions cited supra and by following the ratios of the above decisions, we hold that the impugned order is not sustainable and liable to be set aside which we do so.

12. The impugned order is set aside and the appeal is allowed with consequential benefits, if any.

(Operative portion of the order pronounced in open court on conclusion of hearing)

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