IN THE CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL
PRINCIPAL BENCH, NEW DELHI
COURT NO. 1
Service Tax Appeal No. 57731 of 2013
Arising out of Order-in-Appeal No. 86(RDN)ST/JPR-II/2013, Dated 28.02.2013
Passed by the Commissioner (Appeals), Customs and Central Excise, Jaipur-II
Date of Hearing: 01.05.2019
Date of Decision: 01.05.2019
M/s GURJAR CONSTRUCTION
INSIDE SOJATI GATE, CANTALIYA HOUSE
COMMISSIONER CENTRAL EXCISE
JAIPUR-II, NCR BUILDING, STATUE CIRCLE
Appellant Rep by: Shri O P Agarwal, Consultant
Respondent Rep by: Shri G R Sharma, AR
CORAM: Dilip Gupta, President
Bijay Kumar, Member (T)
ST – Appellant had provided services relating to construction of Outer Central Verge, Park Boundary Wall, Civil Park, Rain Water Harvesting, Path Ways and Individual Residential Houses for Ansal Properties & Infrastructure Ltd., Jodhpur – SCN alleged that the assessee was engaged in providing ‘Construction of Residential Complex Services’ and, therefore, service tax was payable thereunder – demand confirmed and upheld by lower appellate authority while extending the benefit of cum-tax price – appeal to CESTAT.
Held: From the judgment of the Supreme Court in Larsen & Toubro –2015-TIOL-187-SC-ST, it is clear that a Composite Works Contract cannot be taxed under CCS under Section 65(105) (zzzh) as the scope is limited to cover contract of service simplicitor only – Importantly, the definition of CCS in Section 65(105)(zzzh) remained the same even after 01 June, 2007 when WCS was introduced – In the absence of any change in the definition of CCS, the judgment of the Supreme Court in Larsen & Toubro will apply to a period after 01 June, 2007 also – The position that comes out very clearly, therefore, is that even prior to 01 June, 2007 and post 01 June, 2007, the nature of service rendered by the Appellant was WCS and not CCS – The impugned order, therefore, deserves to be set aside for this reason alone since the demand made under a particular category of service found to be incorrect in a subsequent proceeding, cannot be sustained – Tribunal decision in Ashish Ramesh Dasarwar – 2017-TIOL-3230-CESTAT-MUM, also needs to be referred – impugned order is set aside and appeal is allowed: CESTAT [para 11, 12, 14, 17]
Case laws cited:
Larsen & Toubro Ltd – 2015-TIOL-187-SC-ST… Para 3
Ashish Ramesh Dasarwar vs Commissioner of Central Excise & Service Tax, Nagpur – 2017-TIOL-3230-CESTAT-MUM… Para 16
FINAL ORDER NO. 50662/2019
Per: Dilip Gupta:
This appeal seeks the quashing of the order dated 28 February, 2013 passed by the Commissioner (Appeals) that had been filed to assail the order dated 23 June, 2011 passed by the Deputy Commissioner of Central Excise.
2. A show cause notice dated 21 February, 2011 was issued to the Appellant requiring it to explain why Service Tax to the extent of Rs. 2,64,468/- should not be recovered from it with interest under section 73(1) and 75 of the Finance Act, 1994 (hereinafter referred to as the ‘Act’) and why penalty should also not be imposed under sections 76, 77 and 78 of the Act. The show cause notice mentions that the assessee was engaged in providing ‘Construction of Residential Complex Services’ (hereinafter referred to as ‘CRC Service’ under section 65(105)(zzzh) read with section 65(30a) of the Act. The Service Tax liability was calculated in the show cause notice after giving the benefit of abatement envisaged under the Notification dated 01 March, 2006. The Adjudicating Authority confirmed the demand under CRC Service. The Appellate Authority, however, while confirming the demand under the said head, granted the benefit of cum-tax price in terms of section 67(2) of the Act and the appeal was, accordingly, disposed of.
3. The learned Consultant for the Appellant has submitted that the Appellant had provided services relating to construction of Outer Central Verge, Park Boundary Wall, Civil Park, Rain Water Harvesting, Path Ways and Individual Residential Houses for Ansal Properties & Infrastructure Ltd., Jodhpur and since the activities involved a composite service in which the Appellant was also required to supply material to be used for construction, the nature of service rendered by the Appellant would be ‘Works Contract Service’ (hereinafter referred to as ‘WCS’) as was held by the Supreme Court in Larsen & Toubro Ltd. reported in 2015 (39) STR 913 (SC) = 2015-TIOL-187-SC-ST.
4. The learned Authorized Representative of the Department has, however, supported the impugned Appellate Order and submitted that it does not call for any interference.
5. We have considered the submissions advanced by the learned Consultant for the Appellant and the learned Authorized Representative of the Department.
6. The period involved in this Appeal is 2005-06 to 2009-10. The show cause notice was issued under the category of CRC Service.
7. In order to examine the issue raised in this Appeal, it would be appropriate to refer to the various provisions of the Act. Section 65(30a) of the Finance Act defines “Construction of Complex” to mean :
“65(30a) – Construction of Complex means –
(a) construction of a new residential complex or a part thereof; or
(b) completion and finishing services in relation to residential complex such as glazing, plastering, painting, floor and wall tiling, wall covering and wall papering, wood and metal joinery and carpentry, fencing and railing, construction of swimming pools, acoustic applications or fittings and other similar services; or
(c) repair, alteration, renovation or restoration of, or similar services in relation to, residential complex.”
8. Section 65(105) deals with “Taxable Service” and in relation to ‘Construction of Complex’, Section 65(105)(zzzh) is reproduced below :
“65(105)(zzzh) – to any person by any other person in relation to construction of complex.”
9. It is w.e.f. 01 June, 2007 that (zzzza) was inserted in Section 65(105) of the Act in relation to execution of ‘Works Contract’. Taxable Service under Section 65(105)(zzzza) is defined as :
“65(105)(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 part thereof; or
(d) completion and finishing services, repair, alteration, renovation or restoration of, or similar services, in relation to (b) and (c); or
(e) turnkey projects including engineering, procurement and construction or commissioning (EPC) projects;”
10. The Supreme Court in Larsen & Toubro examined as to whether Works Contract Service can be classified under Section 65(105)(zzzh) and held that the scope of Section 65(105) (zzzh) is limited to cover contract of service simplicitor only and not a composite works contract. The Supreme Court noticed that it is only w.e.f 01 June, 2007 that Section 65(105)(zzzza) was introduced to cover composite works contract and so works contract cannot be covered under any other category of services prior to 01 June, 2007. The relevant portion of the judgment is reproduced below :
“15. A reading of this judgment, on which counsel for the assessees heavily relied, would go to show that the separation of the value of goods contained in the execution of a works contract will have to be determined by working from the value of the entire works contract and deducting therefrom charges towards labour and services. Such deductions are stated by the Constitution Bench to be eight in number. What is important in particular is the deductions which are to be made under sub- paras (f), (g) and (h). Under each of these paras, a bifurcation has to be made by the charging Section itself so that the cost of establishment of the contractor is bifurcated into what is relatable to supply of labour and services. Similarly, all other expenses have also to be bifurcated insofar as they are relatable to supply of labour and services, and the same goes for the profit that is earned by the contractor. These deductions are ordinarily to be made from the contractor’s accounts. However, if it is found that contractors have not maintained proper accounts, or their accounts are found to be not worthy of credence, it is left to the legislature to prescribe a formula on the basis of a fixed percentage of the value of the entire works contract as relatable to the labour and service element of it. This judgment, therefore, clearly and unmistakably holds that unless the splitting of an indivisible works contract is done taking into account the eight heads of deduction, the charge to tax that would be made would otherwise contain, apart from other things, the entire cost of establishment, other expenses, and profit earned by the contractor and would transgress into forbidden territory namely into such portion of such cost, expenses and profit as would be attributable in the works contract to the transfer of property in goods in such contract. This being the case, we feel that the learned counsel for the assessees are on firm ground when they state that the service tax charging section itself must lay down with specificity that the levy of service tax can only be on works contracts, and the measure of tax can only be on that portion of works contracts which contain a service element which is to be derived from the gross amount charged for the works contract less the value of property in goods transferred in the execution of the works contract. This not having been done by the Finance Act, 1994, it is clear that any charge to tax under the five heads in Section 65(105) noticed above would only be of service contracts simpliciter and not composite indivisible works contracts.
xxxxxxx xxxxxxx xxxxxxx
24. A close look at the Finance Act, 1994 would show that the five taxable services referred to in the charging Section 65(105) would refer only to service contracts simpliciter and not to composite works contracts. This is clear from the very language of Section 65(105) which defines “taxable service” as “any service provided”. All the services referred to in the said sub-clauses are service contracts simpliciter without any other element in them, such as for example, a service contract which is a commissioning and installation, or erection, commissioning and installation contract. Further, under Section 67, as has been pointed out above, the value of a taxable service is the gross amount charged by the service provider for such service rendered by him. This would unmistakably show that what is referred to in the charging provision is the taxation of service contracts simpliciter and not composite works contracts, such as are contained on the facts of the present cases. It will also be noticed that no attempt to remove the non-service elements from the composite works contracts has been made by any of the aforesaid Sections by deducting from the gross value of the works contract the value of property in goods transferred in the execution of a works contract.”
11. It is, therefore, clear from the aforesaid judgment of the Supreme Court in Larsen & Toubro that a Composite Works Contract cannot be taxed under CCS under Section 65(105) (zzzh) as the scope is limited to cover contract of service simplicitor only.
12. What is also important to note is that the definition of CCS in Section 65(105)(zzzh) remained the same even after 01 June, 2007 when WCS was introduced. In the absence of any change in the definition of CCS, the judgment of the Supreme Court in Larsen & Toubro will apply to a period after 01 June, 2007 also.
13. The Appellant had undertaken the activity under a composite and indivisible works contract and by no means can it be said that it was a contract for ‘Service’ simplicitor. The show cause notice was, however, issued to the Appellant alleging that the Appellant is providing CCS services under Section 65(105)(zzzh) of the Act.
14. The position that comes out very clearly, therefore, is that even prior to 01 June, 2007 and post 01 June, 2007, the nature of service rendered by the Appellant was WCS and not CCS. The show cause notice alleged that the Appellant was providing CCS service and the demand has also been confirmed under this category by the adjudicating authority. The impugned order, therefore, deserves to be set aside for this reason alone since the demand made under a particular category of service found to be incorrect in a subsequent proceeding, cannot be sustained.This is what was observed by the Supreme Court in Hindustan Polymers Company and the relevant portion is reproduced below :
“6. While we appreciate the Tribunal’s desire to do complete justice and mould the relief in that direction, we think that, in the circumstances, the Tribunal should not, in this case, have passed an order which proceeded upon a basis that is altogether different from that of the demand made upon the appellants. That is not “moulding” relief. The demand that was made upon the appellants was under Tariff Item 68 and it proceeded upon the basis that there was a process of manufacture of coloured polystyrene from uncoloured polystyrene. Having come to a conclusion against the Revenue on these counts, the appropriate order for the Tribunal to have passed was to have set aside the demand and left it open to the Revenue to proceed against the appellants, as permissible under the law. The appellants would then have had the opportunity of meeting the precise case made out by the Revenue.”
15. This is what was also observed by the Supreme Court in Reckitt & Colman of India in paragraph 3 of the judgment which is reproduced below :
“3. It will be remembered that the case of the Revenue, which the appellant had been required to meet at every stage from the show cause notice onwards, was that the said product was a preparation based on starch. Having come to the conclusion that the said product was not a preparation based on starch, the Tribunal should have allowed the appeal. It was beyond the competence of the Tribunal to make out in favour of the Revenue a case which the Revenue had never canvassed and which the appellants had never been required to meet. It is upon this ground alone that the appeal must succeed.”
16. The decision of the Mumbai Tribunal in Ashish Ramesh Dasarwar vs Commissioner of Central Excise & Service Tax, Nagpur, reported in – 2017-TIOL-3230-CESTAT-MUM, also needs to be referred. The Division Bench of the Tribunal held as follows :
“6. As regards the period after 1.6.2007, since the demand was raised under ‘commercial or industrial construction service, whereas admittedly the service is correctly classifiable under works contract service, the demand raised under wrong head of service cannot sustain.
7. As per above discussion, the demand raised under ‘commercial or industrial construction service’ shall not sustain. Hence, the same is set aside.”
17. Thus, for all the reasons stated above, it is not possible to sustain the impugned order dated 28 February, 2013. It is, accordingly, set aside and the Appeal is allowed.
(Dictated & pronounced in open court)