ST - Works Contract Service - whether composite contract can be vivisected to tax service portion prior to 1.6.2007 - Matter referred to Five Member Bench: CESTAT
By TIOL News Service
NEW DELHI, OCT 04, 2013: THIS application seeks listing of the appeal for consideration before a Larger Bench, of five Members.
The substantive issue is whether works contract service is chargeable to service tax, prior to 1.6.2007. With effect from 1.6.2007, by the Finance Act, 2007, Section 65(105)(zzzza) was introduced authorizing levy of service tax on services provided in relation to execution of a works contract, excluding works contract in respect of roads, airports, railways, transport terminals, bridges, tunnels and dams. The services provided by the petitioner/appellant pursuant to agreements on turnkey basis were brought to tax under other specified taxable services that were operative prior to 1.6.2007 i.e. under Section 65 (105) (25b), as commercial or industrial construction service.
It is pointed out that two Larger Benches, in Jyoti Ltd. Vs. CCE - (2007-TIOL-2337-CESTAT-AHM) and CCE Vs. Indian Oil Tanking Ltd. - (2010-TIOL-1015-CESTAT-MUM) have held that in the absence of works contract service having been enumerated as an independent taxable service prior to 1.6.2007, a service provided which is essentially in the nature of a works contract cannot be brought to tax under other, existing taxable services.
[It is to be noticed that the decisions in Jyoti Ltd . and Indian Oil Tanking Ltd . were not exactly Larger Bench Decisions, but essentially Division Bench decisions based on a Third Member opinion.]
As is well known, the Tribunal in Daelim Industrial Co.Ltd. vs. CCE, Vadodara - (2003-TIOL-110-CESTAT-DEL) had held that that a work contract cannot be vivisected and part of it subjected to tax. Tribunal in BSBK case - (2006-TIOL-1538-CESTAT-DEL) , took a different view and the Tribunal Larger Bench in the BSBK case - (2010-TIOL-646-CESTAT-DEL-LB) held that Turnkey contracts can be vivisected and the discernible service elements therefore could be segregated and classified for levy of service tax under the provisions of the Act, provided such services are taxable services, defined under the Act .
It is pertinent to note that the Larger Bench in BSBK Pvt. Ltd. was sensitised about contrary view of the Larger Bench (Third Member) in Jyoti Ltd . However, BSBK Pvt. Ltd . neither analysed the ratio in Jyoti Ltd . nor disagreed with the operative ratio either expressly or by a compelling inference of the observations in BSBK Pvt. Ltd .
Two interveners in the BSBK Pvt. Ltd. viz. M/s SEPCO Electric Power Construction Corporation and Alstom Projects India Ltd. filed a Misc. application for rectification of mistake before the Tribunal in substance seeking re-consideration of the order of the Larger Bench. This application was rejected by the order reported in (2011-TIOL-971-CESTAT-DEL-LB) .
The present application is filed in S.T. Appeal No. 58658 of 2013. This appeal is preferred by the assessee against an adjudication order dated 1.4.2013. The adjudication order confirmed the specified quantum of service tax, interest and penalty. Inter alia a turnkey works contract between the appellant herein and M/s DMRC was classified as constituting construction service/Commercial or Industrial Construction service, in respect of services under such contract provided prior to 1.6.2007. This adjudication order did not refer either to the decisions in Jyoti Ltd.; Indian Oil Tanking Ltd. or BSBK but independently came to the same conclusion as in BSBK Pvt. Ltd.
In the facts and circumstances therefore there is a conflict in three decisions rendered by benches comprising of three Members each in the Jyoti Ltd., Indian Oil Tanking Ltd. and BSBK Pvt. Ltd.
Jyoti Ltd., and Indian Oil Tanking Ltd. larger benches (Third Member) have taken the view that a composite contract involving transfer of property in goods and services is not assessable to tax prior to 1.6.2007 under pre-existing taxable services such as commercial or industrial construction service or consulting engineering service etc.
The decision in BSBK Pvt. Ltd. a three Members bench propounded a contrary view, that the service elements of a composite works contract could be independently identified, on vivisection of the composite contract and brought to tax under pre-existing taxable services. There is thus an extant conflict among three Larger Bench decisions of this Tribunal, is the contention urged on behalf of the petitioner/appellant, for seeking resolution of this conflict by a larger bench of five members.
Larger Bench v Third Member Decisions : Revenue has argued that a majority decision based on a Third Member's opinion is not a Larger Bench decision, but remains the decision of a Division Bench. According to Revenue only a duly constituted Larger Bench must be considered the Larger Bench but where a judgment is the culmination of a reference arising from a conflict of opinion in a Division Bench and eventually resolved by third member, such judgment must be considered a judgment of a Division Bench only. Alternatively, it is contended on behalf of Revenue, that since a larger bench is constituted by an order of the President in recognition of an existing conflict of opinion or where an existing judgment even of a Division Bench is considered to require re-consideration, there is application of mind at the administrative level by the President which results in the positive act of constitution of a Larger Bench. The decision by such a duly constituted Larger Bench must alone be considered to have superior efficacy vis-a-vis a decision which is the product of conflict resolution.
The Tribunal observed that the issue whether a reference on a conflict emanating from the decision of a Division Bench which is resolved on a reference to a third member, is to be considered as a decision of a bench comprising three members, is no longer res-integra.
The Delhi High Court in an Income Tax case had observed, “ There is no difference, really speaking, between a Full Bench of three judges sitting together and this method of referring to the third judge in the case of a difference of opinion between the two judges. Whether the first method is adopted or the second, "opinion of the majority" will be decisive.”
Based on this judgement, the Tribunal was of the opinion that wherever pursuant to a conflict opinion in a decision by a Division Bench, the conflict is referred to a third member of this Tribunal for resolution, the resultant judgement must be considered as the judgement of a full Bench, as if it were a judgement of a larger Bench (three ld. Member) sitting en banc .
Matter referred to Five Member Bench : since there is a conflict of opinion between larger Bench decisions of this Tribunal Jyoti Ltd; Indian Oil Tanking Ltd. and BSBK Pvt. Ltd., Tribunal considered it appropriate that in the interests of precedential coherence, the issue whether a composite contract, involving transfer of property in goods and services which is taxable only from 1.6.2007, onwards and not earlier thereto, in view of the provisions of Section 65(105)(zzzza), could be vivisected and service components of such composite contract could subjected to tax by classification of such service components under other pre-existing taxable services such as commercial or industrial construction service or erection, installation and commissioning service, construction of residential complex service etc. for the period prior to 1.6.2007 , must be referred to a larger bench of five members.
Accordingly, Tribunal directed the Registry to place the papers before the President, for an appropriate decision.
(See 2013-TIOL-1458-CESTAT-DEL)
