By TIOL News Service

MUMBAI, MAY 10, 2017: THE adjudicating authority held that the services rendered by the appellant are covered under 'Erection, Commissioning and Installation Service' and rejected the contention of the appellant that the services are 'Works Contract Service' provided to their clients. The period involved is 01/03/2005 to 31/10/2006.

The CESTAT upheld this order but in appeal, the Bombay High Court - 2016-TIOL-487-HC-MUM-ST set aside the same and restored the appeal to the file of the Tribunal with directions.

Thus the matter came back to the Tribunal and was heard in March 2017.

The appellant submitted that the entire issue now boils down only to ascertain whether the services rendered by the appellant are in the nature of 'Works Contract' prior to 01/06/2007 and not taxable as held by the Supreme Court in the case of Larsen Toubro Ltd. - 2015-TIOL-187-SC-ST , that Section 73A provides for recovery of the amounts collected as tax was effective only from 18/04/2006 and hence may not have any retrospective application as held by the High Court in the case of Ajay Kumar Gupta - 2015-TIOL-1239-HC-P&H-ST ; having paid the tax and interest prior to the issuance of the show cause notice, as there being ambiguity on the discharge of service tax on 'Works Contract Service', whether the adjudicating authority was correct in imposing penalties on the appellant under Section 76 and 78 of the FA, 1994 and whether the provisions of Section 73(3) of the FA,1994 would be applicable or otherwise.

The AR cited the decision in Krishna Poduval - 2006-TIOL-77-HC-KERALA-ST and emphasized that since the appellants were very much aware of the fact that their contracts are inclusive of service tax, there was intent to deprive the Government the legitimate tax liability; there is no reason to show any leniency to the appellant insofar as penalties are concerned.

The Bench observed –

+ We find from the records that the appellant has been claiming that they have discharged the works contract tax/VAT to the concerned authorities and had registered the contracts as 'works contract service'. The adjudicating authority has discarded these submissions only on the ground that the appellant himself has classified the service as 'Erection, Commissioning and Installation Service' during the period of dispute and hence the present claim on these services as 'works contract' is an afterthought.

+ We also note that the claim of appellant that they have paid VAT under works contract is not controverted by Revenue in any manner. We do not agree with the findings of the adjudicating authority for the reason that the apex Court in the case of impugned order Larsen & Toubro Ltd (supra) settled the law that works contract remains as 'works contract' prior to or post 01/06/2007.

+ Since the tax under 'erection, commissioning and installation' charges are not payable by the appellant for the period prior to 01/06/2007 as the contract executed by them being 'works contract', the question of imposing penalty under Section 76 and 78 of the Finance Act, 1994 does not arise.

In fine, since the service tax liability and interest already paid was not contested by the appellant, the same were upheld while the penalty imposed u/ss76 and 78 of the Finance Act, 1994 were set aside.

(See 2017-TIOL-1574-CESTAT-MUM)