By TIOL News Service

CHENNAI, SEPT 18, 2018: THE appellants are involved in the activity of constructing commercial and residential projects and were issued SCNs alleging short-payment of service tax under Commercial or Industrial Construction Services.

After 1.6.2007, although they discharged service tax under Works Contract services under the Composition scheme, for three of their four projects, the department was of the view that such payment is not proper for the reason that the services cannot be classified as Works Contract Service and also because appellants have not exercised their option for payment of service tax under Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007 by intimating the department as required.

Demands were issued and confirmed by the adjudicating authority along with imposition of penalty and interest.

The appellants are before the CESTAT.

After considering the elaborate submissions made, the CESTAT relied upon the apex court decision in Larsen & Toubro Ltd.- 2015-TIOL-187-SC-ST and after extracting the ratio laid down there under inter alia observed -

On Merits:

+ In the present appeal also, there is no dispute that the construction activities are in the nature of composite works contract. The appellants being involved in the construction of the same projects prior to and after 1.6.2007, for example, even in the show cause notice dated 20.10.2009, taxable value has been calculated at 33% of gross amount received, which is an implicit admission that that activity involved both material supply as well as value services.

+ Based on the Hon'ble Apex Court judgment in Larsen & Toubro, such composite works contract then will not be liable to service tax levy prior to 1.6.2007.

+ On the same ratio, such composite contracts even for the period after 1.6.2007 disputed in these appeals will still have to be held as composite works contract only and not pure service simpliciter contracts that could be classified under commercial or industrial construction service, or construction of complex service.

+ To put in another way, to merit being classified as CICS or CCS, the service provider concerned will be rendering only service simpliciter without any other element in them namely without any material or goods supply involved.

+ The activities of the appellants will, therefore, continue to be in the nature of composite works contract services and hence even after 1.6.2007 for the periods disputed in these appeals they cannot be brought within the fold of commercial or industrial construction service or construction of complex service as proposed in the show cause notices and confirmed in the impugned orders.

+ Our view is supported by the fact that the method/scheme for discharging service tax on the service portion of composite contract was introduced only in 2007.

The following case laws were also relied upon by the CESTAT wherein similar conclusions were drawn viz. Swadeshi Construction Company - 2018-TIOL-1096-CESTAT-DEL , Skyway Infra Projects Pvt. Ltd. - 2018-TIOL-360-CESTAT-MUM , URC Construction (P) Ltd. 2017-TIOL-1214-CESTAT-MAD and Logos Construction Pvt. Ltd.- 2018-TIOL-2716-CESTAT-MAD.

Opting for Composition Scheme:

As regards the demand raised on the ground that the appellants did not intimate the department about their intention to opt for payment of service tax under composition scheme under Works Contract Service, the CESTAT observed that in the cases of Vaishno Associates - 2018-TIOL-1486-CESTAT-DEL & Bridge & Roof Co. Ltd. - 2018-TIOL-309-CESTAT-DEL, the CESTAT, Delhi had considered this issue and held that for the sole reason of not filing the intimation opting to pay service tax under Works Contract Service, Composition Scheme, the demand cannot sustain.

In fine, the impugned orders were set aside and the appeals were allowed with consequential benefits.

(See 2018-TIOL-2867-CESTAT-MAD)