Classification of service as Works Contract service - issue highly debatable 0 stay granted in similar case

PJ/Case Laws/2011-12/1544

Classification of service as Works Contract service - issue highly debatable 0 stay granted in similar case - stay granted herein

Case: IVRCL-NAVAYUGA-SEW (JOINT VENTURE) Versus COMMR. OF C. EX., HYDERABAD

Citation: - 2012 (25) S.T.R. 236 (Tri.- Bang.)

Issue:- Joint venture with State Government of AP – whether works contract service when there was no transfer of property in the goods consumed in the execution of work from the Assessee – matter highly debatable – stay granted and pre-deposit waived as similar pending cases stay was granted.

Brief Facts:- Applicants are a joint venture of two or three companies and registered as partnership firm. The work awarded by the government were related to irrigation project and included project investigation, soil exploration, design, supply, installation, testing & commissioning of machinery, construction of pump house, all civil structure, CM & CD works, etc. The contract awarded by the government to each of the appellants was sub-contracted to one or the other constituent of the partnership of the same joint venture and the latter undertook the works. The Applicants did not pay Service tax.

Demands of Service Tax under the head ‘work contract service’ which is taxable w.e.f 1-6-2007 were raised against the Applicants on the amount collected by them from the Government of Andhra Pradesh for execution of certain works awarded by the government under agreement entered between the appellant and the Government.

In some cases, the show-cause notices invoked the extended period of limitation for recovery of Service tax for the extended period. These notices also demanded interest on tax apart from proposing penalties under various provision of Finance Act, 1994.

In separate orders, the demands were confirmed against the Applicants and penalties were imposed on them.

Applicants are therefore in appeal before the Tribunal. Application have been filed seeking waiver of pre-deposit and stay of recovery in respect of various amount of Service tax and penalties determined by the Commissioner in adjudication of various show cause notices for period June, 2007 to September,2008.

Appellant’s Contentions:- Applicants contended that work in question in each case is public welfare/utility project and hence excluded from the levy of Service tax under the head ‘works contract service’. The second contention of the Applicants is that the work would not constitute works contract in as much as there was no transfer of property in the goods consumed in the execution of work from the Appellant to Government of Andhra Pradesh.

In this connections Applicants has heavily relied on Supreme Court’s judgment in State of Andhra Pradesh v. Larsen & Turbo Ltd. [2008-TIOL-158-SC-VAT] wherein the Court had examined the legal position with regards to transfer of property in the goods consumed in execution of the work undertaken by the contractor through the sub contractor. It was held that the property of such good should be considered to have been transferred directly from the sub-contractor to the client. In other words, there was a deemed sale by the sub-contractor to the client. On the strength of this decision of the Supreme Court, Applicants has contended that, in the instant case, it cannot be said that there is transfer of property in the good consumed in the execution of work, from the JVs firm to the Government of Andhra Pradesh.

Applicants argued that without passage of property from the JVs to Government, the former cannot be held to be providers of ‘work contract service’. They also referred to some of the specimen work orders in his endeavor to show that the works undertaken as per these order did not constitute works contract for purpose of Section 65(105) (zzzza). Applicants has also claimed support from the Board Circular No. 123/5/2010-TRU, dated 24-5-2010 wherein the definition of ‘work contract’ was clarified. It is argued that, two or more activities should be comprised in works contract, they should severally also be shown to be taxable services. On this test also, according to Applicants, the activity undertaken by the JVs through their sub-contractors would not qualify to be ‘work contract service’.

They has also prayed for waiver of pre-deposit and stay of recovery in view of certain Stay orders passed by this Tribunal in similar cases viz. Ramkay Infrastructure ltd. V C.C.E. -2010 (20) S.T.R. 123, Ramkay Infrastructure v. C.C.E.-2011 (22) S.T.R. 85 and Nagarjuna Construction Co. v. C.C.E- 2011(22) S.T.R. 433. It is submitted that on similar set of facts, waiver and stay were granted in those cases.

Reasoning of Judgment:- The Tribunal was of the view that the issues raised in this case are highly debatable and that, for the present purpose, the precedent cited by the Counsel can be followed. The Tribunal perused the stay orders cited by applicants and have found that waiver and stay were granted on similar fact in favour of those parties.

Prima-facie, the Board’s clarification work’s in favour of the appellant. In this view of the matter, waiver of pre-deposit and stay of recovery are allowed in respect of the amounts adjudged against the appellants.

Decision:- Stay granted and pre-deposit waived.

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PJ/Case Laws/2011-12/1544

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