Whether indivisible works contract leviable to service tax under construction service prior to 01.06.2007?

PJ/CASE-LAW/2015-16/2753

Case:-COMMISSIONER OF CENTRAL EXCISE, INDORE VERSUS GOPAL ENTERPRISES

Citation:-2014 (36) S.T.R. 674 (Tri. - Del.)

Brief facts:- The facts leading to these appeals filed by the Revenue and cross-objection filed by the respondents are, in brief, as under.
Since, the facts and the issue involved in both the appeals are common, the same were heard together and are being disposed of by a common order. The period of dispute in both the appeals is from 1-10-2005 to 31-3-2007. Both the respondents during the period of dispute were providing the services of commercial or industrial construction service to HPCL and were registered for payment of service tax. W.e.f. 1-6-2007, Section 65(105)(zzzza) was introduced to cover works contract service which is defined in this sub-clause as the service provided or to be provided 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.

The explanation to this clause defined works contract as under :-

“Section [65(105)(zzzza) :-

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;”

In accordance with Rule 2(A) of Service Tax Valuation Rules in respect of works contract service provided by a person, the taxable value of the service shall be equivalent to gross amount charged for works contract minus the value of transfer of property in goods involved in the execution of the said works contract on which service tax/value added tax has been paid. By Notification No. 32/2007-S.T., dated 22-5-2007 the Central Government in exercise of the powers under Sections 93 and 94 of the Finance Act, 1994 notified Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007. The respondent after introduction of works contract service w.e.f. 1-6-2007 filed refund claims on the ground that the services being provided by them were covered by works contract service, which became taxable only w.e.f. 1-6-2007 and hence during the period prior to 1-6-2007 the same were not taxable. The refund claims were dismissed by the Jurisdictional Assistant Commissioner. On appeals being filed to Commissioner (Appeals), the Commissioner (Appeals) by two separate orders allowed the appeals holding that during the period prior to 1-6-2007, the service provided as an indivisible works contract was not taxable. Against these orders of the Commissioner (Appeals), these two appeals have been filed by the Revenue and in respect of the Revenue’s appeals, the respondents have filed Cross-Objections.

Appellant’s contention:- Shri Amresh Jain, the learned DR who pleaded that the issue involved in this case stand decided in favour of the department by judgment of Hon’ble Delhi High Court in the case of G.D. Builders v. Union of India reported in 2013 (32)S.T.R.673 (Del.), wherein Hon’ble High Court has held that during period prior to 1-6-2007, the services of civil or industrial construction, construction of complex or erection, installation of commissioning, even if provided as an indivisible works contract would be taxable. He, therefore, pleaded that the impugned order is not correct.

Respondent’s contention:- None appeared for the respondent, though a notice for hearing had been sent to them well in time. In view of this, in accordance with the provisions of Section 21 of the CESTAT Procedure Rules, so far as the respondent are concerned, the matter is being decided ex parte.

Reasoning of judgement:- They have considered the submissions of the learned DR and have gone through the records of this case and Cross-Objection filed by the respondent.

There is no dispute that both the respondents during the period of dispute had provided the services of commercial or industrial construction which were taxable at that time under Section 65(105)(zzq) read with Section 65(25b). The respondent’s plea is that since w.e.f. 1-6-2007, their activity became taxable as works contract service under Section 65(105)(zzzza), during the period prior to 1-6-2007, their activity would not be taxable. But this plea of the respondent is not acceptable in view of judgment of Hon’ble Delhi High Court in the case of G.D. Builders v. Union of India (supra), wherein this very issue has been decided by the Hon’ble Delhi High Court against the respondent. Moreover, the Tribunal also in the cases of Alstom Projects India Ltd. v. CCE reported in 2011 (23)S.T.R.489 (Tri.-Del.)and Instrumentation Ltd. v. CCE, Jaipur-I reported in 2011 (23)S.T.R.221 (Tri.-Del.)taken the same view. In view of this, the impugned orders holding that during the period prior to 1-6-2007 the services of civil or industrial construction or erection, installation or commissioning, provided as indivisible works contract were not taxable, are not sustainable. The same are set aside and the orders passed by the original Adjudicating Authority are restored. The appeals are allowed. The cross objections filed by the respondent are also disposed of accordingly.

Decision:-Appeals allowed.

Comment:- The crux of the case is that relying in various cases the services of civil or industrial construction or erection, installation or commissioning, provided as indivisible works contract is taxable even prior to 01.06.2007. Merely because the works contract service was introduced with effect from 01.06.2007 cannot be reason for non-taxability of construction services which are otherwise also classifiable under Errection, Commissioning or Installation Services or Commercial or Industrial Construction Service.

Prepared by:- Monika Tak

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PJ/CASE-LAW/2015-16/2753

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