Works Contract Service prior to 01.06.2007 - whether classifiable under other services?

PJ/Case Laws/2011-12/1487

Case: GEO-TECH CONSTRUCTIONS CO. P. LTD. v/s COMMISSIONER OF C. EX., COCHIN

Citation: 2011 (23) S.T.R. 250 (Tri.-Bang.)

Issue:- ‘Works Contract services’ - whether would fall within the ambit of 'construction service'/ 'commercial or industrial construction services' prior to 1-6.2007?

Brief Facts:- The appellant-assessee was engaged in the following items of work:

-Management, Maintenance or Repair Service: GTCC was found to have undertaken the work of maintenance of roads during the period 09/2005 to 02/2008 under Road Maintenance Contract No. 24 and Road Contract No. 31 pertaining to two stretches of roads in Kerla. The Commissioner rejected the submission of the assessee that it had actually carried out construction of roads and not maintenance eligible under the category “management, Maintenance or Repair Service” as well as their claim that the activity being subjected to assessment under sales tax as Works Contract was liable to be classified as Works Contract as per CBEC Circular F. No. B. 1/16/2007-TRU, dated 22-5-2007. He held the activity to be classifiable under Management, Maintenance or Repair services under Section 65(64) of the Finance Act, 1994 (the Act) and confirmed Ser-vice Tax of Rs. 1,03,00,224/-; Education Cess of Rs. 2,06,004/- and SHE Cess of Rs. 1,475/.

-"Commercial or Industrial Construction Service" provided to Karnataka Public Works Department : The assessee had engaged in "Commercial or Industrial Construction Service" by constructing a minor port for the Karnataka Public Works Department prior to 16-6-2005 when such services in relation to construction of port or other port were exempted from Service Tax. The Commissioner rejected the claim of the assessee that the activity involved satisfied the definition of Works Contract and the port being a transport terminal was excluded under the category of Commercial or Industrial Construction Service. The Commissioner confirmed the demand of Rs. 4,11,688/- under Commercial or Industrial Construction service.

-"Commercial or Industrial Construction Service" provided to M/s. Tata Projects : The Commissioner confirmed demand of Service Tax of Rs. 1,23,524/- found liable under Commercial or Industrial Construction Service rendered to M/s. Tata Projects during the period 10-9-2004 to 31-12-2004. He rejected the claim of the assessee that the service being subjected to assessment under the sales tax could not be subjected to Service Tax prior to 1-6-2007.

-"Commercial or Industrial Construction Service" provided to M/s. Gammon India Ltd. : An amount of Rs. 2,85,328/- was held due from the assessee on account of services classifiable under 'Commercial or Industrial Construction Service" provided to M/s. Gammon India Ltd. in constructing a retaining wall at Sabarmathi River. Here again, the assessee's argument based on the claim that the activity was subjected to sales tax under Works Contract was rejected.

- Construction of Residential Complexes: The assessee undertook construction of residential complexes in respect of two projects namely 'Platinum' and 'Topaz' executed by M/s. Skyline Projects, Ernakulam. The Commissioner demanded an amount of Rs. 25,43,551/- and Rs. 50,872/- towards Service Tax and Education Cess respectively under the Head 'Construction of Complex Services' under Section 65(30a) of the Act. The Commissioner denied the abatement of 67% extended under Notification No. 18/2005-S.T., dated 7-6- 2005 and 01/2006-S.T., dated 1-3-2006 for the reason that the assessee had received cement, steel, etc. from the clients.

Appellant’s Contention:- The appellant-assessee relied on the judgment of the Hon'ble High Court of Karnataka in the case of CST, Bangalore v. Turbo tech Precision Engineering Pvt. Ltd. [2010 (18) S.T.R. 545 (Kan)]. In support of the argument that Works Contract could not be subjected to Service Tax prior to 1-6-2007 when Section 65(105) (zzzza) relating to "Works Contract" was brought under the net of Service Tax. In the judgment cited, the Hon'ble High Court had rejected the appeal filed by the Department against the decision of the Tribunal in Final Order No. 1068/2006 dated 15-6-2006 in the case of Turbotech Precision Engg. Pvt. Ltd. v. CCE, Bangalore-III [2006 (3) S.T.R. 765 (Tri.-Bangalore)]. The Tribunal had vacated an order of the Commissioner (Appeals) demanding Service Tax under the category "Consulting Engineer" service for activities undertaken prior to 1-6-2007 which had been classified under Works Contract w.e.f. 1-6-2007. The Hon'ble High Court held that the activity undertaken was not Consulting Engineer service and fell under the definition of Works Contract. The Revenue had no power to call upon the assessee to pay Service Tax, interest and penalty therein since the taxing provisions of law had come into force w.e.f. 1-6-2007. They relied on the decision of the Tribunal in Cemex Engineers v. Commissioner of Service Tax, Cochin [2010 (17) S.T.R. 534 (Tri.-Bang)]. In this decision, the Tribunal held that works contract could not be subjected to tax prior to 1-6- 2007. The appellant therein had carried out services classifiable under construction of residential complex and commercial or industrial construction service and was a works contractor assessed to Sales Tax under Kerala General Sales Tax Act. The Tribunal further held that the appellant therein was eligible for abatement as per Notification No. 15/2004 and 18/2005 to the extent of 67% of taxable value though the assessee had received materials from the service recipient. A line of decisions of the Tribunal holding the same view as that of the Hon'ble High Court on Works Contract not being assessable under a different head prior to 1-6-2007 are cited.

Respondent’s Contention:- The respondent relied on the decision of the Tribunal in Sunil Hi-Tech Engineers Ltd. v. CCE, Nagpur [2009-TIOL-1867-CESTAT-MUM = 2010 (17) S.T.R. 121 (Tri.-Mumbai) wherein it was held that introduction of works contract in 2007 did not make construction service not taxable earlier. Prior to 1-6- 2007, the assessee had rendered a service, which squarely fell within the ambit of 'construction service' upto 15-6-2005 and 'commercial or industrial construction services' thereafter upto 31-3-2006. The Tribunal was not impressed with the assessee's attempt to escape tax liability for the period upto 31-3-2006 on the strength of doctrine, which was introduced on 1-6-2007 with prospective effect.

He further submitted that the Tribunal, in the case of Jaihind Projects Ltd. v. CST, Ahmedabad [2010 (18) S.T.R. 650 (Tri. - Ahmd.)], held that non-monetary consideration in the form of pipes received from the clients was liable to be included and the benefit of Notification No. 15/2004-S.T. liable to be denied when such supplies were received from the clients.

Reasoning of Judgment:- The Tribunal held that the Commissioner has not rejected the claim of the assessee that the activities involved were subjected to Sales Tax under Works Contract. He held that that fact did not affect the exigibility of activities, which could be classified under Works Contract from 1-6-2007, being taxed under 'Commercial or Industrial Construction Service', 'Management, Maintenance or Repair Service' or 'Construction of Complex Service' for an earlier period. We find that the assessee has made a strong prima facie case against the demand based on several judicial authorities, for instance, the Turbotech (supra) and Cemex Engineers (supra). They said that the demands impugned are against the ratio of the following decisions:

(i) Diebold Systems (P) Ltd. v. CST-2008 (9) S.T.R. 546 (T.-Chen.)

(ii) Malar Constructions v. CCE - 2008 (10) S.T.R. 156 (T.-Chen.)

(iii) Daelim Industrial Co. Ltd. v. CCE - 2007 (5) S.T.R. J99 (S.C.) = 2004 (170) E.L.T. A181 (S.C.).

These authorities were to the effect that Works Contract could not be taxed under another head prior to 1-6-2007.

Decision:- Stay granted.

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PJ/Case Laws/2011-12/1487

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