That Section 65 (105) (zzzza) which defines 'Works Contract Service' was introduced and came into effect from 01 June 2007 to include the services provided along with material into Service tax net. In other words, the introduction of the 'Works Contract Service' was for the purpose of taxing the composite contracts, in which both labour and value of material is involved. Likewise, Section 65(25b) of the Finance Act, 1994 defines "Commercial or Industrial Construction" for the purpose of levy of service tax. That any construction service provided by the contractor which falls under the definition of "Commercial or industrial Construction" is liable to service tax, however, if the construction services provided by the contractor is with the inclusion of material, the same would fall and taxed under the category of 'Works Contract Service' only. Hence, any construction service to be taxable under the definition of "Commercial or Industrial Construction", the service provided must be purely of construction without supply of any goods and such construction must be used for commercial purposes by the service recipient. Similarly, some other services like 'Construction of Complex Service'; 'Erection, Commissioning & Installation Service' & Management Maintenance and Repair Service' are defined in the Finance Act, if these services are provided with material, these services could be taxed under the category of 'Works Contract Service' only. These services would be covered under their respective heads, only in case where a purely service contract is entered by the service provider and material is not included in it. The proposal and confirmation of demand under any other category than 'Works Contract Service' would not be sustainable, if the services are provided with material. That prior to introduction of 'Negative List', the construction of Building or Civil Structure, which was not used for 'Commerce or Industry' was exempt or not taxable in view of the Circular No. – 80/10/2004 dated 17.09.2004. This Circular also provided exemption to the construction services provided for educational, religious, charitable, health, sanitation or philanthropic purposes and not for the purposes of profit, being non-commercial in nature. The definition of 'Works Contract Service'; 'Commercial or Industrial Construction Service', 'Construction of Complex Service', itself states that the construction services provided would be taxable only in the case where it is provided for commercial purposes. That after the introduction of 'Negative List' i.e. after 01.07.2012, similar exemption was provided by the Notification 25/2012 dated 20.06.2012 in entry 12(a) & 12(c) for the construction, erection commissioning & installation, fitting out, repair, maintenance, renovation, or renovation services provided to Government, a local authority or a governmental authority, educational institutions. If a civil structure or any other original works meant predominantly for use other than for commerce, industry, or any other business or profession; a structure meant predominantly for use as (i) an educational, (ii) a clinical, or (iii) an art or cultural establishment. Therefore, the construction services (Works Contract Service) provided to the aforesaid authorities and department would be exempt under this Notification. It is to be noted that for excluding the value of material (as it cannot be taxed under Service Tax), various notifications were issued. The Notification No. 1/2006 dated 01.03.2006 was issued providing abatement of 67% for the value of material, where the value of material could not be ascertained. However, where the value of material could be ascertained, Notification 12/2003 dated 20.06.2003, which provided for deduction of actual value of material, on evidence being shown for that, from the total taxable value of the assessee. Works Contract Composition Scheme 2007 was introduced specifically for providing the abated rate for taxing the Works Contract Service. Later, Rule 2A was introduced in the Service Tax (Determination of Value) Rules, 2006 for providing the criteria for the deduction of value of material, if the service is provided with material. This rule provided for procedure to be adopted in both the case, where the value of material was ascertainable and where the value of material was not ascertainable. In case of Works Contract Service, sometimes the material (Free supplies or FOC) is also provided by the service recipient. The Free of Cost material (FOC) provided by the recipient is not includible in the value of the Taxable Service of the Assessee. If the Assessee is availing the benefit of any of the abatement Notification, he has to first deduct the value of Free of Cost material and then avail the benefit of the Notification by calculating the abatement for material and the taxable value. Further, if the Works Contract Service for construction of any structure is provided in a SEZ area i.e., Special Economic Zone, the services provided was exempt from the payment of Service Tax in terms of Section 7 of the SEZ Act, 2005 (Special Economic Zone). In the Post Negative List era, Notification 30/2012 dated 20.06.2012 was issued, which provided for the concept of partial reverse charge in case of provision of 'Works Contract Service.' It provided that 50% of the tax was required to be paid by the Service provider and 50% by the Service recipient in case of Works Contract Service.
A very complicated matter was argued by our team, wherein multiple issues were involved and around 25 to 30 contracts through which construction and related services provided by the Appellant, were in dispute. Five appeals were argued at the same time and both the periods, pre-negative and post-negative were involved. In all these appeals, the Appellant was providing the construction & related services and was providing it with material in almost all the contracts and thus, the services provided by the appellant was 'Works Contract Services.' The Appellant also provided the services to Educational Institutions or Colleges affiliated to any University as well as the services were provided in SEZ Area. In one contract, the material was provided by the receiver and in one contract tax was paid by the Service receiver. One of the contracts entered by the Appellant was taxable on partial reverse charge and the appellant duly paid the tax after taking the benefit of Notification 30/2012. On the behalf of the Appellant, it was submitted by our team for the Pre-Negative List regime i.e., prior to 01.07.2012 that the services have been provided to Government, Government department, Government Authorities or to educational institutions and are not taxable in view of Circular 80/10/2004 dated 17.09.2004 which provided for exemption for the construction and related services provided in relation to buildings, or civil structures or structures not used for commercial purposes. It was submitted that the services provided by the Appellant were inclusive of material and hence, would be covered under the category of Works Contract Services, however, in almost all the contracts the services provided by the appellant/assessee were classified under the category of 'Commercial or Industrial Construction; 'Construction of Complex Service; Erection, Commissioning or Installation Service & Management Maintenance & Repair Service.' Therefore, it was submitted that confirmation of demand is not sustainable, as the services provided by the Appellant could be taxed under the category of 'Works Contract Service' only if the services have been provided with material. With respect to Post-Negative regime, it was submitted that services provided by the Appellant were exempt vide entry 9 of the Notification 25/2012 dated 20.06.2012. The services provided by the appellant were covered under entry 12a and 12c of the notification. Further, it was submitted that the construction services provided by the appellant in the SEZ Area, would be exempt in terms of Section 7 of the Special Economic Zone Act, 2005. On behalf of the revenue, the findings of the impugned order were supported.
The Hon'ble Bench after considering the submissions made from the both sides, facts of the case, relevant provisions of law and the relevant notifications, found that the services provided by the Appellant are covered under the category of 'Works Contract Service.' For the period prior to introduction of Negative List, it was held by the bench that with respect to all most all the contracts the services provided by the appellant were classified under the category of 'Construction of Complex Service; Erection, Commissioning or Installation Service or Management Maintenance & Repair Service, which is not maintainable and was to be classified under the 'Works Contract Service.' The Hon'ble Bench taking note various case laws referred by the Appellant and also the decision of Hon'ble Supreme Court in Larsen & Toubro Limited – 2015 (39) S.T.R. 913 (S.C.) dropped the demand in this regard for the contracts entered by the Appellant. With respect to Post-Negative List period, it was held by the Hon'ble Bench that as the Appellant is providing the services to Government, Government Departments, Government Authorities, Local Authorities & Educational Institution, therefore, the services provided by the Appellant are covered by Entry 12a & Entry 12c of the Notification 25/2012 dated 20.06.2012, which provided for exemption to the construction and related services provided. Therefore, the demand in this regard, for the contracts entered by the appellant is liable to dropped. With respect to the construction service provided in the SEZ Area, the demand was dropped by the Hon'ble Bench in view of Section 7 of Special Economic Zone Act, 2005. For the contract, wherein the partial reverse charge was involved and the contract for which it was contested that on the behalf of the appellant that the tax was paid by the Service recipient, the matter was remanded back to verify the payment made by recipient.
Case details — Jyoti Sarup Mittal v. Commissioner of Central Tax, GST, Delhi – East
Forum — CESTAT, New Delhi
Case No. — ST/50097/2022, ST/52211/2016, ST/52133-34-35/2022
Represented by — CA Atul Kumar Gupta, Adv. Varun Gaba & CA Anmol Gupta