CESTAT Rules, Service Tax Not Payable on Pre-2007 Composite Works Contracts; Extended Limitation Period Not Invocable
Pranav B Prem
The Delhi Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) has held that service tax is not leviable on composite works contracts executed prior to June 1, 2007. It further held that the extended period of limitation cannot be invoked where there exists legal uncertainty and interpretational confusion regarding tax liability.
The Tribunal, comprising Dr. Rachna Gupta (Judicial Member) and Ms. Hemambika R. Priya (Technical Member), was adjudicating an appeal filed by M/s Unmaid Electricals, a contractor who had undertaken electrification work such as fixing poles, wiring, laying of cables, and installing streetlights for government authorities including the Jodhpur Development Authority and the Nagar Nigam, Jodhpur during the period 2005-06 to 2008-09.
The department had issued a show cause notice dated April 13, 2010, demanding ₹22,03,499 in service tax, interest, and penalties. The adjudicating authority partially confirmed the demand to the extent of ₹12,87,880 and imposed penalties under Sections 76, 77(1)(a), 77(2), and 78 of the Finance Act, 1994. The Commissioner (Appeals), however, further reduced the demand to ₹5,83,365, against which the appellant filed the current appeal.
The primary contention of the appellant was that the demand was barred by limitation. It was argued that the issue of taxability of composite works contracts had been under serious litigation, and divergent views had prevailed until the matter was conclusively settled by the Supreme Court in Larsen & Toubro Ltd [2015-TIOL-187-SC-ST] ] in 2014. The appellant submitted that in such a situation, where interpretational ambiguity existed, the invocation of the extended limitation period on the ground of suppression of facts was not justified.
The Tribunal agreed with this line of reasoning. It took note of the findings in the Larsen & Toubro judgment, wherein the Supreme Court categorically held that service tax could not be levied on composite contracts involving the transfer of property in goods and provision of services prior to the introduction of “Works Contract Service” under Section 65(105)(zzzza) of the Finance Act, 1994, effective from June 1, 2007. The Court had emphasized that the taxable services referred to in Section 65(105) prior to this date only covered pure service contracts and not composite ones.
CESTAT noted that all the work orders submitted by the appellant clearly involved supply of goods and the transfer of property in goods, thereby falling squarely under the category of works contract and not pure service. The Tribunal highlighted the finding in the impugned order itself which observed that all contracts executed by the appellant were composite in nature and that the appellant had paid VAT and was registered under the Sales Tax Act.
With regard to the extended limitation period, the Tribunal observed that although the appellant had not taken service tax registration or paid tax, this alone could not be construed as suppression with intent to evade tax in a situation marked by interpretational uncertainty. The Tribunal referred to the decision in Uniworth Textiles Ltd. v. Commissioner of Central Excise, Raipur, which held that “mere non-payment of duties is not equivalent to suppression or willful misstatement,” and that some positive act on the part of the assessee was necessary to invoke the extended period.
“We are in agreement with the Commissioner (Appeals) that the services rendered from 01.04.2005 to 31.05.2007 were composite works contracts involving transfer of property in goods and services. Therefore, in light of the Larsen & Toubro judgment, demand for this period is liable to be set aside,” the Tribunal held.
The Tribunal also disagreed with the department’s contention that the appellant had suppressed material facts, noting that the legal position during the period was not free from doubt and had given rise to substantial litigation. Ultimately, the Tribunal allowed the appeal to the extent that the demand for the extended period was quashed. It upheld only the demand falling within the normal limitation period and granted the benefit of cum-tax assessment. All penalties imposed under Sections 76, 77, and 78 of the Finance Act, 1994, were set aside.
Appearance
Shri Om. P. Agarwal, Chartered Accountant for the Appellant
Shri Aejaz Ahmad, Shri Anand Narayan, Authorized Representative for the Respondent
Cause Title: Unmaid Electricals V. Commissioner of Central Goods, Service Tax & Central Excise, Jodhpur
Case No: Service Tax Appeal No.54021 Of 2018
Coram: Hon’ble Dr. Rachna Gupta [Member (Judicial)], Hon’ble Ms. Hemambika R. Priya [Member (Technical)]
