CESTAT sets aside Service Tax Demand on Work Contract Service for the period before 1.06.2007 [Read Order]

The Bangalore bench of the Customs Excise & Service Tax Appellate Tribunal ( CESTAT ) set aside Service Tax Demand on Work Contract Service for the period before 1.06.2007. M/s. M. Srinagesh Hegde, the appellant is engaged in the building of commercial or industrial complexes and also provides consulting engineering services.  Based on intelligence and followed by investigation, a show-cause notice was issued to the appellant alleging that even though they have provided taxable service under the category of ‘Commercial or Industrial Construction Service’ and ‘Consulting Engineer Service’ during the relevant period from 01.04.2002 to 31.03.2007 but failed to discharge service tax.  Accordingly, it was proposed to recover the same along with interest and penalty.

On adjudication, the demand was confirmed with interest and penalty.  On appeal, the Commissioner ( Appeals ) partly allowed their appeal by upholding the demand of Rs.1,15,651/- towards ‘Consulting Engineer service’ and Rs.15,00,040/- towards ‘Commercial or Industrial Construction service’ with interest, however, dropped the penalty imposed under various provisions of the Finance Act, 1994.  It was submitted that during the period, the appellant was providing services like civil construction of the basic structure of the building to one M/s. Motels & Infrastructure India Pvt. Ltd.

The service provided by them includes both material and labour, except the ready-mix concrete and steel supplied free of cost by   M/s. Motels & Infrastructure India Pvt. Ltd.  He has submitted that the services rendered by them are like ‘Works Contract Service’; hence not leviable to service tax before 01.06.2007 in view of the judgment of the Supreme Court in the case of CCE & C Vs. Larsen & Toubro Ltd.  Further, he has submitted that they are registered with the State VAT Department for providing Works Contract service as well as after 01.06.2007 and also obtained registration from the Service Tax Department.  He has submitted that the Department has not disputed any of their submissions that during the period they had rendered services, which include both labour and materials, which is evident from the running bills raised duly certified by the architect enclosed with the paper book.

During the investigation before the authorities, the proprietor categorically stated in his statement dated 03.07.2007 that they are rendering construction service, which includes the supply of materials like cement, sand, jally, bricks etc., and free supply of materials like ready-mix concrete (RMC) and steel required for the construction of hotels entrusted by M/s. Motels & Infrastructure India Pvt. Ltd. The appellant has provided ‘Works Contract Service’ during the relevant period; a fact cannot be disputed considering the evidence on record.

A two-member bench comprising Dr. D.M. Misra, Member ( Judicial ) and Mr. Pullela Nageswara Rao, Member (Technical) observed that Works Contract Service became taxable w.e.f. 01.06.2007 as held in the case of Larsen & Toubro Ltd. and the said case, it has been held that before 01.06.2007, works contract service cannot be subjected to service tax levy by vivisecting the composite service contract, which includes both goods and service.  The CESTAT set aside the demand of Rs.15,00,040/- confirmed against ‘Commercial or Industrial Construction Service’ which is ‘Works Contract Service’.

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