2022 (2) TMI 902 - AT - Service Tax

Refund of service tax paid - amount of tax was paid in mistake/erroneously - refund denied on the ground that the appellants were availing the benefit of Notification No.19/2003 dated 21.8.2003 and were paying service tax only on 33% of gross amount charged from their customer - Notification No.32/2007 dated 23.5.2007 is only prospective or not - HELD THAT - From the records of the case it is clear that the appellants have entered into works contract with KTPCL. It is not the case of the department that the contracts undertaken by the appellants are not works contract. Therefore payment of service tax by the appellant under some other heading albeit by a mistake could not render the service taxable. The appellants have demonstrated that the works undertaken by them were under works contract and due VAT was paid on the very same work contracts. It is settled principle of law that if a new levy comes into existence on a specific date the same set of activity cannot be held to be taxable under a different heading prior to the date of coming into existence of the levy. Apex Court in COMMISSIONER CENTRAL EXCISE CUSTOMS VERSUS M/S LARSEN TOUBRO LTD. AND OTHERS 2015 (8) TMI 749 - SUPREME COURT has categorically held that works contract cannot be taxed before 1.6.2007. The appellants were not required to pay service tax and any tax thus paid under a mistaken notion of law is refundable - Appeal allowed - decided in favor of appellant.

Summary

Issues:
Refund claim rejection based on Notification No.19/2003 and Notification No.32/2007 applicability. Applicability of service tax on works contract prior to 1.6.2007. Mistaken payment of service tax under a different category.

Analysis:
The appellants, M/s. Sagar Steel Pvt. Ltd., executed contracts with Karnataka Power Transmission Corporation Ltd. (KPTCL) and paid service tax amounting to Rs. 12,00,961/- under 'Erection, Commissioning or Installation Service' from April 2005 to March 2007. Upon realizing their service was a works contract taxable only after 1.6.2007, they sought a refund. The Asst. Commissioner issued a show-cause notice rejecting the claim, which was upheld in subsequent orders. The appellants contended that their works were on a turnkey basis with KPTCL, involving supply, civil works, and transmission line erection, and that service tax on works contract was effective only post 1.6.2007.

The counsel argued that the appellants paid service tax by dissecting the composite works contract into goods and services, citing precedents like Larsen and Tourbo case. The tribunal noted that works contracts were not taxable before 1.6.2007, as established by the Apex Court and Tribunal. Despite the appellants paying service tax under a different category, the service remained non-taxable during the relevant period. The tribunal emphasized that mistaken payment of tax does not alter the non-taxable nature of the service, especially when VAT was correctly paid on the works contracts. It reiterated that a new levy cannot retroactively tax activities prior to its implementation date, as clarified by the Apex Court. Consequently, the tribunal allowed the appeal and granted any consequential relief as per law.

In conclusion, the tribunal held that the appellants were not liable to pay service tax on works contracts before 1.6.2007, and any tax paid under a mistaken belief was eligible for a refund. The decision aligned with established legal principles and precedents, emphasizing the non-taxable nature of works contracts pre-1.6.2007 and the importance of correct tax applicability in such cases.