2025 (6) TMI 1590 - AT - Service Tax

Classification of services - services provided by appellant to State Bank of India (SBI) for construction of ATM sites - classifiable under Construction Services/Commercial or Industrial Construction Services or not - levy of service tax prior to 01.06.2007 - HELD THAT - The present issue is for the period from October 2004 to May 2007. The Tribunal had categorically held that the service rendered by the appellant falls under Automatic Teller Machine Services which came into effect only from 01.05.2006. However the Revenue proceeded to demand service tax deeming the services to be construction service and this issue is no longer res integra in as much as the Supreme Court in the case of CCE Cus. Kerala vs. L T Ltd. 2015 (8) TMI 749 - SUPREME COURT has categorically held that all works contract services prior to 01.06.2007 are not liable to service tax. Conclusion - Since this Tribunal has clearly held that the services rendered by the appellant falls under the category of Automated Teller Machines which came into effect only from 01.05.2006 onwards the question of liability to service tax on construction services cannot be sustained as the services are in the nature of works contract services which came into existence from 01.06.2007. The demand set aside - appeal allowed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Tribunal were:

• Whether the services provided by the appellant for construction of ATM sites to the State Bank of India fall under 'Construction Services/Commercial or Industrial Construction Services' as defined under Section 65(30)(a) of the Finance Act for the period from 10.09.2004 to 15.06.2005.
• Whether the appellant is liable to pay service tax on such services for the disputed period, given the nature of the contract as a composite works contract involving both goods and services.
• Whether the extended period of limitation for service tax demand can be invoked in the present case.
• Whether the appellant's contention that service tax on works contract services was not leviable prior to 01.06.2007, based on judicial precedents, is applicable.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Classification of Services Rendered - Construction Services or Works Contract Services

Relevant legal framework and precedents: The classification hinges on the definition of 'Construction Services/Commercial or Industrial Construction Services' under Section 65(30)(a) of the Finance Act. The appellant relied on the Supreme Court decision in CCE vs. L & T Ltd., which clarified that prior to 01.06.2007, composite works contracts were not liable to service tax as 'services' simpliciter. The Ministry of Finance's clarification letter C.No.B1/16/2007-TRU dated 22.05.2007 was also relevant, stating that contracts treated as works contracts for VAT/sales tax are similarly treated for service tax.

Court's interpretation and reasoning: The Tribunal examined the Master Solution Agreement dated 19.04.2003, which covered supply, installation, commissioning, and maintenance of ATMs, including site installation services. The appellant had paid VAT on the goods component and was registered for works contract with the Commercial Taxes Department. The Tribunal noted that the appellant's services were composite in nature, involving both goods and services.

The Tribunal referred to its earlier ruling in Final Order No. 610/2008, where it held that 'Automatic Teller Machine Services' as a distinct taxable service category came into effect only from 01.05.2006, and prior to that, such services could not be subjected to service tax. The Tribunal further relied on the Supreme Court's ruling in CCE & Cus., Kerala vs. L & T Ltd., which held that works contracts prior to 01.06.2007 were not liable to service tax, as the definition of taxable service under Section 65(105) referred to service contracts simpliciter and did not encompass composite works contracts.

Key evidence and findings: The appellant's registration as a works contract service provider, VAT payment records, and the nature of the Master Solution Agreement were critical. The Tribunal also considered the Ministry's clarification and prior Tribunal rulings that had set aside service tax demands on similar grounds.

Application of law to facts: Applying the Supreme Court's interpretation and the Ministry's clarification, the Tribunal concluded that the appellant's activities before 01.06.2007 were composite works contracts and not liable to service tax as construction services. The demand based on classification as 'Construction Services' was therefore unsustainable.

Treatment of competing arguments: The Revenue argued for sustaining the demand based on the activity involving construction of a new building or structure for commercial purposes and relied on the Commissioner's order. The appellant countered with judicial precedents and the composite nature of the contract involving goods and services, emphasizing that service tax on works contracts was introduced only from 01.06.2007. The Tribunal favored the appellant's position, following binding Supreme Court authority and prior Tribunal decisions.

Conclusion: The services provided were not liable to service tax as construction services for the disputed period, as they fell under composite works contracts exempt prior to 01.06.2007.

Issue 2: Invocation of Extended Period of Limitation

Relevant legal framework and precedents: The extended period of limitation under service tax law can be invoked where facts were not known to the Department. However, if facts were already known or notices issued for the same period were set aside, extended limitation cannot be invoked.

Court's interpretation and reasoning: The Tribunal noted that the appellant had already been issued notices for the earlier period, which were confirmed by the Commissioner but ultimately set aside by the Tribunal in Final Order No. 610/2008. Since the Department was aware of the material facts, the extended period of limitation could not be invoked legitimately.

Key evidence and findings: The prior notice and order records, along with the Tribunal's earlier ruling setting aside service tax demands for the same period, were crucial.

Application of law to facts: The Tribunal applied the principle that extended limitation cannot be invoked where facts are known to the Department, and previous adjudications have occurred.

Treatment of competing arguments: The appellant argued against invocation of extended limitation based on prior knowledge and adjudication; the Revenue did not specifically contest this point. The Tribunal accepted the appellant's submission.

Conclusion: The extended period of limitation was not invocable in the present case.

Issue 3: Applicability of Service Tax on Works Contract Services Prior to 01.06.2007

Relevant legal framework and precedents: The Supreme Court's ruling in CCE vs. L & T Ltd. clarified that works contract services prior to 01.06.2007 were not liable to service tax, as the definition of taxable service did not cover composite contracts involving transfer of property in goods.

Court's interpretation and reasoning: The Tribunal relied heavily on this precedent, emphasizing that the appellant's contracts were composite works contracts and thus exempt from service tax prior to 01.06.2007.

Key evidence and findings: The nature of the contract, VAT payment on goods, and the absence of a separate taxable service category prior to 01.05.2006 for ATM services were considered.

Application of law to facts: The Tribunal applied the Supreme Court's interpretation to hold that service tax liability could not be sustained for the disputed period.

Treatment of competing arguments: The Revenue's reliance on the construction service classification was rejected in light of the binding Supreme Court decision and earlier Tribunal rulings.

Conclusion: The appellant was not liable to pay service tax on works contract services prior to 01.06.2007.

3. SIGNIFICANT HOLDINGS

The Tribunal succinctly captured the legal reasoning as follows:

"A close look at the Finance Act, 1994 would show that the five taxable services referred to in the charging Section 65(105) would refer only to service contracts simpliciter and not to composite works contracts. This is clear from the very language of Section 65(105) which defines 'taxable service' as 'any service provided'. All the services referred to in the said sub-clauses are service contracts simpliciter without any other element in them, such as for example, a service contract which is a commissioning and installation, or erection, commissioning and installation contract. Further, under Section 67, as has been pointed out above, the value of a taxable service is the gross amount charged by the service provider for such service rendered by him. This would unmistakably show that what is referred to in the charging provision is the taxation of service contracts simpliciter and not composite works contracts, such as are contained on the facts of the present cases."

The core principles established include:

• Composite works contracts involving transfer of property in goods are not taxable as service contracts simpliciter under the Finance Act prior to 01.06.2007.
• Service tax on 'Automatic Teller Machine Services' as a distinct category was introduced only from 01.05.2006, and cannot be applied retrospectively.
• Extended period of limitation cannot be invoked where the Department had prior knowledge of material facts and earlier adjudications exist.

Final determinations on each issue were:

• The appellant's services for construction of ATM sites do not fall under taxable 'Construction Services' for the disputed period but are composite works contracts exempt from service tax prior to 01.06.2007.
• The extended period of limitation invoked by the Department was not justified.
• The service tax demand on the appellant was set aside, and the appeal was allowed accordingly.