TMI BlogWhether the principle enunciated by the SC related to Works Contract and VAT is applicable in Service Tax matters also?X X X X Extracts X X X X X X X X Extracts X X X X ..... Whether the principle enunciated by the SC related to Works Contract and VAT is applicable in Service Tax matters also? - By: - C.A. Surender Gupta - Service Tax - Dated:- 31-8-2008 - - Answering the following issue: Whether the turnover of the sub-contractors (whose names are also given in the original writ petition) is to be added to the turnover of the main contractor. In other words, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... question which we are required to answer is : whether the goods employed by the sub- contractors occur in the form of a single deemed sale or multiple deemed sales. In its landmark judgment ( Reported in 2008 -TMI - 30512 - SUPREME COURT ) honorable Supreme Court has held that: "Ordinarily unless there is a contract to the contrary in the case of works contract the property in the good ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s used in the construction of a building passes to the owner of the land on which the building is constructed, when the goods or materials used are incorporated in the building." In this case, honorable Apex Court further held that: Thus, in our view, in such a case the work, executed by a sub-contractor, results in a single transaction and not as multiple transactions. This reasoning is also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... borne out by Section 4(7) which refers to value of goods at the time of incorporation in the works executed. In our view, if the argument of the Department is to be accepted it would result in plurality of deemed sales which would be contrary to Article 366(29A)(b) of the Constitution as held by the impugned judgment of the High Court. Moreover, it may result in double taxation which may make the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... said 2005 Act vulnerable to challenge as violative of Articles 14, 19 (1)(g) and 265 of the Constitution of India as held by the High Court in its impugned judgment. What will be the position in Service Tax? From the above decision following issues are arising relating to service tax as applicable under Chapter V of the Finance Act, 1994 1. Whether Central Government is empowered to lev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y service tax on Deemed Services? Here it is pertinent to note that to levy sales tax / vat on deemed sales, the constitution of India was amended specifically but there is no such amendment related to service tax on deemed services. 2. Service tax is levied on provision of services under section 68 . Therefore, where main contractor assigns the part of the contract to the sub-contractor, who i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s the provider of the service and to whom? Whether the service is being provided by the sub-contractor to the main-contractor or sub-contractor to the principle directly? 3. In case, services are being provided by the sub-contractor directly to the principle who has awarded the contract originally, whether the main contractor would be held as service provider for such part undertaken by the sub- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contractor. 4. On the issue of double taxation in service tax, legislatures generally argue that since the scheme of Cenvat Credit is in force, the issue of double taxable should not arise. But, if the whole of the scheme is analyzed carefully, it appears that in case of works contracts the whole scheme of Cenvat Credit has created more difficulties before the service provider than to solve the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issues. Therefore, the issue of double taxable remains unsolved to that extent. I believe that the ratio as enunciated from this judgment ( 2008 -TMI - 30512 - SUPREME COURT ) is applicable to service tax matters also because the subject matter of tax under VAT and Service Tax is same. Therefore, central government should come out with suitable guidelines and amendments in the corresponding legi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... slations without loss of time in the interest of public at large. - - Scholarly articles for knowledge sharing authors experts professionals Tax Management India - taxmanagementindia - taxmanagement - taxmanagementindia.com - TMI - TaxTMI - TMITax ..... X X X X Extracts X X X X X X X X Extracts X X X X
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