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2016 (9) TMI 1238 - CESTAT CHENNAI

2016 (9) TMI 1238 - CESTAT CHENNAI - TMI - Construction of complex service - period 16.06.2005 to 31.12.2006 - appellant engaged in construction of residential complexes - whether comes under indivisible works contract which merits classification under the category of works contract service - Held that:- in this case, it is seen, that the contract is an indivisible contract involving both transfer of property of goods and services and that appropriate sales tax/VAT is paid for the value of the g .....

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The issue regarding demand's sustainability under construction of complex services for an activity that merits classification under works contract services is no longer res-integra in view of the Hon’ble Supreme Court's judgment in the case of Commissioner of Central Excise and Customs, Kerala Vs. Larsen and Toubro Ltd. [2015 (8) TMI 749 - SUPREME COURT]. The Honourable Supreme Court in its judgment has held that prior to 01/06/2007, there was no section specifically levying service tax on works .....

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regards imposition of penalty under Section 77 of the Finance Act, 1994, we find that penalty is unsustainable as the issue as to whether the activity of construction of complex would fall under construction service or works contract service has always been under dispute and hence we find that there is a reasonable cause for not taking registration within the prescribed time limit. - Invokation of extended period of limitation - Imposition of penalty under Section 78 of the Finance Act, 199 .....

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FINAL ORDER No.41423/2016 - Dated:- 15-7-2016 - Shri P.K. Choudhary, Judicial Member and Shri C.J. Mathew, Technical Member Shri J. Shankarraman, Advocate Appellant Shri A. Cletus, ADC (AR) For the Respondent ORDER M/s Landmark Construction, the appellants herein, are engaged in the construction of residential complexes and the appellants were issued with a Show Cause Notice No.116/2007 in C.No.IV/9/110/2007 STC ADJ dated 16.07.2007, inter-alia, contending that they have contravened the provisi .....

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1.2008 had confirmed the demand proposed in the show cause notice stating that the appellants had been rendering construction of complex service which is taxable from 16.6.2005, had neither registered nor paid appropriate service tax on such value received till the department started investigating their activity and consequently confirmed the tax along with interest and penalty. Aggrieved with the Order in Original dated 04.01.2008, the appellants had preferred this appeal before this Tribunal. .....

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es, the Learned Commissioner grossly erred in subjecting the business of the appellants to ervice tax also, over and above the burden of sales tax , which is already being shouldered by the appellants. 3.1 He also submitted that the activity undertaken by the appellant will fall under the category of Works Contract. A works contract is a contract where there is an agreement, under a single integrated contract, between the parties for transfer of property in goods, whether as goods or in some oth .....

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ce tax on works contract and further submitted that where assessment machinery provisions are absent, law is vague, it is arbitrary to assess to tax subject. Sections 65(105)(g), 65(105)(zzd), 65(105)(zzh), 65(105)(zzq) and 65(105)(zzzh) of the Finance Act 1944, were not sufficient for levying Service Tax on indivisible composite works contracts. Further they placed reliance on the decision in CCE, Goa Vs. R.K. Construction, 2016 (41) STR 879, wherein the Tribunal had followed the decision of th .....

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ivisible contract cannot be split up into components artificially; that the Hon ble Supreme Court in Bharat Sanchar Nigam Ltd vs. UOI - 2006 (2) STR 161 (SC) held that anything on which sales tax is paid is goods and, therefore, service tax cannot be levied. The agreements entered into between the appellant and the prospective buyer is only a works contract under the sales tax statute. In the present case the appellant is paying appropriate tax under the Sales Tax Statute. Therefore, the demand .....

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erated the finding in the Order In original and further stated that in view of the decision of the Hon ble Supreme Court in the case of CCE & Cus Cochin vs. Larsen and Toubro Ltd. cited supra, they are not contesting with further arguments. 5. Heard both sides. The issues to be decided in the instant appeal are as follows: (i) Whether the demand is correct on law for the period between 16/06/2005 to 31/12/2006 under taxable service of construction of complex for the indivisible works contrac .....

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visible contract involving both transfer of property of goods and services and that appropriate sales tax/VAT is paid for the value of the goods involved in the execution of the works contract. It is also seen that the Learned Commissioner has merely confirmed demand only under construction of complex service. As per Explanation to Section 65(105)(zzzza), we find that the legislature has clarified that where the activity involves both transfer of property in goods to the service recipient, which .....

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ce, whether the service could be taxed under construction of complex services. We find that the issue is no longer res-integra in view of the Hon ble Supreme Court's judgment in the case of Commissioner of Central Excise and Customs, Kerala Vs. Larsen and Toubro Ltd. reported in 2015 (39) STR 913 (SC). The Honourable Supreme Court in its judgment has held that prior to 01/06/2007, there was no section specifically levying service tax on works contract and accordingly, no service tax can be i .....

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auses 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 contra .....

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t time prescribes, in cases like the present, where the provision of service is for a consideration which is not ascertainable, to be the amount as may be determined in the prescribed manner. 26. We have already seen that Rule 2(A) framed pursuant to this power has followed the second Gannon Dunkerley case in segregating the service component of a works contract from the goods component. It begins by working downwards from the gross amount charged for the entire works contract and minusing from .....

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where value is not determined having regard to the aforesaid parameters, (namely, in those cases where the books of ACCOUNT of the contractor are not looked into for any reason) by determining in different works contracts how much shall be the percentage of the total amount charged for the works contract, attributable to the service element in such contracts. It is this scheme and this scheme alone which complies with constitutional requirements in that it bifurcates a composite indivisible work .....

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e, I propose to levy service tax on services involved in the execution of a works contract. However, I also propose an optional composition scheme under which service tax will be levied at only 2 per cent of the total value of the works contract. 28. Pursuant to the aforesaid speech, not only was the statute amended and rules framed, but a Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007 was also notified in which service providers could opt to pay service tax at percen .....

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, each of these excluded works contracts could be taxed under the five sub-heads of Section 65(105) contained in the Finance Act, 1994. For example, a works contract involving the construction of a bridge or dam or tunnel would presumably fall within Section 65(105)(zzd) as a contract which relates to erection, commissioning or installation. It is clear that such contracts were never intended to be the subject matter of service tax. Yet, if learned counsel for the revenue is right, such contract .....

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