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TMI Blog2022 (1) TMI 509X X X X Extracts X X X X X X X X Extracts X X X X ..... ts for various power distribution authorities in relation to various rural electrification projects awarded to them. An investigation was conducted by the DGCEI (now DGGI) wing of the department as regards non-payment of Service Tax on the entire turnkey project by the Respondent as they were discharging Service Tax only on a part of the contract by treating the contracts as two separate contracts i.e. one for supply of goods and another for supply of service and thereby discharging Service Tax only on the service component whereas, as per the department, the entire turnkey contract would be subjected to Service Tax under 'Works Contract Service' as defined and the Respondent had to follow the provisions of Rule 2A of the Service Tax (Determination of Value) Rules, 2006. After the process of investigation was done, the Respondent was issued with a Show cause cum demand notice dated 15/10/2015 demanding service tax from the Respondent for the period April 2010 to March 2015 by treating the said services as provision of works contract service. The said show cause notice was adjudicated by the learned Commissioner wherein the entire proceedings were dropped as the learned Adjudicating ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t Association of India C UOI 2016 (44) STR 3 (Del) c. CCE Vs Pragati Edifice Pvt. Ltd. 2019 (31) GSTL 241 (Tri- Hyd) d. Nagarjuna Construction Co. Ltd. Vs. UOI &Anr (2013) 1 SCC 721 5. He further submitted that what is chargeable to Service Tax is the service component alone and the transfer in property of goods involved in execution of works contract cannot be taxed by the Parliament by levying Service Tax on the same and the same is also defined under the scheme of Service Tax both pre and post negative list regime w.e.f. 01/07/2012. 6. He also submitted that since the contracts itself provide for Supply and Erection contracts values separately, then the question of taking the value of supply contract also for the purpose of valuation of Service Tax does not arise and the same is against the scheme of the act. 7. He thus states that the departmental appeal is devoid of merits and the order of the learned Adjudicating authority should be upheld. 8. Heard both sides through video conferencing and perused the appeal records. 9. The only question to be decided in the present Appeal is whether the valuation mechanism as per Rule 2A of the Service tax (Determination of Value) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of India Act, 1935) did not provide for taxing the goods used in executing composite, indivisible works contracts treating such use of goods as sale. The State's attempt to tax in such a manner was struck down by the Constitutional Bench of Hon'ble Supreme Court in the case of State of Madras v. Gannon Dunkerley & Co. (Madras) Ltd. - 1959 SCR 379 = 2015 (330) E.L.T. 11 (S.C.). After examining this judgment, the Law Commission of India, in its 61st Report suggested three alternative amendments to the Constitution to bring the goods used in execution of works contracts within the legislative competence of the States to tax. Accepting one of these alternatives, the Parliament passed the 46th Amendment to the Constitution in 1983 by inserting clause (29A) to Article 366, the definition clause as follows : 366(29A) "tax on the sale or purchase of goods" includes - (b) a tax on the transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract; and such transfer, delivery or supply of any goods shall be deemed to be a sale of those goods by the person making the transfer, delivery or supply and a purchase of those goods by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessees are correct in their submission that a works contract is a separate species of contract distinct from contracts for services simpliciter recognized by the world of commerce and law as such, and has to be taxed separately as such. In Gannon Dunkerley, 1959 SCR 379, this Court recognized works contracts as a separate species of contract as follows :- "To avoid misconception, it must be stated that the above conclusion has reference to works contracts, which are entire and indivisible, as the contracts of the respondents have been held by the Learned Judges of the Court below to be. The several forms which such kinds of contracts can assume are set out in Hudson on Building Contracts, at p. 165. It is possible that the parties might enter into distinct and separate contracts, one for the transfer of materials for money consideration, and the other for payment of remuneration for services and for work done. In such a case, there are really two agreements, though there is a single instrument embodying them, and the power of the State to separate the agreement to sell, from the agreement to do work and render service and to impose a tax thereon cannot be questioned, and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e contract involving both supply of materials and rendition of services. It has been held that "For the period post 1-6-2007, Service Tax liability under the category of 'commercial or industrial construction service' under Section 65(105)(zzzh), 'Construction of complex service' under Section 65(105(zzzq) will continue to be attracted only if the activities are in the nature of services simpliciter. (i) Thus, if the services rendered are in the nature of composite works contracts, they cannot be charged to Service Tax prior to 1-6-2007 and can be charged post this date only under this head 65(105)(zzzza) and not under any other head. (j) In the case of M/s. Krishna Homes v. CCE, Bhopal and CCE, Bhopal v. M/s. Raj Homes as reported in 2014 (3) TMI 694-CESTAT, Ahmedabad, the scope of taxing 'Composite Works Contracts' rendered in connection with construction of complex services prior to 1-7-2010 was examined. 'Construction of complex services' was covered in Section 65(105)(zzzh) and in this clause an explanation was added w.e.f. 1-7-2010. This reads as follows : (zzzh) to any person, by any other person, in relation to construction of complex; "Explanation. - For the purpo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... builder only and not a service provided to the customer and hence was not taxable. Similarly, where the semi-built flats are sold and then the customer enters into an agreement with the builder for its completion, such agreement, being in the nature of service for a flat for personal use, was also excluded from the definition of 'residential complex' under Section 65(91a) which reads as follows : "(ii) "Residential Complex" means any complex comprising of - (i) a building or buildings, having more than twelve residential units; (ii) a common area; and (iii) any one or more of facilities or services such as park, lift, parking space, community hall, common water supply or effluent treatment system, located within a premises and the layout of such premises is approved by an authority under any law for the time being in force, but does not include a complex which is constructed by a person directly engaging any other person for designing or planning of the layout, and the construction of such complex is intended for personal use as residence by such person. Explanation. - For the removal of doubts, it is hereby declared that for the purposes of this clause, - (a) "persona ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s such as park, lift, parking space, community hall, common water supply or effluent treatment system, located within a premises and the layout of such premises is approved by any authority under law for the time being in force, but does not include a complex which is constructed by a person directly engaging any other person for designing or planning of the layout, and the construction of such complex is intended for personal use as residence by such person". There is no dispute that the complex constructed by both the assessees in these appeals are covered by the definition of "residential complex" as given in Section 65(91a). There is also no dispute that both the assessees had engaged contractors for construction of the complexes. The dispute in these appeals is as to whether the assessees would be liable to pay Service Tax on the amounts charged by them from their customers with whom they had entered into agreements for construction of the residential units and whose possession was to be handed over on completion of the construction and full payment having been made by the customers. It is seen that on this point, the Tax Research Unit of the Central Board of Excise & Customs, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Construction (P) Ltd. (supra) as prospective amendment. In this regard, para 5 of this judgment is reproduced below :- "5. In Maharashtra Chamber of Housing Industry v. Union of India - (Bom.), the validity of the 'Explanation' added to Sections 65(105)(zzq) and (zzzh) was challenged on several grounds. The Bombay High Court, also considered the issue whether the explanation was prospective or retrospective in operation and ruled that the explanation inserted by the Finance Act, 2010 brings within the fold of taxable service a construction service provided by the builder to a buyer where there is an intended sale between the parties whether before, during or after construction; that the 'Explanation' was specifically legislated upon to expand the concept of taxable service; that prior to the explanation, the view taken was that since a mere agreement to sell does not create any interest in the property and the title to the property continues to remain with the builder, no service was provided to the buyer; that the service, if any, would be in the nature of a service rendered by the builder to himself; that the explanation expands the scope of the taxable service, provided by bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce Tax is chargeable under the head of 'construction of complex services' if it is service simpliciter and under 'works contract service' if it is a composite works contract. (o) In view of the above, it is well settled legal position that whether the service is rendered as service simpliciter or as a works contract, no Service Tax can be levied on construction of residential complex prior to 1-7-2010. Learned Counsel would submit that for the period post 1-7-2010, they have been discharging Service Tax appropriately. This is a fact which can be verified to ascertain the full tax liability for the period post 1-7-2010 or otherwise. (ii) The demand of Service Tax on construction of Mahatma Gandhi Cancer Hospital and Research Institute : Learned Counsel sought to impress upon us that it is not meant for industry or commerce and therefore, a hospital building cannot be subjected to Service Tax. We do not find any reason to hold that the activity of a corporate hospital does not amount to commerce or industry. In fact, health care and hospitals is one of the most profitable and fast growing service industries in the country. In view of the above, we do not find any reason to hold t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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