TMI Blog2023 (8) TMI 475X X X X Extracts X X X X X X X X Extracts X X X X ..... RS., M/S. LARSEN AND TOUBRO LTD. VERSUS COMMISSIONER OF SERVICE TAX, DELHI, COMMISSIONER OF SERVICE TAX MUMBAI - II VERSUS M/S. IOT INFRASTRUCTURE ENERGY SERVICES LIMITED, M/S. L T HYDROCARBON ENGINEERING LIMITED (PREVIOUSLY KNOWN AS LARSEN TOUBRO LIMITED) VERSUS COMMISSIONER OF SERVICE TAX, MUMBAI [ 2022 (8) TMI 168 - SUPREME COURT] has held that prior to 01.06.2007, service tax levy was applicable to service contracts simpliciter and not to indivisible works contract which contained both the elements of transfer of property in goods as well as labour and services and same were brought under the service tax net for the first time on 01.06.2007. The contention of the appellant not agreed upon that service provided by them to M/s. Suzlon Infrastructure Limited and M/s. Suzlon Infrastructure Service Limited are also classifiable under the category of Erection, Commissioning or Installation service under Section 65(105)(zzd) Act, in addition to Commercial or Industrial Construction service. Service provided to Vyavasayi Vidhya Pratisthan (VVP), Rajkot and Sewa Bharti, Ahmedabad for construction of VVP Engineering college and Saraswati Shishu Mandir - HELD THAT:- Mere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Ld. Commissioner on the ground that the appellant could not produce documents that the service was provided prior to 10.09.2004 - the appellant should be given a chance to submit necessary evidence to the adjudicating authority. Extended period of limitation - applicability of proviso to Section 73(1) of the Act - HELD THAT:- The extended period is applicable qua the demand which would be worked out keeping in view the above observations as there is a clear cut case where the appellant had deliberately chosen not to pay the tax whereas he was fully aware of his tax liability. Interest provisions under Section 75 of the Act and Penalty provisions under Section 78 and 76 of the Act will also be attracted. However, penalty under Section 76 of the Act will not be attracted for demand which may pertain to the period from 10.05.2008 in view of the amendment to Section 78 by the Finance Act, 2008. Penalty under Section 77(2) is also held to be imposable for failure to file the service tax returns. The matter should be remanded back to the original adjudicating authority for redetermination of the demand in view of the findings. The appellant would be allowed to produce any do ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... M/s Vyavsayi Vidya Pratisthan (VVP), 439174 308644 532824 1077133 1161439 3519214 M/s Seva Bharati, Ahmedabad 31824 51000 82824 M/s Tanna Cranktech Pvt Ltd, Rajkot 150960 159120 91800 401880 M/s Precision Industrial Component, Rajkot 21930 - 21930 Service tax on Tax Deducted at Source (TDS) 15908 15934 207450 446123 685415 Total service tax payable 678627 911293 6480065 9731099 3908966 2171005 0 |Service tax paid in 2006-07 0 0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 25.8.2009) but they do not agree to classify the services provided by them to the said firm during 2008-09 (with effect from 25.08.2008 but incorrectly mentioned in reply as 25.08.2009) under the category of Commercial or Industrial Construction service. They wish to classify the service under the category of Works Contract as per the invoices raised by them during the period and charge/collect the Service tax @ 4.12%. The appellant has submitted that the services provided to both the above named companies were under different contracts executed from time to time; that the levy of tax is service specific and not person specific; that each service have to be classified under appropriate category suitable to the service provider on contract to contract basis; that therefore, if the service provider wish to classify his service under one of the categories and avail benefit of Cenvat or Notification granting partial exemption or full exemption subject to condition or conditions of Notification, it is upto him to choose whichever is more beneficial to him for a particular contract and service. That, they wish to pay Service tax at full rate applicable from time to time for the recei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and by applying abatement as provided under Notification Nos. 15/2004-S.T., dated 10.9.2004 and 1/2006-S.T., dated 1.3.2006 for the years 2004-05 and 2005-06 after adding the value of raw material supplied by the recipient and also by applying the cum-duty principle. On this basis, they have submitted that their Service tax liability comes to Rs. 18,223/- and Rs. 1,25,357/- for service provided by them to M/s. Rajkot Nagarik Sahkari Bank Limited during the years 2004-05 and 2005-06 respectively. They have also submitted that they were not liable to pay Service tax on the amount of Rs. 3,000/- (Entry No. I of Annexure- E to the show cause notice) as the same related to service provided for the period prior to 10.9.2004. They have further submitted that service provided by them to Vyavsayi Vidya Pratishthan (VVP), Rajkot and Sevabharti, Ahmedabad for construction of VVP Engineering College and Saraswati Shishu Mandir School building at Paddhari are not covered under the Commercial or Industrial Construction service as both these buildings were not meant for any commercial or industrial purpose. In support of this plea, they have relied upon Board's circular No. 80/ 10/2004S.T. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... raw material supplied by the recipients of service is not includible in the value of taxable services. In support of this plea, they have relied upon the (iii) They have further submitted that as per show cause notice, they have not collected and paid Service tax on the service provided to M/s. VVP, Rajkot, M/s. Rajkot Nagrik Sahakari Bank Limited, Rajkot, M/s. Tanna Cranktech Pvt. Limited, Rajkot, M/s. Precision Industrial Component, Rajkot and M/s. Sevabharti, Ahmedabad. Therefore, demand of Service tax is required to be re-computed by applying the cum-tax principle. They have also submitted that simultaneous invocation of Section 73 and 73A of the Finance Act, 1994, by invoking extended period of limitation is not tenable in the eyes of law. They have also submitted that demand of Service tax shown in Annexure B to I of the show cause notice by invoking extended period is not sustainable in the eyes of law as the appellant had already filed returns in 2006-07 and the activity of the appellant was already in the knowledge of the department. They have also paid Rs. 85.0 lakh during the course of investigation. They have further submitted that simultaneous penalty under Sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as those were considered to part of the assessable value. The claim of abatement with regard to construction service provided to M/S Rajkot NagrikSahkari Bank Limited has been denied on the ground that the appellant did not provide any documentary evidence to establish the correctness of their claim with regard to the value of raw material claimed as received by them from the recipient of service. The claim of the appellant with respect to the service provided to Vyavasayi Vidhya Pratisthan (VVP), Rajkot and Sewa Bharti, Ahmedabad for construction of VVP Engineering college and Saraswati Shishu Mandir has been denied on the ground that both the recipients could not be considered as non-commercial undertakings as they were charging fees from the students for imparting education as those could not be considered that those were not for the purposes of profit. Further, claim of the appellant to avail abatement from the value in terms of Notification 15/2004-ST dated 10.09.2004 and notification 1/2006-ST dated 01.03.2006 was rejected on the ground that the above notifications were subject to the conditions that no Cenvat credit has been availed and value of raw materials sold to the re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provided by the applicant as convention services where they had taken the registration under Mandap Keeper and filed returns annually. In stark contrast, in spite of having taken the registration under construction service, M/s. Vrutika neither filed returns nor paid Ser-vice tax for over five years, except for one year, i.e. 2006-07 for which they filed false returns and paid Service tax of Rs. 4,18,679/- against their liability of Rs. 60,61,386/- for the said year and against the total liability of Rs. 2,12,91,371/- for the period from 10.09.2004 to 31.12.2008 covered by the show cause notice. Thus, no parallel can be drawn between the decision relied upon. That, the facts of the case clearly establish that M/s. Vrutika deliberately evaded payment of Service during the period covered by the show cause notice and therefore, extended period is rightly invoked against them for demanding the same. 6. Ld. Advocate Sh. PD Rachchh appearing on behalf of the appellant has reiterated all these submissions during the course of personal hearing. Besides, he further stated that they have deposited Rs. 85,00,000/- during the course of investigation. On the other had learned Authorised Re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inable, 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 it the value of the property in goods transferred in the execution of such works contract. This is done by adopting the value that is adopted for the purpose of payment of VAT. The rule goes on to say that the service component of the works contract is to include the eight elements laid down in the second Gannon Dunkerley case including apportionment of the cost of establishment, other expenses and profit earned by the service provider as is relatable only to supply of labour and services. And, 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, attr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h Court in G.D. Builders. 31 . In the aforesaid judgment, it was held that the levy of service tax in Section 65(105)(g), (zzd), (zzh), (zzq) and (zzzh) is good enough to tax indivisible composite works contracts. Various judgments were referred to which have no direct bearing on the point at issue. In paragraph 23 of this judgment, the second Gannon Dunkerley judgment is referred to in passing without noticing any of the key paragraphs set out hereinabove in our judgment. Also, we find that the judgment in G.D. Builders (supra) went on to quote from the judgment in Mahim Patram Private Limited v. Union of India, 2007 (3) SCC 668 = 2007 (7) S.T.R. 110 (S.C.), to arrive at the proposition that even when rules are not framed for computation of tax, tax would be leviable. 32 . We are afraid that the Delhi High Court completely misread the judgment in Mahim Patram s case. This judgment concerned itself with works contracts being taxed under the Central Sales Tax Act. What was argued in that case was that in the absence of any rule under the provisions of the Central Act, the determination of sale price would be left to the whims and fancies of the assessing authority. This argu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ses of levy and assessment of central sales tax under the Central Act. It was also noticed that the State Government itself had been given power to make rules to carry out the purposes of the Central Act so long as the said rules were not inconsistent with the provisions of the Central Act. It was found that, in fact, the State of Uttar Pradesh had framed such rules in exercise of powers under Section 13(3) of the Central Act as a result of which the necessary machinery for the assessment of central sales tax was found to be there. The Delhi High Court judgment unfortunately misread the aforesaid judgment of this Court to arrive at the conclusion that it was an authority for the proposition that a tax is leviable even if no rules are framed for assessment of such tax, which is wholly incorrect. The extracted passage from Mahim Patram s case only referred to rules not being framed under the Central Act and not to rules not being framed at all. The conclusion therefore in paragraph 36(2) of the Delhi High Court judgment is wholly incorrect. Para 36(2) reads as follows :- (2) Service tax can be levied on the service component of any contract involving service with sale of goods et ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ability for taxation or as to the extent of the tax proposed to be levied, and finally, as to the right to challenge the regularity of assessment made, by recourse to proceedings in a higher civil court. The Act merely declares the competence of the Government to make a provisional assessment, and by virtue of Section 3 of the Madras Revenue Recovery Act, 1864, the landholders may be liable to pay the tax. The Act being silent as to the machinery and procedure to be followed in making the assessment leaves it to the Executive to evolve the requisite machinery and procedure. The whole thing, from beginning to end, is treated as of a purely administrative character, completely ignoring the legal position that the assessment of a tax on person or property is at least of a quasi judicial character. (emphasis supplied) In Rai Ramkrishna v. State of Bihar [AIR 1963 SC 1667] this Court was examining the constitutional validity of the Bihar Taxation on Passengers and Goods (Carried by Public Service Motor Vehicles) Act, 1961. Reiterating the view taken in K.T. Moopil Nair [AIR 1961 SC 552] this Court held that a statute is not beyond the pale of limitations prescribed by Art ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... how the assessment should be levied. No notice has been prescribed, no opportunity is given to the person to question the assessment on his land. There is no procedure for him to agitate the correctness of the classification made by placing his land in a particular class with reference to ayacut, acreage or even taram. The Act does not even nominate the appropriate officer to make the assessment to deal with questions arising in respect of assessments and does not prescribe the procedure for assessment. The whole thing is left in a nebulous form. Briefly stated under the Act there is no procedure for assessment and however grievous the blunder made there is no way for the aggrieved party to get it corrected. This is a typical case where a taxing statute does not provide any machinery of assessment. (emphasis supplied) The appeals filed by the State against the judgment of the High Court striking down the enactment were on the above basis dismissed. Reference may also be made to Vishnu Dayal Mahendra Pal v. State of U.P. [(1974) 2 SCC 306] and D.G. Gose and Co. (Agents) (P) Limited v. State of Kerala [(1980) 2 SCC 410] where this Court held that sufficient guidance was a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n goes on to state that equally therefore legal representatives of a manufacturer who had paid excess duty would not by the self-same reasoning be able to claim such excess amount paid by the deceased. Neither of these reasons are reasons which refer to any provision of law. Apart from this, the High Court went into morality and said that the moral principle of unlawful enrichment would also apply and since the law will not permit this, the Act needs to be interpreted accordingly. We wholly disapprove of the approach of the High Court. It flies in the face of first principle when it comes to taxing statutes. It is therefore necessary to reiterate the law as it stands. In Partington v. A.G., (1869) LR 4 HL 100 at 122, Lord Cairns stated : If the person sought to be taxed comes within the letter of the law he must be taxed, however great the hardship may appear to the judicial mind to be. On the other hand, if the Crown seeking to recover the tax, cannot bring the subject within the letter of the law, the subject is free, however apparently within the spirit of law the case might otherwise appear to be. In other words, if there be admissible in any statute, what is called an equi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd constitutionally valid. In Gannon Dunkerley Co. [(1993) 1 SCC 364 : (1993) 88 STC 204] the Supreme Court observed that as subsection (3) of Section 5 and sub-rule (2) of Rule 29 of the Rajasthan Sales Tax Act and the Rules were not providing for particular deductions, the same were invalid. In the present matter the constitutional provision of law says that particular deductions would be provided but unfortunately nothing is provided in relation to the other charges either in Section 21 itself or in the Rules framed in exercise of the powers conferred by Section 58 of the Bihar Finance Act. *** In our considered opinion sub-clause (i) of clause (a) of Section 21(1) read with Rule 13-A of the Rules did not make sub-clause (1) fully workable because the manner and extent of deduction relating to any other charges has not been provided/prescribed by the State. (at paras 9-12) 38 . Similarly, the Madras High Court in Larsen and Toubro Limited v. State of Tamil Nadu and Ors., [1993] 88 STC 289, struck down Rules 6A and 6B of the Tamil Nadu General Sales Tax Rules as follows :- The eight principles are the criteria and the norms which every State legislation has to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cable only in respect of determining the taxable turnover of a dealer under section 3, 3-A, 4 or 5. Consequently, with our decision above striking down rules 6-A and 6-B of the Rules, there is no proper machinery provisions to determine the taxable turnover for purposes of section 3B. The provisions of section 3-B, therefore, in the absence of the necessary rules for enforcing the same and determining the taxable turnover for the purposes of section 3-B is rendered dormant, ineffective and unenforceable. Such would be the position till sufficient provisions are made either in the Act itself or in the rules by virtue of the rule-making power to ignite, activate and give life and force to section 3-B of the Act. (at paras 32, 33) 39 . And the Orissa High Court in Larsen Turbo v. State of Orissa, (2008) 012 VST 0031, held that machinery provisions cannot be provided by circulars and held that therefore the statute in question, being unworkable, assessments thereunder would be of no effect. 40 . Finally, in para 31, the Delhi High Court holds :- The contention of the petitioners that the impugned notifications override the statutory provisions contained in Section 65(105 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e and machinery for levy and assessment of service tax on indivisible works contracts. 42 . It remains to consider the argument of Shri Radhakrishnan that post 1994 all indivisible works contracts would be contrary to public policy, being hit by Section 23 of the Indian Contract Act, and hit by Mcdowell s case. 43 . We need only state that in view of our finding that the said Finance Act lays down no charge or machinery to levy and assess service tax on indivisible composite works contracts, such argument must fail. This is also for the simple reason that there is no subterfuge in entering into composite works contracts containing elements both of transfer of property in goods as well as labour and services. 44 . We have been informed by counsel for the revenue that several exemption notifications have been granted qua service tax levied by the 1994 Finance Act. We may only state that whichever judgments which are in appeal before us and have referred to and dealt with such notifications will have to be disregarded. Since the levy itself of service tax has been found to be non-existent, no question of any exemption would arise. With these observations, these appeals a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. No cenvat shall be admissible for use of raw materials. (iii) Where there is a divisible work contract clearly defining value for the service portion and the value of raw materials, the taxability will be determined under works contract service after 01.06.2007. The appellant may be given an option subject to production of supporting documents to pay duty on a value determined under Rule 2A of the Service Tax (Determination of Value) Rules, 2006 or Works Contract (Composition Scheme for payment of Service Tax), 2007. (iv) Where there is a contract simplicitor for Commercial and Industrial Construction service without supply of any raw material by the appellant, the taxability will be determined under this service only without adding the value of raw materials. Cenvat credit is admissible on input services and capital goods where abatement is not claimed subject to production of necessary documents. 9. We do not agree with the findings of the Learned Commissioner that service provided to Vyavasayi Vidhya Pratisthan (VVP), Rajkot and Sewa Bharti, Ahmedabad for construction of VVP Engineering college and Saraswati Shishu Mandir has to be denied on the ground that b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ound that invoices produced are dated 8.6.2007 10.06.2007 and not 15.03.2007 as claimed by the appellant. We are of the considered view that the appellant should be given a chance to clarify to the adjudicating, the above discrepancy. 13. Appellant has further claimed that an invoice Rs. 3000/- and invoice Rs. 4,00,000/- which has been computed twice pertain the service was provided prior to 10.09.2004 when the impugned service of construction was brought into the service tax net. The claim has been rejected by the Ld. Commissioner on the ground that the appellant could not produce documents that the service was provided prior to 10.09.2004. We are of the considered view that the appellant should be given a chance to submit necessary evidence to the adjudicating authority. 14. Regarding applicability of proviso to Section 73(1) of the Act, we hold the extended period is applicable qua the demand which would be worked out keeping in view the above observations as there is a clear cut case where the appellant had deliberately chosen not to pay the tax whereas he was fully aware of his tax liability. Interest provisions under Section 75 of the Act and Penalty provisions und ..... X X X X Extracts X X X X X X X X Extracts X X X X
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