The Customs, Excises and Service Taxes Appellate Tribunal (CESTAT), Delhi Bench ruled that the “Works contract service” a separate specie of contract and can not be equated with a contract for sale of goods or contract for supply of services.
The appellant, M/s Shree Mohangarh Construction Co. is engaged in providing various services and has been discharging service tax. It was felt by the Department that they have not fully discharged their service tax liability and, therefore, the differential service tax needs to be recovered from them. Accordingly a show cause notice was issued to them demanding the same alongwith interest and proposing to impose penalties under Section 76 and 77 of the Finance Act, 1994.
The appellant submitted that there is no doubt that their contract was in the nature of works contract and it involved both supply of goods and rendition of services. Both the show cause notice and the order-in-original acknowledged this. However, the demand was confirmed under “commercial and industrial construction service” which is not sustainable and, therefore, this demand needs to be set aside.
As far as the demand of service tax under cargo handling service is concerned, it is on account of two alleged services namely supply of raw material like river sand and crusher grit to M/s Enercom India Ltd. and transportation of 40mm size limestone from RSMMs Sanu Mines to M/s GLPL, Barmer.
It was submitted that there is no doubt that the nature of contract in the first case is for supply of river sand and loading unloading etc. which are related to such supply cannot be called cargo handling service. The second set of contracts were for transportation of limestone which necessarily involved some loading and unloading. The nature of contract being one of transportation, the demand cannot be sustained under cargo handling service.
The coram headed by Justice Dilip Gupta noted that The demand under “Commercial and Industrial Construction Service” was made on an activity which admittedly involved both supply of goods and rendering services. In fact, an abatement towards the cost of goods was also given in the show cause notice and the impugned order.
The Tribunal held that Service tax can only be demanded on Works Contract services after the introduction of a charge on works contract service and not under any other head either before the introduction of the service or thereafter. Learned Commissioner records in his order that the appellant has paid service tax under “works contract service composition scheme”, but contended that they have not fulfilled the conditions required under works contract composition scheme. Even if they had not fulfilled the conditions, there is no case for the Department to charge service tax on this service under any other head.
Therefore, the CESTAT held that the demand of service tax under the head of Commercial and Industrial Construction Service needs to be set aside.
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