The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Chennai has held that pre-2007 construction services provided to the Tamil Nadu Police Housing Corporation Limited (TNPHCL) should be classified as “Composite Works Contract” rather than “Construction of Residential Complex Service” and hence Service Tax shall not be levied on these services.
The appellant, M/s. Arasan Amuthan Construction had been engaged in rendering taxable services during the years 2005-2006 and 2006-2007 categorised as “construction of residential complex service”.
The appellant contended that the services provided by them should be considered as a “works contract” involving both the value of goods and services.
The appellant, represented by Smt. Radhika Chandrasekhar argued that Service Tax could not be demanded under the category of “construction of residential complex service” for such composite contracts.
The appellant pointed out that TNPHCL, being a government organisation with its entire share capital held by the State Government of Tamil Nadu and the ownership of the constructed quarters vested with the Government, no “taxable service” existed that could be subjected to taxation.
The respondent revenue, Commissioner of Central Excise and Service Tax, represented by Shri. N Satyanarayanan alleged that the appellant had undertaken construction services for TNPHCL during this period but had not paid Service Tax on the taxable value of the services provided. The appellant had also not filed any Service Tax returns during this time.
The CESTAT cited the decision of the Supreme Court in Commissioner of Central Excise and Customs, Kerala v. M/s. Larsen & Toubro Ltd. wherein it was clarified that works contract services could not be taxed before June 1, 2007.
The two-member bench comprising M Ajit Kumar (Technical Member) and P Dinesha (Judicial Member) concluded that the period in question, being prior to June 1, 2007 and the nature of the services provided is a works contract, Service Tax should not be demanded for the construction contracts executed during this time.
The bench, quoting the Supreme Court’s observation that the Finance Act, 1994 referred to taxable services as “service contracts simpliciter” without including composite works contracts, held that the order of the Commissioner (Appeals) could not be sustained.
In result, the CESTAT set aside the order and allowed the appeal, granting the appellant consequential benefits as per the law thus providing clarity to the tax implication of composite works contracts and the applicability of Service Tax on construction services rendered prior to June 1, 2007.
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