CESTAT sets aside Demand of Service Tax on Composite Supply of Works Contract [Read Order]

The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Kolkata Bench has set-asides demand of service tax on composite supply of works contract.

The appellants, M/s. National Building Construction Corporation Limited and M/s. Simplex Projects Limited (SPL) has undertaken the construction of accommodation for urban employed youth and women vendors in terms of the contracts awarded by NBCC on behalf of the Ministry of Urban Development and Poverty Alleviation, Govt. of India.

The Assessing Officer, during the assessment, demanded service tax along with interest and penalty by classifying the construction under the category of Commercial or Industrial Construction. Aggrieved by the demand the appellants approached the Commissioner of Central Excise, which confirmed the demand for service tax along with interest and penalty. Hence the appellants approached the CESTAT.

The counsel for the appellant submitted that since the scope of the contract included a supply of goods, the same cannot be classified under the service category of Commercial or Industrial Construction but under ‘Works Contract service’ which classification has not been invoked in the SCN proceedings. Further, the subject contract that the construction activities undertaken by them are inclusive of supply of goods on which applicable works contract tax have been paid under the State Sales Tax law.

The Tribunal observed that the Supreme Court in Larsen & Toubro & Ors. has held that “what is referred to in the charging provision is the taxation of service contracts simpliciter and not composite works contracts, such as are contained on the facts of the present cases. It will also be noticed that no attempt to remove the non-service elements from the composite works contracts has been made by any of the aforesaid Sections by deducting from the gross value of the works contract the value of property in goods transferred in the execution of a works contract.”

Thus, the Tribunal observed that they are not providers of ‘commercial or industrial construction service’ but of ‘works contract service’, no tax is liable on construction contracts executed before 1st June 2007. The Coram of Mr. P. K.Choudhary, Member(Judicial), and Mr. P. Anjani Kumar, Member(Technical) has held that “the instant demand of service tax under the category of Commercial or Industrial Construction cannot be sustained and hence, set aside”.

Mr. Rajeev Agarwal and Mr. K. Chowdhury appeared on behalf of the appellant and respondent respectively.

To Read the full text of the Order CLICK HERE

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