Consistent Declaration of Services under Works Contract: CESTAT quashes Service Tax Demand on Erection, Commissioning and Installation of Windmills [Read Order]

The Chennai Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT), quashed service tax demand on erection, commissioning and installation of windmills as there was consistent declaration of services under works contract.

After perusal of the balance sheet, it appeared to the Revenue that the appellant, M/s. Para Enterprises Private Limited, had shown huge amount of expenditure towards “erection and commissioning charges” under the schedule of ‘expenses’, but however they had been collecting a fixed amount towards the same on which they had also paid the Service Tax. This prompted the issuance of Show Cause Notice and Statement of Demand proposing, to demand Service Tax.

In the Order-in-Original, the Commissioner has held that the activity, in the nature of composite contract service provided by the appellant, was be classified under “erection, commissioning and installation service” in terms of Section 65(105)(zzd) of the Finance Act, has confirmed the payment of Service Tax for the period 2007–08 to 2010–11, has ordered total recovery of the Service Tax along with applicable rate of interest under Section 75 apart from levying penalty under Section 78 and Section 77 (2) of the Finance Act.

The Counsel for the appellant, R. Charulatha, contended that the taxability on service tax portion of composite works contract has been made taxable only with effect from 01.06.2007 with the insertion of Section 65(105)(zzzza), which has been interpreted by the Supreme Court in the case of Commissioner of Central Excise and Customs, Kerala v. M/s. Larsen & Toubro Ltd,  to the effect that Section 65(105) is applicable for levy of Service Tax only on contracts simpliciter and not composite indivisible works contract and therefore, for the period prior to the insertion of the above Section, no Service Tax could be demanded on the services provided under an indivisible composite contract.

It was thus contended that for the period from April 2007 to May 2007, the demand under ‘erection, commissioning and installation service’ cannot sustain as there was no levy on composite contracts and that for the subsequent period from June 2007 to March 2012, the demand under ‘erection, commissioning and installation service’ cannot sustain because of the composite nature of the contract, which is taxable under the category of works contract service.

On the other hand, the Departmental Representative, Anandalakshmi Ganeshram, relied on the findings of the Commissioner.

A Two-Member Bench comprising M Ajit Kumar, Technical Member and P Dinesha, Judicial Member observed that “Since the appellant consistently declared the services under ‘works contract’ and paid tax accordingly, we are of the opinion that the impugned orders reclassifying the impugned service under erection, commissioning and installation cannot sustain and resultantly, the same are set aside.”

To Read the full text of the Order CLICK HERE

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