The Customs, Excise, Service Tax Appellate Tribunal (CESTAT) held that the levy of service tax on Commercial or Industrial Construction Service (CICS) or Construction of Complex Services (CCS) would be applicable only in case of pure service contracts whereas composite contracts involving the transfer of property in goods would be liable to service tax only under (WCS) from June 01, 2007, as statutory mechanism to arrive at the value of service has been prescribed only under Works Contract Service (WCS) from June 01, 2007.
The appellant, Kunnel Engineers & Contractors Pvt. Ltd. is a private limited company engaged in the business of providing construction service to its clients as per agreements executed by them. Appellants are also registered under the Central Excise for the purpose of payment of service tax and are engaged in the construction of various commercial buildings as well as residential complexes.
Service tax was imposed under CICS from September 10, 2004, on CCS (Residential) from June 16, 2005, and WCS from June 01, 2007.
The appellant had been paying service tax on the taxable value determined after availing the exemptions in terms of Notification No.15/2004-ST dated September 10, 2004, No.18/2005-ST dated June 07, 2005, and No.1/2006-ST dated March 01, 2006, which provide for 67% of abatement on the gross amount charged.
After the introduction of WCS from June 01, 2007, onwards, the appellant had started paying service tax by classifying their service into WCS and under the composition scheme applicable thereto. As availing of Cenvat credit on input services was allowed under WCS, the appellant has started availing such Cenvat credit also.
The show-cause notices issued by the Revenue alleged that the service would continue to be classified under CICS/CCS and changing the classification into WCS midway is not permissible. Even in respect of fresh contracts after 01/06/2007, it was alleged that the appellant is liable to classify the same only under CICS/CCS since they have not exercised their option to pay the service tax under the composition scheme under WCS.
Accordingly, both in respect of the ongoing contracts and fresh contracts, demand for service tax has been made under CICS/CCS without granting the benefit of 67% abatement on the ground that some of the material was supplied by the customers. After following the due process, the Commissioner vide the impugned order confirmed the demand in both the show-cause notices.
The tribunal consisting of S.S. Garg and P. Anjani Kumar held that the levy of service tax on Commercial or Industrial Construction Service (CICS) or Construction of Complex Services (CCS) would be applicable only in case of pure service contracts whereas composite contracts involving the transfer of property in goods would be liable to service tax only under (WCS) from June 01, 2007, as statutory mechanism to arrive at the value of service has been prescribed only under Works Contract Service (WCS) from June 01, 2007.
“It is pertinent to note that after the decision of the Apex Court in L&T Ltd. cited supra wherein it has been held that prior to 01/06/2007, composite contracts are not at all liable to set aside under CICS/CCS, any tax paid by the appellant under these categories of services is a payment under a mistake of law. In the case of L&T Ltd., it has been held that since no service tax was payable prior to 01/06/2007, opting for composition scheme under WCS is not barred, even if the tax was wrongly paid prior to 01/06/2007,” the tribunal said.
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