Nature of Contract Involves Supply or Deemed Supply of Goods and Rendering Service, it will be Works Contract Service Regardless of whether VAT or Service Tax is Payable: CESTAT

In a recent decision the Customs, Excise and Service Tax Appellate Tribunal (CESTAT), New Delhi Bench ruled that the nature of a contract involves supply or deemed supply of goods and rendering service, it will be a works contract service regardless of whether Value Added Tax (VAT) or service tax is payable.

M/s. Bhaskar Contractors filed the appeal to assail the order passed by the Commissioner (Appeals), whereby the appellant’s appeal was dismissed.

The appellant is a proprietorship firm and registered with the service tax department. Intelligence gathered by the department indicated that while the appellant had obtained registration only on 23rd April 2010, it had been providing taxable services much before. It was found that the appellant was not filing the ST-3 Returns also.

The appellant raised the ground of appeal that the adjudicating authority confirmed the demand under MRS citing Board’s circular No. B1/16/2007-TRU dated 22.5.2007. The circulars are not binding on the assessee. The appellant’s submission that the service it provided was a Works Contract Service was rejected by the adjudicating authority arbitrarily.

The contention of the appellant is that some of the services rendered were in the nature of works contract service and its claim for classification under works contract service was rejected. However, the adjudicating authority did not agree with this contention holding that unless VAT was paid on the goods which were transferred, it will not amount to the works contract service.

The Coram comprising Justice Dilip Gupta, President and PV Subba Rao, Technical Member observed that “The appellant’s services may be classified as far as possible based on the work orders, invoices or other information which the appellant may provide. To the extent they are not provided, the adjudicating authority should exercise his/her best judgment.

“Works contracts are all such contracts where there was either actual or deemed transfer of goods- whether or not any VAT or sales tax is paid or is payable on the goods component of such contracts. Taxability of such contracts should be decided accordingly” the Tribunal concluded.

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