The Allahabad bench of the Customs, Excise & Service Tax Appellate Tribunal ( CESTAT ) has held that service tax demand under work contract service is not valid as the assessee was not registered. It was found that the party was registered with the department only for providing “Commercial and Industrial Construction” services till 05.122010 and was availing the benefit of notification 1/2006 dated 05. 10.2010.
Shri Manish Raj, Authorised Representative appeared for the Appellant and Shri Dharmendra Kumar, Chartered Accountant appeared for the Respondent.
On an intelligence, investigations were undertaken against the respondent, M/s Tiranga Construction Co. As a result of an investigation undertaken it was observed that during the period 2006-07 to 2010-11, the respondent has received a total amount of Rs.40,69,91,803/- against the services rendered to their client and paid service tax only to the tune of Rs.46,24,915/- instead of Rs.4,85,79,942/- which is short by Rs.4,39,55,027/-.
The Lucknow Development Authority is mainly engaged in the development of residential colonies and commercial areas and also construction in this regard, which involves acquiring the land, building basic infrastructure and adding further amenities like drainage, sewerage, roads, parks etc. and also construction activities, which are not done as isolated tasks but as an ancillary and indispensable part of any new area developed by them, cost of which is ultimately charged in the name of development fees etc., from their ultimate consumers.
It was evident from the description of the work orders as enumerated above, that the services provided by the party are not isolated activities for providing civil amenities with no commercial attributes, but instead are in respect of areas being developed by Lucknow Development Authority for commercial purposes.
The Adjudicating Authority has erred by way of treating the services provided to Lucknow Development Authority as not being Commercial and dropping the demand of Service Tax pertaining thereto.
The Adjudicating Authority has re-assessed the tax liability on the amount received by the party during the financial year 2006-07 & 2007-08 from Rs. 12,88,74,166 to Rs. nil for FY 2006-7 & from Rs. 15,13,41,871 to Rs. 64,06,348/-) for the financial year 2007-08, taking into consideration the Party’s contention whereby they have challenged the Profit & Loss accounts of F.Y. 2006-07 and 2007-08, based on, which demand has been calculated and claimed that they have not provided any services related to ‘Commercial or industrial construction service’ during the financial year 2006-07 and did not own financial record i.e. audited balance sheet or profit and loss account.
It was submitted that Execution of work contract services came into service-tax net since 01-06-2007. The services provided by them were work contracts in nature. In aforesaid contract work, the party has to consume material and provide labour to complete the work.
As regards the classification, with effect from the circular, the board has again reiterated that the services namely, erection, commissioning or installation service, commercial or industrial construction service or construction of complex service, service were classified under the respective taxable service before 01.06.2007. The new entry of service “Works Contract” service was made to describe the nature of the activity more specifically but before that service was classified under respective entries.
It was found that the party was registered with the department only for providing “ Commercial and Industrial Construction” services till 05.12.2010 and was availing the benefit of notification 1/2006 dated 05. 10.2010. They applied for an amendment in their registration certificate for providing “Work Contract Services” only on 05.10.2010 as the option to opt of such service was available with the party from 01.06.2007.
Hence party’s claim for classification of their services in the category of “Works Contract Service” and leviability of service tax from 01.06.2007 is not tenable in light of the board’s circular as well as facts on, record and as a result of that the service provided by the party was liable to service tax before 01.06.2007 under the category of “Commercial or Industrial Construction”
A two-member bench of Mr P K Choudhary, Member (Judicial) and Mr Sanjiv Srivastava, Member (Technical) held that the services provided by the respondent were correctly classifiable under the category of “Work Contract Services” the entire argument advanced by the revenue to the effect that the activities undertaken by the respondent in respect of Lucknow Development Authority would not survive.
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