Service Tax Liability on Various Contracts: CESTAT Quashes Demand, Citing Exemptions and Clarifications [Read Order]

The Chennai Bench of Customs, Excise and Service Tax Appellate Tribunal(CESTAT)quashed the demand for service tax on various contracts, citing exemptions and clarifications.

Samy Construction, appellant-assessee, provided services to government bodies, municipalities, the Tamil Nadu Electricity Board(TNEB), and corporates. The department claimed that the appellant did not pay the correct service tax on certain contracts and demanded the tax along with interest and penalties.

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The assessee's counsel argued that the Commissioner, in the impugned order, indirectly acknowledged there was no service tax liability on the assessee However, the demand was upheld because the assessee had submitted only photocopies of documents, which were considered unreliable.

Regarding the Mettur Municipality contracts, the assessee's claim was rejected due to missing evidence, which the assessee disputed. The contracts involved building a stormwater drain, small culverts, and a shopping complex. The assessee argued that no service tax was due for the stormwater drain and culvert, referring to a 2004 Board clarification. While the work order was provided, the Commissioner wrongly stated that it was missing.

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For the shopping complex contract, the assessee paid service tax after applying for an abatement under Notification No. 1/2006. The abatement was denied because the assessee did not submit evidence for free material supplied. However, the assessee clarified that no free material was supplied, and even if there was, its value should not be included in the taxable amount, in line with a Supreme Court ruling.

Additionally, the assessee had contracts with TNEB for works like building toilets, security walls, laying power cables, wiring, and blacktopping. The assessee argued that these works were exempt from service tax based on Board Circulars and relevant exemptions in the Finance Act, 1994.

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The two member bench comprising Vasa Seshagiri Rao(Technical Member) and P.Dinesha(Judicial Member) reviewed the case and found that service tax was wrongly demanded on various contracts. It needed to be checked against relevant Circulars and case law. For the Mettur Municipality contracts, the claim was rejected due to lack of evidence, but the assessee argued that the required documents had been submitted.

Regarding the stormwater drain, the appellate tribunal concluded it was exempt from service tax as per the 2004 Board clarification. The issue with the shopping complex was related to the denial of an abatement under Notification No. 1/2006. The assessee clarified that no free material was provided, and even if it was, it should not be taxed, according to the Supreme Court's ruling in the Bhayana Builders case.

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For the TNEB contracts, the works involved were found to be exempt from service tax based on Board Circulars and the relevant sections of the Finance Act.

In conclusion, the CESTAT set aside the service tax demand in the impugned order.

To Read the full text of the Order CLICK HERE

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