Relief to Confident Projects: Supreme Court dismisses Dept’s appeal against CESTAT Ruling quashing Service tax on Construction of Complex Services for Lack of Merits [Read Judgement]

The Supreme Court has dismissed the appeal filed by the Department of Central Excise and Service Tax, upholding the decision of the Customs, Excise and Service Tax Appellate Tribunal ( CESTAT ) ruling that Confident project Pvt Ltd. is eligible for the composition scheme as per the Works Contract (Composition Scheme for payment of Service Tax) Rules, 2007.

The apex court, while rejecting the appeal noted that there was a gross delay of 255 days in filing the case which had not been satisfactorily explained. Moreover, the Court observed that there was no merit in the Department’s challenge to the CESTAT ruling, though it kept the larger question of law open for future consideration.

The matter was from an issue of levy of service tax on construction services provided by Confident Projects. The Department had demanded service tax under the category of “Construction of Complex Services” for the period October 2007 to June 2012, along with interest and penalties.

Confident Projects argued that such activities were in the nature of composite contracts, falling within the ambit of Works Contract Service, and that service tax could not be levied under the “Construction of Complex” category prior to July 2010.

The confident project argued that the demand of service tax under “Construction of Complex Services” was unsustainable. They contended that for the period October 2007 to June 2010, such activities were outside the tax net since the relevant explanation to Section 65(105)(zzzh) was inserted only from 1 July 2010.

Even for the post-July 2010 period, the computation adopted by the Department was impermissible, and the appellant was entitled to claim CENVAT credit by treating the activity under Works Contract Service. Hence, the demand was illegal and without merit, said the appellant.

The CESTAT, in its final order, agreed with the company’s submissions, holding that the contracts in question were works contracts and not liable to be taxed as “Construction of Complex Services.”

The tribunal relied on precedents including Larsen & Toubro Ltd. vs. State of Karnataka of the apex court, where it was held that “the impugned order, which proceeds on the basis that composite contracts involving transfer of goods as well as services were covered under the taxable services under sub- clause (zzzh) of Section 65(105) of the Act, cannot be sustained".

Accordingly, the Tribunal granted the appeal without consequential relief and dismissed the demand. The Department challenged the decision to the Supreme Court. The apex Court, however, declined to become involved and rejected the appeal for lack of merit and delay.

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