Works Contract is Leviable to Service Tax only After 01.06.2007: CESTAT [Read Order]

The Bangalore Bench of the Customs, Excise & Service Tax Appellate Tribunal ( CESTAT ) has held that the works contract is leviable to service tax only after 01.06.2007. )  The Tribunal viewed that the appellant has executed a works contract involving both material and service and hence the activity is like a composite works contract.

M/s. Praveen Electrical Works, the appellant is a proprietary concern engaged in the execution of works contract and registered as a dealer under the Karnataka Value Added Tax Act, 2003. The appellant is engaged in electrical contract works for various Government Departments and is subject to Sales Tax/VAT. The gross contract receipts are treated as indivisible/composite contracts and subjected to TDS as per the provisions of Section 194C of the Income Tax Act, 1961. The appellant is registered with the Service Tax under the category of „Erection, Commissioning or Installation Services‟.

The appellant was issued with a show-cause notice for demand on service tax on “Erection, Commissioning or Installation Services” and “Rent-a-Cab Operator Service” and why the abatement of 67% on Erection, Commissioning and Installation Service and 60% on Rent-aCab service claimed by the appellant should not be demanded and recovered under proviso to Section 73(1) of the Finance Act, 1994 along with interest under Section 75 and imposition of penalty under Section 76, 77 and Section 78 for suppression of facts of providing taxable service and collection of taxable amount and failure to pay service tax, the adjudicating authority confirmed the demand of duty with interest and imposed penalties under Section 76, 77 and 78.

On appeal, the Commissioner (Appeals) allowed the abatement in respect of “Erection, Commissioning or Installation Service” and “Rent-a-Cab Operator Service” and confirmed the balance demand of service tax with interest and the penalties under Sections 77 & 78. 

A two-member bench comprising P. A. Augustian, Member (Judicial) and Mr Pullela Nageswara Rao, Member (Technical)  held that the appellant has executed a works contract involving both material and service and hence the activity is like a composite works contract.

The Tribunal found that the appeal filed by the appellant is maintainable and hence the appeal against the confirmation of demand of service tax on “Erection, Commissioning or Installation Service" is allowed. Since the demand itself is not sustainable the penalties are dropped. 

since the appellant has not adduced any evidence to the effect that the rent-a-cab operator service is used either directly or indirectly in the other services rendered by the appellant, the appeal regarding this was disallowed and the penalties imposed under Sections 77 & 78 are upheld. 

To Read the full text of the Order CLICK HERE

Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates