Pavani Engineers Vs Commissioner of Central Tax (CESTAT Hyderabad)
The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Hyderabad allowed the appeal filed against an order confirming service tax demand, interest, and penalties on contracts executed during April 2005 to May 2007. The appellant, engaged in executing contracts involving the supply of machinery and equipment along with installation, erection, commissioning, and allied services, was registered under the category of “Maintenance or Repair Services.” Following an investigation, the Department alleged that the contracts were taxable under Erection, Commissioning and Installation Service (ECIS) and that the appellant had suppressed the taxable value of services. A show cause notice dated 18 October 2010 proposed recovery of Rs. 39,20,441, along with interest and penalties, which was confirmed by the adjudicating authority and upheld by the Commissioner (Appeals).
Before the Tribunal, the appellant contended that the contracts were composite works contracts involving both the supply of goods and the provision of services for a consolidated consideration. It argued that, prior to 1 June 2007, there was no charging provision under the Finance Act, 1994 to levy service tax on indivisible works contracts. Reliance was placed on the Supreme Court’s decision in Larsen & Toubro Ltd., which held that composite works contracts were not liable to service tax before the introduction of the taxable category of works contract service with effect from 1 June 2007. The appellant also submitted that it had discharged VAT/Sales Tax on the goods portion of the contracts, demonstrating a bona fide belief that the contracts were works contracts rather than pure service contracts. It further argued that the extended period of limitation could not be invoked because the issue involved interpretation of law, and there was no suppression, fraud, wilful misstatement, or intent to evade tax.
