We are sharing with you an important judgement of the Hon’ble Supreme Court in the case of Commissioner of Central Excise and Customs, Kerala and Others Vs. Larsen and Toubro Ltd. and Others , Date of Decision-20.08.2015, CIVIL APPEAL NO. 6770 OF 2004 on the following issue:
Issue:
Whether Service tax can be levied on indivisible Works Contracts prior to its introduction on June 1, 2007?
Facts & Background:
In the case of Larsen and Toubro Ltd, Kehems Engg Pvt Ltd Vs. CST, Delhi/ CCE & ST, Indore/ CCE/ Rajkot and CCE & ST, Indore Vs. Kehems Engineering Pvt Ltd. [2015-TIOL-527-CESTAT-DEL-LB], the Five Member Bench of the Hon’ble CESTAT, Delhi by a majority of 3 to 2 held that Service elements in a composite/Indivisible Works Contract (involving transfer of property in goods and rendition of services), where such services are classifiable under Commercial or Industrial Construction Service (“CICS”), Construction of Complex Service (“COCS”), or Erection, Commissioning or Installation Service (“ECIS”),are subject to levy of Service tax even prior to insertion of taxable service ‘Works Contract Service’ under Section 65(105) (zzzza) of the Finance Act, 1994 (“the Finance Act”) i.e. prior to June 1, 2007.
In the above stated case, the two Hon’ble Judicial Members relying upon decisions in the case of CST Vs. Turbotech Precision Engineering Pvt Ltd.[2010 (18) S.T.R 545 (Kar)] and Strategic Engineering Pvt. Ltd. Vs. CCE [2011 (24) S.T.R 387 (Mad)] held that Works Contract Service was not a taxable service prior to June 1, 2007 as CICS, COCS and ECIS covers only such contracts/ transactions which involves pure rendition of service(s), falling within the ambit of the respective definitions and do not comprehend Works Contract Service within their ambit. It was further held that the decision of the Hon’ble Delhi High Court in case of G.D. Builders and Others Vs. Union of India and Another [(2013) 32 STR 673 (Del.)] (“GD Builders Case”) that a Works Contract can be vivisected and discernible taxable service elements could be subjected to Service tax prior to June 1, 2007 is erroneous on per incuriam and sub silentio grounds.
However, on the other hand threeHon’ble Technical Members relying upon the decision in GD Builders Case,C.C.E. Vs. B.S.B.K. Pvt. Ltd. [2010 (253) ELT 522] andYFC Projects (P.) Ltd. Vs. Union of India [(2014) 44 GST 334/43 taxmann.com 219 (Delhi)] (“YFC Case”), held that in GD Builders Case and YFC Case, the Hon’ble Delhi High Court has considered the very same matter and held that Works Contract can be vivisected and discernible taxable service elements could be subjected to Service tax prior to June 1, 2007. This Tribunal being sub-ordinate to both the Apex Court and the High Court would be bound by the above mentioned decisions. In other words, the ratio decidendiof the GD Builders Case stands uncontroverted as of now and therefore, the same is binding on all sub-ordinate Courts including this Tribunal.
Accordingly, the matter travelled up to the Hon’ble Supreme Court wherein group of appeals were filed both by the Revenue and the Assessees.
Held:
The Hon’ble Apex Court after elaborate discussion of the various provisions and judicial pronouncements held as under:
