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:
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.
The Hon’ble Apex Court after elaborate discussion of the various provisions and judicial pronouncements held as under:
Thus, the Hon’ble Apex Court in no ambiguous terms ruled that Works contracts cannot be taxed before June 1, 2007. Accordingly, the appeals filed by the Assessees were allowed and appeals filed by the Revenue were dismissed
Levy of Service tax on Turnkey Contracts prior to introduction of Works Contract Services under the Finance Act w.e.f. June 1, 2007 has been a long tale of litigation since past years. With this landmark judgment of the Hon’ble Supreme Court, the haze surrounding the issue will now get clear with the Hon’ble Apex Court delivering final verdict by ruling that no Service tax can be levied on Works Contract in prior to June 1, 2007 .
On the principle of prudence, it is astonishing to see this matter travelling till the Hon’ble Supreme Court to decide whether a tax introduced on June 1, 2007 can be made applicable to certain services existing prior to that date. Nonetheless, the Hon’ble Apex Court has re-affirmed what the Hon’ble Justice Shri. Raghuram delivered in the Delhi Tribunal Verdict by stating that “Harvesting revenue, by levy and collection of taxes qua legislation by Parliament must therefore clearly avoid encroachment into the field(s) authorized to States; and vice-versa.”
Further, the Hon’ble Justice Raghuram in his speech at FAPCCI, Hyderabad on January 17, 2015 has said that something is pathologically, terminally and seriously wrong with our Departmental adjudication.
Until and unless the Department stops raising such futile issues, there cannot be an end to unproductive litigations in the Country.