GET Power Pvt. Ltd. Vs Commissioner of GST & Central Excise (CESTAT Chennai)
Summary: The Customs, Excise and Service Tax Appellate Tribunal, Chennai, in GET Power Pvt. Ltd. (formerly Voltech Projects Pvt. Ltd.) v. Commissioner of GST & Central Excise, Chennai South, Service Tax Appeal No. 40676 of 2014, Final Order No. 40920/2023 dated 13 October 2023, partly modified the order confirming service tax demands against the appellant. The Tribunal set aside the differential service tax demand of ₹26,08,254 under Commercial or Industrial Construction Service (CICS), allowed disputed CENVAT credit of ₹12,24,474 relating to insurance services and deleted the penalties. However, it expressly retained the admitted service tax liability of ₹47,25,083, which the appellant had already discharged along with interest. The central questions concerned the appropriate classification of composite construction contracts involving supply of goods and services, the availability of abatement under Notification No. 1/2006-ST dated 1 March 2006 and the scope of input service credit before the amendment of the CENVAT Credit Rules with effect from 1 April 2011.
The appellant provided infrastructure services relating to power transmission and distribution and held service tax registration under Erection, Commissioning and Installation Service, Commercial or Industrial Construction Service and Works Contract Service. During investigation, the department found that the appellant had collected service tax from customers during the period October 2007 to August 2008 but had not deposited ₹47,25,083 with the Government. It was also alleged that the appellant had claimed 67% abatement under Notification No. 1/2006-ST for its commercial or industrial construction activities while simultaneously taking CENVAT credit on certain input services. The department therefore denied the abatement and demanded differential service tax of ₹26,08,254 for December 2008 to March 2010. It separately disputed credit of ₹12,24,474 on insurance services obtained for employees during April 2006 to March 2010.
The appellant did not challenge the admitted service tax liability of ₹47,25,083, which it had paid before issuance of the show cause notice. Its challenge was confined principally to the differential demand arising from denial of abatement and the disallowance of input service credit. It contended that its construction contracts were composite arrangements involving both materials and services and that the demand could not be sustained under CICS merely because abatement had been claimed. The appellant relied upon the Supreme Court’s decision in Commissioner of Central Excise & Customs, Kerala v. Larsen & Toubro Ltd., 2015 (39) STR 913 (SC), and the Tribunal’s decisions in Real Value Promoters Pvt. Ltd. and Jain Housing and Construction Ltd.. These decisions addressed the taxability of composite construction contracts under service categories distinct from Works Contract Service.
The Tribunal observed that the very dispute regarding abatement established that the contracts involved both the supply of goods and the rendition of services. Following Real Value Promoters and Jain Housing and Construction Ltd., it held that the demand raised under Commercial or Industrial Construction Service could not survive. The Tribunal also noted that the Supreme Court had disposed of the Revenue’s appeal against the decision in Jain Housing and Construction Ltd. by applying Total Environment Building Systems Pvt. Ltd. v. Deputy Commissioner of Commercial Taxes. Consequently, the differential demand of ₹26,08,254, along with interest and penalties relating to that demand, was set aside.
On the CENVAT credit issue, the Tribunal held that the disputed insurance services related to the period before 1 April 2011, when the definition of input service included activities relating to business. Since the appellant established that the insurance services were availed in connection with the provision of output services, the Tribunal held the credit admissible and set aside the disallowance of ₹12,24,474. It also deleted the penalties after taking account of the admitted tax liability already paid. The final order accordingly allowed the appeal with consequential relief, while preserving the confirmation and appropriation of the uncontested service tax liability.
Cases Discussed
1. Commissioner of Central Excise & Customs, Kerala v. Larsen & Toubro Ltd., 2015 (39) STR 913 (Supreme Court) — Relied upon by the appellant regarding the taxability and classification of indivisible composite works contracts involving transfer of property in goods and rendition of services. The decision distinguishes works contracts from service-only construction contracts.
2. Real Value Promoters Pvt. Ltd. & Others v. Commissioner of GST & Central Excise, Chennai, Final Order Nos. 42436-42438/2018 dated 18.09.2018 (CESTAT Chennai) — Followed for the proposition that demands raised under construction service categories cannot be sustained against composite contracts in circumstances requiring classification under Works Contract Service.
3. Jain Housing and Construction Ltd. v. Commissioner of Service Tax, (2023) 10 Centax 117 (Tri.-Mad.), dated 24.02.2023, as cited in the order — Followed for setting aside construction-service demands on composite contracts. The Revenue’s appeal was subsequently disposed of by the Supreme Court, reported at (2023) 10 Centax 171 (SC), dated 05.09.2023.
4. Total Environment Building Systems Pvt. Ltd. v. Deputy Commissioner of Commercial Taxes & Others, (2022) SCC OnLine SC 953 (Supreme Court) — Cited within the Supreme Court order reproduced by the Tribunal. The Supreme Court disposed of the connected appeals by applying this judgment.
5. Commissioner of Central Excise, Nagpur v. Ultratech Cement Ltd., 2010-TIOL-745-HC-MUM-ST (Bombay High Court) — Relied upon by the appellant on the broad scope of eligible input services under the pre-1 April 2011 CENVAT Credit Rules, particularly services connected with business activities.
FULL TEXT OF THE ORDER OF CESTAT CHENNAI
Brief facts are that the appellants are engaged in providing infrastructure service for power transmission and distribution. They obtained service tax registration under the category of (i) Erection, Commissioning and Installation service (ii) Commercial or Industrial Construction service and (iii) Works Contract Service. On intelligence gathered that appellant is not paying service tax on the erection and commissioning and installation services even though they have collected service tax from their clients, investigation was initiated. On scrutiny of records, it was noted that during the period from October 2007 to April 2008, the appellant provided erection, commissioning and installation service, commercial or industrial construction service and works contract service and realized taxable value along with service tax. However, they have not paid the service tax of Rs.47,25,083/- collected from their customers. It was also noted that they had not filed the statutory periodical returns for the two half hear periods from October 2007 to March 2005 and April 2008 to December 2008.
2. It was further noted from the ST-3 returns pertaining to commercial or industrial construction services that during the period from December 2008 to March 2010, the appellant had availed abatement of 67% in terms of Notification No.1/2006-ST dt. 1.3.2006 and paid service tax only on 33% of the taxable value whereas the appellant had also availed cenvat credit simultaneously in respect of input services such as security service, courier service, insurance service etc. In terms of proviso (i) to Notification No.1/2006-ST dt. 1.3.2006, the benefit of abatement is not eligible when the assessee avails cenvat credit of duty paid on inputs or for the capital goods or cenvat credit of service tax paid on input services. It appeared that the appellant is not eligible for the abatement as they have availed credit on input services. Thus, the appellant was liable to pay differential service tax of Rs.26,08,254/- on commercial or industrial construction services for the period from December 2008 to March 2010.
3. Subsequent to the initiation of investigation, the appellant paid service tax of Rs.46,16,492/- in cash and Rs.6,55,920/- through cenvat credit along with interest of Rs.2,47,117/- towards their service tax and interest liabilities.
4. Another violation noticed by the department was that the appellant had availed input service credit tax paid on insurance premium incurred for their employees. According to the department, the said service was in the nature of personal benefit extended to the employees and therefore are not used for providing any output services. The credit availed on such output services is not available as per Rule 2(l) of CCR 2004 and the appellant has wrongly availed the credit on such services to the tune of Rs.12,24,474/- for the period April 2006 to March 2010. Show cause notice dt. 18.10.2011 was issued invoking the extended period proposing to demand short paid service tax along with interest and for imposing penalties. The show cause notice also proposed to recover wrongly availed credit of insurance services. After due process of law, the original authority confirmed the demand and appropriated the amount already paid up by the appellant. Penalties were also imposed. Aggrieved by such order, the appellant is now before the Tribunal.
5. The Ld. Counsel Ms. Radhika Chandrasekar appeared and argued for the appellant. It is submitted by the counsel that in regard to the demand of service tax under the category of ‘erection, commissioning and installation services’ as well as ‘works contract service’ for the period October 2007 to August 2008 the appellant has paid the entire amount of Rs.47,25,083/- much before issuance of the show cause notice. The same has been recorded in para-12 of the impugned order which reads as under :
“12.0 I have carefully gone through the records of the case, reply of the noticee and the submissions made by them at the time of personal hearing. The noticee has not contested the demand of Rs 47,25,083/-in respect of Erection, Commissioning & Installation Service, Commercial or Industrial Construction Service, and Works Contract Service for the period October’07 to August 08 on merits and have paid the entire amount of Rs 47,25,083/-.
As the noticee has not contested the demand of RS 47,25,083/– in respect of Erection, Commissioning & Installation Service, Commercia! or Industrial Construction Service, and Works Contract Service for the period October’07 to August’08 on merits, I confirm the same on merits.”
6. It is submitted by the learned counsel that the even in this appeal, the appellant is not contesting the amounts confirmed under erection, commission and installation services or works contract service for the period October 2007 to August 2008.
7. The demand contested in the present appeal is only with regard to the differential duty of service tax to the tune of Rs.26,08,254/- for the period December 2008 to March 2010 confirmed under the category of Commercial or Industrial Construction Service (CICS) alleging that the appellant is not eligible for abatement. The department is of the view that the appellant having availed cenvat credit on various input services, the abatement of 67% on the taxable value is not applicable. It is submitted by the counsel that the appellant had already reversed the credit which would be equal to non-availment of credit. For this reason, the abatement ought not to have been denied. Alternatively, the learned counsel submitted that the demand raised under ‘commercial or industrial construction services’ cannot sustain for the reason that the contracts are of composite nature which involves both supply of materials and rendering of services. The Hon’ble Apex Court in the case of CCE & Customs, Kerala Vs Larsen and Toubro Ltd. – 2015 (39) STR 913 (SC) has held that the demand of service tax on composite contracts (which involves both supply of materials as well as services) cannot sustain prior to 01.06.2007 when ‘Works Contract Services’ were introduced in the Finance Act, 1994.
8. Further, in the case of Real Value Promoters Pvt. Ltd. Others Vs CGST & CE, Chennai – Final Order No.42436-42438/2018 dt. 18.09.2018 the CESTAT held that demand under various services in the nature of construction of residential complex services, commercial or industrial construction services cannot sustain in the case of composite contracts.
9. The Tribunal in the case of Jain Housing and Construction Ltd. Vs CST – (2023) 10 Centax 117 (Tri-Mad) [24.02.2023] had occasion to consider similar issue and after applying the decision in the case of M/s.Larsen & Toubro Ltd. (supra) as well as M/s.Real Value Promoters Pvt. Ltd. (supra) had set aside the demand raised under the category of ‘construction of residential complex services’. Against such order, the department had filed appeal before the Hon’ble Supreme Court and vide decision reported in (2023) 10 Centax 171 (SC) [05.09.2023], the Hon’ble Apex Court dismissed the appeal of the department and thereby affirmed the decision of the Tribunal. The Ld. Counsel submitted that the differential amount of service tax raised under the category of ‘commercial or industrial construction services’ therefore cannot sustain and requires to be set aside.
10. It is also argued by the learned counsel that the insurances services were availed by the appellant for benefit of the employees and the period involved is prior to 1.4.2011. The said services are relating to the ‘activity of business’ of the appellant and is eligible for credit. The decision of the Bombay High Court in the case of CCE Nagpur Vs Ultratech Cement Ltd. – 2010-TIOL-745-HC-MUM-ST was relied to argue that the credit availed for such services cannot be denied. The Ld. Counsel prayed that the appeal may be allowed.
11. The Ld. A.R Sri N. Sathyanarayanan appeared and argued for the department. The findings in para 8.1 of the impugned order was adverted to by the Ld.A.R to submit that the appellant had paid the service tax under ‘commercial and industrial construction services’ after availing the abatement under Notification No.1/2006-ST dt. 1.3.2006. As the appellant availed the credit on various taxable services they are not eligible for the abatement and the adjudicating authority has rightly confirmed the demand. It is prayed that the appeal may be dismissed.
12. Heard both sides.
13. At the outset, it has to be stated that the appellant has not contested the confirmation of demand under Erection, Commissioning and Installation services and Works Contract Services to the tune of Rs.47,25,083/-. Annexure-I to the show cause notice gives the details of the tax collected but not paid by the appellant for Erection, Commissioning and Installation Services (Rs.34,14,375/-), Commercial or Industrial Construction Service (Rs.10,19,793/-), Works Contract Service (Rs.2,90,915/-). For the period upto August 2008 the appellant is liable to pay Rs.47,25,083/-. The impugned order records that the appellant has paid up the amount along with interest and is not contesting the same. Annexure-II to the show cause notice issued shows that for the period December 2008 to March 2009 (2009-10), the appellant is liable to pay service tax of Rs.26,08,254/- under Commercial or Industrial Construction Services. In para 3.0 and 3.1 of the SCN it is categorically stated that the appellant has wrongly availed abatement of 67% as per Notification No.1/2006-ST dt. 1.3.2006 and therefore is liable to pay differential tax of Rs.26,08,254/- for the period December 2008 to March 2010 under commercial or industrial construction services.
14. The Ld. Counsel for the appellant submitted that the demand under the said category cannot sustain for the reason that the nature of contracts are composite in nature. The dispute with regard to denial of benefit of abatement itself establishes that the contracts are composite in nature which involves both element of supply of goods as well as rendering of services. The decision in the case of Real Value Promoters Pvt. Ltd. (supra) would then apply and the demand therefore cannot sustain. The said decision was applied in the case of Jain Housing and Construction Ltd. (supra). The decision of the Tribunal in the said case was upheld by the Hon’ble Apex Court as reported in (2023) 10 Centax 171 (SC) [05.09.2023]. The relevant part of the order reads as under :
“[Order]. – Delay condoned.
2. Mr. N. Venkatraman, learned ASG appearing for the appellant submitted that the issues which arise in these appeals are covered by the judgment of this Court in Total Environment Building Systems Pvt. Ltd. v. Deputy Commissioner of Commercial Taxes and Others [(2022) SCC Online SC 953] and therefore, these appeals may be accordingly disposed.
3. Since the aforesaid judgment applies on all fours to these appeals, the Civil Appeals stand, accordingly, disposed of.
4. Pending applications(s), if any, shall stand disposed of.”
Following the said decisions, we are of the view that the demand of differential service tax under commercial or industrial construction service denying abatement cannot sustain and requires to be set aside which we hereby do.
15. The second issue is with regard to disallowance of credit on various input services in the nature of insurance services. The period involved is prior to 1.4.2011 when the definition of “input service” had wide ambit as it included the words “activities relating to business”. The decisions of various forums have held that the said services would be eligible for credit. We hold that the appellant has established that the services were availed for providing output services and therefore is eligible for credit. The denial of credit is without basis and cannot be justified. Ordered accordingly.
16. The appellant has paid up the non-contested/admitted tax liability. For this reason, we hold that penalties imposed therefore cannot sustain and require to be set aside which we hereby do.
17. In the result, the impugned order is modified to the extent of (i) setting aside the differential tax demand of Rs.26,08,254/- and interest and penalties thereon (out of Rs.73,33,337/-) without disturbing the confirmation or appropriation of the remaining demand.
(ii) The disallowance of credit to the tune of Rs.12,24,474/- is also set aside.
(iii) Penalties are entirely set aside.
The appeal is allowed in above terms with consequential relief, if any.
(pronounced in court on 13.10.2023)
