Case Law Details
Kirti Infrastructures Ltd Vs C.C.E. & S.T. (CESTAT Ahmedabad)
Introduction: The CESTAT Ahmedabad issued a ruling concerning the classification of construction services under the umbrella of Works Contract Service. The case, Kirti Infrastructures Ltd Vs C.C.E. & S.T., delves into the proper classification of services related to the construction of new buildings or civil structures, particularly during the period from 21.06.2007 to 31.07.2009. Additionally, the case considers whether the value of free supplied material provided by a client should be included in the taxable service value.
Analysis: The case revolves around two main issues:
1. Whether the service of constructing new buildings, civil structures, or part thereof as a turnkey project should be classified as Commercial or Industrial Construction Service as per Section 65 (25b) of the Finance Act, 1994.
2. Whether the appellant is required to incorporate the value of free supplied material provided by a client in the taxable service value.
The appellant argued that post the introduction of Works Contract Service from 01.06.2007, the nature of activity in long-term contracts had changed, and this new classification better described the nature of the service. They supported their claim with a CBEC Board Circular and a Tribunal decision. Additionally, they highlighted that they had discharged VAT as part of the Works Contract Service.
Regarding the second issue, the appellant cited a Supreme Court ruling and a CESTAT decision that supported their stance that the value of free supplied material should not be included in the gross value of service.
Conclusion: In the Kirti Infrastructures Ltd Vs C.C.E. & S.T. case, the CESTAT Ahmedabad ruled that construction services involving the creation of new buildings or civil structures under turnkey projects are properly classified as Works Contract Service. The ruling took into account the nature of activity, the change in classification after the introduction of Works Contract Service, and the VAT paid by the appellant. Furthermore, the case affirmed that the value of free supplied material should not be added to the taxable service value, aligning with a Supreme Court judgment and previous CESTAT decisions. This ruling provides clarity on the classification of construction services and the treatment of free supplied material in the context of taxation.
FULL TEXT OF THE CESTAT AHMEDABAD ORDER
The issue involved in the present case are that
(i) Whether the service of construction of a new building or a civil structure or a part there of as it turnkey project of construction during the period from 21.06.2007 to 31.07.2009 should be classified under Commercial or Industrial Construction Service as defined under Section 65 (25b) of the Finance Act, 1994
(ii) Whether the appellant is required to include the value of free supplied material or provided by a client/ service receiver in the value of taxable service.
2. Shri Nilesh Suchak, Learned Counsel appearing on behalf of the appellant at the outset submits that with effect from 01.06.2007, the new service namely Works Contract Service was made effective , classification of aforesaid service would undergone a change in case of long term contracts even though part of the service was classified under respective taxable service prior to 01.06.2007. This is because the works contract describes the nature of activity more specifically and therefore as per the provision of Section 65A of the Finance Act, 1994 it would be appropriate classification for the part of the service provided after that date. He placed reliance on the CBEC Board Circular No 128/10/2010-ST dated 24.08.2010 and this Tribunal decision in the case of JMC Projects India Ltd Vs. CST – 2014 (35) STR 577 (Tri. Ahmd).
2.1 He submits that the appellant has discharged the VAT on the Works Contract considering the same as a deemed sale and the contract was executed for service and supply of goods together.
2.2 As regard the issue of free supply of material by the service recipient for execution of works contract, he submits that this issue is no longer res-integra as the same has been decided by the Hon’ble Supreme Court in the case of the CST Vs. Bhayana Builders (P) Ltd – 2018 (10) GSTL 118 (SC). He also relied upon the CESTAT decision vide Final Order No. A/10425/2019 dated 28.02.2019 in their own case in Appeal No. ST/43/2011-DB.
2.2 He submits that the appellant had classified its services under works contract service and paid the due service tax under the said category during the period from 21.06.2007 to 31.07.2009. Based on their bona fide belief that the new category of works contract service from 01.06.2007 more specifically covers its services. In this fact there is no suppression of fact on the part of the appellant, hence the entire demand of service tax for the period 21.06.2007 to 31.07.2009 and show cause notice was issued on 12.07.2011 is hopelessly time bar as the show cause notice was served beyond the normal limitation period of one year.
3. Shri Prakash Kumar Singh, Learned Superintendent (AR) appearing on behalf of the Revenue reiterates the finding of the impugned order.
4. We have carefully considered the submission made by both sides and perused the records. We find that the demand was raised under the category of Commercial or Industrial Construction Service for the period 21.07.2007 to 31.07.2009. With effect from 01.06.2007, a particular nature of the construction service was brought under works contract service for which certain conditions are required such as execution of project with material and the assessee paid VAT under works contract. During hearing, on the direction of this bench the appellant have submitted sample copies of the purchase order issued by the service recipient M/s. Torrent Pharmaceuticals Ltd. The same are scanned below:-
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4.1 From the above purchase orders in clause 8 (b) it clearly reveals that the construction service was provided by the appellant along with material. The appellant has submitted VAT return to claim that they have discharged the VAT on the works contract service. The sample copy of the VAT Form 216 evidencing payment of VAT under composition scheme is scanned below:-
4.2 From the above VAT return it is clear that the appellant have discharged the VAT on their works contract service. Therefore, both criteria that the execution of the work with material and on such construction service the appellant have discharged the VAT is satisfied, this clarifies that the service is Works contract Service. The appellant have admittedly paid the service tax on the works contract service for the relevant period of this case, therefore in our considered view, the construction service provided by the appellant is correctly classifiable under works contract service. Hence, the demand under Commercial or Industrial Construction Service is not sustainable.
4.3 As regard the issue whether the cost of material supplied free by the service recipient is includible in the gross value of works contract service, the issue is no longer res- integra as the same has been decided by the Hon’ble Supreme Court in the case of CST Vs. Bhayana Builders (P) Ltd – 2018 (10) GSTL 118 (SC). Moreover considering the Apex Court judgment this Tribunal in the appellant’s own case decided the issue in the favour of the appellant vide Final Order No. A/10425/2019 dated 28.02.2019. The said decision is reproduced below:-
“The issue involved is whether for the purpose of granting exemption under Notification No. 15/2004-ST, the value of the free supplies material should be added in gross value of Commercial or Industrial Construction Service.
2. Shri N.V. Shuchak Ld. Chartered Accountant appearing on behalf of the appellant at the outset submits that this issue has been settled in the case of Bhayana Builder (P) Ltd. Vs. Commissioner of Service Tax-2018 (10) GSTL 118 (SC).
3. Shri. A. Mishra Ld. Joint Commissioner (AR) appearing on behalf of the Revenue reiterates the finding of the impugned order.
4. Considering the submissions made by both the sides and perusal of the records, we find that the issue in question has been settled by Hon’ble Supreme Court, therefore, for the purpose of computing the gross value of Commercial or Industrial Construction Service value of free supplies material by the service recipient need not be added in the gross Value of service. Accordingly, the issue is covered by the said judgment. The impugned order is set aside and appeal is allowed.”
4.4 In view of the above settled position of law, this second issue also stands settled in favour of the appellant.
5. Accordingly, the demand in the present case is not sustainable.
Hence, the impugned order is set aside. Appeal is allowed.
(Pronounced in the open court on 03.08.2023 )
