Case Law Details
Ashoka Bricks Industries (P) Limited Vs Commissioner of Central Excise (CESTAT Kolkata)
Introduction: Ashoka Bricks Industries (P) Limited contested against a demand for Service Tax under the category of “commercial or industrial construction service” in the case against the Commissioner of Central Excise. The contention arose from a work order awarded by Orissa Power Generation Corporation Ltd. The case unveils crucial insights into the classification of services under Service Tax laws.
Analysis: The central issue revolved around the classification of the service provided by Ashoka Bricks. While the Revenue asserted it as “commercial or industrial construction service,” the appellant argued for classification under “works contract service.” The adjudicating authority confirmed the demand under the former, leading to the appeal.
However, the appellate authority scrutinized the nature of the service provided. It observed that the service involved both materials and labor, indicative of a works contract. Referring to legal precedents, including judgments by the Supreme Court, it emphasized the distinctiveness of works contracts in taxation.
The analysis delved into the legislative framework, highlighting the nuanced interpretation of the term “works contract.” It elucidated that the taxable services mentioned in the Finance Act, 1994, primarily pertain to service contracts without additional elements like those in composite works contracts. Thus, the absence of a specific demand under the “works contract service” category rendered the demand unsustainable.
Conclusion: In the verdict, the appellate authority sided with Ashoka Bricks, setting aside the demand for Service Tax. It emphasized the correct classification of services under the “works contract service” category, in line with legal precedents and legislative intent. Additionally, it noted the inapplicability of the extended period of limitation in the case.
FULL TEXT OF THE CESTAT KOLKATA ORDER
The appellant is in appeal against the impugned order wherein the demand of Service Tax has been confirmed against them under the category of “commercial or industrial construction service”.
2. The facts of the case are that during the period from February 2006 to March 2008, the appellant was awarded a work order by Orissa Power Generation Corporation Ltd., IB Thermal Power Station, Banharpali, Dist. – Jharsuguda (hereinafter referred to as ‘ITPS’) for the work of strengthening of peripheral bund of ash pond ‘B’ and slope of the embankment of PST at ITPS. The said work was executed by the appellant and the scope of work was ‘providing and placing hard stone boulders on the slope of the embankment of PST of required thickness, including all cost of materials, labour, T&P, royalty taxes, etc.’ as directed by the service recipient.
2.1 The Revenue is of the view that during the said period, the appellant had provided the service of “commercial or industrial construction service” to the service recipient and therefore, they are liable to pay Service Tax in terms of Section 65(25b) of the Finance Act, 1994.
3. In view of these facts, a Show Cause Notice dated 26.04.2011 was issued to the appellant by invoking the extended period of limitation. The appellant contested the matter that the merit classification of the service is “works contract service”, but the adjudicating authority confirmed the demand under the category of commercial or industrial construction service. Aggrieved from the said order, the appellant is before us.
4. None appeared on behalf of the appellant nor has any request for adjournment been received from them. On perusal of the record, we find that the appeal itself can be disposed of at this stage and therefore, the appeal is taken up for disposal.
5. The Ld. Authorized Representative appearing on behalf of the respondent supported the impugned order.
6. Heard the Ld. Authorized Representative for the respondent and perused the record.
7. We find that it is a fact borne on the record that the appellant has provided the service along with materials. Therefore, the said service merits classification under the category of “works contract service”, which came into the Service Tax net with effect from 01.06.2007. Admittedly, the demand has not been raised against the appellant under works contract service. In these circumstances, we follow the decision of the Hon’ble Apex Court in the case of Commissioner of C.Ex. & Cus., Kerala v. Larsen & Toubro Ltd. [2015 (39) S.T.R. 913 (S.C.)] wherein the Hon’ble Apex Court observed as under: –
“17. We find that the assessees are correct in their submission that a works contract is a separate species of contract distinct from contracts for services simpliciter recognized by the world of commerce and law as such, and has to be taxed separately as such. In Gannon Dunkerley, 1959 SCR 379, this Court recognized works contracts as a separate species of contract as follows :-
“To avoid misconception, it must be stated that the above conclusion has reference to works contracts, which are entire and indivisible, as the contracts of the respondents have been held by the learned Judges of the Court below to be. The several forms which such kinds of contracts can assume are set out in Hudson on Building Contracts, at p. 165. It is possible that the parties might enter into distinct and separate contracts, one for the transfer of materials for money consideration, and the other for payment of remuneration for services and for work done. In such a case, there are really two agreements, though there is a single instrument embodying them, and the power of the State to separate the agreement to sell, from the agreement to do work and render service and to impose a tax thereon cannot be questioned, and will stand untouched by the present judgment.” (at page 427)
18. Similarly, in Kone Elevator India (P) Ltd. v. State of T.N. – (2014) 7 SCC 1 = 2014 (34) S.T.R. 641 (S.C.) = 2014 (304) E.L.T. 3 (S.C.), this Court held :-
“Coming to the stand and stance of the State of Haryana, as put forth by Mr. Mishra, the same suffers from two basic fallacies, first, the supply and installation of lift treating it as a contract for sale on the basis of the overwhelming component test, because there is a stipulation in the contract that the customer is obliged to undertake the work of civil construction and the bulk of the material used in construction belongs to the manufacturer, is not correct, as the subsequent discussion would show; and second, the Notification dated 17-5-2010 issued by the Government of Haryana, Excise and Taxation Department, whereby certain rules of the Haryana Value Added Tax Rules, 2003 have been amended and a table has been annexed providing for “Percentages for Works Contract and Job Works” under the heading “Labour, service and other like charges as percentage of total value of the contract” specifying 15% for fabrication and installation of elevators (lifts) and escalators, is self-contradictory, for once it is treated as a composite contract invoking labour and service, as a natural corollary, it would be works contract and not a contract for sale. To elaborate, the submission that the element of labour and service can be deducted from the total contract value without treating the composite contract as a works contract is absolutely fallacious. In fact, it is an innovative subterfuge. We are inclined to think so as it would be frustrating the constitutional provision and, accordingly, we unhesitatingly repel the same.” (at para 60)
19. In Larsen & Toubro Ltd. v. State of Karnataka, (2014) 1 SCC 708 = 2014 (34) S.T.R. 481 (S.C.) = 2014 (303) E.L.T. 3 (S.C.), this Court stated :-
“In our opinion, the term “works contract” in Article 366(29-A)(b) is amply wide and cannot be confined to a particular understanding of the term or to a particular form. The term encompasses a wide range and many varieties of contract. Parliament had such wide meaning of “works contract” in its view at the time of the Forty-sixth Amendment. The object of insertion of clause (29A) in Article 366 was to enlarge the scope of the expression “tax on sale or purchase of goods” and overcome Gannon Dunkerley (1) [State of Madras v. Gannon Dunkerley and Co. (Madras) Ltd., AIR 1958 SC 560 : 1959 SCR 379]. Seen thus, even if in a contract, besides the obligations of supply of goods and materials and performance of labour and services, some additional obligations are imposed, such contract does not cease to be works contract. The additional obligations in the contract would not alter the nature of contract so long as the contract provides for a contract for works and satisfies the primary description of works contract. Once the characteristics or elements of works contract are satisfied in a contract then irrespective of additional obligations, such contract would be covered by the term “works contract”. Nothing in Article 366(29-A)(b) limits the term “works contract” to contract for labour and service only. The learned Advocate General for Maharashtra was right in his submission that the term “works contract” cannot be confined to a contract to provide labour and services but is a contract for undertaking or bringing into existence some “works”. We are also in agreement with the submission of Mr. K.N. Bhat that the term “works contract” in Article 366(29-A)(b) takes within its fold all genre of works contract and is not restricted to one specie of contract to provide for labour and services alone. Parliament had all genre of works contract in view when clause (29-A) was inserted in Article 366.” (at para 72)
20. We also find that the assessees’ argument that there is no charge to tax of works contracts in the Finance Act, 1994 is correct in view of what has been stated above.
…
24. A close look at the Finance Act, 1994 would show that the five taxable services referred to in the charging Section 65(105) would refer only to service contracts simpliciter and not to composite works contracts. This is clear from the very language of Section 65(105) which defines “taxable service” as “any service provided”. All the services referred to in the said sub-clauses are service contracts simpliciter without any other element in them, such as for example, a service contract which is a commissioning and installation, or erection, commissioning and installation contract. Further, under Section 67, as has been pointed out above, the value of a taxable service is the gross amount charged by the service provider for such service rendered by him. This would unmistakably show that what is referred to in the charging provision is the taxation of service contracts simpliciter and not composite works contracts, such as are contained on the facts of the present cases. It will also be noticed that no attempt to remove the non-service elements from the composite works contracts has been made by any of the aforesaid Sections by deducting from the gross value of the works contract the value of property in goods transferred in the execution of a works contract.”
7.1 In view of the above, we hold that the merit classification of the services rendered by the appellant is under works contract service. As no demand has been raised under the category of “works contract service”, therefore, no demand is sustainable against the appellant.
8. We also take note of the fact that the whole of the demand has been raised against the appellant by invoking the extended period of limitation. In the facts and circumstances of the case, the extended period of limitation is not invokable.
9. Therefore, the appellant succeeds on merits as well as on limitation.
10. In view of this, we set aside the impugned order and allow the appeal with consequential relief, if any.
(Dictated and pronounced in the open court)
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