Monday, 24 August 2015

Supreme Court rules that no Service tax shall be levied on the service element in composite works contracts prior to 1 June 2007

We are pleased to release a Tax Alert on the decision of the Supreme Court (SC) regarding the levy of Service tax on indivisible and composite works contract prior to the introduction of Works Contract Service w.e.f. 1 June 2007.

The SC reversed the majority decision of the Larger Bench of the Delhi Tribunal and held that in the absence of charge or machinery to levy and assess Service tax on indivisible and composite works contracts, Service tax shall not be levied on the service element in such contracts for the period prior to 1 June 2007.

The five taxable services specified under Section 65(105) of the Finance Act, 1994 refer only to service contracts simpliciter and not to composite works contracts.

The Apex Court also overruled the decision of the Delhi High Court in the case of G.D. Builders and thus observed that the judgment is wholly incorrect in its conclusion that the Finance Act, 1994 contains both the charge and machinery for levy and assessment of Service tax on indivisible works contract.



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