We are pleased to
release a Tax Alert on the decision of the five member Larger Bench of the
Delhi Tribunal [2015-VIL-147-CESTAT-DEL-ST-LB], regarding the taxability of
service element in works contract prior to 1 June 2007.
The issue for consideration for the Larger Bench was whether the activity of civil and industrial construction and erection, installation and commissioning, although taxable as “Works contract service” under Section 65(105)(zzzza) of the Finance Act, 1994 w.e.f 1 June 2007, was also taxable prior to 1 June 2007.
Out of the five members, the President and the Judicial member concluded that such a composite contract cannot be vivisected so as to make the service components in the works contract subject to Service tax prior to 1 June 2007. The service component in works contract is to be made taxable only under “Works contract service” which was introduced w.e.f. 1 June 2007.
The other three Technical members vide distinct orders concluded to the contrary. They were of the view that the issue referred to the Larger Bench was fully and squarely covered by the decision in the case of G.D. Builders & Ors. Vs. UoI & Anr. [2013 (32) STR 673], and consequently, it has to be held that a composite works contract can be vivisected, and the service element can be taxable even prior to 1 June 2007.
In view of the majority decisions (3-2), it was held that service elements in a composite contract could be made liable to Service tax prior to 1 June 2007 as well, if these are appropriately classifiable under “Commercial or Industrial construction services”, “Construction of Complex services” or “Erection, Commissioning or Installation services”.
The issue for consideration for the Larger Bench was whether the activity of civil and industrial construction and erection, installation and commissioning, although taxable as “Works contract service” under Section 65(105)(zzzza) of the Finance Act, 1994 w.e.f 1 June 2007, was also taxable prior to 1 June 2007.
Out of the five members, the President and the Judicial member concluded that such a composite contract cannot be vivisected so as to make the service components in the works contract subject to Service tax prior to 1 June 2007. The service component in works contract is to be made taxable only under “Works contract service” which was introduced w.e.f. 1 June 2007.
The other three Technical members vide distinct orders concluded to the contrary. They were of the view that the issue referred to the Larger Bench was fully and squarely covered by the decision in the case of G.D. Builders & Ors. Vs. UoI & Anr. [2013 (32) STR 673], and consequently, it has to be held that a composite works contract can be vivisected, and the service element can be taxable even prior to 1 June 2007.
In view of the majority decisions (3-2), it was held that service elements in a composite contract could be made liable to Service tax prior to 1 June 2007 as well, if these are appropriately classifiable under “Commercial or Industrial construction services”, “Construction of Complex services” or “Erection, Commissioning or Installation services”.
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