ST - Works Contract - Certain Works for Government - Stay granted on basis of Board Circular and pervious decisions: CESTAT
By TIOL News Service
BANGALORE, NOV 24, 2011: THESE appellants seek waiver of pre-deposit and stay of recovery in respect of various amounts of service tax and penalties determined by the Commissioner in adjudication of various show-cause notices for the period June, 2007 to September, 2008. The impugned demands of service tax are under the head 'works contract service', which is taxable w .e. f. 01/06/2007.
These are demands raised on the amounts collected by the appellants from the Government of Andhra Pradesh for execution of certain works awarded by the Government. The contract awarded by the Government to each of the appellants was sub-contracted to one or the other constituents of the partnership of the same JV and the latter undertook the work. The JVs (partnerships) did not pay service tax. The Department issued show-cause notices for recovery of service tax from these JVs alleging that the work undertaken by them through sub-contractors constituted 'works contract' as defined under Section 65(105)(zzzza) of the Finance Act, 1994 and that they were liable to pay service tax on the gross amount collected from their client (Government of Andhra Pradesh).
In separate orders passed by the Commissioner in adjudication of the show-cause notices, the demands were confirmed against the JVs and penalties were imposed on them.
The Counsel for the appellants has made two-fold submissions on merits.
His first contention is that the work in question in each case is public welfare / utility project and hence excluded from the levy of service tax under the head 'works contract service'.
Secondly, the work would not constitute works contract inasmuch as there was no transfer of property in the goods consumed in the execution of the work, from the appellants to the Government of Andhra Pradesh.
In this connection, Counsel has heavily relied on Supreme Court's judgment in State of Andhra Pradesh Vs. Larsen & Tourbo Ltd. (2008- TIOL-158-SC-VAT) wherein, in the context of dealing with the question whether certain turnover of sub-contractor was liable to be added to the turnover of the main contractor (L&T) for the purpose of levy of VAT, their lordships examined the legal position with regard to transfer of property in the goods consumed in the execution of the work undertaken by the contractor through the sub-contractor. Their lordships held that the property of such goods should be considered to have been transferred directly from the subcontractor to the client. In other words, there was a deemed sale by the sub-contractor to the client. On the strength of this decision of the Supreme Court, Counsel has contended that, in the instant case, it cannot be said that there was transfer of the property in the goods consumed in the execution of the work, from the JV firm to the Government of Andhra Pradesh.
Counsel has also referred to some of the specimen work orders in his endeavour to show that the works undertaken as per these orders did not constitute works contract for purposes of Section65(105)(zzzza). Counsel has also claimed support from the Board's Circular No.123/5/2010-TRU, dt. 24/5/2010 wherein the definition of 'works contract' was clarified.
It is argued that, if two or more activities should be comprised in works contract, they should be severally also be shown to be taxable services. On this test also, according to the Counsel, the activity undertaken by the JVs through their sub-contractors would not qualify to be 'works contract service'.
Counsel has also prayed for waiver of predeposit and stay of recovery in view of certain stay orders passed by this Tribunal in similar cases viz. Ramky Infrastructure Ltd. Vs. CCE - (2010-TIOL-699-CESTAT-BANG), Ramkay Infrastructure Ltd. Vs. CCE - (2011-TIOL-1097-CESTAT-BANG) and Nagarjuna Construction Co. Vs. CCE - (2011-TIOL-1493-CESTAT-BANG). It is submitted that, on similar set of facts, waiver and stay were granted in those cases.
After considering the submissions, Tribunal was of the view that the issues raised in this case are highly debatable and that, for the present purpose, the precedent cited by the Counsel can be followed. Tribunal perused the stay orders cited by him and have found that waiver and stay were granted on similar facts in favour of those parties. Prima facie , the Board's clarification works in favour of the present appellants. In this view of the matter, waiver of predeposit and stay of recovery are allowed in respect of the amounts adjudged against the appellants.
CA. Mukesh Saran
M.Com.,FCA, ISA-ICAI
By TIOL News Service
BANGALORE, NOV 24, 2011: THESE appellants seek waiver of pre-deposit and stay of recovery in respect of various amounts of service tax and penalties determined by the Commissioner in adjudication of various show-cause notices for the period June, 2007 to September, 2008. The impugned demands of service tax are under the head 'works contract service', which is taxable w .e. f. 01/06/2007.
These are demands raised on the amounts collected by the appellants from the Government of Andhra Pradesh for execution of certain works awarded by the Government. The contract awarded by the Government to each of the appellants was sub-contracted to one or the other constituents of the partnership of the same JV and the latter undertook the work. The JVs (partnerships) did not pay service tax. The Department issued show-cause notices for recovery of service tax from these JVs alleging that the work undertaken by them through sub-contractors constituted 'works contract' as defined under Section 65(105)(zzzza) of the Finance Act, 1994 and that they were liable to pay service tax on the gross amount collected from their client (Government of Andhra Pradesh).
In separate orders passed by the Commissioner in adjudication of the show-cause notices, the demands were confirmed against the JVs and penalties were imposed on them.
The Counsel for the appellants has made two-fold submissions on merits.
His first contention is that the work in question in each case is public welfare / utility project and hence excluded from the levy of service tax under the head 'works contract service'.
Secondly, the work would not constitute works contract inasmuch as there was no transfer of property in the goods consumed in the execution of the work, from the appellants to the Government of Andhra Pradesh.
In this connection, Counsel has heavily relied on Supreme Court's judgment in State of Andhra Pradesh Vs. Larsen & Tourbo Ltd. (2008- TIOL-158-SC-VAT) wherein, in the context of dealing with the question whether certain turnover of sub-contractor was liable to be added to the turnover of the main contractor (L&T) for the purpose of levy of VAT, their lordships examined the legal position with regard to transfer of property in the goods consumed in the execution of the work undertaken by the contractor through the sub-contractor. Their lordships held that the property of such goods should be considered to have been transferred directly from the subcontractor to the client. In other words, there was a deemed sale by the sub-contractor to the client. On the strength of this decision of the Supreme Court, Counsel has contended that, in the instant case, it cannot be said that there was transfer of the property in the goods consumed in the execution of the work, from the JV firm to the Government of Andhra Pradesh.
Counsel has also referred to some of the specimen work orders in his endeavour to show that the works undertaken as per these orders did not constitute works contract for purposes of Section65(105)(zzzza). Counsel has also claimed support from the Board's Circular No.123/5/2010-TRU, dt. 24/5/2010 wherein the definition of 'works contract' was clarified.
It is argued that, if two or more activities should be comprised in works contract, they should be severally also be shown to be taxable services. On this test also, according to the Counsel, the activity undertaken by the JVs through their sub-contractors would not qualify to be 'works contract service'.
Counsel has also prayed for waiver of predeposit and stay of recovery in view of certain stay orders passed by this Tribunal in similar cases viz. Ramky Infrastructure Ltd. Vs. CCE - (2010-TIOL-699-CESTAT-BANG), Ramkay Infrastructure Ltd. Vs. CCE - (2011-TIOL-1097-CESTAT-BANG) and Nagarjuna Construction Co. Vs. CCE - (2011-TIOL-1493-CESTAT-BANG). It is submitted that, on similar set of facts, waiver and stay were granted in those cases.
After considering the submissions, Tribunal was of the view that the issues raised in this case are highly debatable and that, for the present purpose, the precedent cited by the Counsel can be followed. Tribunal perused the stay orders cited by him and have found that waiver and stay were granted on similar facts in favour of those parties. Prima facie , the Board's clarification works in favour of the present appellants. In this view of the matter, waiver of predeposit and stay of recovery are allowed in respect of the amounts adjudged against the appellants.
CA. Mukesh Saran
M.Com.,FCA, ISA-ICAI
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