Back
IN THE HIGH COURT OF DELHI AT NEW DELHI
Vibhu Bakhru, Amit Mahajan, JJ.
M/s Piyare Lal Hari Singh Builders Pvt. Ltd. – Appellant
Versus
Union of India & Anr. – Respondents
W.P.(C) 3544 of 2012
Decided On : 02-05-2023
Service Tax - Works Contract - Section 65(105)(zzq), Section 65(105)(zzzh), Section 65(105)(zzzza) - The court discussed the applicability of service tax on composite contracts involving transfer of goods and services. The judgment highlighted the interpretation of taxable services under Section 65(105) and the distinction between service contracts and composite works contracts. The court relied on the decision of the Supreme Court in Commissioner, Central Excise and Customs, Kerala v. Larsen and Toubro Limited (2016) 1 SCC 170 to conclude that composite works contracts involving transfer of goods and services are not covered under the taxable services under Section 65(105)(zzq) and (zzzh) of the Act.
Fact of the Case:
The petitioner contested the levy of service tax on composite contracts involving transfer of goods and services. The Adjudicating Authority confirmed the demand of service tax, education cess, interest, and penalties, which the petitioner challenged.
Finding of the Court:
The court found that the impugned order-in-original, which proceeded on the basis that composite contracts involving transfer of goods and services were covered under taxable services, cannot be sustained in light of the law laid down by the Supreme Court.
Issues: The issues revolved around the applicability of service tax on composite contracts, the classification of services under Section 65(105)(zzq) and (zzzh) of the Act, and the validity of the impugned order-in-original.
Ratio Decidendi: The court relied on the decision of the Supreme Court in Commissioner, Central Excise and Customs, Kerala v. Larsen and Toubro Limited (2016) 1 SCC 170 to establish that composite works contracts involving transfer of goods and services are not covered under the taxable services under Section 65(105)(zzq) and (zzzh) of the Act.
Final Decision: The court set aside the impugned order-in-original and remanded the matter to the Adjudicating Authority to adjudicate the show cause notices afresh in light of the law laid down by the Supreme Court.
JUDGMENT
Vibhu Bakhru, J. The petitioner has filed the present petition, inter alia, praying as under:
"A) issue writ of certiorari/mandamus or an appropriate Writ or order or direction against the Respondent by quashing the impugned sub-clause (zzq) of clause (105) read with clause (25b) and sub-clause (zzzh) of clause (105) read with clause (30a) and (91a) of section 65 (as amended) of Chapter V of the Finance Act, 1994 inasmuch as the levy of the service tax on the "works contract" per se as well as entry against Serial No.7, 7(a), 10 and 10(a) of Notification No.1/2006-ST, dated 01.03.2006 (as amended) by declaring the same are ultra vires the Constitution of India and section 64, 66 and 67 of the Finance Act, 1994 and against the constitutional scheme of the legislation for levying service tax in India and further quash the impugned demand of Rs.33,07,450/- confirmed in the Order-in-Original dated 28.03.2012 by the Respondent no.2 under the impugned provisions in respect of works contract.
B) issue a writ of certiorari/mandamus or any other appropriate Writ/order/direction declaring that the Parliament is not competent to levy service tax on works contract per se, hence, construction activity both commercial & residential using the materials (works contract) per se are not liable to service tax under the provisions of Chapter V of the Finance Act, 1994;"
2. It is the petitioner's case that it is not liable to pay any service tax either under Clause (zzzh) of Sub-section (105) of Section 65 of the Finance Act, 1994 (hereafter `the Act') or under Clause (zzq) of Sub-section (105) of Section 65 of the Act on the works executed by it pursuant to the composite contracts entered into for construction of residential/commercial flats.
3. The petitioner contends that the contracts executed by it are composite contracts, which entail provision of services as well as sale and purchase of goods.
4. Article 366 of the Constitution of India was amended by insertion of Sub-article (29A), which expressly provides for tax on sale and purchase of goods in respect of properties involved in the execution of works contract. The petitioner claims that since no machinery provision is available for separating the component relating to services in a composite contract, no service tax could be levied.
5. It is also the petitioner's case that Clauses (zzq) and (zzzh) of Sub-section (105) of Section 65 of the Act are not applicable to composite contracts; the said clauses apply only where the activity entails rendering of taxable services "in relation to commercial or industrial construction" and in relation to "construction of complex". The composite contract, which involves both service and supply of goods are not covered under the said descriptions, which relate solely to providing services.
6. The petitioner is aggrieved by the order-in-original dated 28.03.2012, whereby the Adjudicating Authority has confirmed the demand of Rs.33,07,450/- on the premise that the petitioner is rendering taxable services under Section 65(105)(zzq) and Section 65(105)(zzzh) of the Act (that is services in relation to "commercial or industrial construction" and in relation to "construction of complex"). Admittedly, Section 65(105) of the Act was amended by the Finance Act, 2007 by introducing Clause (zzzza) with effect from 01.06.2007 to include services "in relation to execution of a works contract". Admittedly, composite contracts are covered under taxable services under Section 65(105)(zzzza) of the Act. However, the Adjudicating Authority has held that it was not permissible for the petitioner to reclassify its services as works contract under Clause (zzzza) of Sub-section (105) of Section 65 of the Act and the services rendered by the petitioner would continue to be classified under Section 65(105)(zzq) and Section 65(105)(zzzh) of the Act.
7. The petitioner was registered under the provisions of the Act for payment of service tax under the category of "con
Taxable services referred only to service contracts simpliciter and not to composite works contracts.
Composite works contracts are exempt from service tax prior to June 1, 2007, and the value of free supplies is not to be included for service tax calculations prior to the 2009 amendment.
An indispensable Tool for Legal Professionals, Endorsed by Various High Court and Judicial Officers
Please visit our Training & Support
Center or Contact Us for assistance
Scan Me!
India’s Legal research and Law Firm App, Download now!
For Daily Legal Updates, Join us on :
Back to top
