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.

SATENDRA VIKRAM SINGH

1. M/s. Jagaji Construction Company, Vadodara (Appellant) have been awarded a contract dated 17.07.2006 by M/s. BLB Mall Management Company Pvt. Ltd. to construct a shopping mall (BLB Mall) at Sarabhai Industries, Vadodara at a cost of Rs. 6,55,41,780/- including all direct and indirect costs, duty, taxes, sale tax, VAT, service tax on any inputs, royalty on quarried items etc. The construction which began in October 2006, was completed in March, 2008 on Rate Contract basis. The basic rate for cement and steel was taken as Rs.200/- per bag and Rs.27,500/- per MT respectively. On the basis of intelligence that appellant was not paying proper service tax, an enquiry was initiated against them in Jan 2010. Vide letter dated 24.03.2010, the appellant confirmed to have received an amount of Rs.6,27,36,379/- for construction of BLB Mall during the period from December 2006 to 2008-09 which included TDS, VAT and security deposit but not the service tax.

1.1 Scrutiny of ST-3 returns revealed that the appellant had paid service tax of Rs.7,66,424/- in 2007-2008 on taxable value of Rs.3,70,64,728/- and service tax of Rs.64,114/- in 2008-09 on taxable value of Rs.31,12,351/- under Work Contract (Composition Scheme For Payment of Service Tax) Rules, 2007 inserted vide Notification No.32/2007-ST dated 22.05.2007. Vide letter dtd 06.05.2010, M/s. BLB Mall intimated supply of 933.355 MT of steel to the appellant for execution of said work. The officers recorded statements of Shri Anilbhai D Patel, Proprietor of the firm on 28.05.2010. After conducting investigation, a show cause notice dated 13.03.2012 was issued to appellant proposing recovery of service tax of Rs.35,93,850/- by invoking proviso to Section 73 (1) of the Finance Act, 1994 , along with interest under Section 75 and penalties under Sections 76 ,77 and 78 of the . The notice also alleged failure of the appellant to obtain registration under Commercial or Industrial Construction Service at the relevant time, failure to assess due service tax and pay the same and non-filing of ST-3 returns for the said service.

1.2 In adjudication, the Additional Commissioner vide order dated 28.02.2013 confirmed the proposed demand of service tax along with interest and imposed equal penalty under Section 78 of the Finance Act, 1994 besides penalty under Section 76 and a penalty of Rs.5,000/- under Section 77 (2). Aggrieved with this order, the appellant filed appeal before the Commissioner (Appeals) who vide impugned order dtd. 08.10.2013 upheld the order and rejected their appeal. Hence, the present appeal before this Tribunal.

2. In their appeal, appellant took the following grounds:-

• The work undertaken by them amounts to works contract for the purpose of State’s sales tax/ VAT laws. They have paid substantial sales tax on materials used in construction of mall and attached proof of the payment of sales tax.

• Hon’ble Tribunal as well as Hon’ble Apex Court have held that composite works contract cannot be artificially vivisected and subjected to levy of service tax under different category of Service. They cited the following case laws:-

a) M/s. Daelim Industrial Co. Ltd. v/s. CCE, Vadodara 2003 (155) ELT 457 (Tri Del.) {Also upheld by Apex Court vide 2004 (170) ELT A181 (SC)}.

b) L & T Ltd. v/s. CCE, Cochin 2004 (174) ELT 322 (Tri. Del.)

c) Petrofac International Ltd. Vs., CCE, Cochin 2004 (178) ELT 725 (Tri. Bang.)

d) IN RE: ISHIKAWAJIMA-HARIMA HEAVY IND. CO. LTD. 2005 (182) ELT 281 (Commr. Appl.)

e) Ircon International V/s. CCE, Mumbai 2005 2 STT 264 (Tri-Del)

f) CCE Vadodara v/s. L&T Ltd. 2006(4) STR 63(Tri-Mum)

g) M/s. Orissa Sponge Iron Ltd. 2007-TIOL-1091-CESTAT-BHUW h) M/s. Turbotech Precision Engg. Pvt. Ltd. 2006 (3) S.T.R. 765 (Tri. - Bang)

• Hon’ble Apex Court in the case of Imagic Creative Pvt. Ltd. 2008 (9) STR 337 (SC) specifically prohibited levy of sales tax on service element of a composite contract. For the same reasons, no service tax can be levied on t