M/S. TOTAL ENVIRONMENT BUILDING SYSTEMS PVT. LTD. v. THE DEPUTY COMMISSIONER OF COMMERCIAL TAXES & ORS.

A clause (zzzza) to clause 105 of Section 65 of the Finance Act,

1994. Ultimately, in para 23 it was observed as under:- “23. A close look at the Finance Act, 1994 would show that the five taxable services referred to in the charging Section 65(105) would refer only to service contracts simpliciter and not to composite works contracts. This is clear from the very language of Section 65(105) which defines “taxable service” as “any service provided”. All the services referred to in the said sub-clauses are service contracts simpliciter without any other element in them, such as for example, a service contract which is a commissioning and installation, or erection, commissioning and installation contract. Further, under Section 67, as has been pointed out above, the value of a taxable service is the gross amount charged by the service provider for such service rendered by him. This would unmistakably show that what is referred to in the charging provision is the taxation of service contracts simpliciter and not composite works contracts, such as are contained on the facts of the present cases. It will also be noticed that no attempt to remove the non-service elements from the composite works contracts has been made by any of the aforesaid sections by deducting from the gross value of the works contract the value of property in goods transferred in the execution of a works contract.” It was also observed that while introducing the concept of service tax on service element of indivisible works contract various exclusions are also made, such as, works contract in respect of roads, airport, airways transport, bridges, tunnels and dams, possibly in the national interest. The implication of the exclusion means that such contracts were never intended to be the subject-matter of the service tax. e) Further, in Larsen & Toubro Ltd. (supra) the correctness of the judgment in G.D. Builders vs. Union of India [(2013) 32 G STR 673] was also considered. In the said case, it was held by the Delhi High Court that Section 65(105)(g), (zzd), (zzh), (zzq) and (zzzh) were good enough to tax indivisible composite works contract and that even when rules are yet to be framed for computation of taxes, taxes would be leviable. This proposition H was based on the judgment in Mahim Patram (P) Ltd. vs. Union

M/S. TOTAL ENVIRONMENT BUILDING SYSTEMS PVT. LTD. v. THE 927 DEPUTY COMM’R OF COMMERCIAL TAXES [B. V. NAGARATHNA , J.]

of India [(2007) 3 SCC 668]. It was observed that in G.D. A Builders (supra) there was a misreading of Mahim Patram (supra) which was a case related to tax under the Central Sales Tax Act; that in Mahim Patram (supra), it was observed that under Section 9(2) of the Central Sales Tax Act power is conferred on officers of various States to utilise the machinery provided under the provisions of the States’ sales tax statutes for the purposes of levy and assessment of Central Sales Tax under the Central Act. That Rules could also be made in exercise of power under Section 13(3) of the Central Sales Tax Act as a result of which the necessary machinery for the assessment of Central Sales Tax was found to be there. Therefore, even in the absence of Rules made under the Central Sale Tax Act the machinery provided under the State Sales Tax statute for the purpose of levy and assessment Central Sales tax under the Central Act could be utilized and the same is different from saying that no Rules being framed at all under the Central Sale Tax Act. Merely because no rules were framed for computation under the Central sales tax Act it did not follow that no tax was leviable under the said Act. Hence, the observations of the Delhi High Court in G.D. Builders were not approved. f)With specific reference to para 51 of the judgment of the Delhi High Court in G.D. Builders case (supra), it was observed that the said judgment had ignored the decision by this Court in Gannon Dunkerley II (supra) inasmuch as the manner of bifurcation of the service element from a composite works contract was delineated in the said case. That the service element had to be deducted from the gross amount charged thereof and not the gross amount of the works contract as a whole from which various deductions have to be made to arrive at the service element in the said contract. Therefore, it was held that G.D. Builders (supra) was not correctly decided by observing in paragraph 39 as under after quoting paragraph 31 of the judgment of Delhi High Court in G.D. Builders: G

“We are afraid that there are several errors in this paragraph. The High Court first correctly holds that in the case of composite works contracts, the service elements should be bifurcated, ascertained and then taxed. The finding that this has, in fact, H

p. 928 Copy page pinpoint

A been done by the Finance Act, 1994 Act is wholly incorrect as it ignores the second Gannon Dunkerley [(1993) 1 SCC 364] decision of this Court. Further, the finding that Section 67 of the Finance Act, which speaks of “gross amount charged”, only speaks of the “gross amount charged” for service provided and not the gross amount of the works contract as a whole from which various deductions have to be made to arrive at the service element in the said contract. We find therefore that this 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 contracts.” It was categorically observed that since the Finance Act, 1994 lays down no charge or machinery to levy and assess service tax on indivisible composite works contract, therefore, service tax was not existent at all under the Act and hence any exemption qua service tax “levied” did not arise at all. (8) As already noted, the definition of works contract was brought under the service tax net as per Section 65(105)(zzzza) of the Finance Act, 1994 by the insertion of the said definition. The said introduction was made pursuant to the Finance Act, 2007, which expressly made the service element in such works contract liable to service tax w.e.f. 1st June, 2007. By the said amendment, works contract which were indivisible and composite could be split so that only the labour and service element of such contracts would be taxed under the heading “Service Tax”. 9) It is in the above backdrop that the definition of Works contract inserted for the first time by virtue of Section 65(105)(zzzza) under the Finance Act, 2007 assumes significance and has to be applied w.e.f. 1st June, 2007. Thus, on and from the enforcement of the amendment in the Financial Year 2007, i.e. 1st June, 2007 the tax on the service component of works contract became leviable. Therefore, till then it was not so leviable as there was no concept of works contract under the said Act. G 10) Recognising this aspect of the matter in Larsen and Toubro Ltd. (supra), this Court held that Service Tax on works contract was not leviable, meaning thereby, that such tax on the service component of works contract as defined above did not attract Service Tax prior to the amendment. H

M/S. TOTAL ENVIRONMENT BUILDING SYSTEMS PVT. LTD. v. THE 929 DEPUTY COMM’R OF COMMERCIAL TAXES [B. V. NAGARATHNA , J.]

11) Further, in Commissioner of Service Tax and Others vs. A Bhayana Builders Private Limited and Others [(2018) 3 SCC 782], this Court considered the correctness of the judgment of the Larger Bench of Customs, Excise and Service Tax Appellate Tribunal (for short, “CESTAT”) dated 06.09.2013 in the case of Bhayana Builders (P) Ltd. vs. CST [(2013) SCC OnLine CESTAT 1951]. In the said case, B reliance was placed on Larsen and Toubro Ltd. (supra) and it was held that when there was no levy of service tax on works contract, no question of any exemption would arise. It was further held that the Central Government is empowered to grant exemption from the levy of service tax either wholly or partially, only when there is any “taxable service” as defined in sub-clauses of clause (105) of Section 65 of the Finance Act, C 1994 and not otherwise. This Court agreed with the view taken by the Full Bench of the CESTAT in the judgment dated 06.09.2013 and dismissed the appeals of the Revenue. 12) Therefore, reliance placed by the assesses in the present case on the aforesaid judgments is just and proper. On the other hand, the contention of Ms. Diwan, learned ASG to the effect that even prior to the aforesaid amendment being made to the Finance Act, 1994 service tax on works contract was leviable is not correct. It was being levied on purely service contract and not on service element of works contract as there was no definition of a works contract till then. Hence, the amendment made to the Finance Act, 1994 by insertion of the definition of works contract as under clause (zzzza) is not clarificatory in nature. Having found that the Service Tax was not at all leviable on service element of a works contract, Parliament felt the need for the amendment and was so incorporated by the Finance Act, 2007. 13) Thus, the judgment in Larsen and Toubro Ltd. (supra) has been correctly decided and does not call for a reconsideration insofar as the period prior to 1st June, 2007 is concerned. In view of the above discussion, I agree with the result arrived at by His Lordship M.R. Shah J. vis-à-vis allowing all civil appeals under consideration except Civil Appeal no. 6792 of 2010 which is dismissed. No costs. G

Nidhi Jain Appeals disposed of. (Assisted by : Pragya Samal, LCRA)