CESTAT Rules Building Construction with Material as 'Works Contract Service'

In a pivotal ruling, the Ahmedabad bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has classified the service of construction of new buildings or civil structures, when provided with material, as falling under the category of 'works contract service.'

The case centered on Kirti Infrastructures Ltd, the appellant assessee. They were engaged in providing the service of construction of a new building or a civil structure along with material.

The Revenue Department had been classifying such services under the category of "Commercial or Industrial Construction service."

This led to the legal dispute.

Kirti Infrastructures Ltd countered this classification, asserting that they provided the construction service along with material. To support their claim, the assessee submitted a Value Added Tax (VAT) return, indicating that they had discharged the VAT on the works contract service.

The CESTAT's decision to recognize the construction of new buildings or civil structures, when provided with material, as 'works contract service' provides clarity on the matter and underscores the importance of understanding the nuances of tax classifications.

This ruling is particularly significant for construction companies and professionals, emphasizing the need to be aware of legal developments and the potential implications for the classification and taxation of services.

Court Name : CESTAT Ahmedabad

Parties : Kirti Infrastructures Ltd vs C.C.E. & S.T

Decision Date : 03 August 2023

Judgement ref : Service Tax Appeal No. 10879 of 2013-DB

Final Order No. A/ 11654 /2023

DATE OF HEARING: 05.04.2023

DATE OF DECISION: 03.08.2023

RAMESH NAIR

The issue involved in the present case are that

(i) Whether the service of construction of a new building or a civil

structure or a part there of as it turnkey project of construction

during the period from 21.06.2007 to 31.07.2009 should be

classified under Commercial or Industrial Construction Service

as defined under Section 65 (25b) of the Finance Act, 1994

(ii) Whether the appellant is required to include the value of free

supplied material or provided by a client/ service receiver in the

value of taxable service.

2. Shri Nilesh Suchak, Learned Counsel appearing on behalf of the

appellant at the outset submits that with effect from 01.06.2007, the new

service namely Works Contract Service was made effective , classification

of aforesaid service would undergone a change in case of long term

contracts even though part of the service was classified under respective

taxable service prior to 01.06.2007. This is because the works contract

describes the nature of activity more specifically and therefore as per the

provision of Section 65A of the Finance Act, 1994 it would be appropriate

classification for the part of the service provided after that date. He placed reliance on the CBEC Board Circular No 128/10/2010-ST dated 24.08.2010 and this Tribunal decision in the case of JMC Projects India Ltd Vs. CST – 2014 (35) STR 577 (Tri. Ahmd).

2.1 He submits that the appellant has discharged the VAT on the Works

Contract considering the same as a deemed sale and the contract was

executed for service and supply of goods together.

2.2 As regard the issue of free supply of material by the service recipient

for execution of works contract, he submits that this issue is no longer res-integra as the same has been decided by the Hon’ble Supreme Court in

the case of the CST Vs. Bhayana Builders (P) Ltd – 2018 (10) GSTL 118

(SC). He also relied upon the CESTAT decision vide Final Order No.

A/10425/2019 dated 28.02.2019 in their own case in Appeal No.

ST/43/2011-DB.

2.2 He submits that the appellant had classified its services under works

contract service and paid the due service tax under the said category during

the period from 21.06.2007 to 31.07.2009. Based on their bona fide belief

that the new category of works contract service from 01.06.2007 more

specifically covers its services. In this fact there is no suppression of fact on the part of the appellant, hence the entire demand of service tax for the period 21.06.2007 to 31.07.2009 and show cause notice was issued on

12.07.2011 is hopelessly time bar as the show cause notice was served

beyond the normal limitation period of one year.

3. Shri Prakash Kumar Singh, Learned Superintendent (AR) appearing on

behalf of the Revenue reiterates the finding of the impugned order.

4. We have carefully considered the submission made by both sides and

perused the records. We find that the demand was raised under the category

of Commercial or Industrial Construction Service for the period 21.07.2007

to 31.07.2009. With effect from 01.06.2007, a particular nature of the

construction service was brought under works contract service for which

certain conditions are required such as execution of project with material

and the assessee paid VAT under works contract. During hearing, on the

direction of this bench the appellant have submitted sample copies of the

purchase order issued by the service recipient M/s. Torrent Pharmaceuticals

Ltd. The same are scanned below:-

4.1 From the above purchase orders in clause 8 (b) it clearly reveals that

the construction service was provided by the appellant along with material.

The appellant has submitted VAT return to claim that they have discharged

the VAT on the works contract service. The sample copy of the VAT Form

216 evidencing payment of VAT under composition scheme is scanned

below:-

4.2 From the above VAT return it is clear that the appellant have

discharged the VAT on their works contract service. Therefore, both criteria

that the execution of the work with material and on such construction

service the appellant have discharged the VAT is satisfied, this clarifies

that the service is Works contract Service. The appellant have admittedly

paid the service tax on the works contract service for the relevant period

of this case, therefore in our considered view, the construction service

provided by the appellant is correctly classifiable under works contract

service. Hence, the demand under Commercial or Industrial Construction

Service is not sustainable.

4.3 As regard the issue whether the cost of material supplied free by the

service recipient is includible in the gross value of works contract service, the issue is no longer res- integra as the same has been decided by the Hon’ble Supreme Court in the case of CST Vs. Bhayana Builders (P) Ltd –

2018 (10) GSTL 118 (SC). Moreover considering the Apex Court judgment

this Tribunal in the appellant’s own case decided the issue in the favour of

the appellant vide Final Order No. A/10425/2019 dated 28.02.2019. The said

decision is reproduced below:-

“ The issue involved is whether for the purpose of granting exemption

under Notification No. 15/2004-ST, the value of the free supplies material

should be added in gross value of Commercial or Industrial Construction

Service.

2. Shri N.V. Shuchak Ld. Chartered Accountant appearing on behalf of

the appellant at the outset submits that this issue has been settled in the

case of Bhayana Builder (P) Ltd. Vs. Commissioner of Service Tax-2018

(10) GSTL 118 (SC).

3. Shri. A. Mishra Ld. Joint Commissioner (AR) appearing on behalf of the

Revenue reiterates the finding of the impugned order.

4. Considering the submissions made by both the sides and perusal of

the records, we find that the issue in question has been settled by Hon’ble

Supreme Court, therefore, for the purpose of computing the gross value

of Commercial or Industrial Construction Service value of free supplies

material by the service recipient need not be added in the gross Value of

service. Accordingly, the issue is covered by the said judgment. The

impugned order is set aside and appeal is allowed.”

4.4 In view of the above settled position of law, this second issue also

stands settled in favour of the appellant.

5. Accordingly, the demand in the present case is not sustainable.

Hence, the impugned order is set aside. Appeal is allowed.

(Pronounced in the open court on 03.08.2023 )

RAMESH NAIR

MEMBER (JUDICIAL)

C.L.MAHAR

MEMBER (TECHNICAL)

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Customs, Excise & Service Tax Appellate Tribunal

West Zonal Bench at Ahmedabad

REGIONAL BENCH- COURT NO. 3

Service Tax Appeal No. 10879 of 2013-DB

(Arising out of OIA-SRP/548/VDR-II/2013 dated 13/03/2013 passed by Commissioner of

Central Excise, Customs and Service Tax-VADODARA-II)

Kirti Infrastructures Ltd ........Appellant

18, Fatehgunj, Vadodara, Gujarat

VERSUS

C.C.E. & S.T.-Vadodara-ii .....Respondent

1st Floor... Room No.101,

New Central Excise Building, Vadodara, Gujarat - 390023

APPEARANCE:

Shri Nilesh Suchak, Chartered Accountant for the Appellant

Shri Prakash Kumar Singh, Superintendent (AR) for the Respondent

CORAM: HON'BLE MEMBER (JUDICIAL), MR. RAMESH NAIR

HON'BLE MEMBER (TECHNICAL), MR. C.L.MAHAR