No Demand Under CICS or CRCS Could Survive Against Works Contract Involving Composite Contracts Prior To 01.06.2007: CESTAT

The Chennai Bench of Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) has held that if works contract service was undertaken prior to June 1, 2007, involving contracts of composite nature, no demand under Commercial or Industrial Construction Service (CICS) or Construction of Complex Service (COCS) could survive.

The bench of P. Dinesha (Judicial Member) and M. Ajit Kumar (Technical Member) has observed that the appellant had undertaken construction of residential complex services on the strength of composite contracts entered into with its customers, which involved the sale of goods, i.e., construction materials, and also the service of construction.

The appellant/assessee is a proprietary concern engaged in providing construction services and having registration under the category of commercial construction service with effect from October 26, 2004. The appellant even took registration under ‘works contract service’ with effect from September 20, 2007, upon the insertion of works contract service in the statute with effect from June 1, 2007.

There was doubt in the mind of the Department as regards the advances received from the appellant’s clients, which had resulted in the exchange of letters, starting with a letter followed by a summons. In response to the summons, it appears that the appellant responded by furnishing party-wise information (contract-wise), bills raised, month-wise value received from parties, etc., as sought, for the period from 2004-05 to 2008-09. The assessee had opted for the composition scheme under the works contract service.

The Show Cause Notice came to be issued, proposing to demand tax under Section 67 of the Finance Act, 1994. It was alleged that the appellant had suppressed amounts of advance received and had suppressed the value of goods and materials supplied, provided, or used by them, along with applicable interest and penalties.

The appellant contended that the department erred in demanding the differential service tax on the taxable value declared in the S.T.-3 return under CICS. The department denied the appellant the benefit of the composition scheme solely on the ground that all the ongoing projects entered into before June 2007, for which the composition scheme was not available with the introduction of the works contract service effect from June 1, 2007, were not justified. Hence, the full rate was charged on the gross value of income without any abatement.

The tribunal relied on the decision of the Supreme Court in the case of Commissioner of Central Excise and Customs, Kerala v. M/s. Larsen & Toubro Ltd., in which it was held that no demand under CICS or CRCS could survive against works contract services involving composite contracts prior to June 1, 2007.

Counsel For Appellant: N. Viswanathan

Counsel For Respondent: P.R.V. Ramanan

Case Title: M/s. Mertho Constructions Versus Commissioner of Central Excise

Case No.: Service Tax Appeal No. 40398 of 2015

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