"Pandal and Shamiana" Services Can't Be Charged With Service Tax Before 01.06.2007: CESTAT

The two-member bench headed by Justice Dilip Gupta (President) and P.V. Subba Rao (Technical Member) has observed that the appellant's contract involved provisions of services as well as supply/deemed supply of goods and they can only be classified under the head "works contract services".

The appellant/assessee is in the business of setting up stalls for various companies at exhibitions. The appellant had classified its services under the heads of erection, commissioning and installation service and commercial or industrial construction service prior to June 01, 2007. It has classified them as "work contract services" after June 01, 2007, when Section 65(105)(zzzza) was introduced as a separate taxable service in the Finance Act, 1994. Show cause notices were issued by the Revenue covering the period 2006-2007, 2016-2017. All the show cause notices proposed classifying the appellant's service under the head "Pandal and Shamiana" services and recovering differential duty from the appellant. The orders have demanded and confirmed the recovery of differential duty aggregating to Rs. 16.75 crores. The penalties were imposed under Sections 75, 77, and 78 of the Finance Act, 1994 upon the appellant.

The appellant submitted that the appellant provides "work contract service" by designing and constructing office interiors, customised exhibition booths and stalls, television studios, and retail fit-outs. Its services include the layout and design of exhibition or interior space as per client's design; fabricating and installing interior projects as per client's design.

The clients of the appellant are corporations, multinational companies, government agencies, different trading associations, etc., who set up stalls and pavilions at exhibitions to promote their own activities. The appellant plans architectural layout and designs in 2D and 3D according to the clients' requirements. Once the layout is approved, the appellant prepares detailed specifications and bills of quantity as per the approved design. The applicant submits cost proposals to the client on a turnkey project basis that includes designing, purchase, procurement, fabrication, installation, etc. Thereafter, it renders the services. The appellant has been discharging its VAT liability at the applicable rates on these work contracts. Therefore, the services can only be treated as "work contract services" and not as simple services.

The appellant submitted that all the contracts involved both providing the service and using the materials in providing them. The composite work contract can only be classified under the head "works contract service" as per the judgement of the Supreme Court in Commissioner of Central Excise & Customs Vs. Larsen and Toubro Ltd. Therefore, the entire demand is not sustainable. Consequently, the penalties imposed also need to be set aside.

The Supreme Court in the case of Larsen & Toubro found that composite work contract services involving supply of goods or deemed supply of goods and rendering services are a separate species of contract known to commerce and must be treated as work contract services only. Such services become taxable under the head of works contract service under Section 65(105)(zzzza) of the Finance Act, 1994 with effect from 1.6.2007. Prior to this, there was no charge of service tax on work contract services. Therefore, there was no levy of service tax on such composite services under any other head before 1.6.2007.

The CESTAT noted that the appellant had classified the services with effect from 1.6.2007 under the head "works contract service". The appellant had classified the services under the heads of "commercial or industrial construction service" and "erection commissioning or installation service" prior to 1.6.2007 and paid service tax. Even while paying service tax before 1.6.2007, the appellant had claimed abatement as available under various notifications.

The tribunal held that the "Pandal and Shamiana services" could not have been charged with service tax under any other head either before or after 1.6.2007. The show cause noticesshow cause noticesdemanding service tax under the head "Pandal and Shamiana services" cannot be sustained.

Case Title: M/s Sconce Global Private Limited Versus Commissioner of Service Tax

Citation: Service Tax Appeal No. 50375 Of 2018

Dated: 27.07.2022

Counsel For Appellant: Advocates A.K. Sood & Ms. Madhumita

Counsel For Respondent: Authorised Representative Dr. Radhe Tallo

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