Service Tax payable on Composite Contracts only under “Works Contract Services” after 1.6.2017: CESTAT [Read Order]

In a significant ruling, the Chennai bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has held that any demand after 1.6.17 on composite contracts under construction of complex service or commercial industrial construction service is not sustainable as composite contracts are leviable to service tax only under works contract services as per the Apex Court ruling in Larsen & Toubro case.

The bench was hearing a bunch of appeals wherein the appellants challenged the order of adjudicating authority who held that the Commercial or Industrial Construction Services / Construction of Residential Complex Services (RCS) were taxable even after 1.6.2007. According to the department, the appellants would have to pay under either RCS or WCS.

Quashing the orders, the Tribunal held that the services provided by the appellant in respect of the projects executed by them for the period prior to 1.6.2007 being in the nature of composite works contract cannot be brought within the fold of commercial or industrial construction service or construction of complex service in the light of the Hon‟ble Supreme Court judgment in Larsen & Toubro (supra) upto 1.6.2007.

It was clarified that for the period after 1.6.2007, service tax liability under category of “commercial or industrial construction service” under Section 65(105)(zzzh) ibid, “Construction of Complex Service” under Section 65(105)(zzzq) will continue to be attracted only if the activities are in the nature of services” simpliciter.

The bench further held that for activities of construction of new building or civil structure or new residential complex etc. involving indivisible composite contract, such services will require to be exigible to service tax liabilities under “Works Contract Service‟ as defined under section 65(105)(zzzza) ibid.

While Speaking to Taxscan on the Judgment, Advocate G. Natarajan said that, “Though there are few more judgements to the same effect, this judgement traces the history of levy of service tax on construction activities and emphatically holds.”