Conclusions and untold benefits of the Supreme Court Judgement on Works Contract (1-6-2007) in the case of Larsen & Toubro (Extracted from Vol. 40 Part 6 Pg J282)
* The aforesaid judgement delivered by the Supreme Court has wider implications and will definitely give relief to all those who stuck into the litigations initiated by the Department. The judgement, if seen in right perspective, have upset the collection of Service Tax on various services and also upset the various judgements of High Courts and Tribunal. Therefore, conclusions and untold benefits of the Supreme Court judgement are summarized as under:
(1) The five taxable services referred to in the charging Section 65(105)(g), (zzd), (zzq) and (zzzh), viz consulting engineering service, technical testing services, erection, commissioning or installation services, commercial construction services and residential complex services, would refer only to service contract simpliciter and not to composite works contract. Therefore, when there is composite contract / works contract, Service Tax cannot be levied and collected under the aforesaid provisions at all irrespective the period of dispute.
(2) Section 67 regarding the value of taxable service also refer to taxation of service contract simpliciter and not to composite contract.
(3) Since the levy of Service Tax itself has been found to be non-existent under 65(105)(zzd), (zzq), no question of any exemption would arise, therefore, notifications regarding 67% / 75% exemption will have to be disregarded.
(4) Service Tax will also not be leviable on both sale of building, residential or commercial to a prospective buyer under the aforesaid provisions, as such contract are essentially a specie of works contract which are not covered under the aforesaid provisions at all under Section 65(105)(zzq) and (zzzh). Therefore, the levy will not be valid merely because 75% exemption has been granted for sale of building to prospective buyers.
(5) Service Tax will not be leviable on finishing contract of composite nature, under Section 65(105)(zzq) and (zzzh).
(6) Since these notifications regarding 67% / 75% exemption are irrelevant, therefore, question of adding of free supply material to claim said exemption will not arise and these cases, which are still pending in the Supreme Court and will be decided accordingly on the basis of this judgement.
(7) In view of the aforesaid judgement, Service Tax under repair and maintenance service on composite contract or photography service ext., can also meet the same fate if stand is taken in Court, as there are also essentially a composite contract or specie of works contract therefore, Service Tax cannot be levied under those entries enacted under the Finance Act, 1994. The Supreme Court in State of Karnataka (vs.) Pro Lab – 2015 (321) E.L.T. 366 (SC) has rejected the plea that processing and developing of photographs essentially a service and held that it is works contract and State is empowered to levy Sales tax on the material used even in these contract, even though dominant intention of the contract is the rendering of a service.
In view of the aforesaid judgement, the levy on declared service under Section 66E(b) of the Finance Act, 1994 is questionable but in real sense is illegal.