C.J. Mathew, Member (T)

1. The cavil of M/s. URC Construction Pvt. Ltd., against order-in-original Nos. 07/2008-(Commr.), dated 17th September, 2008 and No. 01/2000 (Commr.), dated 26th February, 2010 both of Commissioner of Customs, Salem relates to the respective show cause notices issued by the Additional Director-General, O/o. Director-General of Intelligence, Chennai, dated 29th February, 2008 and by Commissioner of Central Excise, Salem on 30th April, 2009. The former is for the period from 10th September, 2004 to 30th September, 2007 demanding service tax of Rs. 1,22,45,679/- along with cess thereon and the adjudicating authority has confirmed the demand of Rs. 1,20,49,527/-. In the second matter, the demand was for Rs. 56,17,843/-, with cess thereon, against which the adjudicating authority confirmed an amount of Rs. 49,99,860/- with Cess thereon. The demands in both show cause notices pertain to rendering of 'commercial or industrial construction service' leviable to tax under Section 65(105)(zzq) of Finance Act, 1994 on contracts for execution entered into with certain public sector bodies and government institutions, on which, they having been considered to be non-commercial, tax liability was not discharged. The first show cause notice pertains to M/s. Nuclear Power Corporation of India Ltd., M/s. Hindustan Aeronautics Ltd., the Department of Space (ISRO) and Nuclear Fuel Complex, Tuticorin. The second show cause notice relates to execution of contract for M/s. Hindustan Aeronautics Ltd. and the Nuclear Fuel Complex.

2. The adjudicating authority, agreeing with the contention of the appellant that Department of Space is not a commercial body, held that construction executed for them is beyond the scope of taxation under Finance Act, 1994. However, the other demands were confirmed.

3. The primary contention of learned Counsel for the appellant is that the decision of the Hon'ble Supreme Court in Commissioner of Central Excise and Customs, Kerala v. Larsen & Toubro Ltd. [(39) S.T.R. 913 (S.C.)] has settled the law to the effect that composite contracts involving services and goods covered under four categories, i.e., 'erection, commissioning and installation', 'construction of building for commerce and industry', 'construction of residential complex' and 'turnkey projects', under Section 65(105)(zzzza) are liable to tax only with effect from 1st June, 2007. It is also contended that, at the adjudication stage, they had taken the plea that they being providers of 'works contract service' were not liable to tax as providers of 'commercial or industrial construction service'. This plea was not accepted by the adjudicating authority who proceeded to confirm the demand. Their further contention is that even though they are liable to tax with effect from 1st June, 2007 the show cause notice had not invoked the taxable entry rendering the determination of tax liability to be contrary to the provisions of Section 73 of the Finance Act, 1994. It was submitted by the learned Counsel that further arguments should be contingent upon a decision on these two issues.

4. Learned Authorised Representative was of the opinion that the facts of the appellant are distinguishable from the facts relating the judgment delivered by the Hon'ble Supreme Court in re M/s. Larsen & Toubro Ltd. According to him, the non-taxability of works contract service prior to 1st June, 2007 was not contended before the adjudicating authority, who, therefore, had been denied the opportunity of ascertaining the nature of contract entered into by the appellant and the supply of goods as a component of the contract. He, therefore, submitted that the contracts require re-examination for which matter would have to be remanded back to the original authority for scrutiny.

5. On the claim of the appellant before the original authority that they were providers of 'works contract service', which is taxable only from 1st June, 2007, the finding in the impugned order that -'having failed to establish with documentary evidence that there is a transfer of property of goods involved in the execution of the contract which was charged to tax on sale of goods. On this basic criterion, having not been fulfilled, applicability to tax of Works Contract Service involves a remote question. Their contention is, therefore, superfluous being devoid of any substance of law and, therefore, fails before the altar of law'. was relied upon by the learned Authorised Representative to reiterate that the adjudicating authority had no means of ascertaining that these were composite contracts.

6. Having heard both sides on this limited issue, we are of the opinion that the resolution of this dispute lies within the narrow compass of taxability as 'works contract service'. We note the contention of learned Counsel that the adjudicating authority had perused the contracts on which the demand was raised in the show cause notice and rendered a clear finding, including on the allegation of abatement availed in Notification No. 15/2004-S.T. :  dated 10th September, 2004 and Notification No. 01/2006 dated 1st March, 2006; the allowance of abatement is a clear demonstration of ascertainment that supply of goods did form a part of the contract. Therefore, we have no hesitation in accepting the said contracts in dispute to be composite contracts for supply of both goods and services.

7. We note that the findings of the adjudicating authority do accept that supply of goods were involved in the contracts and that he was merely sceptical that VAT liability had been discharged on the goods supplied in the contract; whether VAT liability was discharged on the goods or not is irrelevant in the light of the decision of the Hon'ble Supreme Court in re Larsen & Toubro and Ors. We, therefore, have to merely determine the scope of taxability of 'works contract service' rendered before and after 1st June, 2007 under the Finance Act, 1994.

8. The Hon'ble Supreme Court in re Larsen & Toubro & Ors. has decided thus

'24. A close look at the Finance Act, 1994 would show that the five taxable services referred to in the charging Section 65(105) would refer only to service contracts simpliciter and not to composite works contracts. This is clear from the very language of Section 65(105) which defines "taxable service" as "any service provided". All the services referred to in the said subclauses are service contracts simpliciter without any other element in them, such as for example, a service contract which is a commissioning and installation, or erection, commissioning and installation contract. Further, under Section67, as has been pointed out above, the value of a taxable service is the gross amount charged by the service provider for such service rendered by him. This would unmistakably show that what is referred to in the charging provision is the taxation of service contracts simpliciter and not composite works contracts, such as are contained on the facts of the present cases. It will also be noticed that no attempt to remove the non-service elements from the composite works contracts has been made by any of the aforesaid Sections by deducting from the gross value of the works contract the value of properly in goods transferred in the execution of a works contract.'

9. In view of this specific decision and the admitted claim of the appellant that they are not providers of 'commercial or industrial construction service' but of 'works contract service', no tax is liable on construction contracts executed prior to 1st June, 2007.

10. Insofar as demand for subsequent period till 30th September, 2008 is concerned, it is seen that neither of the two show cause notices adduce to leviability of tax for rendering 'works contract service'. On the contrary, the submission of the appellant that they had been providing 'works contract service' had been rejected by the adjudicating authority. Therefore, even as the services rendered by them are taxable for the period from 1st June, 2007 to 30th September, 2008 the narrow confines of the show cause notices do not permit confirmation of demand of tax on any service other than 'commercial or industrial construction service'. It is already established in the aforesaid judgment of the Hon'ble Supreme Court that the entry under Section 65(105)(zzd) is liable to be invoked only for construction simpliciter. Therefore, there is no scope for vivisection to isolate the service component of the contract. In view of the above, the impugned orders are set aside and appeals are allowed.