M/S Engineering Projects (India) Ltd v. Union of India and Anr.

1. The petitioner has filed the present petition, inter alia, praying as under: “A) issue writ of certiorari/ mandamus or an appropriate Writ or order or direction against the Respondent by quashing the impugned sub-clause (zzq) of clause (105) read with clause (25b) and sub-clause (zzzh) of clause (105) read with clause (30a) and (91a) of section 65 (as amended) or Chapter V of the Finance Act, 1994 at page no.9&11 of petition inasmuch as the levy of the service tax on the “works contract” per se as well as entry against Serial No.7, 7(a), 10 and 10(a) of Notification No.1/2006-ST, dated 01.03.2006 (as amended) at Page no.14 of Petition by declaring the same are ultra vires the Constitution of India and section 64, 66 and 67 of the Finance Act, 1994 and against the constitutional scheme of the legislation for levying service tax in India; B) issue a Writ of certiorari/ mandamus or any other appropriate Writ / order / direction for quashing the impugned Order-in-Original dated 30.11.2021[2] by the Respondent no.2 confirming demand of Rs.4,91,85,132/- with interest as well as levying penalties under Section 77 and 78 of the Finance Act, 1994; C) issue a writ of certiorari / mandamus or any other appropriate Writ / order / direction declaring that the Parliament is not competent to levy service tax on works contract per se, hence, construction activity both commercial & residential using the materials (works contract) per se are not liable to service tax under the provisions of Chapter V of the Finance Act, 1994;”

2. The petitioner is engaged, inter alia, in the business of civil construction works. The petitioner entered into contracts for construction of various projects. The principal controversy involved in the present petition is whether the petitioner is liable to pay service tax, in addition to the tax paid by the petitioner, in respect of the said contracts.

3. The Adjudicating Authority had issued a show cause notice dated 07.04.2010 proposing a demand of a sum of ₹4,91,85,132/- in respect of taxable services under Sub clauses (zzq) and (zzzh) of Section 65(105) of the Finance Act, 1994 (hereafter ‘the Act’). The said show cause notice was adjudicated by the concerned authority and by an order-in-original dated 30.11.2012 (which is impugned in the present petition), the Adjudicating Authority confirmed a demand of service tax of ₹4,91,85,132/- along with interest and penalties after providing an exemption of 67% on account of the contracts being composite contracts.

4. The services relating to commercial and industrial construction were brought into the net of service tax, with effect from 10.09.2004, by introduction of Sub clause (zzq) under Sub-section (105) of Section 65 of the Act. The services relating to construction of complex were chargeable to service tax with effect from 16.06.2005, with the introduction of Sub clause (zzzh) of Section 65(105) of the Act.

5. The impugned order-in-original quantified the demand in respect of ten composite contracts. A tabular statement setting out the breakup of the demand raised in respect of the ten composite contracts as culled out from the impugned order-in-original dated 30.11.2012 is set out below:

6 Construction of residential and nonresidential buildings at Nainital and Haldwani, Uttarakhand services 51,73,893/- 7 OIDB Project for construction of Civil and Structural works at OIDB House, NOIDA services 1,26,66,678/- 8 NTPC Talcher-II Civil and Structural works for NTPC. [in this case, alleged some material was supplied as steel as cement, hence service tax was demanded on full value without abatement of 67%] services 38,52,604/- 9 NTPC Rihand – civil works services 12,58,343/- 10 DDCA Project – construction of Cricket Stadium complex at Delhi services 1,16,86,078/- Total Service Tax Demand Rs. 4,91,85,132/-"

6. Accordingly, the Adjudicating Authority confirmed the demand of service tax proposed under the show cause notice amounting to ₹4,91,85,132/- under Sub-section (1) of Section 73 of the Act read with Section 95 of the Finance Act, 2004 and Section 140 of the Finance Act, 2007 along with cess and interest at applicable rates on the delayed payment; interest of ₹4,856/- under section 75 of the Act, penalty of ₹4,91,85,132/- under Section 78 of the Act, and penalty of ₹10,000/under Section 77 of the Act.

7. The question whether the composite contracts were taxable under the service tax prior to 01.06.2007, is no longer res integra. The Supreme Court in the case of Commissioner, Central Excise and Customs, Kerala v. Larsen and Toubro Limited: (2016) 1 SCC 170 had referred to taxable services covered under Sub-clause (g),(zzd), (zzh), (zzq) and (zzzh) of Section 65(105) of the Act and authoritatively held that the said taxable services referred only to service contracts simpliciter and not to composite works contracts. The relevant extract of the said decision reads as under:

xxx xxx xxx

8. Admittedly, the challenge raised by the petitioner to the validity of Sub-clause (zzq) and (zzzh) of Section 65(105) of the Act, is squarely covered by the decision of the Supreme Court in Commissioner, Central Excise and Customs, Kerala v. Larsen and Toubro Limited (supra).

9. In view of the law laid down by the Supreme Court in Commissioner, Central Excise and Customs, Kerala v. Larsen and Toubro Limited (supra), the impugned order-in-original dated 30.11.2012, which proceeds on the basis that composite contracts involving transfer of goods as well as services were covered under the taxable services under Sub-clause (zzq) and (zzzh) of Section 65(105) of the Act, cannot be sustained.

10. Accordingly, we set aside the impugned order-in-original dated 30.11.2012 and remand the matter to the Adjudicating Authority to adjudicate the show cause notices, afresh in light of the law laid down by the Supreme Court in the case of Commissioner, Central Excise and Customs, Kerala v. Larsen and Toubro Limited (supra).