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Background Material for

Seminar on Service Tax

ON SATURDAY, THE 28TH AUGUST, 2010

VASAI BRANCH OF WIRC OF ICAI Shalom Hall, D-332, Shanti Shopping Centre, Opp.Mira Road Railway Station, Mira Road (East), Thane.

By

CA RAJIV LUTHIA

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COMMERCIAL OR INDUSTRIAL CONSTRUCTION SERVICES

Notified Date:

10th September,2004

 Definition:

Section 65(25b)-Commercial Or Industrial Construction Service1 means a) construction of a new building or a civil structure or a part thereof; or b) construction of pipeline or conduit; or c) completion and finishing services such as glazing, plastering, painting, floor and wall tilling, wall covering and wall papering, wood and metal joinery and carpentry, fencing and railing, construction of swimming pools, acoustic applications or fittings and other similar services, in relation to building or civil structures; or d) repair, alteration, renovation or restoration of, or similar services in relation to, building or civil structure, pipeline or conduit, Which is:i) used, or to be used, primarily for ; or ii) occupies, or to be occupied, primarily with : or iii) engaged, or to be engaged, primarily in,

Commerce or industry, or work intended for commerce or industry, but does not include such services provided in respect of roads, airports, railways, transport terminals, bridges, tunnels and dams.

Section 65(105)(zzq)-“Taxable Services”- means any service provided or to be provided to any person, by any other person, in relation to commercial or industrial construction service2 Explanation-For the purposes of this sub clause, the construction of new building which is intended for sale, wholly or partly, by a builder or any person authorised by builder before, during or after construction (except in cases for which no sum is received from or on behalf of the prospective buyer by the builder or the person authorised by the builder before grant of completion certificate by the authority competent to issue such certificate under any law for the time being in force) shall deemed to be service provided by the builder to the buyer.3

 Service at a glance:
Date 10th September,
1 2

Taxable in respect of Construction/Repair/Restoration of new building or civil structure or part thereof.

The word “Service” is proposed to be omitted by Finance Bill, 2010 w.e.f. 1st July, 2010 The word “Service” is proposed to be omitted by Finance Bill, 2010 w.e.f. 1st July, 2010 3 Inserted w.e.f 1st July, 2010

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Services in relation to construction of government building whether for residence. c) “renovation” besides repair/alteration/restoration building or civil structure. Construction of port or other port (Notification No.No.2004)  Services in relation to construction of any long distance pipeline which were earlier excluded liable w. restoration. charitable.2004 16th June.2 of Circular No.No. or repairs provided in relation to existing port or other port shall be liable to Page 3 of 21    .2007). 2010 Scope widened to cover: a) construction/repair/alteration/renovation/restoration of pipeline or conduit b)completion & finishing service such as glazing. office or other civic amenities (Para 13.f.80 F.  Inclusions:  Services rendered by building or civil contractors. refinery and similar industrial establishments (Para 13.B2/8/2004-TRU dated 10th September.B2/8/2004-TRU dated 10th September.No.2004).25/2007-ST dated 22 nd May.2005. religious.80 F.80 F.5 of Circular No.4 of Circular No. painting etc.80 F.B2/8/2004-TRU dated 10th September. health.2005)  Exclusions:  Estate builders (Para 13.2004). Service renamed as “Commercial or Industrial Construction Services” Sale of commercial premises by the builder/developer to the prospective buyer before obtaining Completion certificate. maintenance.2005 1st July.2004) Services in relation to constructions used by organisation or institutions solely for educational.2 of Circular No. sanitation or philanthropic purposes or non-profit purpose (Para 13. However service such as completion and finishing. 16th June.80 F.  Services in relation to pipelines running within an industrial and commercial establishment such as factory.16/2005-ST dated 7th June.1 of Circular No.No. renovation.e.B2/8/2004-TRU dated 10th September.2 of Circular No. plastering.2004).B1/6/2005-TRU dated 27th July.  Services provided to government bodies in relation to commercial premises intended for sale or let out (Para 13. repairs.  Services of construction of road are liable to service tax in case there is composite and single contract for construction. alteration.B2/8/2004-TRU dated 10th September.No.2005 & Notification No. (Para 14.

36/2010-ST dated 28th June. CBEC has clarified various issues related to service tax on repairs/ renovation/widening of roads. 2009. (Para 8. 2009. airports.24/2009-ST dated 27 th July. changing road surface etc. Construction of road would include activities of laying of new road. (Notification No. tunnel and dams. (Para 2 of Circular No. o Abatement of 75% for builders when the cost of land has not been recovered separately. F. widening of narrow road to broader road.137/40/2009-CX4 dated 15th September.No. Otherwise.service tax. Maintenance or repairs of road would include activities of resurfacing.110/04/2009-ST dated 23rd February. bridge. o Abatement of 75% would be applicable only if the gross value includes cost of land. (Notification No.4 of letter no.e not for generating revenue. Abatement of 67% when the gross value includes the material cost. management. The canal systems built by private agencies is also not liable to service tax if it is not for commercial purpose i. (Para 6.2 of letter DOF No. maintenance or repairs of roads from whole of the service tax. 2010 in relation to sale of premises by the builder to prospective buyer. maintenance or repair of roads are in the nature of taxable services attracting service tax. Canal Systems built by government. It clarified that: •   While construction of road is not a taxable service. transport terminals. 2005 & Notification No. relaying. • •  Central Government vide Notification No. Any consideration received as advance before 1 st July.19/2005-ST dated 7th June. railway. 2006).1/2006-ST dated 1st March.) Page 4 of 21 . renovation.NO-B1/16/2007-TRU dated 22nd May. strengthening. 2010)   Valuation of Taxable Services-Section 67: o The gross amount charged by the service provider.2007)  Construction of roads. filling of potholes etc.334/03/2010-TRU dated 1st July. 2010. has granted exemption to taxable services of “Management. 2009) Vide Circular No. the rate of abatement of 67% would continue to apply. Maintenance or Repairs (Section 65(105)(zzg))” provided by any person to any other person in relation to management.116/ 10/2009-ST F.

1st March.f 1st July. o The transaction of sale of immovable property are covered within the ambit of service tax w. or ii) chartered engineer registered with the Institution of Engineers (India). Ltd.06)  Clarifications:  Besides any government authority.f. who is authorised under any law for time being in force to issue completion certificate. capital goods or input service used for providing such taxable service w.2010 by inserting explanation to the definition of taxable service thereby the sale of premises is treated as service by deeming fiction. which may be even less than 67%. or iii) licensed surveyor of the respective local body of the city or town or village or development or planning authority.B2/8/2004-TRU dated 10 th September. 1st July. o However.80 F. UOI (2008) 11 STR 225 & Circular No.06 (notification 1/2006 dt 1st March.o No abatement for completion and finishing services as defined U/s.e. service tax is leviable if property is treated as commercial under municipal law (Para 13. o No CENVAT credit of duty/tax on input.e. 1972. resale of premises would be out of the purview of service tax even if completion certificate is not issued for the same since it is not transaction between builder and prospective buyer. Page 5 of 21 . V/s.)  In case of multipurpose building (residential & commercial). 2010 o The transaction of sale of premises in case the buyer pays any amount towards consideration for the same to the builder before his obtaining completion certificate would be liable to service tax under this category. the following persons are notified as “authority competent” for issuing completion certificate i) architect registered with the Council of Architecture constituted under the Architects Act. Effect of Amendments made w.e. o Attempt to reverse the decision of Hon’ble Gauhati High Court in the case of Magus Construction Pvt. 1/2010 dated 22nd June. 2004). 2010. o Abatement of 67% is allowed irrespective of quantum of material used.f. 65(25b)(c).108/02/2009-ST dated 29 th January.No. 2009. (Central Government vide MF (DR) Order No.3 of Circular No.

but does not include a complex which is constructed by a person directly engaging in any other person for designing or planning of lay out and the construction of such complex is intended for personal use as residence by such person. parking space. renovation or restoration of. o Hon’ble Mumbai High Court has granted stay of recovery to the members of MCHI in response to the writ petition filed by Maharashtra Chamber of Housing Industry (2010-TIOL-526-HC) challenging the constitutional validity of the amendment through finance Act. construction of swimming pools. 2005. 2) a common area. However it was clarified that assessment against other assessee may be initiated. o Builder/developer will have to obtain Building completion certificate as on 30th June. floor and wall tilling. wood and metal joinery and carpentry.  Section 65(91a) defines “Residential Complex”. The Hon’ble Court also instructed the Department not to initiate coercive steps against the petitioners till next hearing.o No service tax is payable for services provided (i. lift. or similar services in relation to. 2010 from the Architect. o No Service tax is to be paid in relation to sale of commercial property if no sum is received by builder/developer from the prospective buyer before the grant of completion certificate. or b) completion and finishing services in relation to residential complex such as glazing. alteration. or c) repair. 2010 in respect of service provided or to be provided on or after 1st July. plastering. wall covering and wall papering. CONSTRUCTION OF RESIDENTIAL COMPLEX  Notified Date: 16th June. 2010. Chartered Engineer or licensed Surveyor. residential complex. painting. common water supply or affluent treatment system located within a premises and the lay out of such premise is approved by an authority under any law for the time being in force.e construction work completed) till 30th June. community hall. Page 6 of 21 . o No service tax is payable on any amount received by builder/developer from prospective buyer on or before 30th June. acoustic applications or fittings and other similar services. and 3) any one or more facility or services such as park.  Definition:  Section 65(30a) defines Construction Of Complex-means a) construction of new residential complex or part thereof. having more than 12 residential units. 2010. fencing and railing.means any complex comprising of1) a building or buildings. 2010.

Completion and finishing services. 2010 in relation to sale of premises by the builder/developer from prospective buyer. by any other person. o Abatement of 75% for builders when the cost of land has not been recovered separately.334/03/2010-TRU dated 1st July. 2010 Page 7 of 21 . it is hereby declared that for the purposes of this clausea) “personal use” includes permitting the complex for use as residence by another person on rent or without consideration. 2010.  Section 65(105)(zzzh)-“Taxable Services”-means any service provided or to be provided to any person. Following explanation shall be inserted to section 65(105)(zzh) w.e.f 1st July. Abatement of 67% when the gross value includes the material cost. (Notification No.18/2005-ST dated 7th June.36/2010-ST dated 28th June. renovation and restoration.e. Repairs. the construction of a complex which is intended for sale. during or after construction (except in cases for which no sum is received from or on behalf of the prospective buyer by the builder or the person authorised by the builder before grant of completion certificate by the authority competent to issue such certificate under any law for the time being in force) shall deemed to be service provided by the builder to the buyer. in relation to construction of complex.Explanation-For removal of doubts. by a builder or any person authorised by builder before.1/2006-ST dated 1st March. (Para 6. (Notification No.2006).2 of letter DOF No. 2010)  Valuation of Taxable Services-Section 67: o The gross amount charged by the service provider. 2005 & Notification No. Otherwise. the rate of abatement of 67% would continue to apply.  Exclusions:  Any consideration received as advance before 1 st July. b) “residential unit” means a single house or a single apartment intended for use as a place of residence. wholly or partly.f date to be notified by central government Explanation-For the purposes of this sub clause.4   Inclusions:    Services of setting up home theatre within residential complex. o Abatement of 75% would be applicable only if the gross value includes cost of land.) 4 Inserted w.

It is only the hired contractors engaged by these builders who are to be taxed.06  Clarifications:  Besides any government authority. which may be even less than 67%.f 1st March. 2010.2006 clarified that “The Board vide Circular No. o No CENVAT credit of duty/tax on input.09. In other words Service Tax is leviable only on those contractors who are engaged in construction of new residential complexes. 80/10/2004 ST dt. or iii) licensed surveyor of the respective local body of the city or town or village or development or planning authority. who is authorised under any law for time being in force to issue completion certificate. alteration/renovation or restoration of similar services in relation to residential complexes”  CBEC vide circular no. or ii) chartered engineer registered with the Institution of Engineers (India).e. 1972. or completion and finishing services in relation to such complexes or repair. the following persons are notified as “authority competent” for issuing completion certificate i) architect registered with the Council of Architecture constituted under the Architects Act.2007 clarified that 96/6/2007-ST (079. (Central Government vide MF (DR) Order No. who gets such construction done) are not covered under the ambit of these services.o No abatement for completion and finishing services as defined U/s.01) dated 23 rd “(a) In a case where the builder./1/2004/ Mumbai dt 16th February. o Abatement of 67% is allowed irrespective of quantum of material used.)  DGST vide Circlular no.2006 Page 8 of 21 . by engaging a contractor for construction of the said residential complex. 65(30a)(b). 17.2004 has clarified that "Estate Builders" (i.NO. F. promoter.e. the contractor in his capacity as a taxable service provider (to the builder/promoter/developer/any such person) shall be liable to pay service tax on the gross amount charged for the construction services under ‘construction of complex’ service [section 65(105) (zzzh)]. 1/2010 dated 22nd June. capital goods or input service5 w. developer or any such person builds a residential complex. August. having more than 12 residential units.V/DGST/22/AUDIT/MISC. (b) If no other person is engaged for construction work and the builder / promoter / developer / any such person undertakes 5 notification 1/2006 dated 1st March.

then in such cases. It is only after the completion of the construction and full payment of the agreed sum that a sale deed is executed and only then the ownership of the property gets transferred to the ultimate owner. CBEC Vide circular No.construction work on his own without engaging the services of any other person.in many cases. because this case would fall under the exclusion provided in the definition of ‘residential complex’.2010 has clarified following: dated 26th o Para 8. in the absence of service provider and service recipient relationship and the services provided are in the nature of self-supply of services. One for sale of undivided portion of land and the second for construction of building thereon. Therefore. does not by itself create any interest in or charge on such property. Such a case. any service provided by such seller in connection with the construction of residential complex till the execution of such sale deed would be in the nature of ‘self-service’ and consequently would not attract service tax.. if services of any person like contractor. the initial agreement between the promoters/builders/ developers and the ultimate owner is in the nature of ‘agreement to sell’. the question of providing taxable service to any person by any other person does not arise. as per the provisions of the Transfer of Property Act. planning and construction. However.3….builder continue to remain legal owner of the property in case of payment made by buyer in installments as per the terms of agreement to sale. the promoters/builders/developers). The property remains under the ownership of the seller (in the instant case.(i) service provider and service recipient relationship does not exist. then such activity would not be subjected to service tax.6…. 108/02/2009-ST Dated 29/01/2009 issued clarification as regards applicability on service tax on builders Generally. then such a person would be liable to pay service tax. This mode of transaction is devised Page 9 of 21 .   CBEC vide Circular No. designer or a similar service provider are received. Hence. o Para 8. if the ultimate owner enters into a contract for construction of a residential complex with a promoter / builder / developer.4 & 8. In this type of transaction.334/1/2010-TRU February. two agreements are executed. who himself provides service of design.2 & 8. (ii)services provided are in the nature of self-supply of services. Further. and after such construction the ultimate owner receives such property for his personal use. the builder is deemed to have provided services to self since the legal ownership/transfer of property from builder to buyer takes place only after completion of building and handing over the possession along with executing conveyance deed. in both these situations.

explanation is inserted to Section 65(105)(zzq) to treat the amount received towards sale of premises as services subject to exception that entire payment is received after obtaining completion certificate from prescribed authorities. 2010  Definitions: • Section 65(105) (zzzzu)-Taxable service means any service provided or to be provided to a buyer. or a commercial complex. (zzzh) and in relation to parking space. Page 10 of 21 . by a builder of a residential complex.2006 is binding on the department…….f : 1st July. it is further clarified that the residential complex built by NBCC for personal use of Government of India is not leviable to service tax. Vs. Any advance made by a prospective buyer is against consideration for sale of flat and not for the purpose of obtaining service. In order to achieve parity in tax treatment.2010 has clarified on the issue related to leviability of service tax on construction of residential house by National Building Construction Corporation Ltd. In para 2.to pay lesser stamp duty. the question of provision of taxable service does not arise in absence of relationship of “service provider” and “service recipient”.when a builder. “preferential location” means any location having extra advantage which attracts extra payment over and above the basic sale price. Circular dated 1st August. it is clarified that the definition of residential complex (Section 65(91a)) does not include a complex which is intended for personal use as residence by recipient of service.  Few Relevant Decisions: Hon’ble Gauhati High Court in the case of Magus Construction Pvt.e.332/16/2010-TRU dated 24th May. The term “personal use” is defined to include permitting the use of complex as residence by another person on rent or without consideration. In para 3. for providing preferential location or development of such complex but does not include services covered under sub-clauses (zzg).  Central Government vide Letter F.Ltd.No. (zzq).   Special services provided by builder etc. To prospective buyer  W. UOI (2008) TIOL 321-HC-GUW-ST held that  Sale of flat is not service hence not liable to service tax. (NBCC) for Central Government officers. promoter or a developer undertakes construction activity for it’s own self. Explanation – For the purposes of this sub-clause. or any other person authorized by such builder.

Effect • Charges for facilities such as prime/preferential location such as sea facing. • Charges for providing parking space are specifically excluded from the levy of service tax. Page 11 of 21 . corner flat etc. charges for fire fighting installation & power back up etc. laying of sewerage & water pipelines.. exclusions: • Charges for providing parking space. would be liable to service tax. according to the choice of the buyer. providing access roads & common lighting etc. charges for developing & maintaining parks. park facing.

CBEC vide Letter B1/16/2007-TRU dated 22 nd May. construction or commissioning (EPC) projects. or e) turnkey projects including engineering. by any other person in relation to execution of works contract. and ii) such contract is for the purpose of carrying out.No. duct work and sheet metal work. airports. or d) completion and finishing services. works contract means contract whereini) transfer of property in goods involved in the execution of such contract is leviable to tax as sale of goods. Explanation-For the purpose of this sub clause. or b) construction of new building or a civil structure or a part thereof. a) erection.2008 has clarified that service provider is not eligible to take CENVAT credit of excise duty paid on goods involved in the execution of works contract service. repairs or maintenance of existing port. bridges.25/2007-ST dated 22nd May.345/6/2007-TRU) dated 4th January. renovation or restoration of. fire escape staircases or elevators. lift and escalator. finishing. installation of electrical and electronic devices. exemption granted in relation to construction of port or other port under this category. CBEC vide Circular No. equipment or structures. whether prefabricates or otherwise.98/1/2008-ST (F.WORKS CONTRACT SERVICE  Notified Date: 1st June. alteration. or of a pipeline or conduit. ventilation or air conditioning including related pipe work. drain laying or other installations for transport of fluids. sound insulation. thermal insulation. transport terminals. commissioning or installation of plant. repairs.2007. tunnels and dams.  Page 12 of 21 . excluding works contract in respect of roads. repair. heating. procurement and  Important Elements & Clarifications:  Vide Notification No. railways. primarily for the purpose of commerce or industry.2007  Definition: Section 65(105)(zzzza)-taxable service means any service provided or to be provided to any person. alteration. or c) construction of a new residential complex or part thereof. renovation. or similar services in relation to (b) and (c). fire proofing or waterproofing. plumbing.2007 has clarified that exemption only in respect of construction of port and not for completion. machinery.

345/6/2007-TRU) dated 4th January.2007 under composition scheme under following circumstances: (i) contracts entered into prior to 1st June. Vivisecting a single composite service and classifying the same under two different taxable services depending upon the time of receipt of the consideration is not legally sustainable.2007 for the taxable service. a service provider who paid service tax prior to 1 st June.98/1/2008-ST (F. ( Para 3 of Circular No. and (ii) service tax has already been paid for part of the payment received under the respective taxable service. commissioning or installation service. Central Government had exempted the services provided in relation to execution of a works contract in respect of canals used for the purpose other than commerce or industries. is not liable to service tax under Works Contract since as it is excluded from the definition itself. Page 13 of 21 .   Special Valuation Rules: As per Rule 2A of The Service Tax (Determination of Value) Rules.No. commissioning or installation services or commercial/residential construction services and pay service tax for the amount received on or after 1 st June.41/2009 dt 23rd October. is not entitled to change the classification of the single composite service for the purpose of payment of service tax on or after 1 st June.No. commercial or industrial construction service or construction of complex service.2007 and hence.2007 for providing erection. is not entitled to avail the Composition Scheme.2008 has clarified on issue whether the service provider can revise the classification to works contract service from existing classification that of erection. namely. commissioning or installation and commercial or residential construction service. “value of works contract service”: • shall be gross amount charged for works contract less value of transfer of property in goods involved in execution of said works contract. 2006. •  Activity of constructing Canal Systems though undertaken as turnkey or EPC project. erection. 2009) Vide Notification No.116/ 10/2009-ST F. In this regard.137/40/2009-CX4 dated 15 th September. CBEC clarified that: • classification of a taxable service is determined based on the nature of service provided whereas liability to pay service tax is depending upon receipt of consideration. CBEC vide Circular No. 2009.

o charges for obtaining on hire or otherwise. machinery and tools used for the execution of the works contract. of property such value transfer of service as  Composition Scheme (Notification No. on transfer of property in goods involved in the execution of the said works contract. &  The value of all the services that are required to be provided for the execution of the works contract  Excluding  The VAT or Sales Tax paid on transfer of property in goods involved.2008 Page 14 of 21 . whether supplied under any other contract for a consideration or otherwise. Explanation to Rule 3(1). fuel. for the gross amount charged for the works contract shall be the sum - including  The Value of goods used in or in relation to the execution of the works contract. o cost of consumables such as water.o the gross amount charged shall not include VAT or Sales Tax paid. and o profit earned by the service provider relatable to supply of labour and services. o other similar expenses relatable to supply of labour and services. electricity. o charges for planning. o amount paid to a sub-contractor for labour and services. & • 6 2% upto 28th February.32/2007): • Rule 3(1) of The Works Contract (Composition Scheme for Payment of Service Tax) Rules. 2007 gives option to discharge service tax liability on works contract service @4%6 of gross amount charged for works contract (excluding VAT/Sales Tax) instead of rate specified in Section 66. designing and architect’s fees. if any. o the value of works contract service shall specifically include: o labour charges for execution of the works. • in case VAT or Sales Tax is paid on actual value of transfer in goods involved in execution of works contract. used in the execution of the works contract. then adopted for payment of VAT to be taken as value of property for determining the value of works contract referred above. o cost of establishment of the contractor relatable to supply of labour and services.

96/7/2007 dated 23rd August. 2009 Vide notification no. where the execution under the said contract has commenced or where any payment. Vadodara-II (2007) 7 STR 224 (Ahmedabad CESTAT)  Works contract service . commissioning and installation service Impugned contract whether to be considered as turnkey project contract or divisible for levy of service tax Works contract services brought into service tax net from 01/06/2007 Stay granted by Tribunal on identical facts in respect of another party Strong prima facie case made out by applicant . The contract clause revealing the contract to be Works contract & pursuant to said contract appellant obtained Sales tax registration number for payment of sales tax on goods part. 2009 Inserted w.Pre-deposit waived and recovery thereof stayed    Soma Enterprise Ltd Vs. • •  Few Relevant Case Laws: L & T Ltd. Hyderabad-II 2009 (15) STR 559 (Bangalore CESTAT)  Appellant entered into a contract for construction of Dam for the period prior to 1st June. no restriction on availment of CENVAT credit of duty paid on capital goods and service tax paid on Input Services (Circular No. 2009 Vide notification no. 23/2009-ST Dt 7th July.f 7th July. However. 20097 • No CENVAT credit of duty or cess on inputs used in works contract.Erection.e.  7 8 substituted w. The above explanation shall not apply to a works contract.f 7th July. Vs.e. The cost of machinery and tools used in the execution of the said works contract except for the charges for obtaining them on hire. CCE. 23/2009-ST Dt 7th July. except by way of credit or debit to any account. CCE. has been made in relation to the said contract on or before the 7th July. 2009 Page 15 of 21 .2007) Option once exercised by service provider to pay service tax on said works contract under composition scheme shall be applicable to entire works contract and shall not be withdrawn till completion of said works contract. 2007. Rule 3(4) restricts the option of composition scheme only to those transactions where declared value of works contract is less than the gross amount charged for such works contract8.

service part can be attributable to the scope of service tax provisions under the Finance Act.Construction of power project Service tax demand on drawing and design portion of contract Prima facie covered by Tribunal decisions and one such order upheld by Supreme Court New provision in Finance Bill.)] rightly followed in original order . . Hence the remaining part i. Ltd. came into Service tax net from 01/06/2007 only Works contract not covered under Consulting Engineer service for period prior to 2007 Main contract for manufacture of plant and their supply and erection Drawing and design service for manufacture of plant only and not rendered directly to clients Ratio of Tribunal decision in Daelim Industrial Co. 2007 only & is not liable to tax under “Commercial or Industrial Construction Services” prior to 1st June. Overruled Delhi Tribunal decision in Daelim Industrial Co. Ltd. Raipur Vs.f 1st June. Article 366(29A)(b) to the constitution has made indivisible contracts of Works contract divisible to find value of goods.Recovery of amounts stayed    Air Liquide Engg. 2010 TIOL 646 (Delhi CESTAT      CCE.Impugned revision order set aside Pvt. installation and commissioning of such plants undertaken Impugned contracts being works contract.Air separation/gas separation plants supplied and erection.Del.Consulting engineer . Ltd. Raipur (2007) 7 STR 229 (New Delhi CESTAT)  Works contract . [2006 (3) S. M/s. Vs. 2007 indicating works contract to attract service tax only after enactment Demand not sustainable . Ltd (2006) 3 STR 124.e.R. 2007.e. Hyderabad-II (2008) 9 STR 486 (Bangalore CESTAT)  Works contract service . Page 16 of 21    . BSBK -LB)  Turnkey Contracts can be vivisected. CCE. CCE. Sepco Electric Power Construction Corpn Vs. 1994 & thereby can be classifiable under the appropriate category.T. Held that the service was classifiable as “Works contract” which came w. India Pvt. 124 (Tri.

& separate price were identified for each such activity. designing. CCE. engineering etc. BSBK Ltd which is referred to Larger Bench…. 2007 Stay granted……. 2007 The decision of M/s.e. engineering etc. Page 17 of 21   . Sunil Hi-Tech Engineers Ltd Vs. Salem (2009) TIOL 596 (Madras CESTAT)  Commercial or industrial construction contract inclusive of material is liable to Service Tax under “Works Contract Service” w. M/s. The department sought to levy service tax on the activity of drawing. under the category of consulting engineering services since after 46th Amendment to the constitution. The decision of M/s. works contract can be vivisected & service component could be subject to tax. Indian National Shipowner’s Association. Daelim Industrial Co ltd. designing. Indianoil Tanking Ltd (2010) 25 STT 327  Appellant entered into contract with IOCL for construction of storage tank & certain utilities which involved drawing.f 1st June. Service portion of works contract is subject to tax only after 1st June. URC Constructions Pvt. Diebold Systems Pvt Ltd. It was observed that……… had “Works Contract Services” had not notified.f 01st June.e. Appellant never contested that the services are not covered under the definition “Commercial or Industrial Construction Services” of service tax.Pre deposit waived completely   M/s. the service would have continued to be taxable under the head “Commercial or Industrial Construction Services” beyond 31st May.Hon’ble CESTAT (TM) decided to proceed to dispose of the present case without waiting for the Larger Bench decision in the case of M/s BSBK Ltd. The ratio of M/s. CCE. 2007 The definition of Commercial & Industrial Construction service not modified on introduction of Works Contract Service w. Ltd. 2007 also. Daelim Industrial Co Ltd holding that works contract cannot be vivisected was followed consistently in various other decisions by tribunals including case of M/s. Diebold Systems Pvt Ltd is approved by Mumbai High Court in case of M/s. The 46th amendment to constitution was made with intent to enable the state to levy sales tax on the sales component of works contract. Nagpur (2009) TIOL 1867 (Mumbai CESTAT)  Introduction of works contract service in year 2007 does not make construction services not taxable earlier.Hon’ble Mumbai CESTAT(TM) in the case of CCE Vs. Vs. Supreme Court has dismissed the SLP filed by department against decision of tribunal in the case of M/s..      M/s.

Turbotech Precision engineering Pvt. Services for works contract services would be liable to service tax even prior to 1st June. 2007.f 1st June. Works Contract cannot be vivisected. The drawing. Ltd. Hon’ble Karnataka High Court in the case of CST. designing. M/s. development of oil free compressor not liable to service tax under “Consulting Engineering Services” in case of lump sum contract. 2010-TIOL-498  Held that “Works Contract” category was notified w.  Page 18 of 21 .e. 2007 if the same falls within the ambit of “Commercial or Industrial Construction Services”. Bangalore Vs.

No.1/2006 refers to gross amount charged includes value of goods or material supplied or provided or used by the provider of service. free supply of goods (pipes) by the service recipient whether to be included for the purpose of arriving at gross amount for the purpose of claiming abatement under Notification No. Free supply of cement. Explanation to Sr. CST (2010) TIOL 124 held that  In case of commercial construction. As per Section 67.01/03/2006 provides for abatement of 67%.1/2006-ST Dt. value of taxable service shall be the gross amount charged by service provider for “such service” Cost of material supplied by service receiver can not be included for valuation in view of Section 67 and based on decision of Madras High Court in the case of Larsen & Toubro 2007 TIOL 176.15/2004. Vs. No. Kochi (2009) TIOL 2208 held that  In case of commercial or industrial construction service & construction of complex service. CCE (2008) 12 STR 33 & Delhi High Court in the case of Era Infra Engineering Ltd. Stay granted. UOI (2008) 11 STR 3 Bangalore CESTAT in the case of Cemex Engineers Vs.Madras High Court in the case of Larsen & Toubro Ltd.    The above observations laid down by Madras High Court are accepted by Chennai CESTAT in the case of P. (2007) 7 STR 123  There was composite contract for commercial or industrial construction service. steel etc. CST.1/2006-ST does not envisage inclusion of value of goods supplied by service recipient.    Ahmedabad CESTAT in the case of Jai Hind Project Ltd Vs. If appellant have registered & paid sales tax for execution of construction works contract. Explanation to Sr.15/2004-ST Dt.15/2004 is to bring parity among all the service providers providing similar services. Chandran Vs. Works contract liable to service tax only after 1 st June. service tax is not applicable for the period prior to 1st June.7 of Notification No. Notification No.   Page 19 of 21 .2007. 10/09/2004 & Notification No. 7 of Notification No. whether to be included for the purpose of valuation.2007. The objective of explanation to Notification No.

CCE (2009) TIOL 2258 held that  The appellant is registered for payment of VAT & discharges sales tax liability on 70% of value of works contract in relation to construction service.12/2003 for value of goods sold. Abatement of 67% shall be available only if value of free supply is included for arriving at gross amount.2007. In case of commercial construction. Where service tax has been paid in respect of a works contract. the eligibility to exercise an option to avail the benefits of the composition scheme under the 2007 Rules is excluded. Exemption available under Notification No. Page 20 of 21    . Shobha Developers Ltd. The entitlement to avail the benefits of the composition scheme is only after an option is exercised under Rule 3(3) of the 2007 Rules and this provision specifically enjoins a disqualification for exercise of such option where service tax had been paid in respect of a works contract.e. Vs. Nagarjuna Construction Company Ltd Vs. no option to pay service tax under the composition scheme could be exercised. 2007 since on a true and fair construction of Rule 3(3) of the 2007 Rules.15/2004. it is clear that where in respect of a works contract service tax has been paid. Circular No.2007 for the taxable services such as erection. free supply of goods (pipes) by the service recipient to be included for the purpose of arriving at gross amount for the purpose of claiming abatement under Notification No. commercial or industrial construction or construction of complex is not entitled to avail the composition scheme under Works Contract (Composite Scheme for Payment of Service Tax) Rules.98/1/2008-ST dated 1st January. commissioning or installation.   Bangalore CESTAT in the case of M/s. The Notification No. A service provider who has paid service tax prior to 1 st June. UOI 2010-TIOL-403-HC held that  Benefit of composition scheme is not available prior to 1st June. excluding the value on which state VAT is paid. Service tax is leviable only on 30% i.12/2003 does not stipulate that the inputs used for the contract should be mentioned in the invoice/bills issued to the customers.2008 is wholly in conformity with the provisions of Rule 3(3) of the Composition Scheme rules.    Hon’ble Andhra Pradesh High Court in the case of M/s. The service provider has used the material which is supplied free of charge by the recipient of service.

   Page 21 of 21 .2007 but no payment of service tax was made till the taxpayer opted for the composition scheme after its coming into effect from 1st June.2008 and the ratio of judgement of the High Court of Andhra Pradesh in the matter of M/s.2007.e. This is because “works contract” describes the nature of the activity more specifically and. Nagarjuna Construction Company Limited vs.2007.2007 and any payment of service tax was made under the respective taxable service before 1st June. 1st June. The Board's previous Circular No. CBEC vide Circular No.2010 has clarified as follows:  W. In case a contract where the provision of service commenced prior to 1st June. Commercial Construction & Construction of Complex) would undergo a change in case of long term contracts even though part of the service was classified under the respective taxable service prior to 1st June. On the other hand.e. even if the provision of service commenced before 1st June. as per the provisions of section 65A of the Finance Act.f. 1994. ECI. classification of existing services (i. it would be the appropriate classification for the part of the service provided after that date. Government of India (2010-TIOL-403-HC-AP-ST) are in line with the above interpretation.128/10/2010-ST dated 24th August. 98/1/2008-ST dated 04. therefore. the said condition under rule 3(3) was not satisfied and thus no portion of that contract would be eligible for composition scheme.01.2007. such contracts would be eligible for opting of the composition scheme. 2007 when the new service ‘Works Contract' service was made effective.