Apex Court reiterates the principles laid down In L&T (2016) 1 SCC 170 and Rejected the Department’s plea to reconsider the said judgment

Hon’ble Supreme Court reiterates the principles laid down in Larsen & Toubro that no service tax was leviable on composite works contracts prior to introduction of Finance Act, 2007 and rejected the plea of the Department to reconsider the said judgment.

Recently, the Hon’ble Supreme Court in a batch of matters, titled as Total Environment Building Systems Pvt. Ltd. Vs. DC of Commr. Taxes and Ors. CIVIL APPEAL NOS. 8673-8684 OF 2013 has held that no service tax was leviable on composite works contracts prior to introduction of Finance Act, 2007. Section 65 (105) (zzzza) pertaining to “Works contract” was inserted in the Finance Act, 9994.

That the bench comprising of Hon’ble Justice M. R. Shah and Hon’ble Justice B.V. Nagarathana, held that the issue had been previously dealt and comprehensively decided by the Supreme Court in the case of Commissioner, Central Excise and Customs, Kerala Vs. Larsen and Toubro Ltd. (2016) 1 SCC 170 (“Larsen and Toubro Ltd.”) and that the same still holds the legal field. Both the Hon’ble Judges were unanimous in rejecting the plea of the revenue that the Larsen and Toubro Ltd. case required re-consideration on the ground that the 2007 amendment in the Finance Act by which definition of works contract was introduced in service tax law was merely clarificatory in nature and service tax was leviable on works contract even prior to 2007.

Hon’ble Justice M. R. Shah analyzed the present issue through the lens of the principle of stare decisis and inter alia observed that in the Larsen and Toubro Ltd. case the Supreme Court had considered the entire scheme and the levy of service tax pre-Finance Act, 2007 and after recording cogent reasons, delivered a conscious decision that service tax was not leviable prior to Finance Act, 2007 on indivisible/composite works contracts. The Hon’ble Judge further observed that various high courts and tribunals had subsequently followed the Larsen and Toubro Ltd. case and their decisions have attained finality and therefore, the prayer made on behalf of the Revenue to reconsider the judgement in Larsen and Toubro Ltd. case cannot be accepted.

On the other hand, Hon’ble Justice B.V. Nagarathana examined the observations made in the Larsen and Toubro Ltd. case and inter alia agreed with the finding therein that there was neither any charging section in service tax law in respect of works contract nor any machinery to levy and assess service tax on indivisible composite works contract prior to the amendment of 2007. The Hon’ble Judge finally held that it was only pursuant to Finance Act, 2007 that the service element in works contract was expressly made liable to service tax and that the works contracts which were indivisible and composite could be split so that only the labour and service element of such contracts could be taxed under the service tax law.

It is pertinent to mention that in para 7 of the present judgment, it is noted that Civil Appeal No. 6523 of 2014 being G. D. Builders vs. UOI & Ors., under consideration in the present batch of cases was also heard alongwith the group of appeals while deciding the Larsen and Toubro Ltd. case however, inadvertently the said appeal was not formally decided and kept pending, which has now been notified in the present batch of cases.

That vide the present order dated 02.08.2022 in Total Environment Building Systems Pvt. Ltd. case the Hon’ble Supreme Court has brought quietus to several litigations by reiterating the settled position that no service tax was leviable on works contract prior to Finance Act, 2007.

Read the Order of Hon’ble Apex Court at YFC Projects Judgment_ST on works contract prior to 01.07.2007 (1)

Purvi Sinha

Purvi is an advocate by profession and has done B.A. LL.B (Hons.) from National University of Study and Research in Law, Ranchi. She has been involved in the matters pertaining to GST law and other indirect tax laws. She has been actively involved in matters before various Hon'ble High Courts and also Hon'ble Supreme Court. She represent Sales Tax Bar Association (Delhi) before Hon'ble Delhi High Court in relation to various issues faced by the tax payers in the GST regime, and have been able to get great reliefs from the Hon'ble Court.

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