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Excise appeal on service tax dismissed

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The Supreme Court last week dismissed a large number of appeals moved by the excise authorities and allowed the appeals of construction companies, ruling that service tax could not be levied on indivisible works contracts prior to the introduction, on June 1, 2007, of the Finance Act, 2007 which expressly made such works contracts liable to service tax. All these cases, led by Commissioner of Central Excise vs L & T, arose before the 2007 amendment was made, which introduced the concept of “works contract” as being a separate subject matter of taxation. Works contracts which were indivisible and composite were split so that only labour and service elements of such contracts would be taxed under service tax. The revenue authorities assailed the judgments of various tribunals and high courts which had decided against them. According to them, the various components of works contracts were already split and taxed since 1994. On the other hand, the companies argued that not only was there no such charge pre- 2007 but there were no machinery provisions as well to bring indivisible works contracts under the service tax net. The Supreme Court accepted the contentions of the construction companies and over- ruled judgments to the contrary.
Business Standard, New Delhi, 24th August 2015

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