As per the case facts, appeals were filed concerning the levy of service tax on works contracts. The Revenue sought reconsideration of a previous Supreme Court decision (Larsen and Toubro ...
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REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NOS. 8673-8684 OF 2013
M/s. Total Environment
Building Systems Pvt. Ltd. …Appellant(s)
Versus
The Deputy Commissioner of
Commercial Taxes & Ors. …Respondent(s)
WITH
CIVIL APPEAL NO. 6525 OF 2014
YFC Projects Pvt. Ltd. …Appellant(s)
Versus
Union of India …Respondent(s)
WITH
CIVIL APPEAL NO. 6523 OF 2014
M/s. G.D. Builders …Appellant(s)
Versus
Union of India & Anr. …Respondent(s)
WITH
1
CIVIL APPEAL NO. 6526 OF 2014
M/s. National Building
Construction Corporation Ltd. (NBCC) …Appellant(s)
Versus
Union of India & Anr. …Respondent(s)
WITH
CIVIL APPEAL NO. 2666 OF 2022
(arising out of SLP (C) No. 36206 of 2014)
M/s. Unitech Ltd. …Appellant(s)
Versus
Union of India & Ors. …Respondent(s)
WITH
CIVIL APPEAL NOS. 4547-4548 OF 2014
M/s. National Building
Construction Corporation Ltd. (NBCC) …Appellant(s)
Versus
Union of India & Ors. …Respondent(s)
WITH
2
CIVIL APPEAL NO. 2667 OF 2022
(arising out of SLP (C) No. 21828 of 2015)
M/s. Larsen and Toubro Ltd. …Appellant(s)
Versus
Commissioner of Service Tax, Delhi …Respondent(s)
WITH
CIVIL APPEAL NO. 6792 OF 2010
Commissioner of Service Tax Mumbai - II …Appellant(s)
Versus
M/s. IOT Infrastructure &
Energy Services Limited …Respondent(s)
WITH
CIVIL APPEAL NO. 2668 OF 2022
(arising out of SLP (C) No. 32501 of 2015)
M/s. L&T Hydrocarbon Engineering Limited …Appellant(s)
(previously known as Larsen & Toubro Limited)
Versus
Commissioner of Service Tax, Mumbai …Respondent(s)
J U D G M E N T
M.R. SHAH, J.
3
1.As common question of law and facts arise in this group of
appeals, they are being decided and disposed of by this common
judgment and order.
2.The issue involved in the present group of appeals is, “whether,
service tax could be levied on Composite Works Contracts prior to the
introduction of the Finance Act, 2007, by which the Finance Act, 1994
came to be amended to introduce Section 65(105)(zzzza) pertaining to
Works Contracts?”
3.Feeling aggrieved and dissatisfied with the impugned judgment
and order dated 07.10.2009 passed by the High Court of Karnataka at
Bengaluru in Writ Appeal Nos. 3481-3492 of 2009 by which the Division
Bench of the High Court has dismissed the said writ appeals and has
confirmed the judgment and order passed by the learned Single Judge
dismissing the writ petitions in which the appellant challenged the
assessment orders levying service tax, on the ground of alternative
remedy available by way of statutory appeal, assessee - M/s. Total
Environment Building Systems Pvt. Ltd. has preferred the present
appeals – Civil Appeal Nos. 8673-8684 of 2013.
3.1Feeling aggrieved and dissatisfied with the impugned judgment
and order passed by the High Court of Delhi at New Delhi in Writ Petition
4
No. 1342 of 2008 by which, relying upon the decision of the Delhi High
Court in the case of G.D. Builders Vs. Union of India, (2013) 32 STR
673 (Delhi), which is the subject matter before this Court by way of Civil
Appeal No. 6523 of 2014, the Division Bench has dismissed the said writ
petition and has held that it is only the service element, which is to be
taxed, the original writ petitioner – assessee – YFC Projects Pvt. Ltd.
has preferred the present Civil Appeal No. 6525 of 2014.
3.2Feeling aggrieved and dissatisfied with the impugned judgment
and order passed by the Division Bench of the High Court dated
13.11.2013 in Writ Petition (C) No. 4107 of 2008 by which the Division
Bench of the High Court has dismissed the said writ petition, the
assessee – G.D. Builders has preferred the present Civil Appeal No.
6523 of 2014.
At this stage, it is required to be noted that in the case of
Commissioner, Central Excise and Customs, Kerala Vs. Larsen and
Toubro Limited, (2016) 1 SCC 170, this Court has specifically overruled
the judgment of the Delhi High Court in the case of G.D. Builders
(supra) and has observed and held that the observations made by the
Delhi High Court in paragraph 31 is wholly inaccurate in its conclusion
that the Finance Act, 1994 contains both the charge and machinery for
levy and assessment of service tax on indivisible works contracts.
5
At this stage, it is reported that as such Civil Appeal No. 6523 of
2014, now under consideration was also heard alongwith the group of
appeals while deciding the case of Larsen and Toubro Limited (supra)
and even the papers of Civil Appeal No. 6523 of 2014 were called for by
the Bench concerned. However, it appears that by oversight and/or by
inadvertence Civil Appeal No. 6523 of 2014 has not been decided and
disposed of and therefore kept pending, which is now notified before this
Court alongwith the other appeals.
3.3Feeling aggrieved and dissatisfied with the impugned judgment
and order passed by the High Court of Delhi at New Delhi dated
09.01.2014 in Writ Petition (C) No. 6803 of 2013 by which the Division
Bench of the High Court relying upon its earlier decision in the case of
G.D. Builders (supra) has dismissed the said writ petition, the assessee
– original writ petitioner – M/s. National Building Construction
Corporation Ltd. (NBCC) has preferred the present Civil appeal No. 6526
of 2014.
3.4Feeling aggrieved and dissatisfied with the impugned judgment
and order passed by the High Court of Delhi at New Delhi dated
13.11.2013 in Writ Petition No. 5046 of 2008 by which the Division
Bench of the High Court has dismissed the said writ petition alongwith
another writ petition in the case of G.D. Builders (supra), the assessee
6
– M/s. Unitech Ltd. has preferred the present Civil Appeal No. 2666 of
2022 arising out of SLP (C) No. 36206 of 2014.
3.5Feeling aggrieved and dissatisfied with the impugned common
judgment and order passed by the Guwahati High Court dated
04.06.2012 passed in Writ Petition Nos. 5676 and 5678 of 2012, the
original writ petitioner – assessee – NBCC has preferred the present
Civil Appeal Nos. 4547-4548 of 2014.
3.6Feeling aggrieved and dissatisfied with the impugned judgment
and order dated 19.03.2015 passed by the Customs, Excise and Service
Tax Appellate Tribunal (CESTAT) in Service Tax Stay No. 59278 of 2013
in S.T. Appeal No. 58658 of 2013, the assessee – M/s. Larsen and
Toubro Limited has preferred the present Civil Appeal No. 2667 of 2022
arising out of SLP (C) No. 21828 of 2015.
3.7Feeling aggrieved and dissatisfied with the impugned judgment
and order dated 10.03.2010 passed by the CESTAT, West Zonal Bench
in Appeal No. ST/275 of 2006, the Revenue has preferred the present
Civil Appeal No. 6792 of 2010.
3.8Feeling aggrieved and dissatisfied with the impugned judgment
and order dated 12.06.2015 passed by CESTAT, Mumbai in
ST/Stay/3022/12-Mum in S.T. Appeal No. 873 of 2012, the assessee –
7
M/s. L&T, Hydrocarbon Engineering Ltd. (previously known as Larsen &
Toubro Ltd.) has preferred the present Civil Appeal No. 2668 of 2022
arising out of SLP (C) No. 32501 of 2015.
4.As observed hereinabove, the issue involved in the present
appeals is, “whether service tax could be levied on Composite Works
Contracts prior to the introduction of the Finance Act, 2007, by which the
Finance Act, 1994 came to be amended to introduce Section 65(105)
(zzzza) pertaining to Works Contracts?”
5.At the outset, it is required to be noted that the very issue had
been considered by this Court in the case of Commissioner, Central
Excise and Customs, Kerala Vs. Larsen and Toubro Limited, (2016)
1 SCC 170. In the aforesaid decision, after considering the entire
scheme of levy of service tax pre-2007 and post-2007, this Court has
specifically observed and held that on indivisible works contracts, for the
period prior to introduction of Finance Act, 2007, service tax was not
leviable under Finance Act, 1994. It is specifically observed and held
that works contracts on which the service tax was levied under the
Finance Act, 1994 is distinct from contracts of service.
6.Ms. Madhavi Divan, learned Additional Solicitor General,
appearing on behalf of the Revenue, has not disputed that the issue
8
involved in the present appeals is as such squarely covered by the
decision of this Court in the case of Larsen and Toubro Limited
(supra). However, according to Ms. Madhavi Divan, the decision of this
Court in the above case, holding that there was no service tax leviable
on works contracts prior to the amendment by the Finance Act, 2007
needs to be re-considered.
6.1In support to her prayer to re-consider the decision of this Court in
the case of Larsen and Toubro Limited (supra), Ms. Madhavi Divan,
learned Additional Solicitor General has made a number of submissions
and has taken us to the legislative history pertaining to the service tax.
She has also taken us to the definition of the Works Contract and what
can be said to be Works Contracts. She has also taken us through a
number of other decisions of this Court including the decisions in the
case of State of Madras Vs. Gannon Dunkerley & Co., (Madras) Ltd.,
(1959) SCR 379; Larsen and Toubro Limited and Anr. Vs. State of
Karnataka and Anr., (2014) 1 SCC 708; Nagarjuna Construction
Company Limited Vs. Union of India and Anr., (2013) 1 SCC 721;
Imagic Creative (P) Ltd. Vs. Commissioner of Commercial Taxes
and Ors., (2008) 2 SCC 614; and T.N. Kalyana Mandapam Assn. Vs.
Union of India and Ors., (2004) 5 SCC 632.
9
6.2It is vehemently submitted by Ms. Madhavi Divan, learned
Additional Solicitor General that, even prior to Finance Act, 2007, there
was an elaborate mechanism for segregating the value of the goods
component and the service component in a Works Contract. Therefore,
it is the case on behalf of the Revenue that it cannot be said that there
was no machinery provision to charge as such the service component in
a Composite Works Contracts in order to make it excisable service tax.
Therefore, it is the case on behalf of the Revenue that the observations
and the findings recorded by this Court in the case of Larsen and
Toubro Limited (supra) that there was no service tax leviable on Works
Contracts prior to the amendment by the Finance Act, 2007 is
fundamentally erroneous and contrary to, and in the teeth of the well
settled principles laid down by previous judgments, including the
judgments passed by Larger Benches of this Court referred to
hereinabove. However, for the reasons stated hereinbelow, we do not
propose to elaborately consider the submissions made by Ms. Madhavi
Divan, learned Additional Solicitor General on merits and made in
support of her request to re-consider the decision of this Court in the
case of Larsen and Toubro Limited (supra).
7.On the other hand, Shri Arvind P. Datar, learned Senior Advocate,
appearing on behalf of some of the assessees and other learned senior
10
counsel appearing on behalf of the respective assessees have
vehemently submitted that as such, the issue involved in the present
appeals is squarely covered by the decision of this Court in the case of
Larsen and Toubro Limited (supra). It is submitted that in most of the
appeals, which are arising out of the judgments and orders passed by
the High Court of Delhi, the High court has followed its decision in the
case of G.D. Builders (supra). That the said decision of the Delhi High
Court in the case of G.D. Builders (supra) has been held to be wholly
incorrect by this Court in the case of Larsen and Toubro Limited
(supra). He has taken us to the relevant observations made by this
Court in the case of Larsen and Toubro Limited (supra) in paragraphs
28, 29, 30, 31, 32, 33, 38 and 39.
7.1It is vehemently submitted by Shri Datar, learned Senior Advocate
appearing on behalf of some of the assesses that in the case of Larsen
and Toubro Limited (supra), it is specifically observed that a taxable
service under the Finance Act, 1994 covers service contracts simpliciter
and not the Composite Works Contracts (reliance is placed upon the
observations made in paragraphs 23 and 29 of the said decision). It is
contended that while referring to exemption notifications in paragraph
42, it has been specifically observed and held that since the levy of
service tax has been found to be non-existent, no question of any
11
exemption would arise. It is further urged by Shri Datar, learned Senior
Advocate appearing on behalf of some of the assesses that the decision
of this Court in the case of Larsen and Toubro Limited (supra) has
been subsequently followed by this Court in the case of Commissioner
of Service Tax and Ors. Vs. Bhayana Builders Private Limited and
Ors., (2018) 3 SCC 782. That after following and considering the
decision of this Court in the case of Larsen and Toubro Limited
(supra), this Court dismissed the appeals preferred by the Revenue.
7.2It is further submitted by Shri Datar, learned Senior Advocate
appearing on behalf of some of the assesses that after 2015, the
decision of this Court in the case of Larsen and Toubro Limited
(supra) has been consistently followed by all the High Courts in the
country and the various Tribunals. It is submitted that therefore, if after a
period of six to seven years, the decision of this Court in the case of
Larsen and Toubro Limited (supra) is to be re-considered at the
instance of the Revenue, it may upset the decisions already taken by the
Tribunals and the various High Courts. It is submitted that therefore on
the principle of stare decisis, this Court may not take a contrary view
than the view taken by this Court in the case of Larsen and Toubro
Limited (supra) and/or may not re-consider the same now at this length
of time at the instance of the Revenue, more particularly, when the
12
Revenue did not file any review application earlier to review the decision
given by this Court in the case of Larsen and Toubro Limited (supra).
7.3It is further submitted by Shri Datar, learned Senior Advocate
appearing on behalf of some of the assesses that some of the appeals in
the present case arise out of the interim orders passed by the Tribunals.
That thereafter, final orders have been passed by the Tribunals by
relying upon the decision of this Court in the case of Larsen and Toubro
Limited (supra) and the Revenue has not challenged the final decision.
Therefore, as such, the Revenue has accepted the decisions in almost
all cases, which have already attained the finality.
7.4 Shri Datar, learned Senior Advocate appearing on behalf of some
of the assesses has also made elaborate submissions on non-levy of
service tax on the Composite Works Contracts prior to the Finance Act,
2007. He has also taken us through the speech made by the then
Hon’ble Finance Minister while moving the amendment in the Parliament
while introducing the Finance Act, 2007. It is submitted that for the first
time, the service tax is levied on the Composite Works Contracts
pursuant to the Finance Act amendment made vide Finance Act, 2007.
However, for the reasons to be recorded hereinbelow, we do not propose
to elaborately deal with and/or consider the elaborate submissions made
on behalf of the respective parties on whether the service tax was
13
leviable on Composite Works Contracts prior to Finance Act, 2007 or not
and on whether the decision of this Court in the case of Larsen and
Toubro Limited (supra) is required to be re-considered, as now
submitted and/or prayed on behalf of the Revenue.
8.Heard, Ms. Madhavi Divan, learned ASG appearing on behalf of
the Revenue and Shri Arvind Datar, learned Senior Advocate and other
learned senior and other counsel appearing on behalf of the respective
assessees.
9.The short question which is posed for consideration of this Court
is, “whether for the period prior to introduction of the Finance Act, 2007,
the service tax would be leviable on the Composite Works Contracts?”
10.At the outset, it is required to be noted that whether post-2007, the
service tax was leviable on Composite Works Contracts is now no longer
res integra in view of the direct decision of this Court in the case of
Larsen and Toubro Limited, (supra).
10.1Ms. Divan, learned ASG is not disputing that in the case of Larsen
and Toubro Limited (supra), this Court has specifically observed and
held that the service tax was not leviable on the indivisible/Composite
Works Contracts, post Finance Act, 2007. However, according to the
14
learned ASG, the said decision requires re-consideration and therefore,
the prayer is made to refer the matter to the Larger Bench.
10.2 While appreciating the prayer/submission made on behalf of the
Revenue to re-consider the binding decision of this Court in the case of
Larsen and Toubro Limited (supra) and to refer the matter to the
Larger Bench, few facts are required to be taken into consideration,
which are as under:-
(i)The decision of this Court in the case of Larsen and Toubro
Limited (supra) has been delivered/passed in the year
2015, in which, it is specifically observed and held that on
indivisible works contracts for the period pre-Finance Act,
2007, the service tax was not leviable;
(ii)After considering the entire scheme and the levy of service
tax pre-Finance Act, 2007 and after giving cogent reasons, a
conscious decision has been taken by this Court holding that
the service tax was not leviable pre-Finance Act, 2007 on
indivisible/Composite Works Contracts;
(iii)While holding that for the period pre-Finance Act, 2007, on
indivisible/Composite Works Contracts, the service tax is not
leviable, number of decisions have been dealt with and
considered by this Court in the aforesaid decision;
15
(iv)That subsequently, the decision of this court in the case of
Larsen and Toubro Limited (supra) has been followed and
considered by this Court in the case of Bhayana Builders
Private Limited and Ors., (supra);
(v)That after the decision of this Court in the case of Larsen
and Toubro Limited (supra) rendered in the year 2015, the
said decision has been consistently followed by various High
Courts and the Tribunals;
(vi)The decisions of the various High Courts and the Tribunals,
which were passed after following the decision of this Court
in the case of Larsen and Toubro Limited (supra) have
attained finality and in many cases, the Revenue has not
challenged the said decisions;
(vii)No efforts were made by the Revenue to file any review
application to review and/or recall the judgment and order
passed by this Court in the case of Larsen and Toubro
Limited (supra). If the Revenue was so serious in their view
that decision of this Court in the case of Larsen and Toubro
Limited (supra) requires re-consideration, Revenue ought to
have filed the review application at that stage and/or even
thereafter. No such review application has been filed even
as on today.
16
(viii)Merely because in the subsequent cases, the amount of tax
involved may be higher, cannot be a ground to pray for re-
consideration of the earlier binding decision, which has been
consistently followed by various High Courts and the
Tribunals in the entire country.
10.3Keeping in mind the aforesaid factual aspects, the prayer made on
behalf of Revenue to re-consider the decision of this Court in the case of
Larsen and Toubro Limited (supra) and to refer the matter to the
Larger Bench is required to be considered.
10.4While considering the prayer made on behalf of the Revenue to
review and/or revisit the earlier decision of this Court in the case of
Larsen and Toubro Limited (supra), few decisions on the principle of
stare decisis are required to be referred to and considered.
10.5In the case of Dr. Jaishri Laxmanrao Patil Vs. Chief Minister
and Ors., (2021) 8 SCC 1, after considering the earlier decision of the
Seven Judge Constitution Bench in the case of Keshav Mills Co. Ltd.
Vs. Commissioner of Income Tax, Bombay North, Ahmedabad, AIR
1965 SC 1636, it is observed and held that before reviewing and revising
its earlier decision the Court must satisfy itself whether it is necessary to
do so in the interest of public good or for any other compelling reason
and the Court must endeavour to maintain certainty and continuity in the
interpretation of the law in the country.
17
10.5.1 After discussing the law on the principle of stare decisis, it is
observed and held that the relevance and significance of the principle
of stare decisis have to be kept in mind and that in law, certainty,
consistency and continuity are highly desirable features. While holding
so, in paragraphs 453 to 456, it is observed and held as under:-
“453. The seven-Judge Constitution Bench judgment
in Keshav Mills [Keshav Mills Co. Ltd. v. CIT, AIR 1965 SC
1636 : (1965) 2 SCR 908] has unanimously held that before
reviewing and revising its earlier decision the Court must
itself satisfy whether it is necessary to do so in the interest of
public good or for any other compelling reason and the Court
must endeavour to maintain a certainty and continuity in the
interpretation of the law in the country.
454. In Jarnail Singh v. Lachhmi Narain Gupta [(2018) 10
SCC 396], the prayer to refer the Constitution Bench
judgment in M. Nagaraj [M. Nagaraj v. Union of India, (2006)
8 SCC 212] was rejected by the Constitution Bench relying
on the law as laid down in Keshav Mills case [Keshav Mills
Co. Ltd. v. CIT, AIR 1965 SC 1636 : (1965) 2 SCR 908]. In
para 9 the following has been laid down : (Jarnail Singh
case [Jarnail Singh v. Lachhmi Narain Gupta, (2018) 10 SCC
396], SCC pp. 410-11)
“9. Since we are asked to revisit a unanimous
Constitution Bench judgment, it is important to bear in
mind the admonition of the Constitution Bench
judgment in Keshav Mills [Keshav Mills Co. Ltd. v. CIT,
AIR 1965 SC 1636 : (1965) 2 SCR 908]. This Court
said : (SCR pp. 921-22 : AIR p. 1644, para 23)
‘23. … in reviewing and revising its earlier
decision, this Court should ask itself whether in
18
the interests of the public good or for any other
valid and compulsive reasons, it is necessary
that the earlier decision should be revised. When
this Court decides questions of law, its decisions
are, under Article 141, binding on all courts within
the territory of India, and so, it must be the
constant endeavour and concern of this Court to
introduce and maintain an element of certainty
and continuity in the interpretation of law in the
country. Frequent exercise by this Court of its
power to review its earlier decisions on the
ground that the view pressed before it later
appears to the Court to be more reasonable, may
incidentally tend to make law uncertain and
introduce confusion which must be consistently
avoided. That is not to say that if on a
subsequent occasion, the Court is satisfied that
its earlier decision was clearly erroneous, it
should hesitate to correct the error; but before a
previous decision is pronounced to be plainly
erroneous, the Court must be satisfied with a fair
amount of unanimity amongst its members that a
revision of the said view is fully justified. It is not
possible or desirable, and in any case it would be
inexpedient to lay down any principles which
should govern the approach of the Court in
dealing with the question of reviewing and
revising its earlier decisions. It would always
depend upon several relevant considerations —
What is the nature of the infirmity or error on
which a plea for a review and revision of the
earlier view is based? On the earlier occasion,
did some patent aspects of the question remain
unnoticed, or was the attention of the Court not
drawn to any relevant and material statutory
provision, or was any previous decision of this
Court bearing on the point not noticed? Is the
Court hearing such plea fairly unanimous that
19
there is such an error in the earlier view? What
would be the impact of the error on the general
administration of law or on public good? Has the
earlier decision been followed on subsequent
occasions either by this Court or by the High
Courts? And, would the reversal of the earlier
decision lead to public inconvenience, hardship
or mischief? These and other relevant
considerations must be carefully borne in mind
whenever this Court is called upon to exercise its
jurisdiction to review and revise its earlier
decisions. These considerations become still
more significant when the earlier decision
happens to be a unanimous decision of a Bench
of five learned Judges of this Court.’ ”
455. The principle of stare decisis also commends us not to
accept the submissions of Shri Rohatgi. the Constitution
Bench of this Court in State of Gujarat v. Mirzapur Moti
Kureshi Kassab Jamat [(2005) 8 SCC 534], explaining the
principle of stare decisis laid down the following in paras 111
and 118 : (SCC pp. 589 & 591)
“111. Stare decisis is a Latin phrase which means ‘to
stand by decided cases; to uphold precedents; to
maintain former adjudication’. This principle is
expressed in the maxim “stare decisis et non quieta
movere” which means to stand by decisions and not to
disturb what is settled. This was aptly put by Lord Coke
in his classic English version as ‘Those things which
have been so often adjudged ought to rest in peace’.
However, according to Frankfurter, J., the doctrine
of stare decisis is not “an imprisonment of reason”
(Advanced Law Lexicon, P. Ramanatha Aiyer, 3rd Edn.
2005, Vol. 4, P. 4456). The underlying logic of the
doctrine is to maintain consistency and avoid
uncertainty. The guiding philosophy is that a view
20
which has held the field for a long time should not be
disturbed only because another view is possible.
***
118. The doctrine of stare decisis is generally to be
adhered to, because well-settled principles of law
founded on a series of authoritative pronouncements
ought to be followed. Yet, the demands of the changed
facts and circumstances, dictated by forceful factors
supported by logic, amply justify the need for a fresh
look.”
456. the Constitution Bench in Indra Sawhney [Indra
Sawhney v. Union of India, 1992 Supp (3) SCC 217]
speaking through B.P. Jeevan Reddy, J. has held that the
relevance and significance of the principle of stare
decisis have to be kept in mind. It was reiterated that in law
certainty, consistency and continuity are highly desirable
features. Following are the exact words in para 683 : (SCC
p. 657)
“683. … Though, we are sitting in a larger Bench, we
have kept in mind the relevance and significance of the
principle of stare decisis. We are conscious of the fact
that in law certainty, consistency and continuity are
highly desirable features. Where a decision has stood
the test of time and has never been doubted, we have
respected it … unless, of course, there are compelling
and strong reasons to depart from it. Where, however,
such uniformity is not found, we have tried to answer
the question on principle keeping in mind the scheme
and goal of our Constitution and the material placed
before us.”
10.6 In the case of Dr. Shah Faesal and Ors. Vs. Union of India and
Anr., (2020) 4 SCC 1, the Constitution Bench of this Court had occasion
to consider the principle of stare decisis and the law of precedents/re-
21
consideration/review of earlier decision. After considering the decision of
this Court in the case of Chandra Prakash and Ors. Vs. State of U.P.
and Anr., (2002) 4 SCC 234 (paragraph 22), it is observed and held by
this Court that doctrines of precedents and stare decisis are the core
values of our legal system. They form the tools which further the goal of
certainty, stability and continuity in our legal system. When a decision is
rendered by this Court, it acquires a reliance interest and the society
organises itself based on the present legal order. By observing and
holding so, it is observed in paragraphs 17 to 19 as under:-
“17. This Court's jurisprudence has shown that usually the
courts do not overrule the established precedents unless
there is a social, constitutional or economic change
mandating such a development. The numbers themselves
speak of restraint and the value this Court attaches to the
doctrine of precedent. This Court regards the use of
precedent as indispensable bedrock upon which this Court
renders justice. The use of such precedents, to some extent,
creates certainty upon which individuals can rely and
conduct their affairs. It also creates a basis for the
development of the rule of law. As the Chief Justice of the
Supreme Court of the United States, John Roberts observed
during his Senate confirmation hearing, “It is a jolt to the
legal system when you overrule a precedent. Precedent
plays an important role in promoting stability and even-
handedness”. [Congressional Record—Senate, Vol. 156, Pt.
7, 10018 (7-6-2010).]
18. Doctrines of precedents and stare decisis are the core
values of our legal system. They form the tools which further
the goal of certainty, stability and continuity in our legal
system. Arguably, Judges owe a duty to the concept of
22
certainty of law, therefore they often justify their holdings by
relying upon the established tenets of law.
19. When a decision is rendered by this Court, it acquires a
reliance interest and the society organises itself based on
the present legal order. When substantial judicial time and
resources are spent on references, the same should not be
made in a casual or cavalier manner. It is only when a
proposition is contradicted by a subsequent judgment of the
same Bench, or it is shown that the proposition laid down
has become unworkable or contrary to a well-established
principle, that a reference will be made to a larger Bench. In
this context, a five-Judge Bench of this Court in Chandra
Prakash v. State of U.P. [(2002) 4 SCC 234], after
considering series of earlier rulings reiterated that : (SCC p.
245, para 22)
“22. … The doctrine of binding precedent is of utmost
importance in the administration of our judicial
system. It promotes certainty and consistency in
judicial decisions. Judicial consistency promotes
confidence in the system, therefore, there is this need
for consistency in the enunciation of legal principles in
the decisions of this Court.”
(emphasis supplied)”
10.7It is observed and held in the aforesaid decision that even the rule
of overruling the judgments should be applied with great caution, and
only when the previous decision is manifestly wrong, as, for instance, if it
proceeded upon a mistaken assumption of the continuance of a
repealed or expired Statute, or is contrary to a decision of another court
which the court is bound to follow; not, upon a mere suggestion, that
some or all of the members of the court might later arrive at a different
23
conclusion if the matter was res integra. It is further observed that
otherwise there would be great danger of want of continuity in the
interpretation of law. It is further observed and held that the decisions
rendered by a coordinate Bench is binding on the subsequent Benches
of equal or lesser strength and a coordinate Bench of the same strength
cannot take a contrary view than what has been held by another
coordinate Bench unless it is shown to be per incuriam.
11.At this stage, a few decisions of this Court on consistency,
certainty and uniformity also deserve consideration, which are as under:-
11.1This Court in Government of Andhra Pradesh Vs. A.P. Jaswal,
(2001) 1 SCC 748 has observed as under:-
“Consistency is the cornerstone of the administration of
justice. It is consistency which creates confidence in the
system and this consistency can never be achieved without
respect to the rule of finality. It is with a view to achieve
consistency in judicial pronouncements, the courts have
evolved the rule of precedents, principle of stare decisis etc.
These rules and principles are based on public policy………”
The aforesaid observations are equally, if not more meaningful and
relevant to tax matters.
11.2This Court, in the Constitution Bench judgment in Union of India
Vs. Raghubir Singh (Dead) by LRs. etc., (1989) 2 SCC 754, on the
question of the merit of promoting certainty and consistency in judicial
decisions, had observed that this enables an organic development of
24
law, besides assuring the individuals as to the consequences of
transactions forming part of his daily affairs, and, therefore, there is a
need for clear and consistent enunciation of legal principles in the
decision of a court.
11.3In K. Ajit Babu and Ors. Vs. Union of India and Ors., (1997) 6
SCC 473, this Court again emphasized on the aspect of consistency,
certainty and uniformity in the field of judicial decisions as it sets a
pattern upon which future conduct may be based. One of the basic
principles of the administration of justice is that identical/similar cases
should be decided alike. This is the foundation of the doctrine of
precedent, which has considerable benefits and advantages. Emphasis
on the law of precedent, which promotes certainty and consistency, was
also noticed in Sundarjas Kanyalal Bhatija and Ors. Vs. Collector
Thane, Maharashtra and Ors., (1989) 3 SCC 396, by emphasizing that
it is the duty of the courts to make the law more predictable. Law must
be made more effective as a guide to behaviour, otherwise, the lawyers
or, for that matter, laymen would be in a predicament and would not
know how to advise or conduct themselves. The general public should
not be in a dilemma to obey or not to obey such law.
11.4In Medley Pharmaceuticals Limited v. Commissioner of
Central Excise and Customs, Daman, (2011) 2 SCC 6014, the
question before this Court was whether, "physicians' samples" are
25
excisable goods considering that they are prohibited from being sold
under the Drugs and Cosmetics Act, 1940. Observing that since this
Court has consistently held that the medical supplies supplied to the
doctors are liable to excise duty, the issue involved in this case was no
longer res integra. Relying on the Constitutional Bench decision in
Waman Rao v. Union of India, (1981) 2 SCC 362, it was held:
43. It is settled law that this Court should follow an earlier
decision that has withstood the changes in time, irrespective
of the rationale of the view taken. It was held by a
Constitution Bench in Waman Rao v. Union of India [(1981) 2
SCC 362]: (SCC p. 393, para 40)
40. It is also true to say that for the application of
the rule of stare decisis, it is not necessary that
the earlier decision or decisions of longstanding
should have considered and either accepted or
rejected the particular argument which is
advanced in the case on hand. Were it so, the
previous decisions could more easily be treated
as binding by applying the law of precedent and
it will be unnecessary to take resort to the
principle of stare decisis. It is, therefore, sufficient
for invoking the rule of stare decisis that a certain
decision was arrived at on a question which
arose or was argued, no matter on what reason
the decision rests or what is the basis of the
decision. In other words, for the purpose of
applying the rule of stare decisis, it is
unnecessary to enquire or determine as to what
was the rationale of the earlier decision which is
said to operate as stare decisis."
11.5In Saurashtra Cement & Chemical Industries Ltd. and another
Vs. Union of India and others, (2001) 1 SCC 91 this Court refused to
26
indulge on the question of delegated legislation in taxing statute since
the authority of the legislature in introducing the statute in question, i.e.,
Mines and Minerals (Regulation and Development) Act, 1957 could not
be doubted and in any event, was a settled proposition of law for more
than a decade. Applying the doctrine of stare decisis, the Court rejected
the plea to reconsider the decision in State of Madhya Pradesh v.
Mahalaxmi Fabric Mills Ltd., 1995 Supp (1) SCC 642 in the following
words:-
“35. In the wake of the aforesaid, we do feel it expedient to
record that taking recourse to the doctrine as above would
be an imperative necessity, so as to avoid uncertainty and
confusion, since the basic feature of law is its certainty and
in the event of any departure therefrom the society would be
in utter confusion and the resultant effect of which would be
legal anarchy and judicial indiscipline-a situation which
always ought to be avoided. The Central Legislature
introduced the legislation (MMRD Act) in the year 1957 and
several hundreds and thousands of cases have already
been dealt with on the basis thereof and the effect of a
declaration of a contra law would be totally disastrous
affecting the very basics of the revenue jurisprudence. It is
true that the doctrine has no statutory sanction but it is a rule
of convenience, expediency, prudence and above all the
public policy. It is to be observed in its observance rather
than in its breach to serve the people and subserve the ends
of justice.”
12.What was said by the Constitution Bench in Indra
Sawhney Vs. Union of India, 1992 Supp (3) SCC 217 and Keshav
Mills Co. Ltd. Vs. Commissioner of Income Tax, Bombay North,
Ahmedabad, AIR 1965 SC 1636, on the principle of stare decisis clearly
27
bind us. The judgment of this Court in the case of Larsen and Toubro
Limited (supra) has stood the test of time and has never been doubted
earlier. As observed hereinabove, the said decision has been followed
consistently by this Court as well as by various High Courts and the
Tribunals. Therefore, if the prayer made on behalf of the Revenue to re-
consider and/or review the judgment of this Court in the case of Larsen
and Toubro Limited (supra) is accepted, in that case, it will affect so
many other assesses in whose favour the decisions have already been
taken relying upon and/or following the decision of this Court in the case
of Larsen and Toubro Limited (supra) and It may unsettle the law,
which has been consistently followed since 2015 onwards. There are all
possibilities of contradictory orders. Therefore, on the principle of stare
decisis, we are of the firm view that the judgment of this Court in the
case of Larsen and Toubro Limited (supra), neither needs to be
revisited, nor referred to a Larger Bench of this Court as prayed, i.e.,
after a period of almost seven years and as observed hereinabove when
no efforts were made to file any review application requesting to review
the judgment on the grounds, which are now canvassed before this
Court.
13.At this stage, it is required to be noted that one of the appeals
being Civil Appeal No. 6523 of 2014 filed by M/s. G.D. Builders is against
28
the decision of the Delhi High Court in the case of G.D. Builders Vs.
Union of India reported in (2013) 32 STR 673 (Delhi). It is to be noted
that the said decision of the Delhi High Court in the case of G.D.
Builders (supra) has been specifically overruled by this court in the
case of Larsen and Toubro Limited (supra). The decision of the Delhi
High Court in the case of G.D. Builders (supra) has been considered by
this Court in the case of Larsen and Toubro Limited (supra) in
paragraphs 28, 29, 30, 32, 33, 38 and 39 and ultimately, this Court
opined that the decision of the Delhi High Court in the case of G.D.
Builders (supra) is in fact contrary to a long line of decisions. It is
further specifically observed and held that the decision of the Delhi High
Court in the case of G.D. Builders (supra) is wholly incorrect in its
conclusion that the Finance Act, 1994 contains both the charge and
machinery for levy and assessment of service tax on indivisible works
contracts. It is reported that while deciding the group of matters in the
case of Larsen and Toubro Limited (supra), the papers of the appeal
filed by M/s. G.D. Builders being Civil Appeal No. 6523 of 2014 were
also called and the learned counsel appearing on behalf of the G.D.
Builders was also heard. It appears that, however, the Civil Appeal No.
6523 of 2014 filed by M/s. G.D. Builders against the decision of the Delhi
High Court has not been specifically disposed of. Therefore, once the
decision of the Delhi High Court in the case of G.D. Builders (supra),
29
which is the subject matter of Civil Appeal No. 6523 of 2014 has been
held to be wholly incorrect, Civil Appeal No. 6523 of 2014 filed by M/s.
G.D. Builders has to be allowed and the judgment and order passed by
the Delhi High Court has to be quashed and set aside.
13.1Now, so far as Civil Appeal No. 6525 of 2014, Civil Appeal No.
6526 of 2014 and Civil Appeal No. 2666 of 2022 are concerned, the High
Court has dismissed the said writ petitions preferred by the respective
assesses relying upon its earlier decision in the case of G.D. Builders
(supra). Once the decision of the Delhi High Court in the case of G.D.
Builders (supra) is held to be wholly incorrect by this Court in the case
of Larsen and Toubro Limited (supra), Civil Appeal No. 6525 of 2014,
Civil Appeal No. 6526 of 2014 and Civil Appeal No. 2666 of 2022 are
also to be allowed.
13.2So far as Civil Appeal Nos. 8673-8684 of 2013 preferred by the
assessee – M/s. Total Environment Building Systems Pvt. Ltd. are
concerned, the same are against the judgment and order passed by the
High Court of Karnataka in Writ Appeal Nos. 3481-3492 of 2009 by
which the Division Bench of the High Court has dismissed the said writ
appeals and has confirmed the judgment and order passed by the
learned Single Judge dismissing the writ petitions in which the appellant
- assessee challenged the assessment orders levying Service Tax, on
the ground of alternative remedy available by way of statutory appeal.
30
However, in view of the binding decision of this Court in the case of
Larsen and Toubro Limited (supra), the assessee is not liable to pay
the service tax till the date of amendment of the provision on the
indivisible/composite works contracts and therefore, the said appeals
also deserve to be allowed and the assessment orders levying the
service tax are to be set aside.
13.3Following the binding decision of this Court in the case of Larsen
and Toubro Limited (supra), taking the view that for the period pre-
Finance Act, 2007, service tax was not leviable on the
indivisible/composite works contracts, the Civil Appeal Nos. 4547-4548
of 2014, Civil Appeal No. 2667 of 2022 and Civil Appeal No. 2668 of
2022 arising out of the common judgment and order passed by the
Guwahati High Court and the respective decisions of the CESTAT
passed against the respective assesses are also to be allowed.
13.4Now, so far as Civil Appeal No. 6792 of 2010 preferred by the
Revenue against the judgment and order passed by the CESTAT, West
Zonal Bench in Appeal No. ST/275 of 2006 is concerned, in view of the
binding decision of this Court in the case of Larsen and Toubro Limited
(supra), the same deserves to be dismissed.
14.In view of the above and for the reasons stated above, Civil Appeal
Nos. 8673-8684 of 2013, Civil Appeal No. 6525 of 2014, Civil Appeal No.
31
6523 of 2014, Civil Appeal No. 6526 of 2014, Civil Appeal No. 2666 of
2022, Civil Appeal Nos. 4547-4548 of 2014, Civil Appeal No. 2667 of
2022 and Civil Appeal No. 2668 of 2022 are hereby allowed and
impugned judgments and orders passed by the respective High
Courts/Tribunals taking the view that for the period pre-Finance Act,
2007, the respective assesses are/were liable to pay the service tax on
indivisible/composite works contracts are hereby quashed and set aside.
Consequently, the respective assessment orders/orders in originals
levying the service tax on the respective assesses on the
indivisible/Composite Works Contracts for the period prior to pre-2007
are hereby quashed and set aside. Necessary consequences shall
follow.
Civil Appeal No. 6792 of 2010 is hereby dismissed.
In the facts and circumstances of the case, there shall be no order
as to costs.
Note :-I have had the advantage of perusing the supplementary
judgment and order proposed by my learned Sister, B.V.
Nagarathna, J. As such, Her Ladyship has agreed with the
conclusions arrived at by me in the present judgment and
order, however, has thought it fit to give additional reasons
for the conclusions and has dealt with the submissions made
32
by Ms. Madhavi Divan on merits. However, for the reasons
stated above as this Court has not agreed with the prayer
made by Ms. Divan, learned ASG to reconsider the decision
in the case of Larsen and Toubro Limited (supra) on the
principle of stare decisis and on the principle of consistency, I
deem it proper not to deliberate further on merits, as
observed above, the issue involved is squarely covered by
the decision of this Court in the case of Larsen and Toubro
Limited (supra), which has been subsequently followed by
this Court as well as by various High Courts and Tribunals.
………………………………….J.
[M.R. SHAH]
NEW DELHI; ………………………………….J.
AUGUST 02, 2022. [B.V. NAGARATHNA]
33
I have had the advantage of perusing the judgment proposed by
His Lordship M.R. Shah J. While I agree with the conclusions arrived
at by him, I wish to supplement the reasons for the conclusions.
(2)As already stated, the issue in these appeals relates to the levy of
service tax on composite works contract prior to the amendment made
to the Finance Act, 1994 in the year 2007 by which Section 65(105)
(zzzza) was introduced which gives the definition to the expression
“works contract.”
(3)While it is not essential to narrate the details of each of the cases
under consideration as it has been made in the judgment proposed by
M.R. Shah J., it is however necessary to answer the principal
submission made by Ms. Madhavi Diwan, learned Additional Solicitor
General appearing for the revenue with a detailed reasoning. She
contended that the judgment of this Court in Commissioner, Central
Excise and Customs, Kerala vs. Larsen and Toubro Ltd. [(2016) 1
SCC 170] (hereinafter referred as “Larsen & Toubro Ltd.”) requires
reconsideration as in the said case it was held that service tax on
composite works contract was not leviable prior to the amendment
made to the Finance Act, 1994, in the year 2007, whereas according to
her, in fact, it was leviable even prior thereto and the amendment
made to the Finance Act, 1994, in the year 2007 by insertion of
Section 65(105)(zzzza) is only clarificatory in nature. Hence, the
34
judgment in Larsen and Toubro Ltd. (supra) holding otherwise calls
for reconsideration.
(4)Per contra, Sri Arvind P. Datar learned senior advocate appearing
on behalf of some of the assesses and other learned senior counsel
contended that the judgment in Larsen and Toubro Ltd. (supra) does
not call for reconsideration. Further, in the said case the judgment of
the Delhi High Court in G.D. Builders vs. Union of India [(2013) 32
STR 673] has been held to be not correctly decided and was therefore
overruled.
(5)Before proceeding to consider the aforesaid rival contentions, it
would be useful to discuss the evolution, meaning and content of the
expression works contract in the context of sales tax law and as well
as under the service tax regime. This is, having regard to the definition
of works contract being inserted w.e.f. 1
st
June, 2007 to the Finance
Act, 1994 which seeks to impose service tax on the service aspect of a
works contract. The reason for this exercise is because works contract
by itself is not taxable. A works contract as defined by the amendment
has two components, namely, a sale component and a service
component. It is only when both the components are satisfied and co
exist that a contract becomes a works contract as defined. Further, it
is only on the service component of the works contract that the service
tax is leviable w.e.f. 1
st
June, 2007. As far as the sale component in a
35
works contract is concerned, the Sales Tax laws of the respective
States would apply. It is also necessary to state that after the
enforcement of the Central Goods and Services Tax Act (CGST), 2017
regime the matter is covered under that Act. Therefore, it is necessary
to gather the meaning of works contract from judicial precedent in
order to answer the rival submissions in the instant case.
Section 65(105)(zzzza) of the Finance Act, 1994 as amended by
the Finance Act, 2007 which defines work contract, has been
extracted as under, for ease of reference:
“ ‘Works contract’ means a contract
wherein,
transfer of property in goods involved in the
execution of such contract is leviable to tax
as sale of goods, and
(ii) such contract is for the purposes of
carrying out,—
(a) erection, commissioning or installation of
plant, machinery, equipment or structures,
whether prefabricated or otherwise,
installation of electrical and electronic
devices, plumbing, drain laying or other
installations for transport of fluids, heating,
ventilation or airconditioning including
related pipe work, duct work and sheet
metal work, thermal insulation, sound
insulation, fire proofing or water proofing,
lift and escalator, fire escape staircases or
elevators; or
36
(b) construction of a new building or a civil
structure or a part thereof, or of a pipeline
or conduit, primarily for the purposes of
commerce or industry; or
(c) construction of a new residential complex
or a part thereof; or
(d) completion and finishing services, repair,
alteration, renovation or restoration of, or
similar services, in relation to (b) and (c); or
(e) turnkey projects including engineering,
procurement and construction or
commissioning (EPC) projects.”
A reading of the aforesaid definition would indicate that two
requisites must be satisfied before service tax on works contract could
be levied. In other words, a contract in order to be works contract
must involve:
“(i) transfer of property in goods involved in
the execution of such contract is leviable to
tax as sale of goods, and
(ii) such contract is for the purposes of
carrying out,—
(a) erection, commissioning or installation of
plant, machinery, equipment or structures,
whether prefabricated or otherwise,
installation of electrical and electronic
devices, plumbing, drain laying or other
37
installations for transport of fluids, heating,
ventilation or airconditioning including
related pipe work, duct work and sheet
metal work, thermal insulation, sound
insulation, fire proofing or water proofing,
lift and escalator, fire escape staircases or
elevators; or
(b) construction of a new building or a civil
structure or a part thereof, or of a pipeline
or conduit, primarily for the purposes of
commerce or industry; or
(c) construction of a new residential complex
or a part thereof; or
(d) completion and finishing services, repair,
alteration, renovation or restoration of, or
similar services, in relation to (b) and (c); or
(e) turnkey projects including engineering,
procurement and construction or
commissioning (EPC) projects.”
Thus, works contract has two essential components: firstly, sale
of goods involved in the execution of such contracts which would
attract Sales Tax or Value Added Tax (VAT) as the case may be, i.e.,
prior to the enforcement of the Goods and Services Tax regime and
secondly, a service component which is specified in clause (ii)(a)(e) of
the definition of works contract which would attract Service Tax under
the provisions of the Finance Act, 1994 as amended in the year 2007.
If both the above requisites are present, then Service Tax on works
38
contract is leviable on the service component. This is clear from the
use of the word “and” between components (i) and (ii) of the definition
of works contract under Clause (zzzza) of Section 65 of the Finance
Act, 1994 which is as per the amendment in the year 2007. Thus, the
definition speaks of a composite works contract comprising of an
element of sale and an element of service.
Having regard to the specific definition of works contract
introduced in the Finance Act, 1994, w.e.f. 1
st
June, 2007 and bearing
in mind that both clauses (i) as well as (ii) of the definition have to be
satisfied before the levy of service tax on the service component of a
works contract, it is necessary to understand the scope and ambit of
the expression “transfer of property in goods” in clause (i) of the
definition of works contract from various judgments of this Court.
Further, sales tax/VAT could also be levied on such transfer of goods
involved in the execution of such contracts and a service tax on as
specified in clause (ii) of the definition of works contract.
The evolution of the concept of works contract is noted as under
as it is on the service component of such contract that service tax is
leviable. The reference to judgments on works contract under Sales
Tax law would be pertinent.
A.Prior to the 46
th
Amendment of the Constitution, levy of
sales tax on sale of goods involved in the execution of a works
39
contract was held to be unconstitutional in Gannon Dunkerley
(I) – State of Madras vs. Gannon Dunkerley and Co.
(Madras) Ltd. [AIR 1958 SC 560]; [1959 SCR 379]. A
Constitution Bench of this Court held that in a building
contract where the agreement between the parties was that the
contractor should construct the building according to the
specifications contained in the agreement and in consideration,
received payment as provided therein, there was neither a
contract to sell the materials used in the construction nor the
property passed therein as movables. It was held that in the
building contract which was one (entire and indivisible), there
was no sale of goods and it was not within the competence of
the concerned provincial State Legislature (Madras Legislature)
to impose tax on the supply of the materials used in such a
contract treating it as a sale. Consequently, it was held that in a
building contract which was one, entirely indivisible, there was
no sale of goods and it was not within the competence of the
Provincial State Legislature to impose tax on the supply of
materials used in such a contract treating it as a sale. This was
on the premise that the works contract was a composite
contract which is inseparable and indivisible.
40
B.As a result of this dictum, the Law Commission of India in
its 61
st
Report specifically examined the taxability of works
contract and examined the particular question whether the
power to tax indivisible contract of works should be conferred
on the States. This led to insertion of Clause (29A) to Article
366 of the Constitution. For ease of reference, the same is
extracted as under:
“Article 366. Definitions. In this
Constitution, unless the context
otherwise requires, the following
expressions have the meanings hereby
respectively assigned to them, that is to
say –
[(29A) “tax on the sale or purchase of
goods” includes –
(a) XXXXX
(b)A tax on the transfer of property
in goods (whether as goods or in
some other form) involved in the
execution of a works contract;”
C.In Gannon Dunkerley (II) Gannon Dunkerley and Co.
vs. State of Rajasthan [1993 (1) SCC 364], the Constitution
Bench of this Court explained the effect of the legal fiction
introduced by sub clause (b) of Clause (29A) of Article 366 of
the Constitution. The following principles were enunciated, to
outline the operation of sub clause (b) of Clause (29A) of
Article 366:
41
a) That by virtue of the legal fiction in Clause 29A,
even in a single indivisible works contract, there is
a deemed sale of goods and such sale has all the
incidents of ‘sale of goods.’
b) That the value of goods involved in the execution
of a works contract may be determined by taking
into account the value of the entire works contract
and deducting therefrom, the charges towards
labour and services.
c) That the following charges towards labour and
services were to be excluded in determining the
value of goods sold in executing a works contract:
i) Labour charges for execution of the
works;
ii) Amount paid to a subcontractor for
labour and services;
iii) Charges for planning, designing and
architect’s fees;
42
iv) Charges for obtaining on hire or
otherwise machinery and tools used for
the execution of the works contract;
v) Cost of consumables such as water,
electricity, fuel, etc. used in the
execution of the works contract the
property in which is not transferred in
the course of execution of a works
contract; and
vi) Cost of establishment of the
contractor to the extent it is relatable to
supply of labour and services;
vii) Other similar expenses relatable to
supply of labour and services;
viii) Profit earned by the contractor to
the extent it is relatable to supply of
labour and services.
D.Therefore, under the regime that existed prior to the
amendment and insertion of Clause (29A) to Article 366 of the
43
Constitution, a typical works contract would not involve sale of
goods and no sales tax was leviable on such works contract.
However, subsequently, by way of the Constitution (Fortysixth
Amendment) Act, 1982, Clause (29A) came to be inserted into
Article 366 of the Constitution of India, providing for an
inclusive definition of the expression “tax on the sale or
purchase of goods” in relation to various transactions and
dealings including “tax on the transfer of property in goods
(whether as goods or in some other form) involved in the
execution of a works contract.”
E.Following the introduction of the said clause, most States
amended their Sales Tax statutes to cover ‘works contract.’ The
Constitutional validity of the aforementioned provisions by
which the legislatures of the States were empowered to levy
sales tax on certain transactions described in subclauses (a) to
(f) of Clause (29A) of Article 366 of the Constitution as also the
question, whether, the power of the State legislature to levy tax
on the transfer of property in goods involved in the execution of
works contract is subject to the restrictions and conditions
contained in Article 286 of the Constitution, were considered by
a Constitution Bench of this Court in Builders Association of
India vs. Union of India [(1989) 2 SCC 645]. Therein, while
44
upholding the constitutional validity of the aforementioned
provisions, the Constitution Bench explained the unique
features of a composite contract relating to work and materials
and expounded on the meaning, effect and amplitude as also
contours of the provisions pertaining to the taxing power of the
States in relation to works contract particularly in paragraphs
3840 of the judgment.
F.In light of the said discussion, this Court concluded that
the transfer of any goods in Subclauses (a) to (f) of Clause (29A)
of Article 366 of the Constitution is by way of a deeming
provision i.e., a deemed sale. This Court however, cautioned
that the levy of sales tax after the 46th Amendment to the
Constitution of India has to still comply with the restrictions
imposed under Articles 286 and 269 of the Constitution.
G.Later a threejudge bench of this Court in State of AP v.
Kone Elevators [(2005) 3 SCC 389] had taken the view that a
contract for manufacture, supply and installation of lifts is a
“sale” and the entire value of the consideration can therefore be
taxed under the sales tax law. However, the matter was
subsequently referred to a larger Bench to review the issue
afresh. This Court, on rehearing the matter referred to it, in
Kone Elevator India Pvt. Ltd. vs. State of Tamil Nadu
45
[(2014) 7 SCC 1], observed that the installation obligation in a
contract for manufacture, supply and installation of lift is not
merely incidental, but was a profound part of the entire
contract. That various components were assembled together
and installed at site as a permanent fixture to the building. The
goods, skill and labour elements are intimately connected with
one another and the contract is not divisible. Therefore, this
Court concluded that a contract for manufacture, supply and
installation of lifts was a works contract. It was also observed
that even after the 46th Amendment, if Article 366 (29A)(b) is to
be invoked, as a necessary concomitant, it must be shown that
the terms of the contract would lead to a conclusion that it is a
‘Works Contract’. In other words, unless a contract is proved to
be a ‘Works Contract’ by virtue of the terms agreed to as
between the parties, invocation of Article 366 (29A)(b) of the
Constitution, cannot be made. That in circumstances when no
definite conclusion can be made to the effect that a given
contract is a works contract, the same will have to be declared
as a ‘sale’ attracting the provisions of the relevant sales tax
enactments.
H.In the case of Bharat Sanchar Nigam Ltd. v s. Union of
India [2006] 145 STC 91 (SC), the question that came up for
46
decision before this Court was with regard to the nature of the
transaction by which mobile phone connections were obtained,
as to, whether, it is a sale or a service or both. This Court held
that providing a telephone connection which operates by
transmission of electromagnetic waves or radio frequencies are
not ‘goods’ for the purpose of Article 366(29A) of the
Constitution and that the goods in telecommunication are
limited to the handsets supplied by the service provider and as
far as the SIM cards are concerned, the issue was left for
determination by the assessing authorities.
I.Subsequently, in Larsen and Toubro Limited and
Another vs. State of Karnataka and Another [(2014) (1) SCC
708], this Court deciphered the meaning of the works contract
from the earlier judgments and in para 72 opined as under:
“72. In our opinion, the term “works
contract” in Article 366(29A)(b) is amply
wide and cannot be confined to a particular
understanding of the term or to a particular
form. The term encompasses a wide range
and many varieties of contract. Parliament
had such wide meaning of “works contract”
in its view at the time of the Fortysixth
Amendment. The object of insertion of
clause (29A) in Article 366 was to enlarge
the scope of the expression “tax on sale or
purchase of goods” and overcome Gannon
Dunkerley (1) [State of Madras v. Gannon
Dunkerley and Co. (Madras) Ltd., AIR
47
1958 SC 560 : 1959 SCR 379] . Seen
thus, even if in a contract, besides the
obligations of supply of goods and materials
and performance of labour and services,
some additional obligations are imposed,
such contract does not cease to be works
contract. The additional obligations in the
contract would not alter the nature of
contract so long as the contract provides for
a contract for works and satisfies the
primary description of works contract. Once
the characteristics or elements of works
contract are satisfied in a contract then
irrespective of additional obligations, such
contract would be covered by the term
“works contract”. Nothing in Article 366(29
A)(b) limits the term “works contract” to
contract for labour and service only. The
learned Advocate General for Maharashtra
was right in his submission that the term
“works contract” cannot be confined to a
contract to provide labour and services but
is a contract for undertaking or bringing
into existence some “works”. We are also in
agreement with the submission of Mr K.N.
Bhat that the term “works contract” in
Article 366(29A)(b) takes within its fold all
genre of works contract and is not restricted
to one specie of contract to provide for
labour and services alone. Parliament had
all genre of works contract in view when
clause (29A) was inserted in Article 366.”
(underlining by me)
J.Further, the difference between a contract for work (or
service) and a contract for sale (of goods) was considered and by
placing reliance on Commissioner of Sales Tax vs.
Purshottam Premji [(1970) 2 SCC 287], it was observed that
48
the primary difference between a contract for work (or service)
and a contract for sale of goods is that, in the former, there is in
the person performing work or rendering service no property in
the thing produced as a whole, notwithstanding that a part or
even the whole of the materials used by him may have been his
property. In the case of a contract for sale, the thing produced
as a whole has individual existence as a sole property of the
party who produced it, at some time before delivery, and the
property therein passes only under the contract relating thereto
to other party for a price. It was also observed that the factors
highlighted to distinguish a contract for work from a contract
for sale are relevant but not exhaustive.
K. In paragraph 89 of the Larsen and Toubro Limited and
Another (supra) this Court observed that three conditions must
be fulfilled to sustain the levy of tax on the goods deemed to
have been sold in execution of the works contract, namely, (i)
there must be a works contract, (ii) the goods should have been
involved in the execution of the works contract, and (iii) the
property in those goods must be transferred to a third party
either as goods or in some other form. In a building contract or
any contract to do construction, the above three things are fully
met. In a contract to build up a flat there will necessarily be a
49
sale of goods element. Works contract also includes building
contracts and, therefore, it can be stated that building contracts
are a species of works contract.
L. With reference to the aspect theory, it was held that
though the State Legislature does not have the power to tax
services by including the cost of such service in the value of
goods but that does not detract the State to tax the sale of goods
element involved in the execution of works contract in a
composite contract like contract for construction of building and
sale of a flat therein. In light of the above discussion, the legal
proposition was summarised in paragraph 97 of the judgment.
Evolution of the practice in relation to the levy of service tax on
works contract:
(6)Service tax was introduced in India vide the Finance Act, 1994.
Service tax is legislated by Parliament under the residuary entry i.e.
Entry 97 of List I of the Seventh Schedule of the Constitution of India
read with Article 248 of the Constitution. The service tax provisions
have the following basic scheme:
(i) Section 65 of the Act provides for taxable services;
50
(ii) Section 66 of the Act provides for the charge of service tax by
the person designated as “the person responsible for collecting the
service tax” for the Government;
(iii) Section 67 of the Act provides for the value of taxable service
which is to be subjected to 5% service tax; and
(iv) Section 68 of the Act provides for the collection and payment
mechanism for service tax.
It is necessary to trace the evolution of charging service tax on
works contract as discerned by this Court in the aforesaid judgments.
While considering the rival contentions of the parties, it is also
necessary to examine the issue of levying service tax on contracts said
to be in the nature of works contract, both prior to, and following the
introduction of an express charging provision to impose tax on works
contract although we are concerned with the period prior to the
definition of works contract w.e.f. 1
st
June, 2007 to Finance Act, 1994.
This is with reference to the following judgments:
a)In Tamil Nadu Kalyana Mandapam Association vs.
Union of India [(2004) 5 SCC 632], this Court examined the
question, whether, the inclusion of taxation on kalyana
mandapams, within the tax net of Section 66 and 67 of the
Finance Act, 1994 as amended in the year 1996 was
unconstitutional. It was held that a tax on services rendered by
51
mandapkeepers and outdoor caterers is in pith and substance,
a tax on services and not a tax on sale of goods or on hire
purchase activities. The nature and character of this service tax
is evident from the fact that the transaction between a mandap
keeper and his customer is definitely not in the nature of a sale
or hirepurchase of goods. It is essentially that of providing a
service. The manner of service provided assumes predominance
over the providing of food in such situations which is a definite
indicator of the supremacy of the service aspect. The legislature
in its wisdom noticed the said supremacy and identified the
same as a potential region to collect indirect tax.
b)The question, whether, the charges collected towards the
services for evolution of prototype conceptual designs, on which
service tax had been paid under the Finance Act, 1994 as
amended from time to time, were also liable to tax under the
Karnataka Value Added Tax Act, 2003, (KVAT) for the sale of
advertisement material following the creation of the design
concept, was considered by this Court in Imagic Creative Pvt.
Ltd. vs. The Commissioner of Commercial Taxes and Ors .
[(2008) 2 SCC 614]. This Court observed that payments of
service tax as also of KVAT are mutually exclusive. That they
should be held to be applicable having regard to the respective
52
parameters of service tax and the sales tax as envisaged in a
composite contract as contradistinguished from an indivisible
contract. Thus, a distinction was made between an indivisible
contract and a composite contract. In doing so, it was held that
a composite contract, would have to be construed such that the
legal fiction in Article 366 (29A) allowing tax on the sale element
of a works contract would have to be applied only to the extent
for which it was enacted, i.e., to the extent of the value of the
sale component of the contract and should not be applied in
relation to the service element of the transaction. That taxes, in
the nature of a service tax could be applied in relation only to
the service element.
c)In Nagarjuna Construction Company Ltd. vs.
Government of India and Ors. [(2013) 1 SCC 721], this Court
discussed the effect of introduction of an express charging
provision to impose tax on works contract, w.e.f. 01
st
June,
2007, on works contract which were entered into prior to 01
st
June, 2007. In the said case, the appellant therein was said to
be in the business of carrying out composite construction
contracts. The appellantassessee had paid salestax/VAT on
those contracts under the Andhra Pradesh General Sales Tax
Act, 1957, Andhra Pradesh Value Added Tax Act, 2005 and
53
other State enactments. Prior to 01
st
June, 2007, the assessee
had paid servicetax under the category of ‘erection,
commissioning or installation service’ as appearing under
Section 65 (105) (zzd) of the Finance Act, 1994, or, as
‘commercial or industrial construction service’ under Section 65
(105) (zzq) and as ‘construction of complex service’ under
Section 65 (105) (zzzh).
d)With effect from 01
st
June, 2007, the charging provision,
Section 65 (105) (zzzza) was introduced by defining a works
contract. The Central Government also introduced, w.e.f. 01
st
June, 2007 the Works Contract (Composition Scheme for
Payment of Service Tax) Rules, 2007 (hereinafter referred to as
'the 2007 Rules'). Under this scheme, an option of composition
was offered @ 2% of the gross amount charged on the works
contract. Prior to the composition, the effective tax rate under
the other category of services would work out to be
approximately 3.96% of the gross amount.
e)The appellant in Nagarjuna Construction Company Ltd.
(supra) sought to claim benefit of the Composition Scheme
under the 2007 Rules, however, the assessee was disabled to do
so because of a clause in Circular No. 98/1/2008ST, dated
4th January, 2008 which provided that a taxable service, once
54
classified under the old regime, could not be classified
differently, post 01
st
June, 2007 simply because the
consideration, or a part thereof, was received post 01
st
June,
2007. The vires of Circular No. 98/1/2008ST was challenged
before this Court. In upholding the validity of the said Circular,
this Court held that the appellant, who had paid service tax
prior to 1st June, 2007 for the taxable services, was 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, 2007 and hence, was not entitled to avail of the
Composition Scheme. It was observed that the appellant
assessee had already paid service tax on the basis of
classification of service contract which was in force prior to
1
st
June, 2007 and the said contract could not be classified
differently following the introduction of Section 65 (105) (zzzza)
and the 2007 Rules.
f)Thus, Works Contract Services were brought under the
service tax net as per an amendment to of the Finance Act,
1994 by introduction of Clause (zzzza) to Section 65(105). The
said introduction was made pursuant to the Finance Act, 2007,
which expressly made the service component in such works
contract liable to service tax w.e.f. 1
st
June, 2007. The
55
amendment was made to the said section of the Finance Act,
1994 by which works contract which were indivisible and
composite could be split so that only the labour and service
element of such contracts would be taxed as service tax.
(7) Having noted the above developments, it is necessary to
discuss the judgment in Larsen and Toubro Ltd. (supra) in detail as
learned ASG, Ms. Divan has vehemently submitted that the said
judgment requires reconsideration. It may be noted that this judgment
concerned the position of law prior to the amendment made to the
Finance Act, 1994, w.e.f. 1
st
June, 2007, incorporating the definition of
works contract as under:
a)In the aforesaid case, this Court traced the historical
setting within which the controversy leading up to the 46
th
amendment in the context of levy of sales tax on works contract
progressed. Taking up the question as to whether service tax
could be levied on the service element of a works contract, it
was observed that service tax was introduced by the Finance
Act, 1994 and various services were set out in Section 65
thereof as being amenable to tax. The legislative competence of
such tax is traceable to Article 248 read with Schedule VII List I
Entry 97 to the Constitution of India. The controversy in the
56
said case was with regard to the period prior to the 2007
Amendment made to the Finance Act, 1994 in the year 2007
which introduced the definition and concept of works contract
as being a separate subjectmatter of taxation. By the said
amendment works contract, which were indivisible and
composite were split so that only the labour and service element
of such contracts would be taxed under the heading service tax.
Thus, the tax was not on works contract as such. In the said
case, the Revenue raised four arguments to assail the
judgments of various Tribunals and High Courts which had
decided against the Revenue on the point. By contrast, the
assesses assailed the judgments of the Tribunal and the High
Courts against them, in particular the judgment in G.D.
Builders vs. Union of India [(2013) 32 STR 673], of the Delhi
High Court. According to the assesses there was no service tax
leviable on service element of works contract prior to
amendment being made in the year 2007, insofar as the
indivisible works contract were concerned and what was taxable
under the Finance Act, 1994 was only cases of pure service in
which there was no goods element involved. It was urged that
the judgment of the Delhi High Court in G.D. Builders (supra)
was wholly incorrect and the minority judgment of the judicial
57
members of a Larger Bench of the Delhi Tribunal in Larsen &
Toubro Ltd. vs. CST (in ST Appeal No.58658 of 2013,
decided on 19.03.2015), had comprehensively discussed all
the authorities that were relevant to the issue and arrived at the
correct conclusion. Thus, the assesses assailed the judgment of
the Delhi High Court in G.D. Builders (supra) and considered
along with Larsen & Toubro Ltd. vs. CST (supra).
b)Considering the definition of ‘taxable service’ in sub
Section 105 of Section 65 of the Finance Act, 1994 and the
relevant clauses therein, namely, (g), (zzd), (zzh), (zzq) and (zzz
h); Charge of service tax in Section 66; valuation of taxable
services for charging service tax [Section 67 and Section
65(105)(zzzza)] as well as the Rule 2A of Service Tax Act
(determination of value) Rules 2006, this Court observed that
crucial to the understanding and determination of the issue at
hand was the second Gannon Dunkerley and Co. vs. State of
Rajasthan [(1993) 1 SCC 364] (Gannon Dunkerley II)
(supra) . That in the said judgment the modalities of taxing
composite indivisible works contract was gone into which has
been referred to above. It was observed that the value of the
goods involved in the execution of the works contract will have
to be determined by taking into account the value of entire
58
works contract and deducting therefrom the charges towards
labour and services which would cover –
“(a) labour charges for execution of the
works;
(b)amount paid to a subcontractor for
labour and services;
(c)charges for planning, designing and
architect’s fees;
(d)charges for obtaining on hire or
otherwise machinery and tools used for the
execution of the works contract;
(e)cost of consumables such as water,
electricity, fuel, etc. used in the execution of
the works contract the property in which is
not transferred in the course of execution of
a works contract; and
(f)cost of establishment of the contractor
to the extent it is relatable to supply of
labour and services;
(g)other similar expenses relatable to
supply of labour and services;
(h)profit earned by the contractor to the
extent it is relatable to supply of labour and
services.”
59
For the purposes of arriving at the basis for the levy of sales tax
on works contract, the amount deductible under the aforesaid
heads will have to be determined in light of the facts of a
particular case and on the basis of the material produced by the
contractor.
c)Referring to the aforesaid eight heads of deductions it was
observed that in light of the judgment in Gannon Dunkerley II
(supra) the same has to be indicated in the contractor’s
account. However, if it is found that the Contractor has not
maintained proper accounts or their accounts are found to be
not worthy of credence, it is left to the legislature to prescribe a
formula on the basis of a fixed percentage of the value of the
entire works contract as relatable to the labour and service
element of it. It was observed that “unless the splitting of an
indivisible works contract is done taking into account the eight
heads of deduction, the charge to tax that would be made would
otherwise contain, apart from other things, the entire costs of
establishment, other expenses and profits earned by the
contractor and would transgress into forbidden territory,
namely, into such portion of such cost, expenses and profit as
would be attributable in the works contract to the transfer of
60
property in goods in such contract.” Therefore, it was found that
the assesses were right in contending that the service tax
charging section itself must lay down with specificity the levy of
service tax on the service element of a works contract, and the
measure of tax can only be on that portion of works contract
which contain a service element which is to be derived from the
gross amount charged for the works contract less the value of
property in goods transferred in the execution of the works
contract. Since this had not been done by the Finance Act,
1994, any charge to tax under the five heads in Section 65(105)
would only be of service contracts simpliciter and not composite
indivisible works contract. Those five heads for ease of reference
are noted as under:
“(g) to a client, by a consulting engineer in relation to
advice, consultancy or technical assistance in any
manner in one or more disciplines of engineering but not
in the discipline of computer hardware engineering or
computer software engineering;
* * *
(zzd) to a customer, by a commissioning and installation
agency in relation to erection, commissioning or
installation;
* * *
(zzh) to any person, by a technical testing and analysis
agency, in relation to technical testing and analysis;
* * *
(zzq) to any person, by a commercial concern, in relation
to construction service;
61
* * *
(zzzh) to any person, by any other person, in relation to
construction of a complex;
Explanation : For the purposes of this subclause,
construction of a complex which is intended for sale,
wholly or partly, by a builder or any person authorized
by the 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 a person
authorized by the builder before the grant of completion
certificate by the authority competent to issue such
certificate under any law for the time being in force) shall
be deemed to be service provided by the builder to the
buyer;”
d)Speaking about the mutually exclusive taxation and
powers of the Centre and the State, the dichotomy between the
sales tax leviable by the State and service tax leviable by the
Centre was emphasised by this Court in the aforesaid
judgment. In the context of composite indivisible works
contract, only Parliament can tax the service element contained
in these contracts and State only can tax the transfer of
property in goods element contained in these contracts. Thus, it
is important to segregate the two elements completely for the
purpose of taxation. Hence, it was held that works contract is a
separate species of contract distinct from contracts for service
simpliciter recognised in the world of commerce and law as
62
such and has to be taxed separately as such. Referring to the
decision of works contract in Gannon Dunkerley I, (supra)
Kone Elevator India (P) Limited (supra), Larsen & Toubro
Ltd. and others vs. State of Karnataka (supra) all arising
under the Sales Tax law, it was emphasised that there was no
charging section to tax works contract in the Finance Act, 1994
i.e. until the amendment made with the insertion of subclause
(zzzza) to clause 105 of Section 65 of the Finance Act, 1994.
Ultimately, in para 23 it was observed as under:
“23. 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 sub
clauses 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 Section 67, 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
63
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 property in goods transferred in the
execution of a works contract.”
It was also observed that while introducing the concept of
service tax on service element of indivisible works contract
various exclusions are also made, such as, works contract in
respect of roads, airport, airways transport, bridges, tunnels
and dams, possibly in the national interest. The implication of
the exclusion means that such contracts were never intended to
be the subjectmatter of the service tax.
e)Further, in Larsen & Toubro Ltd. (supra) the correctness
of the judgment in G.D. Builders vs. Union of India [(2013)
32 STR 673] was also considered. In the said case, it was held
by the Delhi High Court that Section 65(105)(g), (zzd), (zzh),
(zzq) and (zzzh) were good enough to tax indivisible composite
works contract and that even when rules are yet to be framed
for computation of taxes, taxes would be leviable. This
proposition was based on the judgment in Mahim Patram (P)
Ltd. vs. Union of India [(2007) 3 SCC 668 ]. It was observed
that in G.D. Builders (supra) there was a misreading of Mahim
64
Patram (supra) which was a case related to tax under the
Central Sales Tax Act; that in Mahim Patram (supra), it was
observed that under Section 9(2) of the Central Sales Tax Act
power is conferred on officers of various States to utilise the
machinery provided under the provisions of the States’ sales tax
statutes for the purposes of levy and assessment of Central
Sales Tax under the Central Act. That Rules could also be made
in exercise of power under Section 13(3) of the Central Sales
Tax Act as a result of which the necessary machinery for the
assessment of Central Sales Tax was found to be there.
Therefore, even in the absence of Rules made under the Central
Sale Tax Act the machinery provided under the State Sales Tax
statute for the purpose of levy and assessment Central Sales
tax under the Central Act could be utilized and the same is
different from saying that no Rules being framed at all under
the Central Sale Tax Act. Merely because no rules were framed
for computation under the Central sales tax Act it did not follow
that no tax was leviable under the said Act. Hence, the
observations of the Delhi High Court in G.D. Builders were not
approved.
f)With specific reference to para 51 of the judgment of the
Delhi High Court in G.D. Builders case (supra), it was
65
observed that the said judgment had ignored the decision by
this Court in Gannon Dunkerley II (supra) inasmuch as the
manner of bifurcation of the service element from a composite
works contract was delineated in the said case. That the
service element had to be deducted from the gross amount
charged thereof and not the gross amount of the works contract
as a whole from which various deductions have to be made to
arrive at the service element in the said contract. Therefore, it
was held that G.D. Builders (supra) was not correctly decided
by observing in paragraph 39 as under after quoting paragraph
31 of the judgment of Delhi High Court in G.D. Builders:
“We are afraid that there are several errors
in this paragraph. The High Court first
correctly holds that in the case of composite
works contracts, the service elements
should be bifurcated, ascertained and then
taxed. The finding that this has, in fact,
been done by the Finance Act, 1994 Act is
wholly incorrect as it ignores the second
Gannon Dunkerley [(1993) 1 SCC 364]
decision of this Court. Further, the finding
that Section 67 of the Finance Act, which
speaks of “gross amount charged”, only
speaks of the “gross amount charged” for
service provided and not the gross amount
of the works contract as a whole from which
various deductions have to be made to
arrive at the service element in the said
contract. We find therefore that this
judgment is wholly incorrect in its
conclusion that the Finance Act, 1994
contains both the charge and machinery for
66
levy and assessment of service tax on
indivisible works contracts.”
It was categorically observed that since the Finance Act,
1994 lays down no charge or machinery to levy and assess
service tax on indivisible composite works contract, therefore,
service tax was not existent at all under the Act and hence any
exemption qua service tax “levied” did not arise at all.
(8)As already noted, the definition of works contract was brought
under the service tax net as per Section 65(105)(zzzza) of the Finance
Act, 1994 by the insertion of the said definition. The said introduction
was made pursuant to the Finance Act, 2007, which expressly made
the service element in such works contract liable to service tax w.e.f.
1
st
June, 2007. By the said amendment, works contract which were
indivisible and composite could be split so that only the labour and
service element of such contracts would be taxed under the heading
"Service Tax".
9)It is in the above backdrop that the definition of Works contract
inserted for the first time by virtue of Section 65(105)(zzzza) under the
Finance Act, 2007 assumes significance and has to be applied w.e.f.
1
st
June, 2007. Thus, on and from the enforcement of the amendment
67
in the Financial Year 2007, i.e. 1
st
June, 2007 the tax on the service
component of works contract became leviable. Therefore, till then it
was not so leviable as there was no concept of works contract under
the said Act.
10)Recognising this aspect of the matter in Larsen and Toubro
Ltd. (supra), this Court held that Service Tax on works contract was
not leviable, meaning thereby, that such tax on the service component
of works contract as defined above did not attract Service Tax prior to
the amendment.
11) Further, in Commissioner of Service Tax and Others vs.
Bhayana Builders Private Limited and Others [(2018) 3 SCC 782],
this Court considered the correctness of the judgment of the Larger
Bench of Customs, Excise and Service Tax Appellate Tribunal (for
short, “CESTAT”) dated 06.09.2013 in the case of Bhayana Builders
(P) Ltd. vs. CST [(2013) SCC OnLine CESTAT 1951] . In the said case,
reliance was placed on Larsen and Toubro Ltd. (supra) and it was
held that when there was no levy of service tax on works contract, no
question of any exemption would arise. It was further held that the
Central Government is empowered to grant exemption from the levy of
service tax either wholly or partially, only when there is any “taxable
68
service” as defined in subclauses of clause (105) of Section 65 of the
Finance Act, 1994 and not otherwise. This Court agreed with the view
taken by the Full Bench of the CESTAT in the judgment dated
06.09.2013 and dismissed the appeals of the Revenue.
12) Therefore, reliance placed by the assesses in the present case on
the aforesaid judgments is just and proper. On the other hand, the
contention of Ms. Diwan, learned ASG to the effect that even prior to
the aforesaid amendment being made to the Finance Act, 1994 service
tax on works contract was leviable is not correct. It was being levied
on purely service contract and not on service element of works
contract as there was no definition of a works contract till then.
Hence, the amendment made to the Finance Act, 1994 by insertion of
the definition of works contract as under clause (zzzza) is not
clarificatory in nature. Having found that the Service Tax was not at
all leviable on service element of a works contract, Parliament felt the
need for the amendment and was so incorporated by the Finance Act,
2007.
13)Thus, the judgment in Larsen and Toubro Ltd. (supra) has
been correctly decided and does not call for a reconsideration insofar
as the period prior to 1
st
June, 2007 is concerned. In view of the above
discussion, I agree with the result arrived at by His Lordship M.R.
69
Shah J. vis
àvis allowing all civil appeals under consideration except
Civil Appeal no. 6792 of 2010 which is dismissed. No costs.
……………………………..J.
[B.V. NAGARATHNA]
NEW DELHI;
AUGUST 02, 2022
70
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