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Classification of Taxable Services

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Service Tax – Larger (Special) Bench reference pertaining to works contract

  • Classification of taxable services i.e., whether components of a composite transaction amounting to supply of labour/rendition of service(s), under a works contract ought to be classified only under Section 65(105)(zzzza) of the Finance Act, 1994 (the Act) - inserted by the Finance Act, 2007, w.e.f 01-06-2007; or are also comprehended within the ambit of existing (as on 01-06-2007) taxable services such as Commercial or Industrial Construction Service (CICS); Construction of Complex Service(COCS); or Erection, Commissioning or Installation Service (ECIS) - interpretation of relevant provisions of the Act. CICS; COCS & ECIS are distinct, extant services defined and enumerated to be taxable services, prior to introduction of Works Contract Service (WCS) – Determination of Value Rules, 2006 - HELD - The President and the learned Member (Judicial) Ms. Archana Wadhwa concluded that a composite contract, involving transfer of property in goods and rendition of services, cannot be vivisected and services components thereof subject to the levy of service tax, on classification of the services under taxable services such as “Commercial or Industrial Construction”; “Construction of Complex” or “Erection, Commissioning or Installation” prior to 01.06.2007; and that service components in a works contract are taxable only under Works Contract Service defined and enumerated in Section 65(105)(zzzza) of the Finance Act, 1994 - Hon’ble Members (Technical), Shri Rakesh Kumar, Sh. P.R. Chandrasekharan and Sh. R. K. Singh (by distinct concurring orders), concluded to the contrary, that service elements in a composite contract could be subject to service tax prior to 01.06.2007 as well, if these are appropriately classifiable under “Commercial or Industrial Construction”; Construction of Complex” or “Erection, Commissioning or Installation”, as the case may be
  • In view of the majority opinions recorded, the reference is answered as: Service elements in a composite (works) contract (involving transfer of property in goods and rendition of services), where such services are classifiable under “Commercial or Industrial Construction”; “Construction of Complex” or “Erection, Commissioning or Installation” (as defined), are subject to levy of service tax even prior to (01.07.2007) insertion of sub-clause (zzzza) in Section 65(105) of the Finance Act, 1994
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