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Service Tax - Contract for basic engineering, design, manufacture and supply of critical/ proprietary equipment, advisory services for erection and commissioning including establishing of process guarantee and training - Demand for service tax with interest and penalties on the ground that the agreements entered into with the foreign suppliers for equipment includes service portion also and therefore the contract has to be treated as one of a contract entered into between the parties for execution of works contract for the appellants – HELD - The submissions made before us that the entire value has been declared in the Bill of Entry has not been clearly made with the supporting evidences/documents before the learned Commissioner and this has resulted in a wrong conclusion. Moreover the agreements also in our opinion are required to be gone into in greater detail than what has been done. From the contract it becomes quite clear that the equipment suppliers did not undertake or were required to take erection, commissioning and installation of the equipments supplied by them. Prima facie from the Contract it appears that the erection, commissioning and installation work is not to be undertaken by the foreign suppliers. The very fact that appellants have made 90% of the payment due to the foreign suppliers would also support the case of the appellant that there is no component of erection, commissioning or installation service in the payment since the erection, commissioning and installation has not at all started leave alone getting completed. If erection, commissioning or installation service was part of the supply contract, the amount attributable to such service need not have been paid by the appellant - Matter requires fresh consideration by the learned Commissioner - Pre-deposit waived and impugned order set aside – Matter remanded

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Karnataka Value Added Tax, 2003 - Execution of the works awarded by M/s Karnataka Power Transmission Corporation Ltd for construction of power lines and erection of transmission towers - Work contracts of composite nature – Turnkey project - Whether the contract executed by the assessee for M/s KPTCL is it a divisible contract or indivisible contract notwithstanding the fact, it is treated as a composite contract – HELD - It is not a case where a contract which is entered into is not divisible as contract for supply of material and contract for labour. Even if it is a composite contract, if it is a divisible contract, then the levy of tax cannot be on the basis of works contract only. In cases of composite contract, which are not divisible, such contract should be treated as work contract and levy should under Schedule VI of entry 23. In the instant case, there are four contracts in nature and each one of them is separate. In respect of the contract for sale of material taxes have been paid in accordance with law, no tax is payable in respect of contract for supply of labour. In civil works, it is a work contract and tax is levied under Schedule VI entry 23 – The finding recorded by the Tribunal that it is a divisible contract and the order passed by the revisional authority was erroneous is proper. Tribunal was justified in setting aside the order of revisional authority and restoring the order passed by the prescribed authority. Therefore, the substantial question of law is answered in favour of assessee - The taxes collected by the authorities in pursuance of the revisional order shall be refunded to the assessee within two months – Revenue appeal dismissed

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Delhi HC rejects Revenue's plea (on the basis of G.D Builders ratio) to dissolve 5 Member Larger Bench of Delhi CESTAT in L&T Ltd's case; Says HC cannot interfere in Tribunal's liberty and dissolve the bench; However, directs both parties to argue on applicability of G.D Builders ruling before Larger Bench; If said ratio applicable, matter is closed, says HC; Pursuant to HC's direction, Sr. Advocate N. Venkataram
begins arguments on applicability of ratio before CESTAT Larger Bench today : Sources
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Finance Act, 1994 - Sub-clauses (zzzzv) and (zzzzw) of Clause 105 of Section 65 - Service Tax on restaurants having the facility of air-conditioning – Splitting of service and sale in the transaction of supply of food in a restaurant - Legislative competence – HELD – Sub-clause (zzzzv) of Clause 105 of Section 65 of the Finance Act, 1994, relates to the supply of food and other consumables in restaurants, after the Constitution (Forty Sixth Amendment) Act, the said activity is deemed as a sale of goods. After the Constitution (Forty Sixth Amendment) Act, it cannot be said that it is an activity of service. When the said activity is deemed to be a sale of the food and other articles of human consumption, by a constitutional definition, tax on the said activity can be imposed only by the States in view of Entry 54 in List II of the Seventh Schedule - The matter covered by sub-clause (zzzzv) of Clause 105 of Section 65 of the Finance Act, 1994, as amended by Finance Act, 2011 is a matter enumerated in Entry 54 of List II of Seventh Schedule and the States alone have the legislative competence to enact any law imposing tax on the said matter - Service Tax on Hotel accommodation under sub-clause (zzzzw) - Kerala Tax on Luxuries Act - The matter covered by sub-clause (zzzzw) of Clause 105 of Section 65 of the Finance Act, 1994, as amended by Finance Act, 2011, is a matter enumerated in Entry 62 of List II of Seventh Schedule and the States alone have the legislative competence to enact any law imposing tax on the said matter - Difference in view - Bombay High Court order - Since the whole of the consideration received by a restaurant owner for supply of food and other articles of the human consumption, including the service part of the transaction, is exigible to tax by the State by virtue of the constitutional definition, it is not open to the Union to characterise the same transaction as a service for imposition and levy of service tax. We are, therefore, unable to agree with the view taken by the Bombay High Court - No error in the order of Single Judge holding levy of Service Tax as beyond the legislative competence – Writ Appeal by revenue is dismissed - Appeal dismissed

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Madhya Pradesh Commercial Tax Act, 1994 – Surcharge - Composition of tax scheme – Demand for payment of surcharge under Section 10A – HELD - Once the composition under the aforesaid provision is permitted then all taxes, which include surcharge under Section 10 A is deemed to have been paid and no further surcharge is liable to be paid. Accordingly, we have no doubt that once the petitioner is permitted composition of tax under Section 19 (1)(a), then no liability to pay any surcharge under Section 10 A would arise, as surcharge payable under Section 10 A is nothing but a tax payable under the Act, it is only one way of enhancement of the tax - Respondents are demanding surcharge under Section 10 A on the assumption that the surcharge is not a tax but a payment over and above the tax. This contention of the respondents is contrary to the meaning of 'surcharge' as laid down by the Apex Court – The orders impugned are quashed - Assessee petition allowed

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Maharashtra Tax Tribunal:  Maharashtra Sales Tax on Transfer of Property in Goods Involved in Execution of Works Contract (Re-enacted Act), 1989 – Work Contract – Build, Operate and Transfer Project – Toll Road - Definition of ‘dealer’ - Whether the contract taken up by the appellant on B.O.T. basis could be said to be works contract and whether he could be said to be a dealer and liable to pay tax on the turnover of sales in respect of the goods used at the time of construction of the road and other constructions – HELD – In the present case there is no sale of chattel to chattel, therefore, it is not a sale - It is not contract of doing only work. As in contract of work the person who gives the work has to supply the goods, on the basis of which work as per requirement is to be done. Therefore, the present case does not fall within the category of contract of doing only work – Here we have a category of case where goods, services, labour and skill are all used by the appellant. The component/end-product that is to be delivered by using his own goods, services, labour skill, experience etc. is for construction of the road. In the present case, skill, labour, experience service and goods has to be used by the appellant himself and therefore the case would fall in the category of works contract - So far as argument that no price is paid by Government, therefore it is not works contract. We do not agree with the submissions made. The end result is permitting public to use the road for price i.e. toll, no one is permitted to use the road without payment of toll, except specifically agreed. Instead of the State, price is paid by the public at large by way of toll, therefore there is element of price involved - The word ‘free of cost’ used does not mean that the appellants are to work for loss by investing their amounts, skill and labour. Handing over the project free of cost is after the concession period is over, as it is deemed that entire cost of the project, inclusive of interest and expenses and profits have been realized. Therefore, contention of the appellant that he is not earning any profit cannot be accepted - All the ingredients of dealer are satisfied. Appellant is a legal person. There is valuable consideration which has passed. There is transfer of property involved in works contract. Hence, he is a dealer – Hence, B.O.T. project involves both goods, labour and services and therefore, it is a works contract - Once it has been held that appellant is a dealer what is required now for him is to pay tax on the turnover of sales in respect of goods – Assessee appeal stands dismissed

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Construction and maintenance of sub-stations for Maharashtra State Electricity Transmission Co. exempt from service tax under Notification No.45/2010​-ST​; Said Notification exempt​s​ taxable service 'relating to' transmission and distribution of electricity upto February 26, 2010 and Notification ​No. ​11/2010​-ST​ effective February 27, 2010 exempt​s​ taxable services provided 'for' transmission of electricity; Term ‘relating to’ of wide amplitude as held by SC in Doypack Systems Pvt. Ltd. and expression ​'​for’ means ‘for the purpose of’​,​ cove​ring wide gamut of activities including sub-stations and equipment; Rejects Revenue​​ contention that exemption unavailable as assessee’s activities not having integral connection with transmission of electricity; ​Exemption available irrespective of classification as ‘Commercial or Industrial Construction Service’ or ‘Works Contract Service’​  : Mumbai Tribunal
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- The primary capital goods as a works contractor could be machines like Batching Plant, Excavators, Transit Mixers, Cranes etc. While these goods are purchased, a significant amount is paid towards VAT and Excise on the same. If some of the machines require erection and commissioning a minor element of service tax also creeps into the whole system.


- Taking a logical view, one may always hold that since these equipments are key to the execution of works contract, a clear credit towards the Input Taxes should be available against the Output Taxes. But surprisingly that may not be the case.


- Please look at the below provisions under the Gujarat VAT :-


Section 11(5)(mm)  Notwithstanding anything contained in this Act, tax credit shall not be allowed for purchases —

(mm) of capital goods used in transfer of property in goods (whether as goods or in some other form) involved in execution of works contract;


- Now one can-not really understand the logic of having such a provision within the act. Although I have so far not seen such direct disallowance under any other State VAT, but one needs to be careful before taking the credit of VAT on capital goods. It would thus be proper to go through the relevant State VAT provisions applicable on Input Credit on Capital goods before utilising any such credit against the VAT Liability.


- The second tax is Excise Duty. Since 2004, cross credit of excise duty has been allowed against service tax and vice versa. Thus service providers are technically entitled to credit of excise duty paid on capital goods against their service tax liabilities. However it may be noted that there are certain equipments which are to be registered with the regional transport offices as they run on wheels. Does that mean that they would get covered within the exclusion clause of the definition of Capital goods under the Cenvat Credit Rules.


- The term ‘motor vehicle’ is not defined in Cenvat Credit Rules. As per Central Excise Tariff Act, ‘motor vehicles’ are covered under chapter 87 of Central Excise Tariff.

- As per section 65(73) of Finance Act, 1994; ‘motor vehicle’ has same meaning as assigned to it under section 2(28) of Motor Vehicles Act. As per that Act, ‘motor vehicle’ means any mechanically propelled vehicle adapted for use upon roads, whether the power or propulsion is transmitted thereto from internal or internal source and includes a chassis to which a body has not been attached and a trailer; but does not include a vehicle run on fixed rails or a vehicle of special type adapted for use only in a factory or in any other enclosed premises or a vehicle having less than four wheels fitted with engine capacity of not exceeding thirty five cubic centimeters.

- Credit of excise paid on such vehicles, is only available to the specified service providers and not to those executing construction projects. However certain typical equipments like crane, Excavator, Batching Plant, which may be on wheels and may require registration with RTO, but since the same do not fall within the definition of vehicles as mentioned in the exclusion category, credit of such goods would be very well available to the service provider.

- Further it is interesting to note that The capital goods which are used by the manufacturer or the service provider and which do not fall within the ambit of definition of input in rule 2(k) are to be treated as inputs and are entitled for the Cenvat credit. The CBEC through its Letter dated 23-10-2008 vide F No. 137/120/2008 CX-IV has already clarified the position and it states that the capital goods are entitled for Cenvat credit if it is used in the process.

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Govt of Gujarat has floated an amnesty scheme for the construction developers as per Circular No.GST-1014-884-VAT Cell, dated – 14/10/2014. Details of the scheme are as under:-

Government of Gujarat as promised earlier, has now come out with the Amnesty scheme for the developers. This Scheme has come on the basis of taxability reinforced by the judgment of M/s. L&T Ltd.  Of Honourable Supreme Court dated 26/09/2013 in relation to levy of VAT on sale of immovable property.

Government observed that so many builders and developers were not registered and even those who are registered are not regular in paying VAT.   Looking to the current provisions of the act, which discouraged the developers to come out for fresh registration, forget payment of tax dues for the past period, Govt. has come out with following scheme of remission under provisions of Section 41 of Gujarat VAT Act 2003. The brief details of the scheme are as under:-

1) Coverage :-
a) This scheme is for those dealers engaged in Civil work contract whether registered or unregistered.  Assessment of the applicants under the scheme shall be carried out under Section 34 and remission of interest and penalty will have to be expressly mentioned in the assessment order.
b) Benefit of this scheme shall be available only for those transactions which started from 01/04/2006 and which are expressly getting covered because of the L&T  judgement referred to above. To elaborate – Benefit would be available under this scheme of Interest and penalty in case of a dealer where the flat booking is done and thereafter construction is complete and amount is realized from the ultimate customer.
c) Additionally, Benefit of this scheme would also be available to those dealers whose matters are pending under Assessment, Reassessment or Revision and where VAT, Interest & Penalty liability arise.

2) Composition tax @ 0.6% rate as per  Section 14 is payable on transactions as per Para 1(b) above (i.e. benefit available only on specified transactions) Additionally, If purchases have been made from registered dealers who have not properly discharged their VAT liability on sale, then the said tax will also have to be paid by the dealer making an application under this scheme.

3) Such works contractor who takes the benefit of this scheme, and who purchases from Unregistered Dealer (URD), is liable to pay purchase tax under section 9 and no ITC will be available under section 11 under the GVAT, 2003 on such payments.

4) If such person has purchased or brought goods from Outside Gujarat State (OGS) and used in execution of works contract, then on those purchases tax has to be paid as per applicable schedule rate. No remission will be given on such amount.

5) Remission will given on Interest / Penalty  as per Section 41 on the amount of tax payable as per serial number 2, 3 & 4 above.

6) Such dealers should have paid Entry Tax on purchase /branch transfer of machineries in the form of Vehicles from Outside of Gujarat State (OGS). If no entry tax had been paid at the time of purchase, it has to be paid  under this scheme. Tax shall also be charged on Other machineries (Non vehicle type) as per applicable schedule rate and remission will be given of interest and penalty on such tax amount.

7) Benefit under scheme shall be granted only if the tax amount under this scheme is paid within the scheme period.

8) Period of this scheme will be 180 days from the date of Notification i.e. from 14/10/2014. Application should be made in the format prescribed by the Commissioner.

9) Benefit under the scheme shall be given for transactions covered till the date of making an application under this scheme.

10) Benefit under the scheme can also be availed by dealers in Appeal. But this benefit would be applicable provided the appeal is withdrawn or the applicable transactions as mentioned in Para 1(b) in appeal are withdrawn by the dealer by filing a revised appeal in case there are other issues also covered in the appeal.

a) No benefit will be given under this scheme except to the transactions mentioned in Para 1(b) above.
b) The benefit of this scheme can be withdrawn in case of any irregularities or tax evasion is observed in other transactions of the dealer i.e. other than those covered under Para 1(b).

12) No appeal can be filed by the dealer against the order issued under this scheme. If any tax, interest or penalty has been paid against the transactions as per Para 1(b), such amount will not be refunded by the department under any circumstances. For any clarification, or any issues related to the implementation of this scheme, the decision of the Commissioner of Commercial Tax shall be final.

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Service Tax - Construction service – Appellant is joint venture of NTPC and Reliance Infrastructures Ltd - Construction of guest house – Demand - HELD - It has not been categorically stated as to under which category of service the demand is confirmed although it does give an indication that the adjudicating authority possibly indented to confirm the said demand under the category of commercial or industrial construction service. Even so the appellants do have a point that the adjudicating authority should have categorically mentioned without any ambiguity as to under which taxable service the said component of impugned demand is being confirmed by him - Valuation - Inclusion of value of free supplies - Benefit of Notification No. 1/2006-ST dated 1.3.2006 - Appellant had paid service tax on 33% of the gross amount – HELD - Adjudicating authority needs to now take into account the judgment of the said CESTAT in case of M/s. Bhayana Builders to re-adjudicate this component of the demand. While doing so the adjudicating authority will, inter alia, need to consider as to what part, if any, of this component of demand relates to completion or finishing work because in case of completion or finishing services, the benefit of Notification No. 1/2006-ST is not available - Matter remanded back – Impugned order set aside – Assessee appeal allowed

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