Supreme Court of India
M/S. TOTAL ENVIRONMENT BUILDING SYSTEMS PVT. LTDversusTHE DEPUTY COMMISSIONER OF COMMERCIAL TAXES & ORS
- Citation
- 2022 INSC 780
- Decided
- 2 August 2022
- Disposal
- Disposed off
- Bench
- M R SHAH
Holding
Service tax was not leviable on composite (indivisible) works contracts before the Finance Act, 2007, and the decision in Larsen & Toubro Ltd. stands and must not be revisited.
Summary
The Supreme Court considered a group of civil appeals challenging service‑tax assessments on composite (indivisible) works contracts that were levied for periods before the Finance Act, 2007 introduced a definition of "works contract" under s.65(105)(zzzza) of the Finance Act, 1994. The Revenue argued that service tax was payable on the service element of such contracts even before the amendment, while the assessors relied on the Court’s earlier decision in Larsen & Toubro Ltd. which held that no service tax could be levied pre‑2007. The Court reaffirmed the Larsen & Toubro ruling on the basis of stare decisis, held that service tax was not leviable on composite works contracts prior to the amendment, quashed the High Court and Tribunal orders imposing tax, set aside the Delhi High Court judgment in G.D. Builders, allowed the assessors’ appeals and dismissed the Revenue’s appeal (Civil Appeal No. 6792 of 2010).
Issues considered
- Whether service tax could be levied on composite/indivisible works contracts for the period prior to the Finance Act, 2007.
- Whether the Supreme Court’s decision in Larsen & Toubro Ltd. should be revisited or referred to a larger bench.
- Whether the Delhi High Court judgment in G.D. Builders v. Union of India should be set aside.
- Whether the Revenue’s appeal (Civil Appeal No. 6792 of 2010) should be dismissed.
Legislation cited
- Constitution of Indias. Article 248, s. Article 269, s. Article 286, s. Article 366(29‑A)
- Finance Act, 1994s. 65(105)(zzzza)
- Finance Act, 2007
- Goods and Services Tax Act, 2017
- Service Tax Acts. 65, s. 66, s. 67, s. 68
Subjects
service taxworks contractcomposite works contractFinance Act 2007stare decisisprecedenttax assessmentRevenueHigh CourtCESTATconstitutional amendmenttaxability
Judgment
[2022] 17 S.C.R. 883 883
M/S. TOTAL ENVIRONMENT BUILDING SYSTEMS PVT. LTD. A
v.
THE DEPUTY COMMISSIONER OF COMMERCIAL
TAXES & ORS.
(Civil Appeal Nos. 8673- 8684 of 2013)
B
AUGUST 02, 2022
[M. R. SHAH AND B. V. NAGARATHNA, JJ.]
Finance Act, 1994: s. 65(105) (zzzze)(as amended) — Works
contract – Composite Works Contract — Levy of service tax – Issue
as regards the levy of service tax on Composite Works Contracts C
prior to the introduction of the Finance Act, 2007 by which the
Finance Act, 1994 came to amended to introduce s. 65(105) (zzzze)
pertaining to Works Contract – Held: For the period prior to
introduction of Finance Act, 2007, service tax was not leviable under
Finance Act, 1994 on indivisible works contracts – Binding decision
of the Court in the case of Larsen and Toubro Limited, is followed – D
Larsen and Toubro Limited’s case has stood the test of time and has
never been doubted earlier – Said decision has been followed
consistently by this Court as well as by various High Courts and
the tribunals – If the prayer to reconsider and/or review the judgment
in Larsen and Toubro Limited is accepted, it may unsettle the law, E
which has been consistently followed since 2015 onwards – Thus,
on the principle of stare decisis, Larsen and Toubro Limited’s case,
neither needs to be revisited, nor referred to a larger Bench of this
Court and that too after a period of almost seven years – Thus, the
orders passed by the respective High Courts/tribunals that for the
period pre-Finance Act, 2007, the assesses were liable to pay the F
service tax on indivisible/composite works contracts is quashed and
set aside - Finance Act, 2007.
Doctrines of precedents and Stare decisis – Relevance and
significance of – Discussed.
G
Disposing of the appeals, the Court
HELD:
Per M. R. SHAH, J.
1.1 The relevance and significance of the principle of stare
decisis have to be kept in mind and that in law, certainty, H
883
884 SUPREME COURT REPORTS [2022] 17 S.C.R.
A consistency and continuity are highly desirable features.The
judgment of this Court in the case of Larsen and Toubro Limited
has stood the test of time and has never been doubted earlier.
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 reconsider and/or
B
review the judgment of this Court in the case of Larsen and Toubro
Limited is accepted, in that case, it would 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 and it may unsettle the law,
C which has been consistently followed since 2015 onwards. There
are all possibilities of contradictory orders. Therefore, on the
principle of stare decisis, the judgment of this Court in the case
of Larsen and Toubro Limited, 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 when no efforts were made to
D
file any review application requesting to review the judgment on
the grounds, which are now canvassed before this Court. [Para
10.5.1, 12][899-B; 906-D-G]
*Commissioner, Central Excise and Customs, Kerala Vs.
Larsen and Toubro Limited, (2016) 1 SCC 170 : [2015]
E 8 SCR 1046 - relied on.
1.2 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 the decision of the Delhi High Court in the
case of G.D. Builders Vs. Union of India. It is to be noted that the
F said decision of the Delhi High Court in the case of G.D. Builders
has been specifically overruled by this Court in the case of Larsen
and Toubro Limited. The decision of the Delhi High Court in the
case of G.D. Builders has been considered by this Court in the
case of Larsen and Toubro Limited and ultimately, this Court opined
G that the decision of the Delhi High Court in the case of G.D.
Builders 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 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
H
M/S. TOTAL ENVIRONMENT BUILDING SYSTEMS PVT. LTD. v. THE 885
DEPUTY COMM’R OF COMMERCIAL TAXES
indivisible works contracts. It is reported that while deciding the A
group of matters in the case of Larsen and Toubro Limited, the
papers of the appeal filed by M/s. G.D. Builders being Civil Appeal
No. 6523 of 2014 were also called and the 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.
B
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, 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 C
by the Delhi High Court has to be quashed and set aside. [Para
13][906-H; 907-A-E]
1.3 In view thereof and for the reasons stated, the impugned
judgments and orders passed by the respective High Courts/
Tribunals taking the view that for the period pre-Finance Act, D
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. [Para E
14][908-F-G]
Dr. Shah Faesal and Ors. Vs. Union of India and Anr.,
(2020) 4 SCC 1 : [2020] 3 SCR 1115; State of Madhya
Pradesh v. Mahalaxmi Fabric Mills Ltd., 1995 Supp
(1) SCC 642 : [1995] 1 SCR 756; Indra Sawhney Vs. F
Union of India, 1992 Supp (3) SCC 217 : [1992] 2
Suppl. SCR 454; Keshav Mills Co. Ltd. Vs.
Commissioner of Income Tax, Bombay North,
Ahmedabad, AIR 1965 SC 1636 : [1965] SCR 908 –
followed. G
Dr. Jaishri Laxmanrao Patil Vs. Chief Minister and Ors.,
(2021) 8 SCC 1; Union of India Vs. Raghubir Singh
(Dead) by LRs. etc., (1989) 2 SCC 754 : [1989] 3 SCR
316; State of Madras Vs. Gannon Dunkerley & Co.,
(Madras) Ltd., [1959] SCR 379, Larsen and Toubro H
886 SUPREME COURT REPORTS [2022] 17 S.C.R.
A Limited and Anr. Vs. State of Karnataka and Anr., (2014)
1 SCC 708: [2013 ]17 SCR 678; Nagarjuna
Construction Company Limited Vs. Union of India and
Anr., (2013) 1 SCC 721: [2012] 10 SCR 1064; Imagic
Creative (P) Ltd. Vs. Commissioner of Commercial Taxes
and Ors., (2008) 2 SCC 614: [2008] 1 SCR 457; T.N.
B
Kalyana Mandapam Assn. Vs. Union of India and Ors.,
(2004) 5 SCC 632 : [2004] 1 Suppl. SCR 169;
Saurashtra Cement & Chemical Industries Ltd. and
another Vs. Union of India and others, (2001) 1 SCC
91 : [2000] 4 Suppl. SCR 44; Chandra Prakash and
C Ors. Vs. State of U.P. and Anr., (2002) 4 SCC 234 :
[2002] 2 SCR 913; Medley Pharmaceuticals Limited v.
Commissioner of Central Excise and Customs, Daman,
(2011) 2 SCC 6014; Waman Rao v. Union of India,
(1981) 2 SCC 362 : [1981] 2 SCR 1; G.D. Builders
[(2013) 32 STR 673 (Delhi]), K. Ajit Babu and Ors.
D
Vs. Union of India and Ors., (1997) 6 SCC 473 : [1997]
3 Suppl. SCR 56; Sundarjas Kanyalal Bhatija and Ors.
Vs. Collector Thane, Maharashtra and Ors., (1989) 3
SCC 396 : [1989] 3 SCR 405; Government of Andhra
Pradesh Vs. A.P. Jaswal (2001) 1 SCC 748 - referred
E to.
Per B. V. Nagarathna, J. (Supplementing)
1.1It 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
F regard to the definition of works contract being inserted w.e.f.
1st 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
G components, namely, a sale component and a service component.
It is only when both the components are satisfied and coexist
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. 1st June, 2007. As far as the sale
H
M/S. TOTAL ENVIRONMENT BUILDING SYSTEMS PVT. LTD. v. THE 887
DEPUTY COMM’R OF COMMERCIAL TAXES
component in a works contract is concerned, the Sales Tax laws A
of the respective States would apply. [Para 5][910-D-F]
1.2. Section 65(105)(zzzza) of the Finance Act, 1994 as
amended by the Finance Act, 2007 which defines work contract.
A reading of the said definition would indicate that two requisites
must be satisfied before service tax on works contract could be B
levied. 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 C
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 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 D
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. [Para 5][910-G-H; 911-E; 912-
C-E]
E
1.3. 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. 1st June, 2007. By the said amendment, F
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”. [Para 8][928-
E]
1.4. It is in the above backdrop that the definition of Works G
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.1st June, 2007. Thus, on and from the
enforcement of the amendment in the Financial Year 2007, i.e.
1st June, 2007 the tax on the service component of works contract H
888 SUPREME COURT REPORTS [2022] 17 S.C.R.
A became leviable. Therefore, till then it was not so leviable as
there was no concept of works contract under the said Act. [Para
9][928-F-G]
1.5. Recognising this aspect of the matter in Larsen and
Toubro Ltd., this Court held that Service Tax on works contract
B 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. [Para 10][928-G-H]
Commissioner, Central Excise and Customs, Kerala Vs.
Larsen and Toubro Limited, (2016) 1 SCC 170 : [2015]
C 8 SCR 1046 - relied on.
1.6. Prior to the amendment being made to the Finance
Act, 1994 Service tax 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
D 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.
[Para 12][929-D-E]
E
1.7. The judgment in Larsen and Toubro Ltd. has been
correctly decided and does not call for a reconsideration insofar
as the period prior to 1st June, 2007 is concerned. [Para 13][929-
F-G]
F Gannon Dunkerley (I) – State of Madras vs. Gannon
Dunkerley and Co.(Madras) Ltd. AIR 1958 SC 560 :
[1959 SCR 379], Gannon Dunkerley (II) -- Gannon
Dunkerley and Co. vs. State of Rajasthan 1993 (1)SCC
364 : [1992] 3 Suppl. SCR 103, Builders Association
of India vs. Union of India (1989) 2 SCC 645 : [1989]
G 2 SCR 320, State of AP v. Kone Elevators (2005) 3 SCC
389 : [2005] 2SCR 152, Kone Elevator India Pvt. Ltd.
vs. State of Tamil Nadu (2014) 7 SCC 1 : [2014] 5
SCR 912, Bharat Sanchar Nigam Ltd. vs. Union of India
[2006] 145 STC 91 (SC) : [2006] 2 SCR 823, Larsen
and Toubro Limited and Another vs. State of Karnataka
H
M/S. TOTAL ENVIRONMENT BUILDING SYSTEMS PVT. LTD. v. THE 889
DEPUTY COMM’R OF COMMERCIAL TAXES
and Another (2014) (1) SCC 708 : [2013] 17 SCC 678, A
Commissioner of Sales Tax vs. Purshottam Premji (1970)
2 SCC 287, Tamil Nadu Kalyana Mandapam
Association vs. Union of India (2004) 5 SCC 632:
[2004] 1 Suppl. SCR 169, Imagic Creative Pvt. Ltd. vs.
The Commissioner of Commercial Taxes and Ors. (2008)
B
2 SCC 614 : [2008] 1 SCR 457, Nagarjuna
Construction Company Ltd. vs. Government of India
and Ors. (2013) 1 SCC 721: [2012] 10 SCR 1064,
Mahim Patram (P) Ltd. vs. Union of India (2007) 3 SCC
668: [2007] 3 SCR 73, Commissioner of Service Tax
and Others vs. Bhayana Builders Private Limited and C
Others (2018) 3 SCC 782, G.D. Builders vs. Union of
India (2013) 32 STR 673] - referred to.
Case Law Reference
In the judgment of M. R. Shah, J.
D
[2015] 8 SCR 1046 relied on Para 12, 13
[1959] SCR 379 referred to Para 6.1
[2013 ]17 SCR 678 referred to Para 6.1
[2012] 10 SCR 1064 referred to Para 6.1
E
[2008] 1 SCR 457 referred to Para 6.1
[2004] 1Suppl. SCR 169 referred to Para 6.1
[2002] 2SCR 913 referred to Para 10.6
[1981] 2 SCR 1 referred to Para 11.4 F
[1965] SCR 908 followed Para 10.5
[2020] 3 SCR 1115 followed Para 10.6
[1989] 3 SCR 316 referred to Para 11.2
[1992] 2 Suppl. SCR 454 followed Para 12 G
[1997] 3 Suppl. SCR 56 referred to Para 11.3
[1989] 3 SCR 405 referred to Para 11.3
[2000] 4 Suppl. SCR 44 referred to Para 11.5
[1995] 1 SCR 756 followed Para 11.5 H
890 SUPREME COURT REPORTS [2022] 17 S.C.R.
A In the judgment of B.V Nagarathna, J.
[2015] 8 SCR 1046 relied on Para 13
[1959] SCR 379 referred to Para 5 (A)
[1992] 3 Suppl. SCR 103 referred to Para 5(C)
B [1989 ] 2 SCR 320 referred to Para 5 (E)
[2005] 2 SCR 152 referred to Para 5 (G)
[2014] 5 SCR 912 referred to Para 5 (G)
[2006] 2 SCR 823 referred to Para 5 (H)
C
[2013]17 SCR 678 referred to Para 5 (I)
[2004] 1 Suppl. SCR 169 referred to Para 6 (a)
[2008] 1 SCR 457 referred to Para 6 (b)
[2012] 10 SCR 1064 referred to Para 6 (c)
D
[2007] 3 SCR 73 referred to Para 7 (e)
CIVIL APPELLATE JURISDICTION : Civil Appeal Nos.8673-
8684 of 2013.
From the Judgment and Order dated 07.10.2009 of the High Court
E of Karnataka at Bangalore in Writ Appeal Nos.3481-3492 of 2009.
With
Civil Appeal Nos.6525, 6523,6526 of 2014, 2666 of 2022, 4547-
4548 of 2014, 2667 of 2022, 6792 of 2010 and 2668 of 2022.
F Ms. Madhavi Divan, ASG, A. K. Panda, Arijit Prasad, Arvind P.
Datar, Sr. Advs., Mukesh Kumar Maroria, Ms. Aruna Gupta, Ms. Diksha
Rai, Vatsal Joshi, Anirudhha Purushottam, Vishesh Kalra, B. Krishna
Prasad, Sanand Ramakrishnan, Rajeev Mishra, Sunil Narayanan, Ms.
Nisha Bagchi, Ms. Sheena Taqui, Dhvanit Chopra, Ms. Akansha Saini,
Shiv Vinayak Gupta, Mrs. Bina Gupta, J.K. Mittal, Ms. Vandana Mittal,
G Ms. Aashna Suri, Praveen Kumar, Ms. Sunaina Kumar, V. N. Raghupathy,
Praveen Swarup, Ms. Anubha Agrawal, V. Lakshmikumaran, Aditya
Bhattacharya, Ms. Mounica Kasturi, Ms. Purvi Asati, Ms. Apeksha
Mehta, Ms. Charanya Lakshmikumaran, Bhanu Kapoor, S. Ravi Shankar,
Amol Chitale, Nirnimesh Dube, Rahul Chitnis, Sachin Patil, Aaditya A.
H Pande, Geo Joseph, Ms. Shwetal Shepal, Ardhendumauli Kumar Prasad,
M/S. TOTAL ENVIRONMENT BUILDING SYSTEMS PVT. LTD. v. THE 891
DEPUTY COMM’R OF COMMERCIAL TAXES
Ms. Shreya Srivastava, Ashish Madaan, E. C. Agrawala, Shivaji M. A
Jadhav, Mrs. Pragya Baghel, Ms. Ranjeeta Rohatgi, Advs. for the
appearing parties.
The Judgments of the Court were delivered by
M. R. SHAH, J.
B
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 C
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 D
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 E
Environment Building Systems Pvt. Ltd. has preferred the present appeals
– Civil Appeal Nos. 8673-8684 of 2013.
3.1 Feeling aggrieved and dissatisfied with the impugned judgment
and order passed by the High Court of Delhi at New Delhi in Writ Petition
No. 1342 of 2008 by which, relying upon the decision of the Delhi High F
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.
G
Ltd. has preferred the present Civil Appeal No. 6525 of 2014.
3.2 Feeling 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
H
892 SUPREME COURT REPORTS [2022] 17 S.C.R.
A – 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
B 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.
C
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 oversightand/or by
D 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.
3.3 Feeling aggrieved and dissatisfied with the impugned judgment
and order passed by the High Court of Delhi at New Delhi dated
E 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.
F 3.4 Feeling 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 – M/s.
G Unitech Ltd. has preferred the present Civil Appeal No. 2666 of 2022
arising out of SLP (C) No. 36206 of 2014.
3.5 Feeling 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
H
M/S. TOTAL ENVIRONMENT BUILDING SYSTEMS PVT. LTD. v. THE 893
DEPUTY COMM’R OF COMMERCIAL TAXES [M. R. SHAH, J.]
writ petitioner – assessee – NBCC has preferred the present Civil Appeal A
Nos. 4547-4548 of 2014.
3.6 Feeling 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 B
Toubro Limited has preferred the present Civil Appeal No. 2667 of 2022
arising out of SLP (C) No. 21828 of 2015.
3.7 Feeling 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 C
Civil Appeal No. 6792 of 2010.
3.8 Feeling 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 – M/s.
L&T, Hydrocarbon Engineering Ltd. (previously known as Larsen & D
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 E
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, F
(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 G
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
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). H
894 SUPREME COURT REPORTS [2022] 17 S.C.R.
A 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.
6.1 In support to her prayer to re-consider the decision of this
B 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
C 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
D 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.
6.2 It is vehemently submitted by Ms. Madhavi Divan, learned
Additional Solicitor General that, even prior to Finance Act, 2007, there
E 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
F 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
G 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).
H
M/S. TOTAL ENVIRONMENT BUILDING SYSTEMS PVT. LTD. v. THE 895
DEPUTY COMM’R OF COMMERCIAL TAXES [M. R. SHAH, J.]
7. On the other hand, Shri Arvind P. Datar, learned Senior Advocate, A
appearing on behalf of some of the assessees and other learned senior
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
B
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 C
Larsen and Toubro Limited (supra) in paragraphs 28, 29, 30, 31, 32,
33, 38 and 39.
7.1 It 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 D
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 E
question of any 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 F
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.
7.2 It is further submitted by Shri Datar, learned Senior Advocate G
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
H
896 SUPREME COURT REPORTS [2022] 17 S.C.R.
A 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
B
Revenue, more particularly, when the 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).
7.3 It is further submitted by Shri Datar, learned Senior Advocate
appearing on behalf of some of the assesses that some of the appeals in
C 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
D 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
E 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
F on behalf of the respective parties on whether the service tax was 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.
G 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
H Court is, “whether for the period prior to introduction of the Finance Act,
M/S. TOTAL ENVIRONMENT BUILDING SYSTEMS PVT. LTD. v. THE 897
DEPUTY COMM’R OF COMMERCIAL TAXES [M. R. SHAH, J.]
2007, the service tax would be leviable on the Composite Works A
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). B
10.1 Ms. 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 learned ASG, the said decision requires re-consideration and C
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, D
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 E
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 F
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;
G
(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);
H
898 SUPREME COURT REPORTS [2022] 17 S.C.R.
A (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,
B 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
C 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
D stage and/or even thereafter. No such review application
has been filed even as on today.
(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
E consistently followed by various High Courts and the
Tribunals in the entire country.
10.3 Keeping 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
F matter to the Larger Bench is required to be considered.
10.4 While 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.
G
10.5 In 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
H reviewing and revising its earlier decision the Court must satisfy itself
M/S. TOTAL ENVIRONMENT BUILDING SYSTEMS PVT. LTD. v. THE 899
DEPUTY COMM’R OF COMMERCIAL TAXES [M. R. SHAH, J.]
whether it is necessary to do so in the interest of public good or for any A
other compelling reason and the Court must endeavour to maintain
certainty and continuity in the interpretation of the law in the country.
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, B
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 C
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.
D
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 E
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 F
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 the interests of the public G
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
H
900 SUPREME COURT REPORTS [2022] 17 S.C.R.
A 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
B
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
C 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
D
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
E 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 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
F
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
G 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
H the submissions of Shri Rohatgi. the Constitution Bench of this
M/S. TOTAL ENVIRONMENT BUILDING SYSTEMS PVT. LTD. v. THE 901
DEPUTY COMM’R OF COMMERCIAL TAXES [M. R. SHAH, J.]
Court in State of Gujarat v. Mirzapur Moti Kureshi Kassab A
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 B
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 C
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
which has held the field for a long time should not be disturbed D
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 E
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 F
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) G
“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
H
902 SUPREME COURT REPORTS [2022] 17 S.C.R.
A 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.”
B
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-consideration/review of earlier decision. After considering
the decision of this Court in the case of Chandra Prakash and Ors.
C 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
D 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,
E 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
F 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
G 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,
H Judges owe a duty to the concept of certainty of law, therefore
M/S. TOTAL ENVIRONMENT BUILDING SYSTEMS PVT. LTD. v. THE 903
DEPUTY COMM’R OF COMMERCIAL TAXES [M. R. SHAH, J.]
they often justify their holdings by relying upon the established A
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 B
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 C
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, D
therefore, there is this need for consistency in the
enunciation of legal principles in the decisions of this
Court.”
(emphasis supplied)”
E
10.7 It 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 F
some or all of the members of the court might later arrive at a different
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 G
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:
H
904 SUPREME COURT REPORTS [2022] 17 S.C.R.
A 11.1 This 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
B 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
C and relevant to tax matters.
11.2 This 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
D of 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.
11.3 In K. Ajit Babu and Ors. Vs. Union of India and Ors.,
E (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
F 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
G 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.
11.4 In 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
H
M/S. TOTAL ENVIRONMENT BUILDING SYSTEMS PVT. LTD. v. THE 905
DEPUTY COMM’R OF COMMERCIAL TAXES [M. R. SHAH, J.]
excisable goods considering that they are prohibited from being sold A
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:
B
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 C
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 D
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 E
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.”
11.5 In Saurashtra Cement & Chemical Industries Ltd. and
another Vs. Union of India and others, (2001) 1 SCC 91 this Court F
refused to 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 G
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, H
906 SUPREME COURT REPORTS [2022] 17 S.C.R.
A 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
B
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
C 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 217and Keshav
Mills Co. Ltd. Vs. Commissioner of Income Tax, Bombay North,
D Ahmedabad, AIR 1965 SC 1636, on the principle of stare decisis
clearly 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
E 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
F 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
G 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
the decision of the Delhi High Court in the case of G.D. Builders Vs.
H
M/S. TOTAL ENVIRONMENT BUILDING SYSTEMS PVT. LTD. v. THE 907
DEPUTY COMM’R OF COMMERCIAL TAXES [M. R. SHAH, J.]
Union of India reported in (2013) 32 STR 673 (Delhi). It is to be A
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
B
(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 C
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.
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),
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. E
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.
13.1 Now, 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 F
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. G
13.2 So 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
H
908 SUPREME COURT REPORTS [2022] 17 S.C.R.
A 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. However, in
view of the binding decision of this Court in the case of Larsen and
B
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.
13.3 Following the binding decision of this Court in the case of
C 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
D Guwahati High Court and the respective decisions of the CESTAT passed
against the respective assesses are also to be allowed.
13.4 Now, 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
E 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. 6523 of 2014, Civil Appeal No. 6526 of 2014, Civil Appeal
F 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.
G 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.
H
M/S. TOTAL ENVIRONMENT BUILDING SYSTEMS PVT. LTD. v. THE 909
DEPUTY COMM’R OF COMMERCIAL TAXES [M. R. SHAH, J.]
In the facts and circumstances of the case, there shall be no order A
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 B
and order, however, has thought it fit to give additional
reasons for the conclusions and has dealt with the
submissions made 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 C
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 D
Toubro Limited (supra), which has been subsequently
followed by this Court as well as by various High Courts
and Tribunals.
B. V. NAGARATHNA
I have had the advantage of perusing the judgment proposed by E
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) F
(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 G
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
H
910 SUPREME COURT REPORTS [2022] 17 S.C.R.
A 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 judgment in Larsen and Toubro
B
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
C 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
D 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. 1st 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
E 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. 1st June, 2007. As far as the sale component in a works contract
F 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
G 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,-
H
M/S. TOTAL ENVIRONMENT BUILDING SYSTEMS PVT. LTD. v. THE 911
DEPUTY COMM’R OF COMMERCIAL TAXES [B. V. NAGARATHNA , J.]
transfer of property in goods involved in the execution of such A
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 pre-fabricated or otherwise,
installation of electrical and electronic devices, plumbing, drain B
laying or other installations for transport of fluids, heating, ventilation
or air-conditioning 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 C
(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
(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 E
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 F
(ii) such contract is for the purposes of carrying out,—
(a) erection, commissioning or installation of plant, machinery,
equipment or structures, whether pre-fabricated or otherwise,
installation of electrical and electronic devices, plumbing, drain
laying or other installations for transport of fluids, heating, ventilation G
or air-conditioning 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
H
912 SUPREME COURT REPORTS [2022] 17 S.C.R.
A (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
B 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
C 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
D requisites are present, then Service Tax on works 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
E 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. 1st June, 2007 and bearing in mind that
both clauses (i) as well as (ii) of the definition have to be satisfied before
F 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
G 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.
H
M/S. TOTAL ENVIRONMENT BUILDING SYSTEMS PVT. LTD. v. THE 913
DEPUTY COMM’R OF COMMERCIAL TAXES [B. V. NAGARATHNA , J.]
A. Prior to the 46th Amendment of the Constitution, levy of sales A
tax on sale of goods involved in the execution of a works 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
B
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 C
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
D
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.
B. As a result of this dictum, the Law Commission of India in its E
61st 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 (29-A) to Article 366 of the
Constitution. For ease of reference, the same is extracted as under: F
“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 –
[(29-A) “tax on the sale or purchase of goods” includes – G
(a) X-X-X-X-X
(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;”
H
914 SUPREME COURT REPORTS [2022] 17 S.C.R.
A 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 (29-A) of Article 366 of
the Constitution. The following principles were enunciated, to
outline the operation of sub- clause (b) of Clause (29-A) of Article
B
366:
a) That by virtue of the legal fiction in Clause 29-A, 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.’
C 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
D 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 sub-contractor for labour and services;
iii) Charges for planning, designing and architect’s fees;
E
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
F 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;
G
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 Constitution, a
typical works contract would not involve sale of goods and no
H
M/S. TOTAL ENVIRONMENT BUILDING SYSTEMS PVT. LTD. v. THE 915
DEPUTY COMM’R OF COMMERCIAL TAXES [B. V. NAGARATHNA , J.]
sales tax was leviable on such works contract. However, A
subsequently, by way of the Constitution (Forty-sixth Amendment)
Act, 1982, Clause (29-A) 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
B
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 C
on certain transactions described in sub-clauses (a) to (f) of Clause
(29-A) 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 D
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 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 E
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 38-40 of the judgment.
F. In light of the said discussion, this Court concluded that the
transfer of any goods in Sub-clauses (a) to (f) of Clause (29A) of F
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
G. Later a three-judge 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 H
916 SUPREME COURT REPORTS [2022] 17 S.C.R.
A a larger Bench to review the issue afresh. This Court, on re-
hearing the matter referred to it, in Kone Elevator India Pvt.
Ltd. vs. State of Tamil Nadu [(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
B
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.
C 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
D
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. vs. Union of
E India[2006] 145 STC 91 (SC), the question that came up for
decision before thisCourt 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
F 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.
G 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(29-
H A)(b) is amply wide and cannot be confined to a particular
M/S. TOTAL ENVIRONMENT BUILDING SYSTEMS PVT. LTD. v. THE 917
DEPUTY COMM’R OF COMMERCIAL TAXES [B. V. NAGARATHNA , J.]
understanding of the term or to a particular form. The term A
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 Forty-sixth Amendment. The object of
insertion of clause (29-A) in Article 366 was to enlarge the
scope of the expression “tax on sale or purchase of goods”
B
and overcome Gannon Dunkerley (1) [State of
Madras v. Gannon Dunkerley and Co. (Madras) Ltd., AIR
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. C
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
D
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 E
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(29-A)(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
F
alone. Parliament had all genre of works contract in view when
clause (29-A) 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 G
reliance on Commissioner of Sales Tax vs. Purshottam Premji
[(1970) 2 SCC 287], it was observed that 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
H
918 SUPREME COURT REPORTS [2022] 17 S.C.R.
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
B
observed that the factors highlighted to distinguish a contract for
work from a contract for sale are relevant but not exhaustive.
K. In paragraph 89of 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
C 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
D construction, the above three things are fully met. In a contract to
build up a flat there will necessarily be a 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.
E 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
F 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:
G (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;
H
M/S. TOTAL ENVIRONMENT BUILDING SYSTEMS PVT. LTD. v. THE 919
DEPUTY COMM’R OF COMMERCIAL TAXES [B. V. NAGARATHNA , J.]
(ii) Section 66 of the Act provides for the charge of service tax A
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 B
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 C
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. 1st June, 2007 to Finance Act, 1994. This is with reference to the
following judgments: D
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 E
tax on services rendered by mandap-keepers 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 hire-purchase of goods. It is essentially F
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 G
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
H
920 SUPREME COURT REPORTS [2022] 17 S.C.R.
A 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
B
applicable having regard to the respective 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
C 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
D
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. 01st June, 2007, on works contract
E which were entered into prior to 01st June, 2007. In the said case,
the appellant therein was said to be in the business of carrying out
composite construction contracts. The appellant-assessee had paid
sales-tax/VAT on those contracts under the Andhra Pradesh
General Sales Tax Act, 1957, Andhra Pradesh Value Added Tax
F Act, 2005 and other State enactments. Prior to 01st June, 2007,
the assessee had paid service-tax 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).
G
d) With effect from 01st June, 2007, the charging provision, Section
65 (105) (zzzza) was introduced by defining a works contract.
The Central Government also introduced, w.e.f. 01st June, 2007
the Works Contract (Composition Scheme for Payment of Service
Tax) Rules, 2007 (hereinafter referred to as ‘the 2007 Rules’).
H
M/S. TOTAL ENVIRONMENT BUILDING SYSTEMS PVT. LTD. v. THE 921
DEPUTY COMM’R OF COMMERCIAL TAXES [B. V. NAGARATHNA , J.]
Under this scheme, an option of composition was offered @ 2% A
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. B
(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. 98/1/2008-ST, dated
4th January, 2008 which provided that a taxable service, once
classified under the old regime, could not be classified differently,
post 01st June, 2007 simply because the consideration, or a part C
thereof, was received post 01st June, 2007. The vires of Circular
No. 98/1/2008-ST 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 D
composite service for the purpose of payment of service tax on
or after 1st 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 1st June, 2007 and the said
contract could not be classified differently following the introduction E
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 F
expressly made the service component in such works contract
liable to service tax w.e.f. 1st June, 2007. The 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 G
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 H
922 SUPREME COURT REPORTS [2022] 17 S.C.R.
A of law prior to the amendment made to the Finance Act, 1994, w.e.f. 1st
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 46th amendment in
the context of levy of sales tax on works contract progressed.
B 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
C India. The controversy in the 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 subject-matter of taxation.
By the said amendment works contract, which were indivisible
D 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
E 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,
F 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 members of a Larger Bench of the Delhi Tribunal in Larsen
G & 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
H Larsen & Toubro Ltd. vs. CST (supra).
M/S. TOTAL ENVIRONMENT BUILDING SYSTEMS PVT. LTD. v. THE 923
DEPUTY COMM’R OF COMMERCIAL TAXES [B. V. NAGARATHNA , J.]
b) Considering the definition of ‘taxable service’ in sub-Section A
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 2-A of Service Tax Act (determination of value) Rules
B
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 C
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 works contract and deducting therefrom the charges
towards labour and services which would cover –
“(a) labour charges for execution of the works; D
(b) amount paid to a sub-contractor 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
(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 F
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.” G
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.
H
924 SUPREME COURT REPORTS [2022] 17 S.C.R.
A 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
B
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,
C 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 property in goods in
such contract.” Therefore, it was found that the assesses were
D
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
E 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:
F
“(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;
G
* * *
(zzd) to a customer, by a commissioning and installation agency
in relation to erection, commissioning or installation;
* * *
H
M/S. TOTAL ENVIRONMENT BUILDING SYSTEMS PVT. LTD. v. THE 925
DEPUTY COMM’R OF COMMERCIAL TAXES [B. V. NAGARATHNA , J.]
(zzh) to any person, by a technical testing and analysis agency, A
in relation to technical testing and analysis;
* * *
(zzq) to any person, by a commercial concern, in relation to
construction service;
B
* * *
(zzzh) to any person, by any other person, in relation to
construction of a complex;
Explanation : For the purposes of this sub-clause, construction
of a complex which is intended for sale, wholly or partly, by a C
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 D
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
E
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 F
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 such and has to be taxed separately as
such. Referring to the decision of works contract in Gannon
G
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 sub-
H
926 SUPREME COURT REPORTS [2022] 17 S.C.R.
A clause (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
B 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,
C 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
D 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-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
E 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
F in the national interest. The implication of the exclusion means
that such contracts were never intended to be the subject-matter
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
G 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
H was based on the judgment in Mahim Patram (P) Ltd. vs. Union
M/S. TOTAL ENVIRONMENT BUILDING SYSTEMS PVT. LTD. v. THE 927
DEPUTY COMM’R OF COMMERCIAL TAXES [B. V. NAGARATHNA , J.]
of India [(2007) 3 SCC 668]. It was observed that in G.D. A
Builders (supra) there was a misreading of Mahim 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
B
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 C
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
D
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 observed that E
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 F
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: G
“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,
H
928 SUPREME COURT REPORTS [2022] 17 S.C.R.
A 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
B
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
levy and assessment of service tax on indivisible works
C 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
D 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
E service element in such works contract liable to service tax w.e.f. 1st
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
F 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. 1st
June, 2007. Thus, on and from the enforcement of the amendment in the
Financial Year 2007, i.e. 1st 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.
G
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.
H
M/S. TOTAL ENVIRONMENT BUILDING SYSTEMS PVT. LTD. v. THE 929
DEPUTY COMM’R OF COMMERCIAL TAXES [B. V. NAGARATHNA , J.]
11) Further, in Commissioner of Service Tax and Others vs. A
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,
B
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 service” as
defined in sub-clauses of clause (105) of Section 65 of the Finance Act, C
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 D
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 E
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 F
been correctly decided and does not call for a reconsideration insofar as
the period prior to 1st June, 2007 is concerned. In view of the above
discussion, I agree with the result arrived at by His Lordship M.R. Shah
J. vis-à-vis allowing all civil appeals under consideration except Civil
Appeal no. 6792 of 2010 which is dismissed. No costs. G
Nidhi Jain Appeals disposed of.
(Assisted by : Pragya Samal, LCRA)
H
Search Indian case law
Ask in plain English, not just keywords. 25,000 AI words free, no card.
Try "service tax"Sign in to search