Order Date: 2 August 2022

Facts-

• The Petitioner, M/s. Total Environment Building Systems Pvt. Ltd. has filed the present appeal against the order passed by the High Court of Karnataka in which appellant challenged the assessment order levying service tax. 
• Petitioner submitted that the issue has been decide by the Hon’ble Supreme Court in the case of the Larsen and Toubro Ltd, wherein the Court has specifically held that on indivisible works contract prior to the introduction of the Finance Act, 2007, Service Tax was not leviable and specifically observed that works contract on which the Service tax was levied under the Finance Act, 1994 is distinct from contracts of service.
• The Revenue contended that even prior to the Finance Act, there was an elaborate mechanism for segregating the value of the goods component and the service component in a Works Contract. Therefore, 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 chargeable to Service tax and hence the decision of the Larsen and Toubro Ltd was erroneous.

Issue-

• Whether Service tax could be levied on Composite Works Contracts prior to the introduction of the Finance Act, by which the Finance Act, 1994 amended to introduce Section 65(105)(zzzza) pertaining to Works Contract Service.?

Order-

• The Hon’ble Supreme Court of India observed that Service tax was not leviable on Composite Works Contracts, while holding that for the period prior to the -Finance Act, 2007, the decision of the Larsen and Toubro Limited has been followed by various High Courts and the Revenue Department has not challenged the said decision nor file any review application to review or to recall the judgment earlier.
• Further, if the Respondent was so serious in their view that the decision of the Larsen and Toubro Ltd requires reconsideration, then must ought to have filed the review application at that stage, but no application has been filed even as on today. Merely because in the subsequent cases, the amount of tax involved may be higher, cannot be a ground to pray for reconsideration of the earlier binding decision, which has been consistently followed by various High Courts in the entire country.
• The Court held that, the case of Larsen and Toubro Ltd need not to be reviewed and orders passed by the respective High Courts taking the view that for the period prior to the Finance Act, 2007, the respective assesses are liable to pay the service tax on indivisible works contracts are hereby quashed and set aside.
• Further, works contract has two essential components: firstly, sale of goods involved in the execution of such contracts which would attract Sales Tax 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.
• The Court Stated that, the definition of Works contract inserted for the first time by virtue of Section 65(105) (zzzza) under the Finance Act, 2007 assumes significance and has to be applied w.e.f. June 01, 2007. 
• Thus, on and from the enforcement of the amendment in the Financial Year 2007, i.e. June 01, 2007 the tax on the service component of works contract became leviable.
• Recognising this aspect of the matter in Larsen and Toubro Ltd, Supreme 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. 
• Impugned Order is set aside.