The Commissioner Of Central Excise And Customs, Hyd. vs. M/S. Blue Star LTD., Secbad

Facts

The Commissioner of Central Tax and Central Excise (appellant) issued a show cause notice to M/s. Blue Star Ltd. (respondent) for alleged short payment of Service Tax amounting to Rs. 6,71,37,411/- for the period July 1, 2004, to September 30, 2005. The allegation was that the respondent had not reflected the true value of taxable services like 'Supply', 'Installation', and 'Commissioning' of Air Conditioning Systems, and had issued consolidated bills. The Commissioner confirmed the demand, along with interest and penalties. The respondent appealed to the Customs, Excise and Service Tax Appellate Tribunal (CESTAT), which set aside the Commissioner's order. The appellant has now appealed this CESTAT order before the High Court.

Held

The Court held that Service Tax was not leviable on works contracts prior to the amendment of Section 65(105)(zzzza) of the Finance Act, 1994, by the Finance Act, 2007, effective from June 1, 2007. The demand raised by the appellant for the period July 1, 2004, to September 30, 2005, was therefore not justified, as it pertained to a period before the introduction of the concept of works contract under the Service Tax net. The Court relied on Supreme Court judgments in Larsen & Toubro Ltd. and Total Environment Building Systems Pvt. Ltd., which affirmed that Service Tax on works contracts was not attracted prior to the amendment. Consequently, the Court found that the CESTAT was justified in setting aside the Commissioner's order. The appeal was dismissed, and the CESTAT's order was confirmed.

Key Issues

1. Whether Service Tax is leviable on works contracts prior to the amendment of Section 65(105)(zzzza) of the Finance Act, 1994, by the Finance Act, 2007, effective from June 1, 2007? The appellant contended that the respondent had suppressed the value of taxable services and that the demand was raised prior to the amendment, implying taxability. The respondent argued that works contracts were not subject to Service Tax prior to the amendment, and therefore, no question of exemption arose. They relied on decisions like Daelim Industrial Company and Larsen & Toubro Ltd. The respondent further argued that Notification No. 19/2003 ST was optional and that they had correctly availed the benefit of Notification No. 12/2003, excluding the value of goods and materials. The respondent also argued that penalty cannot be imposed for misinterpretation of an exemption notification.