No service tax on works contract before June 2007

The Supreme Court last month delivered a significant judgment in L&T Ltd & Others. This judgment overrules the decisions of the various benches of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) and high courts. The issue at hand was the levy of service tax on the service element in a composite works contract, prior to the introduction of taxable service of works contract on 1 June 2007. The court declared the law that service tax cannot be levied on the composite contract prior to 1 June 2007 since the taxable service of works contract was not yet on the statute book.

History

Previously, Delhi High Court in GD Builders & Others (2013) and the majority of the larger bench of the CESTAT (Delhi) in L&T Ltd & Others (2015) laid down that the composite contract could be vivisected and the service element taxed even prior to June 2007 in terms of the taxing entry for commercial or industrial construction service (CICS), construction of complex service (CCS) or erection, commissioning and installation service (ECIS).

The president of the CESTAT had referred the issue to the larger (five-member) bench owing to conflicting views between benches of the tribunal in Jyoti Ltd (2008), Indian Oil Tanking Ltd (2010) and BSBK Ltd (2010).

Ranjeet Mahtani is an associate partner, Rajat Chhabra is a senior associate and Tadsare is an associate manager at Economic Laws Practice. This article is intended for informational purposes and does not constitute a legal opinion or advice.