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 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 – 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, 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 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.
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, 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 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, 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 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]
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 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 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 DEPUTY COMM’R OF COMMERCIAL TAXES
indivisible works contracts. It is reported that while deciding the 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. 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 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, 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 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. 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.
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 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. 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 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. 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 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 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 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 DEPUTY COMM’R OF COMMERCIAL TAXES
component in a works contract is concerned, the Sales Tax laws 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 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 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 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; 912C-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, 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][928E]
1.4. It is in the above backdrop 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.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. [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 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]
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 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]
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][929F-G] 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]
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 DEPUTY COMM’R OF COMMERCIAL TAXES
and Another (2014) (1) SCC 708 : [2013] 17 SCC 678, 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)
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 Others (2018) 3 SCC 782, G.D. Builders vs. Union of India (2013) 32 STR 673] - referred to.
As published in the Supreme Court Reports, Supreme Court of India. Text from the Indian Supreme Court Judgments open data set (Dattam Labs), CC BY 4.0.
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