M/s. Total Environment Building Systems Pvt. Ltd. Versus The Deputy Commissioner of Commercial Taxes & Ors

Landmark Cases of India / सुप्रीम कोर्ट के ऐतिहासिक फैसले

REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NOS. 8673-8684 OF 2013

M/s. Total Environment

Building Systems Pvt. Ltd. …Appellant(s)

Versus

The Deputy Commissioner of

Commercial Taxes & Ors. …Respondent(s)

WITH

CIVIL APPEAL NO. 6525 OF 2014

YFC Projects Pvt. Ltd. …Appellant(s)

Versus

Union of India …Respondent(s)

WITH

CIVIL APPEAL NO. 6523 OF 2014

M/s. G.D. Builders …Appellant(s)

Versus

Union of India & Anr. …Respondent(s)

WITH

CIVIL APPEAL NO. 6526 OF 2014

M/s. National Building

Construction Corporation Ltd. (NBCC) …Appellant(s)

Versus

Union of India & Anr. …Respondent(s)

WITH

CIVIL APPEAL NO. 2666 OF 2022

(arising out of SLP (C) No. 36206 of 2014)

M/s. Unitech Ltd. …Appellant(s)

Versus

Union of India & Ors. …Respondent(s)

WITH

CIVIL APPEAL NOS. 4547-4548 OF 2014

M/s. National Building

Construction Corporation Ltd. (NBCC) …Appellant(s)

Versus

Union of India & Ors. …Respondent(s)

WITH

CIVIL APPEAL NO. 2667 OF 2022

(arising out of SLP (C) No. 21828 of 2015)

M/s. Larsen and Toubro Ltd. …Appellant(s)

Versus

Commissioner of Service Tax, Delhi …Respondent(s)

WITH

CIVIL APPEAL NO. 6792 OF 2010

Commissioner of Service Tax Mumbai - II …Appellant(s)

Versus

M/s. IOT Infrastructure &

Energy Services Limited …Respondent(s)

WITH

CIVIL APPEAL NO. 2668 OF 2022

(arising out of SLP (C) No. 32501 of 2015)

M/s. L&T Hydrocarbon Engineering Limited …Appellant(s)

(previously known as Larsen & Toubro Limited)

Versus

Commissioner of Service Tax, Mumbai …Respondent(s)

J U D G M E N T

M.R. SHAH, J.

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

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

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

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

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. 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 – 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 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.

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 oversight and/or by

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

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.

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. 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 writ petitioner – assessee – NBCC has preferred the present

Civil Appeal 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

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

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 &

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 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, (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

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). 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 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 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 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

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

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 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).

7. On the other hand, Shri Arvind P. Datar, learned Senior Advocate,

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 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 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 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 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 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

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 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 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

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

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

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

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.

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 Court

is, “whether for the period prior to introduction of the Finance Act, 2007,

the service tax would be leviable on the Composite Works 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).

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 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,

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 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 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;

(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);

(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,

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

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 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 reconsideration of the earlier binding decision, which has been

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 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.

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 reviewing and revising

its earlier decision the Court must satisfy itself 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 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,

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 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.

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 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 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 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 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 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 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

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

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 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 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 the submissions of Shri Rohatgi. the Constitution

Bench of this Court in State of Gujarat v. Mirzapur Moti

Kureshi Kassab 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 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 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 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 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 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)

“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 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.”

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/re21

consideration/review of earlier decision. After considering the decision of

this Court in the case of Chandra Prakash and Ors. 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 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, 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 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 promoting stability and evenhandedness”. [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, Judges owe a duty to the concept of

certainty of law, therefore they often justify their holdings by

relying upon the established 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 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 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, therefore, there is this need

for consistency in the enunciation of legal principles in

the decisions of this Court.”

(emphasis supplied)”

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

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

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:-

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 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 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 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., (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

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 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

excisable goods considering that they are prohibited from being sold

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:

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 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

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 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 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 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, 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 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 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 217 and Keshav

Mills Co. Ltd. Vs. Commissioner of Income Tax, Bombay North,

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 to reconsider 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 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

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.

Union of India reported in (2013) 32 STR 673 (Delhi). It is to be 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 (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

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.

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.

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

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.

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

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 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 Larsen

and Toubro Limited (supra), taking the view that for the period preFinance 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

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 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 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.

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.

In the facts and circumstances of the case, there shall be no order

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 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 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 Toubro

Limited (supra), which has been subsequently followed by

this Court as well as by various High Courts and Tribunals.

………………………………….J.

[M.R. SHAH]

NEW DELHI; ………………………………….J.

AUGUST 02, 2022. [B.V. NAGARATHNA]

I have had the advantage of perusing the judgment proposed by

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)

(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

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

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 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 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

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 component in a

works contract 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 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,

transfer of property in goods involved in the

execution of such 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 prefabricated or otherwise,

installation of electrical and electronic

devices, plumbing, drain laying or other

installations for transport of fluids, heating,

ventilation or airconditioning 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

(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

or a part thereof; or

(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

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

(ii) such contract is for the purposes of

carrying out,—

(a) erection, commissioning or installation of

plant, machinery, equipment or structures,

whether prefabricated or otherwise,

installation of electrical and electronic

devices, plumbing, drain laying or other

installations for transport of fluids, heating,

ventilation or airconditioning 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

(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

or a part thereof; or

(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.”

Thus, 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.

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 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 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.

A. Prior to the 46th Amendment of the Constitution, levy of

sales 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 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 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 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 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 (29A) to Article

366 of the Constitution. For ease of reference, the same is

extracted as under:

“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 –

[(29A) “tax on the sale or purchase of

goods” includes –

(a) XXXXX

(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;”

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 (29A) of Article 366 of

the Constitution. The following principles were enunciated, to

outline the operation of sub clause (b) of Clause (29A) of

Article 366:

a) That by virtue of the legal fiction in Clause 29A,

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.’

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 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 subcontractor for

labour and services;

iii) Charges for planning, designing and

architect’s fees;

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 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;

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 sales tax was leviable on such works contract.

However, subsequently, by way of the Constitution (Fortysixth

Amendment) Act, 1982, Clause (29A) 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 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 on certain transactions described in subclauses (a) to

(f) of Clause (29A) 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 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 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

3840 of the judgment.

F. In light of the said discussion, this Court concluded that

the transfer of any goods in Subclauses (a) to (f) of Clause (29A)

of 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. Later a threejudge 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 a larger Bench to review the issue

afresh. This Court, on rehearing 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 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. 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

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

India [2006] 145 STC 91 (SC), the question that came up for

decision before this Court 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 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.

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(29A)(b) is amply

wide and cannot be confined to a particular

understanding of the term or to a particular

form. The term 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 Fortysixth

Amendment. The object of insertion of

clause (29A) in Article 366 was to enlarge

the scope of the expression “tax on sale or

purchase of goods” 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. 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 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 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(29A)(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 alone. Parliament had

all genre of works contract in view when

clause (29A) 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 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 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 observed that the factors

highlighted to distinguish a contract for work from a contract

for sale are relevant but not exhaustive.

K. In paragraph 89 of 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 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 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.

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 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:

(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;

(ii) Section 66 of the Act provides for the charge of service tax 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 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 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:

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 tax on services rendered by

mandapkeepers and outdoor caterers is in pith and substance,

a tax on services and not a tax on sale of goods or on hirepurchase activities. The nature and character of this service tax

is evident from the fact that the transaction between a mandapkeeper and his customer is definitely not in the nature of a sale

or hirepurchase of goods. It is essentially 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 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 Value Added Tax Act, 2003, (KVAT) for the sale of

advertisement material following the creation of the designconcept, 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 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 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 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 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 appellantassessee had paid salestax/VAT on

those contracts under the Andhra Pradesh General Sales Tax

Act, 1957, Andhra Pradesh Value Added Tax Act, 2005 and

other State enactments. Prior to 01st June, 2007, the assessee

had paid servicetax 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).

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'). Under this scheme, an option of composition

was offered @ 2% 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.

(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. 98/1/2008ST, 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 thereof, was received post 01st June,

2007. The vires of Circular No. 98/1/2008ST 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 composite service for

the purpose of payment of service tax on or after

st June, 2007 and hence, was not entitled to avail of the

Composition Scheme. It was observed that the appellantassessee had already paid service tax on the basis of

classification of service contract which was in force prior to

st June, 2007 and the said contract could not be classified

differently following the introduction 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 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 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 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. 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 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 subjectmatter of taxation. By the said

amendment works contract, which were indivisible 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 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, 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 &

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 Larsen & Toubro Ltd. vs. CST (supra).

b) Considering the definition of ‘taxable service’ in subSection 105 of Section 65 of the Finance Act, 1994 and the

relevant clauses therein, namely, (g), (zzd), (zzh), (zzq) and (zzzh); 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 2A of Service Tax Act

(determination of value) Rules 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 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;

(b) amount paid to a subcontractor for

labour and services;

architect’s fees;

(d) charges for obtaining on hire or

otherwise machinery and tools used for the

execution of the works contract;

(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 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.”

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.

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 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, 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 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 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:

“(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;

* * *

(zzd) to a customer, by a commissioning and installation

agency in relation to erection, commissioning or

installation;

* * *

(zzh) to any person, by a technical testing and analysis

agency, in relation to technical testing and analysis;

* * *

(zzq) to any person, by a commercial concern, in relation

to construction service;

* * *

(zzzh) to any person, by any other person, in relation to

construction of a complex;

Explanation : For the purposes of this subclause,

construction of a complex which is intended for sale,

wholly or partly, by a 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 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 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 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 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 subclause

(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 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 subclauses 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,

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 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 non63

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 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 in the national interest. The implication of

the exclusion means that such contracts were never intended to

be the subjectmatter 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 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 was based on the judgment in Mahim Patram (P)

Ltd. vs. Union of India [(2007) 3 SCC 668]. It was observed

that in G.D. 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 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 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 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 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 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:

“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,

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 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 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

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 service element in such works contract liable to service tax w.e.f.

st 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

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.

st 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.

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.

11) Further, in Commissioner of Service Tax and Others vs.

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,

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 subclauses of clause (105) of Section 65 of the

Finance Act, 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

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 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

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. visàvis allowing all civil appeals under consideration except

Civil Appeal no. 6792 of 2010 which is dismissed. No costs.

……………………………..J.

[B.V. NAGARATHNA]

NEW DELHI;

AUGUST 02, 2022

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