ST - Works Contract Service prior to 1.6.2007 - CESTAT Order
THE issue is very simple - Works contracts are composite contracts which involve neither pure sale nor pure service. Because of the uniqueness of these transactions, service of “Works Contract” has been defined as a separate taxable service under clause (zzzza) of sub-section (105) of Section 65 of the Finance Act, 1994 with effect from 01.06.2007. Therefore, the statutory provisions for levy of service tax exist only with effect from 01.06.2007.
But the Department wants to tax this service even prior to 1.6.2007 and litigation is continuing in all possible forums, the latest being the Mumbai CESTAT.
As reported by DDT on Friday, there was difference of opinion between the two Members and the matter is referred to the Third Member.
While the Technical Member had no doubt that a composite works contract can be vivisected and the discernible service element can be subjected to levy of service tax , the Judicial Member held that levy of service tax on works-contract or lump-sum turnkey contract under the provisions of section 65(39a) prior to 01.06.2007 is impermissible as no valid charge have been created.
We promised to bring you this order as soon as possible. We do it today.