Twists and turns in Daelim tale continues ………where do we go from here?
In the infamous Daelim Industrial Co case - , the Tribunal held that a composite contract cannot be dissected rather vivisected to levy service tax on the service component. This decision was affirmed by the Supreme Court. Then came the decision of the now famous Larsen & Toubro case - where the Tribunal went further and held that even if there are amounts attributable to individual services, the settled position of law is that a works contract cannot be vivisected. The Apex Court decision in BSNL Ltd - and Kerala High Court's decision in Kerala Colour Lab Association - were distinguished by the Tribunal in the Larsen & Toubro case.
Just when everybody thought that the issue had gained finality, like a bolt from the blue came the decision of Delhi bench of the Tribunal in BSBK Pvt Ltd - wherein the Tribunal distinguished the Daelim Industrial Co case and held that when separate bills are raised by the assessees the turnkey contracts become divisible and service tax is payable on the service component.
In view of these two conflicting decisions of the Tribunals, in Indian Oil Tanking Ltd - , the Tribunal referred the matter to a Larger Bench for resolution of this dilemma. In the interim, the BSBK Pvt Ltd case travelled to the Supreme Court where the decision of the Tribunal was set aside and matter remanded as the issue was decided ex-parte by the Tribunal.
When the time came for the Larger Bench to decide the issue in Indian Oil Tanking Ltd case, only the decisions of Daelim Industrial Co (affirmed by the Supreme Court) and Larsen & Toubro were available for reference as the Tribunal decision in BSBK Pvt Ltd had become infructous. As there were no conflicting decisions as on the date of the order, the case was returned to the Division Bench for a fresh decision.
This is more or less a repeat of our story in dated July 7, 2008. Here cometh the twist in the tale. In pursuance of the Supreme Court's directive, the Tribunal took up the case in BSBK Pvt Ltd de novo. In round two of this episode before the Tribunal, the assessee took shelter under the Daelim Industrial Co decision to contend that work contracts in turnkey projects cannot be vivisected.
The Tribunal veered off the beaten track and observed as follows:
“In the case of 'turnkey contract', if they are not split only on the ground that the contract is on turnkey project basis, a question may arise as to whether the entire contract will be sale contract. The answer apparently would be in the negative. Only that part of the contract which falls under clause (b) of Article 366(29-A) - amounting to 'deemed sale' will constitute sale contract on which sales tax can be levied. What will happen to the rest of the contract? Whether it will go out of the net of the service tax? Answer again, will be in the negative. No doubt, as observed above, and it goes without saying, the 'service' will have to qualify as taxable service”.
The Tribunal therefore, held that the decision in Daelim Industrial Co is not in accordance with the Apex Court's ruling in BSNL Ltd - 2006-TIOL-15-SC-CT-LB. Finally, in view of the divergent view taken by the Tribunal, the matter once again goes to the Larger Bench.
See ‘ST se GST Tak ' for the latest twist in the tale . The following stories may also be interesting.
1. Post CBEC Circular on Service Tax - Are works contractors liable at all?
2. Service Tax : The fine dividing line between indivisible contract and composite contract
3. Growing ambit of Works Contract as a taxable service