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Timestamp: 2019-04-22 00:28:56+00:00

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REPRESENTED BY : S/Shri J.K. Mittal, Varun Prabhakar and Varun Gaba, Advocates, for the Petitioner.
S/Shri Rajeeve Mehra, ASG with Mukesh Anand and Ashish Virmani, Counsels and Ms. Sonia Sharma, SSC, for the Respondent.
[Judgment per : Sanjiv Khanna, J.]. - This common judgment will dispose of the aforementioned 11 writ petitions in which identical and similar issues arise for consideration. The petitioners herein have challenged and prayed for quashing of Explanation to Notification No. 15/2004-S.T., dated 10th September, 2004 and Notification No. 18/2005-S.T., dated 7th June, 2005 and in Notification No. 1/2006-S.T., dated 1st March, 2006, the challenge is with respect to column 4 entries at S. Nos. 5, 7 and 10. In some writ petitions, assessment orders have been passed and appellate proceedings have been initiated. However, in Writ Petition No. 4107/2008 by G.D. Builders, Writ Petition No. 5046/2008 by Unitech Limited, Writ Petition Nos. 401/2009, 4057/2010 & 6658/2010 by Simplex Infrastructure Ltd. and Writ Petition Nos. 4187/2008 and 5646/2010 filed by Vistar Construction Pvt. Ltd., show cause notices have been issued and the proceedings are still pending before the original authority. In Writ Petition No. 4127/2008 filed by Clarion Properties Ltd. and Writ Petition No. 4658/2008 filed by Vipul Limited, notice for appearance of furnishing of documents/reply has been given and even show cause notice has not been issued.
(i) Service Tax levied from time to time by Finance Act, 1994 and subsequent amendments is in exercise of power under residual entry 97 of List I of the Seventh Schedule of the Constitution of India. It is levied on taxable service as defined in Section 65(105) read with definition clauses.
(ii) Service Tax is applicable only in respect of service element and the Central Government does not have any power under the residual entry to impose tax on entries under List II of the Seventh Schedule of the Constitution.
(iii) The Parliament cannot impose Service Tax on material or goods used in execution of works/composite contract. Central Sales Tax is payable and levied on material used in “works contract” with effect from 11th May, 2002 after amendment of the Central Sales Tax Act, 1956 vide Finance Act, 2002.
(iv) The “composite or works contracts” are excluded from the ambit of levy of Service Tax under Section 65(105)(zzq) and (zzzh).
(v) Section 65(105)(zzq) and (zzzh) apply only to “service contracts” and not to “composite or works contract”, therefore, exemption under notification to the extent of 67% to set off value of the goods involved in execution of “composite contract” is contrary to the charging provision and a nullity, as it amounts to enlarging and widening of charging section and would have the effect of including or imposing Service Tax even on goods or material used in a “composite/works contract”. It is well settled that a notification cannot expand or enlarge the charging section or even amend the statutory provisions or the main enactment.
(vi) The exemption notifications by which 67% of the contract value in a “composite contract” is abated has the effect of imposing Service Tax on “composite or works contract” which is not covered by the main statutory provision. Thus, what is not covered and cannot be covered by the principal enactment, have been covered and brought under the Service Tax ambit by the explanations appended to the notifications. Thus, abatement granted in the notifications is invalid and contrary to main enactment. The said argument is equally applicable to column 4 of serial numbers 5, 7 and 10 of the 2006 notification.
(vii) As per Section 93 of the Finance Act, 1994, the Central Government is empowered to grant exemption from levy of Service Tax either wholly or in part but as “composite contracts” and “works contracts” are not covered under Section 65(105)(zzq) or (zzzh) Central Government cannot grant exemption by way of notification.
(viii) Service Tax has been imposed on services involved in execution of “composite/works contract” only with effect from 1st June, 2007 under Section 65(105)(zzzza). Rule 2A of Service Tax (Determination of Value) Rules, 2006 determines value of services involved in “works/composite contracts” and it is levied @ 2%, enhanced to 4% with effect from 1st March, 2008. The said levy is not applicable to “services” covered under Section 65(105)(zzq) and (zzzh).
(ix) There is a conflict between Section 65(105)(zzzza), (zzq) and (zzzh) and what is covered by Section 65(105)(zzzza) cannot be covered by Section 65(105)(zzq) and (zzzh). The two sets of provisions cannot co-exist. Subsequent legislation shows that the earlier legislation will not cover “composite or works contract”.
(x) Section 66 is the charging section and provisions of Section 67 are the valuation provisions. Value of taxable services under Section 67 is the gross amount charged by the service provider for such “services provided or to be provided”. Service Tax can be charged only for the specified “taxable services” as defined in sub-clauses of Section 65(105). Tax can be only on the value of services and not beyond. There is no provision for a notional value or to enable the authorities to reduce or subtract value of material or goods. The gross amount charged or the value of service cannot include value of goods and material supplied/used.
(xi) Vagueness or uncertainty makes a levy invalid and illegal.
The expression “residential complex” was defined in Section 65(91a) but we need not refer to the said definition as it is not relevant.
“Taxable service” means any services provided or to be provided to any person, by any other person in relation to the execution of a works contract, excluding works contract in respect of roads, airports, railways, transport terminals, bridges, tunnels and dams.
(iii) the taxable services provided are only completion and finishing services in relation to building or civil structure, referred to in sub-clause (c) of clause (25b) of section 65 of the Finance Act, 1994.
8. For the purpose of clarity, we record that clauses (ii) and (iii) of the proviso were added by way of amendment Notification No. 19/2005-S.T., dated 7th June, 2005. What is subject matter of challenge before us are two pronged; the explanation and clause (iii) of the proviso. The effect of clause (iii) to the proviso was/is that benefit of the said notification would not be available in case the service provider was providing “completion and finishing services” in relation to building or civil structure referred to in sub-clause (c) of clause (25b) of Section 65 of the Act. The second challenge before us is to the Explanation.
(iii) the taxable services provided are only completion and finishing services in relation to residential complex, referred to in sub-clause (b) of clause (30a) of section 65 of the Finance Act.
Explanation. - For the purposes of this notification, the “gross amount charged” shall include the value of goods and materials supplied or provided or used for providing the said taxable service by the said service provider.
The challenge is to the Explanation to the said notification and clause (iii) of the proviso.
Erection, commissioning or installation, under a contract for supplying a plant, machinery, equipment or structures and erection, commissioning or installation of such plant, machinery, equipment or structures.
This exemption is optional to the commissioning and installation agency.
Explanation.- The gross amount charged from the customer shall include the value of the plant, machinery, equipment, structures parts and any other material sold by the commissioning and installation agency, during the course of providing erection, commissioning or installation service.
This exemption shall not apply in such cases where the taxable services provided are only completion and finishing services in relation to building or civil structure, referred to in sub-clause (c) of clause (25b) of section 65 of the Finance Act.
Explanation.- The gross amount charged shall include the value of goods and materials supplied or provided or used by the provider of the construction service for providing such service.
This exemption shall not apply in cases where the taxable services provided are only completion and finishing services in relation to residential complex, referred to in sub-clause (b) of clause (30a) of section 65 of the Finance Act.
(ii) the service provider has availed the benefit under the notification of the Government of India in the Ministry of Finance (Department of Revenue), No. 12/2003-Service Tax, dated the 20th June, 2003 [G.S.R. 503(E), dated the 20th June, 2003].
11. The challenge, as noticed above, is to the stipulations in column 4.
12. Service Tax is a value added tax which was/is imposed and levied by the Parliament by way of Finance Act, 1994. It was imposed in phases and presently it is imposed on all taxable services as defined, except for the negative list.
(iii) Where a service cannot be classified as specified in clauses (i) and (ii) above, it shall be classified under the sub-clause which occurs first among the sub-clauses which merit equal consideration.
14. Section 67 stipulates that the value of any taxable service shall be the gross amount charged by service provider for such services provided or to be provided by him. Thus, it sets out the manner of valuation of taxable services for charging Service Tax. Section 67 is not the charging section as elucidated and relates to manner of computation or value which can be subjected to Service Tax. By Finance Act, 2001 with effect from 16th July, 2001, Section 67 was substituted by a new comprehensive section. The said section has undergone further amendments from time to time and prior to its re-enactment with effect from 18th April, 2006 vide Finance Act, 2006. As on 17th April, 2006, explanation 1 of Section 67 for the purpose of removal of doubt, was deemed to include the aggregate amounts as specified in clauses (a) to (g) but did not include the amounts/deposits specified in (i) to (viii). Explanation 3 for removal of doubt declared that the gross amount charged for taxable service shall include the amount received before, during or after provision of such services.
With effect from 19th April, 2006, Service Tax (Determination of Value) Rules, 2006 have become applicable.
“Learned counsel appearing for the petitioner accepts and states that “service component” in composite contracts can be taxed, but not as works contract per se. Learned counsel for the petitioner further states that the respondents are also competent to bifurcate and tax the service component alone. He submits that the notifications dated 7-6-2005 and 1-3-2006 are bad in law because they have been issued under Section 93(1) of the Finance Act, as if the respondents have granted exemption to the extent of 67% of a composite contract. This is contrary to Sections 65, 66 and 67 of the Finance Act, as the service component alone is taxable and not the entire consideration payable under the composite contract which includes payment towards goods or movable properties.
During the course of hearing, the learned Additional Solicitor General appearing for the respondents has submitted that the two notifications dated 7-6-2005 and 1-3-2006 are optional and it is open and an assessee need not take benefit of the said notifications, if he so desires. However, service tax is to be levied and is payable on the service component of the composite contract, which can be computed.
It is submitted that an assessee cannot bifurcate two notifications dated 7-6-2005 and 1-3-2006 and take benefit of the notifications, yet claim that the explanation to the said notifications should not be applied. Explanationstipulates that the gross amount for the purpose of computation includes the entire value of the goods used in the construction.
17. It was accepted and stated on instructions by the respondents that the notifications in question (or rather partly in question) are optional and an assessee need not take benefit of the said notifications, if he so desires, but the Service Tax is to be levied and is payable on the service component of a composite contract, which can be computed. The notifications also specifically stipulate, when they apply and the preconditions which must be satisfied before they can be applied.
18. Service Tax in the facts in question has been imposed in three stages. In the first stage, Service Tax was imposed on construction of industrial and commercial complexes. In the second stage, Service Tax was imposed on residential complexes of 12 or more residential units and in the third stage, Service Tax was imposed on works contracts of any nature except for the exclusion in respect of roads, airports, railways, transport terminals, bridges, tunnels and dams. Each provision or levy has its own scope and ambit, while the first two provisions were primarily specific and targeted, the third inclusion i.e. works contract is very broad and wide term and will include within its ambit and scope construction of industrial and commercial complexes or construction of residential complexes as specified. Introduction and imposition of Service Tax on works contract by Finance Act, 2007 does not mean that we have to read down, the scope and ambit of the provisions enacted levy tax on contracts relating to “commercial and industrial construction” service or “construction of (residential) complexes” services as specified by Finance Act, 2004 and Finance Act, 2005 respectively. The new levy imposed by Finance Act, 2007 does not indicate or show that works contract relating to “construction of industrial and commercial complexes” or “construction of (residential) complexes” as specified, would be only applicable when the contractor was providing labour or service and was paid for the same and not to composite contracts when the contractor was providing labour/services as well as goods used for construction of industrial and commercial complexes or residential complexes as specified. It would cover any and every contract, when the contractor was only supplying labour or undertaking construction services, whether with or without supply of material, i.e. composite contract. The levy is valid when the provisions of Section 65(105)(zzh) and 65(105)(zzq) of the Act are satisfied. The only condition and requirement is that the Service Tax should be levied and imposed on the “service” element and not levied and charged on material or goods used, as the power to levy sales tax or value added tax on the sales of goods is with the State Governments.
(v) The concept of service tax is an economic concept.
(vi) “Consumption of service” as in case of “consumption of goods” satisfies human needs.
20. In Tamil Nadu Kalyana Mandapam Assn. v. UOI and Ors. - (2004) 267 ITR 9 (SC) = 2006 (3) S.T.R. 260 (S.C.) = 2004 (167) E.L.T. 3 (S.C.), challenge was made and rejected by the Supreme Court on imposition of Service Tax on Kalyan Mandapam or Mandap keepers who provided furniture, fixtures, floor coverage, etc., for organizing social or business functions. The tax on “service” was defined as any service provided to a client by a mandap keeper in relation to use of mandap in any manner, including facilities provided to the client in relation to such use and also the service, if rendered, as a caterer. The Supreme Court made reference to the 46th amendment i.e. Article 366(29A) of the Constitution and referred to the fact that as per the formula prescribed in the Finance Act, 1994, Service Tax was levied on 40% of the gross amount charged by the mandap keepers from the client where mandap keepers were providing catering services. Thus, in the case of mandap keepers, Service Tax was payable on composite contract where the mandap keepers were to also provide food, furniture, electrical fittings, tents, etc. The contention that the Service Tax imposed on mandap keepers was tax on land or tax on sale or purchase of goods was rejected. It was observed that Article 366(29A)(f) does not include supply of services, within supply of goods. The two were separate aspects. Concept of catering includes concept of rendering service, though sale of goods is involved. Parliament is competent to levy Service Tax on the service aspect. Reference was made to sub-clause (f) to Article 366(29A) but in the present case clause (b) to Article 366(29A) would be appropriate and applicable. Clause (b) uses the term “works contract” as the said expression or term had gained acceptability in light of the earlier judgments of the Supreme Court, where contracts for construction of building along with labour and material were described as “works contract” in contradiction or as antitheses to contracts for supply of material, without labour or construction services. The said term is also used in the Central Sales Tax Act, 1956. The said clause enabled the Legislature to bifurcate the works contract into separate parts i.e. sale of goods or materials involved in the construction and supply of labour and service and attribute values to the two parts/aspects. There is no standard formula to distinguish a contract for sale of goods from the works contracts and it largely depends upon the facts and circumstances of each case. Sale of goods involves transfer of movable property and delivery or possession of movable property but in case of contract for works, there is work and labour alone. Works contract are composite and have elements of both service and sale/consideration for use of goods.
21. In K. Raheja Development Corpn. v. State of Karnataka, (2005) 5 SCC 162 = 2006 (3) S.T.R. 337 (S.C.), the Supreme Court examined the term ‘works contract’ as defined in Karnataka Sales Tax Act, 1957 to include any agreement for carrying out for valuable consideration, etc., building construction, fabrication, erection, installation, fitting out, improvement, modification of any movable or immovable property. It was observed that the definition was not restricted to works contract as commonly understood i.e. contract to do work on behalf of somebody else. It was further observed that the definition makes no distinction between contract for residential flat or commercial unit and would, therefore, include construction of commercial units. As long as the agreement was entered into before the construction was “complete”, it would be a works contract (we are not required to interpret and construe the expression “complete” in the present case). Thus the definition clauses in the Act for applying section 65(105)(zzq) and (zzzh) have to be given full effect.
“(i) For sustaining the levy of tax on the goods deemed to have been sold in execution of a works contract, three conditions must be fulfilled : (one) there must be a works contract, (two) the goods should have been involved in the execution of a works contract, and (three) the property in those goods must be transferred to a third party either as goods or in some other form.
(iii) Where a contract comprises of both a works contract and a transfer of immovable property, such contract does not denude it of its character as works contract. 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. Nothing in Article 366(29A)(b) limits the term “works contract”.
(iv) Building contracts are species of the works contract.
(v) A contract may involve both a contract of work and labour and a contract for sale. In such composite contract, the distinction between contract for sale of goods and contract for work (or service) is virtually diminished.
(vi) The dominant nature test has no application and the traditional decisions which have held that the substance of the contract must be seen have lost their significance where transactions are of the nature contemplated in Article 366(29A). Even if the dominant intention of the contract is not to transfer the property in goods and rather it is rendering of service or the ultimate transaction is transfer of immovable property, then also it is open to the States to levy sales tax on the materials used in such contract if such contract otherwise has elements of works contract. The enforceability test is also not determinative.
(viii) Even in a single and indivisible works contract, by virtue of the legal fiction introduced by Article 366(29A)(b), there is a deemed sale of goods which are involved in the execution of the works contract. Such a deemed sale has all the incidents of the sale of goods involved in the execution of a works contract where the contract is divisible into one for the sale of goods and the other for supply of labour and services. In other words, the single and indivisible contract, now by Forty-sixth Amendment has been brought on par with a contract containing two separate agreements and States have now power to levy sales tax on the value of the material in the execution of works contract.
23. In Gannon Dunkerley and Co. v. State of Rajasthan, (1993) 1 SCC 364 it was observed that the legal fiction introduced by the Forty-sixth Amendment has to be carried to its logical end and even single indivisible contracts can be bifurcated into contract for sale of goods and other for supply of labour and services at par with the contract containing two separate agreements. The State Legislatures are competent to impose tax on transfer of property in goods involved in “works contract”. The Parliament can enact laws which can specify restrictions and conditions regarding the system of levy, rates or incidence of tax, but this is not a pre-condition. It means that if the Parliament enacts a law, the exercise of legislative power of the State would be subject to a system of levy, rates or incidence of tax. Most importantly it has been observed that measure of levy of tax contemplated by Article 366 (29A)(b) is the value of the goods involved in execution of “works contract”. Since the taxable event is the transfer of property in goods, the said transfer takes place when the goods are incorporated in the works, the value of goods, which can constitute the measure for the levy has to be the value of goods at the time of incorporation of the goods in the works.
“27. We are, however, not oblivious of the decision of this Court wherein the measure or value to which the rate will be applied for computing the tax liability is considered to be one of the components of tax. (See Govind Saran Ganga Saran v. CST [1985 Supp SCC 205 : 1985 SCC (Tax) 447] , SCC para 6.). But then measure or value to which rate would be applied is onething, but how the turnover would be determined is another. Computation provisions may bear a relationship with the nature of charge and charging section and computation provisions together constitute an integrated code as was held in CIT v. B.C. Srinivasa Setty [(1981) 2 SCC 460 : 1981 SCC (Tax) 119] (SCC at p. 465); but it is equally well settled that only because rules had not been framed under the Central Act, the same per se would not mean that no tax is leviable.
29. The question which, in our opinion, is required to be posed and answered, is as to whether there exist sufficient guidelines for determination of the turnover in the hands of the assessing authority for the purpose of levy of tax. The 1956 Act provides for levy of tax. Works contract has been brought within the purview of sale. Wherever the said words have been used, the new definition, therefore, would be applied. Section 8 provides for rates of tax on sales in the course of inter-State trade or commerce. Section 8A provides for determination of turnover. Section 9 provides for levy and collection of tax and penalties. The said provision would, thus, be applied in respect of transfer of property in goods involved in the execution of works contract. The 1956 Act provides for grant of exemptions and various provisions e.g. proviso appended to Sections 6(1) and 6(2) of the Act.
“In regard to the submission made on Article 366(29A)(f), we are of the view that it does not provide to the contrary. It only permits the State to impose a tax on the supply of food and drink by whatever mode it may be made. It does not conceptually or otherwise include the supply of services within the definition of sale and purchase of goods. This is particularly apparent from the following phrase contained in the said sub-article “such transfer, delivery or supply of any goods shall be deemed to be a sale of those goods”. In other words, the operative words of the said sub-article are supply of goods and it is only supply of food and drinks and other articles for human consumption that is deemed to be a sale or purchase of goods.
The concept of catering, admittedly, includes the concept of rendering service. The fact that tax on the sale of the goods involved in the said service can be levied does not mean that a service tax cannot be levied on the service aspect of catering. Mr. Mohan Parasaran, learned Senior Counsel for the appellant submitted that the High Court before applying the aspect theory laid down by this Court in the case of Federation of Hotel and Restaurant Assn. of India v. Union of India [(1989) 3 SCC 634 : AIR 1990 SC 1637] ought to have appreciated that in that matter Article 366(29A)(f) of the Constitution was not considered which is of vital importance to the present matter and that the High Court ought to have differentiated the two matters. In reply, our attention was invited to paras 31 and 32 of the judgment of the High Court in which service aspect was distinguished from the supply aspect. In our view, reliance placed by the High Court on Federation of Hotel and Restaurant [(1989) 3 SCC 634 : AIR 1990 SC 1637] and, in particular, on the aspect theory is, therefore, apposite and should be upheld by this Court. In view of this, the contention of the appellant on this aspect is not well founded.
A tax on services rendered by mandap-keepers and outdoor caterers is in pith and substance, a tax on services and not a tax on sale of goods or on hire-purchase activities. Section 65 clause (41) sub-clause (p) of the Finance Act, 1994, defines taxable service (which is the subject-matter of levy of service tax) as any service provided to a customer by a mandap keeper in relation to the use of a mandap in any manner including the facilities provided to [a customer] in relation to such use and also the services, if any, rendered as a caterer.
The nature and character of this service tax is evident from the fact that the transaction between a mandap keeper and his customer is definitely not in the nature of a sale or hire-purchase of goods. It is essentially that of providing a service. In fact, as pointed out earlier, 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 taxes. Moreover, it has been a well-established judicial principle that so long as the legislation is in substance, on a matter assigned to a Legislature enacting that statute, it must be held valid in its entirety even though it may trench upon matters beyond its competence. Incidental encroachment does not invalidate such a statute on the grounds that it is beyond the competence of the Legislature (Prafulla Kumar v. Bank of Commerce [AIR 1947 PC 60 : 74 IA 23]). Article 246(1) of the Constitution specifies that Parliament has exclusive powers to make laws with respect to any of the matters enumerated in List I in the Seventh Schedule to the Constitution. As per Article 246(3), the State Government has exclusive powers to make laws with respect to matters enumerated in List II (State List). In respect of matters enumerated in List III (Concurrent List) both Parliament and State Governments have powers to make laws. The service tax is made by Parliament under the above residuary powers.
“35. For each contract, tax is levied under the Finance Acts, 1994 and 1998. Tax cannot be levied under that Act without service being provided whereas a professional tax under Entry 60 is a tax on his status. It is the tax on the status of a cost accountant or a chartered accountant. As long as a person/firm remains in the profession, he/it has to pay professional tax. That tax has nothing to do with the commercial activities which he undertakes for his client. Even if the chartered accountant has no work throughout the accounting year, still he has to pay professional tax. He has to pay the tax till he remains in the profession. This is the ambit and scope of Entry 60, List II which is a taxing entry. Therefore, Entry 60 contemplates tax on professions, as such. Entry 60, List II refers to “tax on employments”.
“though practically the purchaser in a hire-purchase transaction gets the goods on the date of entering into the hire-purchase contract, it has been held by the Supreme Court in K.L. Johar case [AIR 1965 SC 1082 : (1965) 2 SCR 112] that there is a sale only when the purchaser exercises the option to purchase which is at a later date and therefore only the depreciated value of the goods involved in such transaction at the time the option is exercised becomes assessable to sales tax which position has resulted in avoidance of tax in various ways”.
Thus, we find from the Statement of Objects and Reasons that the concept of “deemed sale” is brought in by the Constitution (Forty-sixth Amendment) Act only in the context of imposition of sales tax and that the words “transfer, delivery or supply” of goods is referred to in the second limb of Article 366(29A) to broaden the tax base and that as indicated in the Report of the Law Commission prior to the judgment of this Court in Gannon Dunkerley case [AIR 1958 SC 560 : 1959 SCR 379] , works contract was always taxed by the States as part of the word “sale” in Entries 48/54 of List II.
31. The contention of the petitioners that the impugned notifications override the statutory provisions contained in Section 65(105), which defines the term “taxable service”, Section 66, which it is claimed is a charging section, and Section 67, the valuation provisions of the Finance Act, 1994, has to be rejected. We have, as already stated above, rejected the argument of the petitioners on bifurcation/vivisect and held that as per the provisions of Section 65(105)(zzq) and (zzzh), Service Tax is payable and chargeable on the service element of the contract for construction of industrial and commercial complexes and contract for construction of complexes as specified and in case of a composite contract, the service element should be bifurcated and ascertained and then taxed. The contention that the petitioners are paying sales tax or VAT on material in relation to execution of the contract under composite contracts for construction of industrial/commercial complexes and construction contracts as specified under Section 65(105)(zzq) and (zzzh) therefore fails. The contention that there was/is no valid levy or the charging section is not applicable to composite contracts under clauses (zzq) and (zzzh) of Section 65(105) stands rejected. But the petitioners have rightly submitted that only the service component can be brought to tax as per provisions of Section 67 which stipulates that value of taxable service is the “gross amount charged” by the service provider for such services provided or to be provided by him and not the value of the goods provided by customers of service provider and the Service Tax cannot be charged on the value of the goods used in the contract.
“The main ground upon which the High Court has held sub-sections (7) and (7A) of Section 7 to be void is that they levy tax at two per cent on the whole amount of the contract [sub-section (7)] or at a particular rate applied to the entire value of contract [sub-section (7A)] and not merely upon the value of the goods transferred in the course of execution of the works contract as contemplated by sub-clause (b) of clause (29A) in Article 366. The Court also noticed that the goods which are transferred in the course of execution of a works contract may be “declared goods”; they may be goods which are liable to be taxed under the Central Sales Tax Act, 1956; the goods so transferred may also be taxable under different Schedules to the Kerala Act which prescribe different rates. In such a situation, it is held, levying tax on the entire value of the contract means levy of tax contrary to the provisions of the Central Sales Tax Act and the Kerala General Sales Tax Act. It also means, the Court held, taking the non-taxable components of works contract, e.g., labour and services etc. For all these reasons, it is held, the said sub-sections are clearly beyond the legislative competence of the State Legislature. With great respect, we are unable to agree. The first feature to be noticed is that the alternate method of taxation provided by sub-section (7) or (7A) of Section 7 is optional. The sub-sections expressly provide that the method of taxation provided thereunder is applicable only to a contractor who elects to be governed by the said alternate method of taxation. There is no compulsion upon any contractor to opt for the method of taxation provided by sub-section (7) or sub-section (7A).
34. A Division Bench of Andhra Pradesh High Court in Nagarjuna Construction Company Ltd. v. Union of India, 2010 (19) S.T.R. 321 (A.P.) had examined the three provisions which are subject matter of the present writ petition including 2007 Rules enacted under Section 94 of the Finance Act. After referring to the composition scheme stipulated in Rule 3 which is optional, it was held that where a person has exercised the option under Rule 3(3) of 2007 Rules, he will have to comply with the conditions stipulated therein. Further, disqualification for exercise of such option where stipulated, is binding and cannot be ignored.
35. The Supreme Court in Nagarjuna Construction Co. Ltd. v. Union of India and Anr. - (2013) 1 SCC 721 = 2012 (28) S.T.R. 561 (S.C.), has affirmed the decision of the Andhra Pradesh High Court. It has been observed that Rule 3(3) of the Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007 was lucid that the assessee who want to avail the benefit, must opt to pay Service Tax in respect of the works contract, before payment of Service Tax in respect of works contract and the option so exercised is to be applied for all or entire works contract of the assessee and further change of option will not be permitted till the said works contract are completed. The Supreme Court rejected the contention of the assessee that they should be allowed to opt for Rule 3(3) of the Rules, even if they had paid Service Tax on works contracts prior to 1st July, 2007, when the rule was enforced. The contention that the rule was discriminatory was rejected on the ground that the classification based upon those already paying Service Tax on works contract; and others, was not illegal or contrary to Article 14 of the Constitution. The said decision takes care of the argument and contention that the contractors providing taxable services in nature of “completion and finishing services” are excluded from the notification. Their exclusion can be justified for the reason that “completion and finishing services” sometimes have a substantial element of “service” and only a limited amount/value is paid for/towards material or goods used. Their exclusion does not mean or imply discrimination as such contractors are to be taxed only for the service element in a works contract for “completion and finishing services” and not for the goods or material used.
(1) After 46th Amendment to the Constitution, composite contracts can be bifurcated to compute value of the goods sold/supplied in contracts for construction of buildings with labour and material. The service portion of the composite contracts can be made subject matter of service tax. Aspect doctrine is applied for bifurcating/vivisect the composite contract.
(2) Service tax can be levied on the service component of any contract involving service with sale of goods, etc. Computation of service component is a matter of detail and not a matter relating to validity of imposition of service tax. It is procedural and a matter of calculation. Merely because no rules are framed for computation, it does not follow that no tax is leviable.
(3) The notifications in question are in alternative and optional. An assessee may take advantage or benefit of the notifications, but cannot be compelled to pay service tax on the proportion or value of a composite contract as per the notification. This is because the formula framed by way of delegated legislation is presumptuous and based on assumption.
(4) However, if an assessee wants to take benefit of the notification, he must comply and adhere to the terms and conditions stipulated as per the notification.
(5) An assessee to claim benefit or advantage as per a notification must meet the preconditions or stipulations stated therein. An assessee cannot take benefit or advantage of a part of a notification but claim that the other part of the notification should be ignored and thus not acted upon. Notification has to be applied in entirety.
(6) Notification has to be read as a whole keeping in mind its objective and purpose. Notification may provide a convenient, hassle free and adopt a non-discretionary formula for computing value of the service element in a composite contract. This curtails litigation, ambiguity, ensures clarity and consistency. A notification cannot be declared as invalid or ultra vires for this reason, provided it is optional.
(7) Authorities cannot compel and force an assessee to accept the notifications in question and pay tax accordingly, as seeking coverage under the notification is voluntary. An assessee can state that the service component of a composite contract should be computed in a fair and reasonable manner and accordingly taxed.
(8) The notifications meet the tests laid down under Sections 93 and 94 of the Act because they relate to manner and mode of computation of service tax in a composite contract. The object and purpose is not to tax as non-service element or to include non-taxable part of the composite contracts.
(9) It has not been shown and established that the formula or the value prescribed in the notifications is absurd or irrational. The said notifications are not per se an arbitrary exercise and contrary to data or formula for computing service element. In taxation matters, classification should not be struck down as discriminatory unless there are strong and compelling reasons that show absurdity and, therefore, violation of Article 14 of the Constitution.
37. Learned counsel for the petitioners have relied upon two judgments of this Court in Intercontinental Consultants & Technocrats Pvt. Ltd. v. Union of India, 2013 (29) S.T.R. 9 (Del.) and Delhi Chit Fund Association v. Union of India, 2013 (30) S.T.R. 347 (Del.). The said judgments have no application to the facts of the present case. In the case of Intercontinental Consultants & Technocrats Pvt. Ltd (supra) it was held that the Rule in question was beyond the scope and ambit of the charging section of the main enactment. The quantification of the value of service can never exceed, what can be brought to charge. The said judgment has no application as the notifications are not beyond and do not extend the scope of the charging section. An assessee need not seek and can reject the option available under the notifications and can claim and opt before the authorities that he should not be taxed on the basis of quantification or measure which is mentioned in the notifications, but on the basis of service component which may be calculated/computed. Thus, the notifications do not seek to overwrite and expand its scope and are not beyond the charging section. Similarly, in Delhi Chit Fund Association (supra), a Division Bench of this Court examined the statutory provision and came to the conclusion that the transaction/service in question was exempt and thus, the notification issued was contrary to the principal enactment as it taxed services beyond the charging section. The notification was accordingly struck down. The said decision has no application.
38. In view of the aforesaid discussion, we do not find any merit in the present writ petitions and the same are dismissed but with the observation and finding recorded above. No costs.

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