SUPREME COURT
- Service Tax cannot be levied on indivisible works contracts prior to 1.6.2007(CCE, Kerala vs. M/s Larsen and Toubro Ltd 2015-TIOL-187-SC-ST)
- Prior to 1.6.2007, service tax is applicable only to service contract simpliciter not to composite works contract. Section 67 of the Finance Act which provides for value of gross amount charged for charging service tax refer to value of service in case of contract of service simpliciter not for composite contracts.
- In case of works contract, tax cannot be levied on the material portion and there is no section which provides for removal of non-service elements from the composite works contracts prior to 1.6.2007.
- The judgment of Delhi High Court in case of GD Builders is incorrect in as much as arriving at conclusion that the Finance Act, 1994 contains both the charge and machinery for levy and assessment of service tax on indivisible works contracts.
Comment: This decision is going to bring to rest various disputes which are pending across the country before different levels as to taxability of works contract before 01.06.2007. Further also the decision specifically says that prior to introduction of works contract service with mechanism for segregation of material and labour by valuation rules, what was taxable under service tax was service simplicitor and not service portion in works contract. This may also raise question whether in case of works contracts which were not in the nature specified under the definition of works contract is not taxable until the change in the definition of works contract from 01.07.2012.
HIGH COURT
- Tribunal has power to extend stay beyond the period of 365 days (CCE, Meerut vs Vodafone Essar South Ltd 2015-TIOL-1974-HC-ALL-ST)
- Section 35C(2A) of the Central Excise Act makes it apparently clear that the Tribunal is mandated to hear every appeal within a period of three years "where it is possible to do so". These words indicate that though a mandate was given to the Tribunal to decide the appeal within three years, it was not a mandatory provision, but only a directory provision.
- The proviso fixing the time limit of 365 days should be read in conjunction with above provision. Where main provision is not in the nature of mandatory, the proviso cannot be considered mandatory but is merely of directory nature.
- Usage of word “shall” though generally indicates mandatory nature of provision but it should be read in the context in which it has been used.
- The time limit of 365 days is in directory nature not mandatory.
Comment: The decision is likely to result in avoiding the recovery proceedings by department hitherto undertaken on the pretext that after expiry of 365 days, the stay order has vacated. It is relevant to note that the above provision may not be applicable for appeals filed on or after 6.8.2014 as now all appeals are required to be accompanied with pre-deposit of 7.5%/10% of duty amount or penalty imposed. No stay application is filed.
- Cenvat credit of tax charged on mobiles phones services is eligible for credit ( Hindustan Coca Cola Beverages (P) Ltd. 2015 (39) S.T.R. 360(Bom.)
- As per definition of “input service” in rule 2(I) of the rule 2004, any expenditure incurred in manufacturing activity would be entitled for credit. Service tax charged on mobile phones used by employees/staff of manufacturer is eligible for credit.
- Though the case pertains to period prior to 1.4.2011 yet the High Court has analysed the definition post 1.4.2011 and concluded that the expenses of mobile phones are related to manufacturing process of assessee.
Comment: The departmental audit team generally questions the eligibility of credit on mobile phones citing that these are used by employees; hence, covered by exclusion clause of definition of input service and not eligible for credit. In our view credit can be availed by establishing that the mobiles have been used in connection with manufacturing/ provision of service. To be on safer side, small percentage of credit (say 10%) may voluntarily be given up treating as attributable to personal usage of employees.