LexCOMMISSIONER, CENTRAL EXCISE & CUSTOMS, KERALA versus M/S LARSEN & TOUBRO LTD.
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[2015] 8 S.C.R. 1046 A COMMISSIONER, CENTRAL EXCISE & CUSTOMS, B KERALA v. MIS LARSEN & TOUBRO LTD. (Civil Appeal No. 6770 of 2004 etc.) AUGUST20, 2015 [A. K. SIKRI AND R. F. NARIMAN, JJ.] c Service tax (as introduced by Finance Act, 1994) - Whether leviable on indivisible works contract, prior to introduction of Finance Act, 2007 - Held: A works contract is a separate species of contract distinct from contracts of services simpliciter and need to be taxed separately as such D - The service tax charging section itself must lay down with specificity that the levy of service tax can only be on works contract- 1994 Act lays down charge of tax only for the service tax simpliciter- It does not lay down charge or machinery to levy and assess service tax on indivisible composite works E contracts - Where there is no machinery for assessment, the law being vague, it would not be opef'/ to the assessing authority to arbitrarily assess the subject to tax -Therefore, service tax could not have been levied on composite indivisible works contract, prior to Finance Act, 2007 which F expressly makes such works contracts liable to service tax - Finance Act, 1994 - s. 65 (105)(zzzza) [as inserted by Finance Act, 2007]- s. 67 [as amended by Finance Act 2006] - Service Tax (Determination of Value) Rules, 2006- r. 2A- G Constitution of India, 1950- Schedule VII Lists I & II. Contract- Composite indivisible works contract entered after enactment of Finance Act, 1994 - Whether contrary to public policy, being hit by s.23 of Contract Act and hit by *Mcdowel/'s case - Held: No, because the 1994 Act does H 1046 COMMISSIONER, CENTRAL EXCISE & CUSTOMS, 1047 KERALA v. M/S LARSEN & TOUBRO not lay down charge or machinery to levy and assess service A tax on indivisible composite works contracts -Also beca't.ise there is no subterfuge in entering into composite works contracts - Contract Act, 1872 - s. 23 - Finance Act, 1994. Constitution o; India, 1950-Art. 248; Schedule VII, List B I and List II - Taxation powers of Centre and the States - Taxation powers of Centre and the States are mutually exclusive - The moment the levy contained in a taxing statute transgresses into a prohibited exclusive field, it is liable to be struck down - In composite indivisible works contracts, C Parliament can only tax the service element and the States can only tax the transfer of property in goods element - If element of transfer of property in goods remains, when a service tax is levied, the said levy would be found to be constitutionally infinn- Therefore, it is important to segregate D the two elements completely Allowing the appeals filed by the assessees and dismissing those filed by the Revenue, the Court · HELD: 1. In the lists contained in the 7th Schedule to the Constitution, taxation entries are to be found only E in lists I and II. This is for the reason that in the Constitutional scheme, taxation powers of the Centre and the States are mutually exclusive. There is·no F concurrent power of taxation. This being the case; the moment the levy contained in a taxing statute transgresses into a prohibited exclusive field, it is liable to be struck down. In the present case, the dichotomy is between sales tax leviable by the States and service G tax leviable by the Centre. When it comes to composite indivisible works contracts, such contracts can be taxed by Parliament as well as State legislatures. Parliament can only tax the service element contained in these contracts, and the States can only tax the transfer of H 1048 SUPREME COURT REPORTS (2015] 8 S.C.R. A property in goods element contained in these contracts. Thus, it becomes very important to segregate the two elements completely for if some element of transfer of property in goods remains when a service tax is levied, the said levy would be found to be constitutionally infirm. B [Para 16] [1072-H; 1073-A-D] c D E Bharat Sanchar Nigam Limited v. Union of India (2006) 3 SCC 1: 2006 (2) SCR 823 - relied on. 2. A works contract is a separate species of contract distinct from contracts for services simpliciter recognized by the world of commerce and law as such, and has to be taxed separately as such. [Para 17] [1074-F] State of Madras v. Gannon Dunkerley and Co. (Madras) Ltd. 1959 SCR 379; Kone Elevator India (P) Ltd. v. State of T.N. (2014) 7 SCC 1; Larsen & Toubro Ltd. v. State of Kamataka (2014) 1 SCC 708; Mathu
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