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21 Aug 2015

Service tax cannot be levied on indivisible works contracts prior to 01 June 2007"

Yesterday, the Apex Court in the case of M/s Larsen and Toubro Ltd 2015 TIOL 187 SC ST delivered a landmark judgement which will put an end to the long drawn controversy on the issue whether Service tax is applicable on Works Contract Service prior to 01 June 2007.

The Apex Court has held that 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. Further, till 01 June 2007 no machinery provisions have been made to bring indivisible works contracts under the Service tax net. Accordingly Service tax cannot be levied on indivisible contract entered into before 01 June 2007. Further, for various reasons, the sheet anchor of revenue's case, the Delhi High Court judgment in G.D. Builders, was wholly incorrect, and the minority judgment of the judicial members of a Full Bench of the Delhi Tribunal in M/s Larsen & Toubro Ltd. v. CST, Delhi, 2015 TIOL 527 CESTAT DEL LB, which comprehensively discussed all the authorities that were relevant to this issue had arrived at the correct conclusion.