M/S. TOTAL ENVIRONMENT BUILDING SYSTEMS PVT. LTD versus THE DEPUTY COMMISSIONER OF COMMERCIAL TAXES & ORS

[2022] 17 S.C.R. 883

M/S. TOTAL ENVIRONMENT BUILDING SYSTEMS PVT. LTD.

THE DEPUTY COMMISSIONER OF COMMERCIALTAXES & ORS.

(Civil Appeal Nos. 8673- 8684 of 2013)

AUGUST 02, 2022

[M. R. SHAH AND B. V. NAGARATHNA, JJ.]

Finance Act, 1994: s. 65(105) (zzzze)(as amended) — Workscontract – Composite Works Contract — Levy of service tax – Issueas regards the levy of service tax on Composite Works Contractsprior to the introduction of the Finance Act, 2007 by which theFinance Act, 1994 came to amended to introduce s. 65(105) (zzzze)pertaining to Works Contract – Held: For the period prior tointroduction of Finance Act, 2007, service tax was not leviable underFinance Act, 1994 on indivisible works contracts – Binding decisionof the Court in the case of Larsen and Toubro Limited, is followed –Larsen and Toubro Limited’s case has stood the test of time and hasnever been doubted earlier – Said decision has been followedconsistently by this Court as well as by various High Courts andthe tribunals – If the prayer to reconsider and/or review the judgmentin Larsen and Toubro Limited is accepted, it may unsettle the law,which has been consistently followed since 2015 onwards – Thus,on the principle of stare decisis, Larsen and Toubro Limited’s case,neither needs to be revisited, nor referred to larger Bench of thisCourt and that too after period of almost seven years – Thus, theorders passed by the respective High Courts/tribunals that for theperiod pre-Finance Act, 2007, the assesses were liable to pay theservice tax on indivisible/composite works contracts is quashed andset aside - Finance Act, 2007.

Doctrines of precedents and Stare decisis – Relevance andsignificance of – Discussed.

Disposing of the appeals, the Court

HELD:

Per M. R. SHAH, J.

1.1 The relevance and significance of the principle of staredecisis have to be kept in mind and that in law, certainty,

Aconsistency and continuity are highly desirable features.Thejudgment of this Court in the case of Larsen and Toubro Limitedhas stood the test of time and has never been doubted earlier.The said decision has been followed consistently by this Courtas well as by various High Courts and the Tribunals. Therefore,if the prayer made on behalf of the Revenue to reconsider and/orBreview the judgment of this Court in the case of Larsen and ToubroLimited is accepted, in that case, it would affect so many otherassesses in whose favour the decisions have already been takenrelying upon and/or following the decision of this Court in thecase of Larsen and Toubro Limited and it may unsettle the law,Cwhich has been consistently followed since 2015 onwards. Thereare all possibilities of contradictory orders. Therefore, on theprinciple of stare decisis, the judgment of this Court in the caseof Larsen and Toubro Limited, neither needs to be revisited, norreferred to Larger Bench of this Court as prayed, i.e., after aperiod of almost seven years and when no efforts were made toDfile any review application requesting to review the judgment onthe grounds, which are now canvassed before this Court. [Para10.5.1, 12][899-B; 906-D-G]

*Commissioner, Central Excise and Customs, Kerala Vs.Larsen and Toubro Limited,(2016) 1 SCC 170 : [2015]E8 SCR 1046 - relied on.

1.2 At this stage, it is required to be noted that one of theappeals being Civil Appeal No. 6523 of 2014 filed by M/s. G.D.Builders is against the decision of the Delhi High Court in thecase of G.D. Builders Vs. Union of India. It is to be noted that theFsaid decision of the Delhi High Court in the case of G.D. Buildershas been specifically overruled by this Court in the case of Larsenand Toubro Limited. The decision of the Delhi High Court in thecase of G.D. Builders has been considered by this Court in thecase of Larsen and Toubro Limited and ultimately, this Court opinedGthat the decision of the Delhi High Court in the case of G.D.Builders is in fact contrary to long line of decisions. It is furtherspecifically observed and held that the decision of the Delhi HighCourt in the case of G.D. Builders is wholly incorrect in itsconclusion that the Finance Act, 1994 contains both the chargeand machinery for levy and assessment of service tax onH

indivisible works contracts. It is reported that while deciding thegroup of matters in the case of Larsen and Toubro Limited, thepapers of the appeal filed by M/s. G.D. Builders being Civil AppealNo. 6523 of 2014 were also called and the counsel appearing onbehalf of the G.D. Builders was also heard. It appears that,however, the Civil Appeal No. 6523 of 2014 filed by M/s. G.D.Builders against the decision of the Delhi High Court has notbeen specifically disposed of. Therefore, once the decision ofthe Delhi High Court in the case of G.D. Builders, which is thesubject matter of Civil Appeal No. 6523 of 2014 has been held tobe wholly incorrect, Civil Appeal No. 6523 of 2014 filed by M/s.G.D. Builders has to be allowed and the judgment and order passedby the Delhi High Court has to be quashed and set aside. [Para13][906-H; 907-A-E]

1.3 In view thereof and for the reasons stated, the impugnedjudgments and orders passed by the respective High Courts/Tribunals taking the view that for the period pre-Finance Act,2007, the respective assesses are/were liable to pay the servicetax on indivisible/composite works contracts are hereby quashedand set aside. Consequently, the respective assessment orders/orders in originals levying the service tax on the respectiveassesses on the indivisible/Composite Works Contracts for theperiod prior to pre-2007 are hereby quashed and set aside. [Para14][908-F-G]

Dr. Shah Faesal and Ors. Vs. Union of India and Anr.,(2020) 4 SCC 1 : [2020] 3 SCR 1115; State of MadhyaPradesh v. Mahalaxmi Fabric Mills Ltd., 1995 Supp(1) SCC 642 : [1995] 1 SCR 756; Indra Sawhney Vs.Union of India,1992 Supp (3) SCC 217 : [1992] 2Suppl. SCR 454; Keshav Mills Co. Ltd. Vs.Commissioner of Income Tax, Bombay North,Ahmedabad,AIR 1965 SC 1636 : [1965] SCR 908 –followed.

Dr. Jaishri Laxmanrao Patil Vs. Chief Minister and Ors.,(2021) 8 SCC 1;Union of India Vs. Raghubir Singh(Dead) by LRs. etc., (1989) 2 SCC 754 : [1989] 3 SCR316; State of Madras Vs. Gannon Dunkerley & Co.,(Madras) Ltd.,[1959] SCR 379, Larsen and Toubro

ABC

[2022] 17 S.C.R.

ALimited and Anr. Vs. State of Karnataka and Anr., (2014)1 SCC 708: [2013 ]17 SCR 678;NagarjunaConstruction Company Limited Vs. Union of India andAnr.,(2013) 1 SCC 721: [2012] 10 SCR 1064;ImagicCreative (P) Ltd. Vs. Commissioner of Commercial Taxesand Ors., (2008) 2 SCC 614: [2008] 1 SCR 457; T.N.BKalyana Mandapam Assn. Vs. Union of India and Ors.,(2004) 5 SCC 632 : [2004] 1 Suppl. SCR 169;Saurashtra Cement & Chemical Industries Ltd. andanother Vs. Union of India and others, (2001) 1 SCC91 : [2000] 4 Suppl. SCR 44;Chandra Prakash andCOrs. Vs. State of U.P. and Anr., (2002) 4 SCC 234 :[2002] 2 SCR 913;Medley Pharmaceuticals Limited v.Commissioner of Central Excise and Customs, Daman,(2011) 2 SCC 6014; Waman Rao v. Union of India,(1981) 2 SCC 362 : [1981] 2 SCR 1;G.D. Builders[(2013) 32 STR 673 (Delhi]), K. Ajit Babu and Ors.DVs. Union of India and Ors.,(1997) 6 SCC 473 : [1997]3 Suppl. SCR 56;Sundarjas Kanyalal Bhatija and Ors.Vs. Collector Thane, Maharashtra and Ors.,(1989) 3SCC 396 : [1989] 3 SCR 405;Government of AndhraPradesh Vs. A.P. Jaswal (2001) 1 SCC 748 - referredEto.

Per B. V. Nagarathna, J. (Supplementing)

1.1It would be useful to discuss the evolution, meaning andcontent of the expression works contract in the context of salestax law and as well as under the service tax regime. This is, havingFregard to the definition of works contract being inserted w.e.f.1st June, 2007 to the Finance Act, 1994 which seeks to imposeservice tax on the service aspect of works contract. The reasonfor this exercise is because works contract by itself is not taxable.A works contract as defined by the amendment has twoGcomponents, namely, sale component and service component.It is only when both the components are satisfied and coexistthat contract becomes works contract as defined. Further, itis only on the service component of the works contract that theservice tax is leviable w.e.f. 1st June, 2007. As far as the sale

component in works contract is concerned, the Sales Tax lawsof the respective States would apply. [Para 5][910-D-F]

1.2. Section 65(105)(zzzza) of the Finance Act, 1994 asamended by the Finance Act, 2007 which defines work contract.A reading of the said definition would indicate that two requisitesmust be satisfied before service tax on works contract could belevied. Works contract has two essential components: firstly, saleof goods involved in the execution of such contracts which wouldattract Sales Tax or Value Added Tax (VAT) as the case may be,i.e., prior to the enforcement of the Goods and Services Taxregime and secondly, service component which is specified inclause (ii)(a)-(e) of the definition of works contract which wouldattract Service Tax under the provisions of the Finance Act, 1994as amended in the year 2007. If both the above requisites arepresent, then Service Tax on works contract is leviable on theservice component. This is clear from the use of the word “and”between components (i) and (ii) of the definition of works contractunder Clause (zzzza) of Section 65 of the Finance Act, 1994 whichis as per the amendment in the year 2007. Thus, the definitionspeaks of composite works contract comprising of an elementof sale and an element of service. [Para 5][910-G-H; 911-E; 912-C-E]1.3. The definition of works contract was brought underthe service tax net as per Section 65(105)(zzzza) of the FinanceAct, 1994 by the insertion of the said definition. The saidintroduction was made pursuant to the Finance Act, 2007, whichexpressly made the service element in such works contract liableto service tax w.e.f. 1st June, 2007. By the said amendment,works contract which were indivisible and composite could besplit so that only the labour and service element of such contractswould be taxed under the heading “Service Tax”. [Para 8][928-E]

1.4. It is in the above backdrop that the definition of Workscontract inserted for the first time by virtue of Section65(105)(zzzza) under the Finance Act, 2007 assumes significanceand has to be applied w.e.f.1st June, 2007. Thus, on and from theenforcement of the amendment in the Financial Year 2007, i.e.1st June, 2007 the tax on the service component of works contract

Abecame leviable. Therefore, till then it was not so leviable asthere was no concept of works contract under the said Act. [Para9][928-F-G]

1.5. Recognising this aspect of the matter in Larsen andToubro Ltd., this Court held that Service Tax on works contractBwas not leviable, meaning thereby, that such tax on the servicecomponent of works contract as defined above did not attractService Tax prior to the amendment. [Para 10][928-G-H]

Commissioner, Central Excise and Customs, Kerala Vs.Larsen and Toubro Limited,(2016) 1 SCC 170 : [2015]C8 SCR 1046 - relied on.

1.6. Prior to the amendment being made to the FinanceAct, 1994 Service tax was being levied on purely service contractand not on service element of works contract as there was nodefinition of works contract till then. Hence, the amendmentDmade to the Finance Act, 1994 by insertion of the definition ofworks contract as under clause (zzzza) is not clarificatory in nature.Having found that the Service Tax was not at all leviable onservice element of works contract, Parliament felt the need forthe amendment and was so incorporated by the Finance Act, 2007.[Para 12][929-D-E]

1.7. The judgment in Larsen and Toubro Ltd. has beencorrectly decided and does not call for reconsideration insofaras the period prior to 1st June, 2007 is concerned. [Para 13][929-F-G]

FGannon Dunkerley (I) – State of Madras vs. GannonDunkerley and Co.(Madras) Ltd. AIR 1958 SC 560 :[1959 SCR 379], Gannon Dunkerley (II) -- GannonDunkerley and Co. vs. State of Rajasthan 1993 (1)SCC364 : [1992] 3 Suppl. SCR 103, Builders Associationof India vs. Union of India (1989) 2 SCC 645 : [1989]G2 SCR 320, State of AP v. Kone Elevators (2005) 3 SCC389 : [2005] 2SCR 152, Kone Elevator India Pvt. Ltd.vs. State of Tamil Nadu (2014) 7 SCC 1 : [2014] 5SCR 912,Bharat Sanchar Nigam Ltd. vs. Union of India[2006] 145 STC 91 (SC) : [2006] 2 SCR 823, Larsenand Toubro Limited and Another vs. State of Karnataka

M/S. TOTAL ENVIRONMENT BUILDING SYSTEMS PVT. LTD. v. THEDEPUTY COMM’R OF COMMERCIAL TAXES

and Another (2014) (1) SCC 708 : [2013] 17 SCC 678,Commissioner of Sales Tax vs. Purshottam Premji (1970)2 SCC 287, Tamil Nadu Kalyana MandapamAssociation vs. Union of India (2004) 5 SCC 632:[2004] 1 Suppl. SCR 169,Imagic Creative Pvt. Ltd. vs.The Commissioner of Commercial Taxes and Ors. (2008)2 SCC 614 : [2008] 1 SCR 457, NagarjunaConstruction Company Ltd. vs. Government of Indiaand Ors. (2013) 1 SCC 721: [2012] 10 SCR 1064,Mahim Patram (P) Ltd. vs. Union of India (2007) 3 SCC668: [2007] 3 SCR 73, Commissioner of Service Taxand Others vs. Bhayana Builders Private Limited andOthers (2018) 3 SCC 782, G.D. Builders vs. Union ofIndia (2013) 32 STR 673] - referred to.

Case Law Reference

In the judgment of M. R. Shah, J.

[2022] 17 S.C.R.

From the Judgment and Order dated 07.10.2009 of the High Court

Eof Karnataka at Bangalore in Writ Appeal Nos.3481-3492 of 2009.

With

Civil Appeal Nos.6525, 6523,6526 of 2014, 2666 of 2022, 4547-4548 of 2014, 2667 of 2022, 6792 of 2010 and 2668 of 2022.

FMs. Madhavi Divan, ASG, A. K. Panda, Arijit Prasad, Arvind P.Datar, Sr. Advs., Mukesh Kumar Maroria, Ms. Aruna Gupta, Ms. DikshaRai, Vatsal Joshi, Anirudhha Purushottam, Vishesh Kalra, B. KrishnaPrasad, Sanand Ramakrishnan, Rajeev Mishra, Sunil Narayanan, Ms.Nisha Bagchi, Ms. Sheena Taqui, Dhvanit Chopra, Ms. Akansha Saini,Shiv Vinayak Gupta, Mrs. Bina Gupta, J.K. Mittal, Ms. Vandana Mittal,GMs. Aashna Suri, Praveen Kumar, Ms. Sunaina Kumar, V. N. Raghupathy,Praveen Swarup, Ms. Anubha Agrawal, V. Lakshmikumaran, AdityaBhattacharya, Ms. Mounica Kasturi, Ms. Purvi Asati, Ms. ApekshaMehta, Ms. Charanya Lakshmikumaran, Bhanu Kapoor, S. Ravi Shankar,Amol Chitale, Nirnimesh Dube, Rahul Chitnis, Sachin Patil, Aaditya A.HPande, Geo Joseph, Ms. Shwetal Shepal, Ardhendumauli Kumar Prasad,

M/S. TOTAL ENVIRONMENT BUILDING SYSTEMS PVT. LTD. v. THEDEPUTY COMM’R OF COMMERCIAL TAXES

Ms. Shreya Srivastava, Ashish Madaan, E. C. Agrawala, Shivaji M.Jadhav, Mrs. Pragya Baghel, Ms. Ranjeeta Rohatgi, Advs. for theappearing parties.

The Judgments of the Court were delivered by

M. R. SHAH, J.

1. As common question of law and facts arise in this group ofappeals, they are being decided and disposed of by this common judgmentand order.

2. The issue involved in the present group of appeals is, “whether,service tax could be levied on Composite Works Contracts prior to theintroduction of the Finance Act, 2007, by which the Finance Act, 1994came to be amended to introduce Section 65(105)(zzzza) pertaining toWorks Contracts?”

3. Feeling aggrieved and dissatisfied with the impugned judgmentand order dated 07.10.2009 passed by the High Court of Karnataka atBengaluru in Writ Appeal Nos. 3481-3492 of 2009 by which the DivisionBench of the High Court has dismissed the said writ appeals and hasconfirmed the judgment and order passed by the learned Single Judgedismissing the writ petitions in which the appellant challenged theassessment orders levying service tax, on the ground of alternativeremedy available by way of statutory appeal, assessee - M/s. TotalEnvironment Building Systems Pvt. Ltd. has preferred the present appeals– Civil Appeal Nos. 8673-8684 of 2013.

3.1 Feeling aggrieved and dissatisfied with the impugned judgmentand order passed by the High Court of Delhi at New Delhi in Writ PetitionNo. 1342 of 2008 by which, relying upon the decision of the Delhi HighCourt in the case of G.D. Builders Vs. Union of India, (2013) 32STR 673 (Delhi), which is the subject matter before this Court by wayof Civil Appeal No. 6523 of 2014, the Division Bench has dismissed thesaid writ petition and has held that it is only the service element, which isto be taxed, the original writ petitioner – assessee – YFC Projects Pvt.Ltd. has preferred the present Civil Appeal No. 6525 of 2014.

3.2 Feeling aggrieved and dissatisfied with the impugned judgmentand order passed by the Division Bench of the High Court dated13.11.2013 in Writ Petition (C) No. 4107 of 2008 by which the DivisionBench of the High Court has dismissed the said writ petition, the assessee

A– G.D. Builders has preferred the present Civil Appeal No. 6523 of2014.

At this stage, it is required to be noted that in the case ofCommissioner, Central Excise and Customs, Kerala Vs. Larsenand Toubro Limited, (2016) 1 SCC 170, this Court has specificallyBoverruled the judgment of the Delhi High Court in the case of G.D.Builders (supra) and has observed and held that the observations madeby the Delhi High Court in paragraph 31 is wholly inaccurate in itsconclusion that the Finance Act, 1994 contains both the charge andmachinery for levy and assessment of service tax on indivisible workscontracts.C

At this stage, it is reported that as such Civil Appeal No. 6523 of2014, now under consideration was also heard alongwith the group ofappeals while deciding the case of Larsen and Toubro Limited (supra)and even the papers of Civil Appeal No. 6523 of 2014 were called for bythe Bench concerned. However, it appears that by oversightand/or byDinadvertence Civil Appeal No. 6523 of 2014 has not been decided anddisposed of and therefore kept pending, which is now notified beforethis Court alongwith the other appeals.

3.3 Feeling aggrieved and dissatisfied with the impugned judgmentand order passed by the High Court of Delhi at New Delhi datedE09.01.2014 in Writ Petition (C) No. 6803 of 2013 by which the DivisionBench of the High Court relying upon its earlier decision in the case ofG.D. Builders (supra) has dismissed the said writ petition, the assessee– original writ petitioner – M/s. National Building Construction CorporationLtd. (NBCC) has preferred the present Civil appeal No. 6526 of 2014.F

3.4 Feeling aggrieved and dissatisfied with the impugned judgmentand order passed by the High Court of Delhi at New Delhi dated13.11.2013 in Writ Petition No. 5046 of 2008 by which the Division Benchof the High Court has dismissed the said writ petition alongwith anotherwrit petition in the case of G.D. Builders (supra), the assessee – M/s.GUnitech Ltd. has preferred the present Civil Appeal No. 2666 of 2022arising out of SLP (C) No. 36206 of 2014.

3.5 Feeling aggrieved and dissatisfied with the impugned commonjudgment and order passed by the Guwahati High Court dated 04.06.2012passed in Writ Petition Nos. 5676 and 5678 of 2012, the original

writ petitioner – assessee – NBCC has preferred the present Civil AppealNos. 4547-4548 of 2014.

3.6 Feeling aggrieved and dissatisfied with the impugned judgmentand order dated 19.03.2015 passed by the Customs, Excise and ServiceTax Appellate Tribunal (CESTAT) in Service Tax Stay No. 59278 of2013 in S.T. Appeal No. 58658 of 2013, the assessee – M/s. Larsen andToubro Limited has preferred the present Civil Appeal No. 2667 of 2022arising out of SLP (C) No. 21828 of 2015.

3.7 Feeling aggrieved and dissatisfied with the impugned judgmentand order dated 10.03.2010 passed by the CESTAT, West Zonal Benchin Appeal No. ST/275 of 2006, the Revenue has preferred the presentCivil Appeal No. 6792 of 2010.

3.8 Feeling aggrieved and dissatisfied with the impugned judgmentand order dated 12.06.2015 passed by CESTAT, Mumbai in ST/Stay/3022/12-Mum in S.T. Appeal No. 873 of 2012, the assessee – M/s.L&T, Hydrocarbon Engineering Ltd. (previously known as Larsen &Toubro Ltd.) has preferred the present Civil Appeal No. 2668 of 2022arising out of SLP (C) No. 32501 of 2015.

4. As observed hereinabove, the issue involved in the presentappeals is, “whether service tax could be levied on Composite WorksContracts prior to the introduction of the Finance Act, 2007, by whichthe Finance Act, 1994 came to be amended to introduce Section65(105)(zzzza) pertaining to Works Contracts?”

5. At the outset, it is required to be noted that the very issue hadbeen considered by this Court in the case of Commissioner, CentralExcise and Customs, Kerala Vs. Larsen and Toubro Limited,(2016) 1 SCC 170. In the aforesaid decision, after considering theentire scheme of levy of service tax pre-2007 and post-2007, this Courthas specifically observed and held that on indivisible works contracts,for the period prior to introduction of Finance Act, 2007, service tax wasnot leviable under Finance Act, 1994. It is specifically observed and heldthat works contracts on which the service tax was levied under theFinance Act, 1994 is distinct from contracts of service.

6. Ms. Madhavi Divan, learned Additional Solicitor General,appearing on behalf of the Revenue, has not disputed that the issueinvolved in the present appeals is as such squarely covered by the decisionof this Court in the case of Larsen and Toubro Limited (supra).

AHowever, according to Ms. Madhavi Divan, the decision of this Court inthe above case, holding that there was no service tax leviable on workscontracts prior to the amendment by the Finance Act, 2007 needs to bere-considered.

6.1 In support to her prayer to re-consider the decision of thisBCourt in the case of Larsen and Toubro Limited (supra), Ms. MadhaviDivan, learned Additional Solicitor General has made number ofsubmissions and has taken us to the legislative history pertaining to theservice tax. She has also taken us to the definition of the Works Contractand what can be said to be Works Contracts. She has also taken usthrough number of other decisions of this Court including the decisionsCin the case of State of Madras Vs. Gannon Dunkerley & Co.,(Madras) Ltd., (1959) SCR 379; Larsen and Toubro Limited andAnr. Vs. State of Karnataka and Anr., (2014) 1 SCC 708; NagarjunaConstruction Company Limited Vs. Union of India and Anr.,(2013) 1 SCC 721; Imagic Creative (P) Ltd. Vs. CommissionerDof Commercial Taxes and Ors., (2008) 2 SCC 614; and T.N.Kalyana Mandapam Assn. Vs. Union of India and Ors., (2004) 5SCC 632.

6.2 It is vehemently submitted by Ms. Madhavi Divan, learnedAdditional Solicitor General that, even prior to Finance Act, 2007, thereEwas an elaborate mechanism for segregating the value of the goodscomponent and the service component in Works Contract. Therefore,it is the case on behalf of the Revenue that it cannot be said that therewas no machinery provision to charge as such the service component ina Composite Works Contracts in order to make it excisable service tax.Therefore, it is the case on behalf of the Revenue that the observationsFand the findings recorded by this Court in the case of Larsen and ToubroLimited (supra) that there was no service tax leviable on WorksContracts prior to the amendment by the Finance Act, 2007 isfundamentally erroneous and contrary to, and in the teeth of the wellsettled principles laid down by previous judgments, including the judgmentsGpassed by Larger Benches of this Court referred to hereinabove.However, for the reasons stated hereinbelow, we do not propose toelaborately consider the submissions made by Ms. Madhavi Divan, learnedAdditional Solicitor General on merits and made in support of her requestto re-consider the decision of this Court in the case of Larsen andToubro Limited (supra).H7. On the other hand, Shri Arvind P. Datar, learned Senior Advocate,appearing on behalf of some of the assessees and other learned seniorcounsel appearing on behalf of the respective assessees have vehementlysubmitted that as such, the issue involved in the present appeals is squarelycovered by the decision of this Court in the case of Larsen and ToubroLimited (supra). It is submitted that in most of the appeals, which arearising out of the judgments and orders passed by the High Court ofDelhi, the High court has followed its decision in the case of G.D.Builders (supra). That the said decision of the Delhi High Court in thecase of G.D. Builders (supra) has been held to be wholly incorrect bythis Court in the case of Larsen and Toubro Limited (supra). He hastaken us to the relevant observations made by this Court in the case ofLarsen and Toubro Limited (supra) in paragraphs 28, 29, 30, 31, 32,33, 38 and 39.

7.1 It is vehemently submitted by Shri Datar, learned SeniorAdvocate appearing on behalf of some of the assesses that in the caseof Larsen and Toubro Limited (supra), it is specifically observedthat taxable service under the Finance Act, 1994 covers servicecontracts simpliciter and not the Composite Works Contracts (relianceis placed upon the observations made in paragraphs 23 and 29 of thesaid decision). It is contended that while referring to exemptionnotifications in paragraph 42, it has been specifically observed and heldthat since the levy of service tax has been found to be non-existent, noquestion of any exemption would arise. It is further urged by Shri Datar,learned Senior Advocate appearing on behalf of some of the assessesthat the decision of this Court in the case of Larsen and Toubro Limited(supra) has been subsequently followed by this Court in the case ofCommissioner of Service Tax and Ors. Vs. Bhayana BuildersPrivate Limited and Ors., (2018) 3 SCC 782. That after followingand considering the decision of this Court in the case of Larsen andToubro Limited (supra), this Court dismissed the appeals preferredby the Revenue.

7.2 It is further submitted by Shri Datar, learned Senior Advocateappearing on behalf of some of the assesses that after 2015, the decisionof this Court in the case of Larsen and Toubro Limited (supra) hasbeen consistently followed by all the High Courts in the country and thevarious Tribunals. It is submitted that therefore, if after period of six toseven years, the decision of this Court in the case of Larsen and Toubro

ALimited (supra) is to be re-considered at the instance of the Revenue,it may upset the decisions already taken by the Tribunals and the variousHigh Courts. It is submitted that therefore on the principle of stare decisis,this Court may not take contrary view than the view taken by thisCourt in the case of Larsen and Toubro Limited (supra) and/or maynot re-consider the same now at this length of time at the instance of theBRevenue, more particularly, when the Revenue did not file any reviewapplication earlier to review the decision given by this Court in the caseof Larsen and Toubro Limited (supra).

7.3 It is further submitted by Shri Datar, learned Senior Advocateappearing on behalf of some of the assesses that some of the appeals inCthe present case arise out of the interim orders passed by the Tribunals.That thereafter, final orders have been passed by the Tribunals by relyingupon the decision of this Court in the case of Larsen and ToubroLimited (supra) and the Revenue has not challenged the final decision.Therefore, as such, the Revenue has accepted the decisions in almostDall cases, which have already attained the finality.7.4 Shri Datar, learned Senior Advocate appearing on behalf ofsome of the assesses has also made elaborate submissions on non-levyof service tax on the Composite Works Contracts prior to the FinanceAct, 2007. He has also taken us through the speech made by the thenEHon’ble Finance Minister while moving the amendment in the Parliamentwhile introducing the Finance Act, 2007. It is submitted that for the firsttime, the service tax is levied on the Composite Works Contracts pursuantto the Finance Act amendment made vide Finance Act, 2007. However,for the reasons to be recorded hereinbelow, we do not propose toelaborately deal with and/or consider the elaborate submissions madeFon behalf of the respective parties on whether the service tax was leviableon Composite Works Contracts prior to Finance Act, 2007 or not and onwhether the decision of this Court in the case of Larsen and ToubroLimited (supra) is required to be re-considered, as now submitted and/or prayed on behalf of the Revenue.G8. Heard, Ms. Madhavi Divan, learned ASG appearing on behalfof the Revenue and Shri Arvind Datar, learned Senior Advocate andother learned senior and other counsel appearing on behalf of therespective assessees.

9. The short question which is posed for consideration of thisHCourt is, “whether for the period prior to introduction of the Finance Act,

2007, the service tax would be leviable on the Composite WorksContracts?”

10. At the outset, it is required to be noted that whether post-2007, the service tax was leviable on Composite Works Contracts isnow no longer res integra in view of the direct decision of this Court inthe case of Larsen and Toubro Limited, (supra).

10.1 Ms. Divan, learned ASG is not disputing that in the case ofLarsen and Toubro Limited (supra), this Court has specificallyobserved and held that the service tax was not leviable on the indivisible/Composite Works Contracts, post Finance Act, 2007. However, accordingto the learned ASG, the said decision requires re-consideration andtherefore, the prayer is made to refer the matter to the Larger Bench.

10.2 While appreciating the prayer/submission made on behalf ofthe Revenue to re-consider the binding decision of this Court in the caseof Larsen and Toubro Limited (supra) and to refer the matter to theLarger Bench, few facts are required to be taken into consideration,which are as under:-

(i)The decision of this Court in the case of Larsen andToubro Limited (supra) has been delivered/passed in theyear 2015, in which, it is specifically observed and held thaton indivisible works contracts for the period pre-FinanceAct, 2007, the service tax was not leviable;

(ii)After considering the entire scheme and the levy of servicetax pre-Finance Act, 2007 and after giving cogent reasons,a conscious decision has been taken by this Court holdingthat the service tax was not leviable pre-Finance Act, 2007on indivisible/Composite Works Contracts;

(iii)While holding that for the period pre-Finance Act, 2007, onindivisible/Composite Works Contracts, the service tax isnot leviable, number of decisions have been dealt with andconsidered by this Court in the aforesaid decision;

(iv)That subsequently, the decision of this court in the case ofLarsen and Toubro Limited (supra) has been followedand considered by this Court in the case of BhayanaBuilders Private Limited and Ors., (supra);

A(v)That after the decision of this Court in the case of Larsenand Toubro Limited (supra) rendered in the year 2015,the said decision has been consistently followed by variousHigh Courts and the Tribunals;

(vi)The decisions of the various High Courts and the Tribunals,Bwhich were passed after following the decision of this Courtin the case of Larsen and Toubro Limited (supra) haveattained finality and in many cases, the Revenue has notchallenged the said decisions;

(vii)No efforts were made by the Revenue to file any reviewCapplication to review and/or recall the judgment and orderpassed by this Court in the case of Larsen and ToubroLimited (supra). If the Revenue was so serious in theirview that decision of this Court in the case of Larsen andToubro Limited (supra) requires re-consideration,Revenue ought to have filed the review application at thatDstage and/or even thereafter. No such review applicationhas been filed even as on today.

(viii) Merely because in the subsequent cases, the amount of taxinvolved may be higher, cannot be ground to pray for re-consideration of the earlier binding decision, which has beenEconsistently followed by various High Courts and theTribunals in the entire country.

10.3 Keeping in mind the aforesaid factual aspects, the prayermade on behalf of Revenue to re-consider the decision of this Court inthe case of Larsen and Toubro Limited (supra) and to refer theFmatter to the Larger Bench is required to be considered.

10.4 While considering the prayer made on behalf of the Revenueto review and/or revisit the earlier decision of this Court in the case ofLarsen and Toubro Limited (supra), few decisions on the principleof stare decisis are required to be referred to and considered.

10.5 In the case of Dr. Jaishri Laxmanrao Patil Vs. ChiefMinister and Ors., (2021) 8 SCC 1, after considering the earlierdecision of the Seven Judge Constitution Bench in the case of KeshavMills Co. Ltd. Vs. Commissioner of Income Tax, Bombay North,Ahmedabad, AIR 1965 SC 1636, it is observed and held that beforeHreviewing and revising its earlier decision the Court must satisfy itself

whether it is necessary to do so in the interest of public good or for anyother compelling reason and the Court must endeavour to maintaincertainty and continuity in the interpretation of the law in the country.

10.5.1 After discussing the law on the principle of stare decisis, itis observed and held that the relevance and significance of the principleof stare decisis have to be kept in mind and that in law, certainty,consistency and continuity are highly desirable features. While holdingso, in paragraphs 453 to 456, it is observed and held as under:-

“453. The seven-Judge Constitution Bench judgment in KeshavMills [Keshav Mills Co. Ltd. v. CIT, AIR 1965 SC 1636 : (1965)2 SCR 908] has unanimously held that before reviewing andrevising its earlier decision the Court must itself satisfy whether itis necessary to do so in the interest of public good or for any othercompelling reason and the Court must endeavour to maintain acertainty and continuity in the interpretation of the law in thecountry.

454. In Jarnail Singh v. Lachhmi Narain Gupta [(2018) 10SCC 396], the prayer to refer the Constitution Bench judgmentin M. Nagaraj [M. Nagaraj v. Union of India, (2006) 8 SCC212] was rejected by the Constitution Bench relying on the law aslaid down in Keshav Mills case [Keshav Mills Co. Ltd. v. CIT,AIR 1965 SC 1636 : (1965) 2 SCR 908]. In para 9 the followinghas been laid down : (Jarnail Singh case [JarnailSingh v. Lachhmi Narain Gupta, (2018) 10 SCC 396], SCC pp.410-11)

“9. Since we are asked to revisit unanimous ConstitutionBench judgment, it is important to bear in mind the admonitionof the Constitution Bench judgment in Keshav Mills [KeshavMills Co. Ltd. v. CIT, AIR 1965 SC 1636 : (1965) 2 SCR 908].This Court said : (SCR pp. 921-22 : AIR p. 1644, para 23)

‘23. … in reviewing and revising its earlier decision, thisCourt should ask itself whether in the interests of the publicgood or for any other valid and compulsive reasons, it isnecessary that the earlier decision should be revised. Whenthis Court decides questions of law, its decisions are, underArticle 141, binding on all courts within the territory of India,and so, it must be the constant endeavour and concern of

this Court to introduce and maintain an element of certaintyand continuity in the interpretation of law in the country.Frequent exercise by this Court of its power to review itsearlier decisions on the ground that the view pressed beforeit later appears to the Court to be more reasonable, mayincidentally tend to make law uncertain and introduceconfusion which must be consistently avoided. That is notto say that if on subsequent occasion, the Court is satisfiedthat its earlier decision was clearly erroneous, it shouldhesitate to correct the error; but before previous decisionis pronounced to be plainly erroneous, the Court must besatisfied with fair amount of unanimity amongst itsmembers that revision of the said view is fully justified. Itis not possible or desirable, and in any case it would beinexpedient to lay down any principles which should governthe approach of the Court in dealing with the question ofreviewing and revising its earlier decisions. It would alwaysdepend upon several relevant considerations — What isthe nature of the infirmity or error on which plea for areview and revision of the earlier view is based? On theearlier occasion, did some patent aspects of the questionremain unnoticed, or was the attention of the Court notdrawn to any relevant and material statutory provision, orwas any previous decision of this Court bearing on the pointnot noticed? Is the Court hearing such plea fairly unanimousthat there is such an error in the earlier view? What wouldbe the impact of the error on the general administration oflaw or on public good? Has the earlier decision beenfollowed on subsequent occasions either by this Court orby the High Courts? And, would the reversal of the earlierdecision lead to public inconvenience, hardship or mischief?These and other relevant considerations must be carefullyborne in mind whenever this Court is called upon to exerciseits jurisdiction to review and revise its earlier decisions.These considerations become still more significant whenthe earlier decision happens to be unanimous decision ofa Bench of five learned Judges of this Court.’ “

455. The principle of stare decisis also commends us not to acceptthe submissions of Shri Rohatgi. the Constitution Bench of this

Court in State of Gujarat v. Mirzapur Moti Kureshi KassabJamat [(2005) 8 SCC 534], explaining the principle of stare decisislaid down the following in paras 111 and 118 : (SCC pp. 589 &591)

“111. Stare decisis is Latin phrase which means ‘to standby decided cases; to uphold precedents; to maintain formeradjudication’. This principle is expressed in the maxim “staredecisis et non quieta movere” which means to stand bydecisions and not to disturb what is settled. This was aptly putby Lord Coke in his classic English version as ‘Those thingswhich have been so often adjudged ought to rest in peace’.However, according to Frankfurter, J., the doctrine of staredecisis is not “an imprisonment of reason” (Advanced LawLexicon, P. Ramanatha Aiyer, 3rd Edn. 2005, Vol. 4, P. 4456).The underlying logic of the doctrine is to maintain consistencyand avoid uncertainty. The guiding philosophy is that viewwhich has held the field for long time should not be disturbedonly because another view is possible.

118. The doctrine of stare decisis is generally to be adheredto, because well-settled principles of law founded on seriesof authoritative pronouncements ought to be followed. Yet, thedemands of the changed facts and circumstances, dictated byforceful factors supported by logic, amply justify the need fora fresh look.”

456. the Constitution Bench in Indra Sawhney [IndraSawhney v. Union of India, 1992 Supp (3) SCC 217] speakingthrough B.P. Jeevan Reddy, J. has held that the relevance andsignificance of the principle of stare decisis have to be kept inmind. It was reiterated that in law certainty, consistency andcontinuity are highly desirable features. Following are the exactwords in para 683 : (SCC p. 657)

“683. … Though, we are sitting in larger Bench, we havekept in mind the relevance and significance of the principleof stare decisis. We are conscious of the fact that in lawcertainty, consistency and continuity are highly desirablefeatures. Where decision has stood the test of time and has

ABC

never been doubted, we have respected it … unless, of course,there are compelling and strong reasons to depart from it.Where, however, such uniformity is not found, we have triedto answer the question on principle keeping in mind the schemeand goal of our Constitution and the material placed beforeus.”

10.6 In the case of Dr. Shah Faesal and Ors. Vs. Union ofIndia and Anr., (2020) 4 SCC 1, the Constitution Bench of this Courthad occasion to consider the principle of stare decisis and the law ofprecedents/re-consideration/review of earlier decision. After consideringthe decision of this Court in the case of Chandra Prakash and Ors.CVs. State of U.P. and Anr., (2002) 4 SCC 234 (paragraph 22), it isobserved and held by this Court that doctrines of precedents and staredecisis are the core values of our legal system. They form the toolswhich further the goal of certainty, stability and continuity in our legalsystem. When decision is rendered by this Court, it acquires relianceDinterest and the society organises itself based on the present legal order.By observing and holding so, it is observed in paragraphs 17 to 19 asunder:-“17. This Court’s jurisprudence has shown that usually the courtsdo not overrule the established precedents unless there is social,constitutional or economic change mandating such development.The numbers themselves speak of restraint and the value thisCourt attaches to the doctrine of precedent. This Court regardsthe use of precedent as indispensable bedrock upon which thisCourt renders justice. The use of such precedents, to some extent,creates certainty upon which individuals can rely and conducttheir affairs. It also creates basis for the development of therule of law. As the Chief Justice of the Supreme Court of theUnited States, John Roberts observed during his Senateconfirmation hearing, “It is jolt to the legal system when youoverrule precedent. Precedent plays an important role inpromoting stability and even-handedness”. [CongressionalRecord—Senate, Vol. 156, Pt. 7, 10018 (7-6-2010).]

18. Doctrines of precedents and stare decisis are the core valuesof our legal system. They form the tools which further the goal ofcertainty, stability and continuity in our legal system. Arguably,Judges owe duty to the concept of certainty of law, therefore

they often justify their holdings by relying upon the establishedtenets of law.

19. When decision is rendered by this Court, it acquires relianceinterest and the society organises itself based on the present legalorder. When substantial judicial time and resources are spent onreferences, the same should not be made in casual or cavaliermanner. It is only when proposition is contradicted by subsequentjudgment of the same Bench, or it is shown that the propositionlaid down has become unworkable or contrary to well-establishedprinciple, that reference will be made to larger Bench. In thiscontext, five-Judge Bench of this Court in ChandraPrakash v. State of U.P. [(2002) 4 SCC 234], after consideringseries of earlier rulings reiterated that : (SCC p. 245, para 22)

“22. … The doctrine of binding precedent is of utmostimportance in the administration of our judicial system. Itpromotes certainty and consistency in judicial decisions.Judicial consistency promotes confidence in the system,therefore, there is this need for consistency in theenunciation of legal principles in the decisions of thisCourt.”

(emphasis supplied)”

10.7 It is observed and held in the aforesaid decision that even therule of overruling the judgments should be applied with great caution,and only when the previous decision is manifestly wrong, as, for instance,if it proceeded upon mistaken assumption of the continuance of arepealed or expired Statute, or is contrary to decision of another courtwhich the court is bound to follow; not, upon mere suggestion, thatsome or all of the members of the court might later arrive at differentconclusion if the matter was res integra. It is further observed thatotherwise there would be great danger of want of continuity in theinterpretation of law. It is further observed and held that the decisionsrendered by coordinate Bench is binding on the subsequent Benchesof equal or lesser strength and coordinate Bench of the same strengthcannot take contrary view than what has been held by anothercoordinate Bench unless it is shown to be per incuriam.

11. At this stage, few decisions of this Court on consistency,certainty and uniformity also deserve consideration, which are as under:

A11.1 This Court in Government of Andhra Pradesh Vs. A.P.Jaswal, (2001) 1 SCC 748 has observed as under:-

“Consistency is the cornerstone of the administration of justice. Itis consistency which creates confidence in the system and thisconsistency can never be achieved without respect to the rule ofBfinality. It is with view to achieve consistency in judicialpronouncements, the courts have evolved the rule of precedents,principle of stare decisis etc. These rules and principles are basedon public policy………”

The aforesaid observations are equally, if not more meaningfulCand relevant to tax matters.

11.2 This Court, in the Constitution Bench judgment in Union ofIndia Vs. Raghubir Singh (Dead) by LRs. etc., (1989) 2 SCC 754,on the question of the merit of promoting certainty and consistency injudicial decisions, had observed that this enables an organic developmentDof law, besides assuring the individuals as to the consequences oftransactions forming part of his daily affairs, and, therefore, there is aneed for clear and consistent enunciation of legal principles in the decisionof court.

11.3 In K. Ajit Babu and Ors. Vs. Union of India and Ors.,E(1997) 6 SCC 473, this Court again emphasized on the aspect ofconsistency, certainty and uniformity in the field of judicial decisions as itsets pattern upon which future conduct may be based. One of thebasic principles of the administration of justice is that identical/similarcases should be decided alike. This is the foundation of the doctrine ofprecedent, which has considerable benefits and advantages. EmphasisFon the law of precedent, which promotes certainty and consistency, wasalso noticed in Sundarjas Kanyalal Bhatija and Ors. Vs. CollectorThane, Maharashtra and Ors., (1989) 3 SCC 396, by emphasizingthat it is the duty of the courts to make the law more predictable. Lawmust be made more effective as guide to behaviour, otherwise, theGlawyers or, for that matter, laymen would be in predicament and wouldnot know how to advise or conduct themselves. The general public shouldnot be in dilemma to obey or not to obey such law.

11.4 In Medley Pharmaceuticals Limited v. Commissionerof Central Excise and Customs, Daman, (2011) 2 SCC 6014, thequestion before this Court was whether, “physicians’ samples” areH

excisable goods considering that they are prohibited from being soldunder the Drugs and Cosmetics Act, 1940. Observing that since thisCourt has consistently held that the medical supplies supplied to thedoctors are liable to excise duty, the issue involved in this case was nolonger res integra. Relying on the Constitutional Bench decision in WamanRao v. Union of India, (1981) 2 SCC 362, it was held:

43. It is settled law that this Court should follow an earlier decisionthat has withstood the changes in time, irrespective of the rationaleof the view taken. It was held by Constitution Bench in WamanRao v. Union of India [(1981) 2 SCC 362]: (SCC p. 393, para 40)

40. It is also true to say that for the application of the rule ofstare decisis, it is not necessary that the earlier decision ordecisions of longstanding should have considered and eitheraccepted or rejected the particular argument which is advancedin the case on hand. Were it so, the previous decisions couldmore easily be treated as binding by applying the law ofprecedent and it will be unnecessary to take resort to theprinciple of stare decisis. It is, therefore, sufficient for invokingthe rule of stare decisis that certain decision was arrived aton question which arose or was argued, no matter on whatreason the decision rests or what is the basis of the decision.In other words, for the purpose of applying the rule of staredecisis, it is unnecessary to enquire or determine as to whatwas the rationale of the earlier decision which is said to operateas stare decisis.”11.5 In Saurashtra Cement & Chemical Industries Ltd. andanother Vs. Union of India and others, (2001) 1 SCC 91 this Courtrefused to indulge on the question of delegated legislation in taxing statutesince the authority of the legislature in introducing the statute in question,i.e., Mines and Minerals (Regulation and Development) Act, 1957 couldnot be doubted and in any event, was settled proposition of law formore than decade. Applying the doctrine of stare decisis, the Courtrejected the plea to reconsider the decision in State of Madhya Pradeshv. Mahalaxmi Fabric Mills Ltd., 1995 Supp (1) SCC 642 in thefollowing words:-

“35. In the wake of the aforesaid, we do feel it expedient torecord that taking recourse to the doctrine as above would be animperative necessity, so as to avoid uncertainty and confusion,

Asince the basic feature of law is its certainty and in the event ofany departure therefrom the society would be in utter confusionand the resultant effect of which would be legal anarchy andjudicial indiscipline-a situation which always ought to be avoided.The Central Legislature introduced the legislation (MMRD Act)in the year 1957 and several hundreds and thousands of casesBhave already been dealt with on the basis thereof and the effectof declaration of contra law would be totally disastrous affectingthe very basics of the revenue jurisprudence. It is true that thedoctrine has no statutory sanction but it is rule of convenience,expediency, prudence and above all the public policy. It is to beCobserved in its observance rather than in its breach to serve thepeople and subserve the ends of justice.”

12. What was said by the Constitution Bench in IndraSawhney Vs. Union of India, 1992 Supp (3) SCC 217and KeshavMills Co. Ltd. Vs. Commissioner of Income Tax, Bombay North,DAhmedabad, AIR 1965 SC 1636, on the principle of stare decisisclearly bind us. The judgment of this Court in the case of Larsen andToubro Limited (supra) has stood the test of time and has never beendoubted earlier. As observed hereinabove, the said decision has beenfollowed consistently by this Court as well as by various High Courtsand the Tribunals. Therefore, if the prayer made on behalf of the Revenue

Eto re-consider and/or review the judgment of this Court in the case ofLarsen and Toubro Limited (supra) is accepted, in that case, it willaffect so many other assesses in whose favour the decisions have alreadybeen taken relying upon and/or following the decision of this Court in thecase of Larsen and Toubro Limited (supra) and It may unsettle the

Flaw, which has been consistently followed since 2015 onwards. Thereare all possibilities of contradictory orders. Therefore, on the principle ofstare decisis, we are of the firm view that the judgment of this Court inthe case of Larsen and Toubro Limited (supra), neither needs to berevisited, nor referred to Larger Bench of this Court as prayed, i.e.,after period of almost seven years and as observed hereinabove whenGno efforts were made to file any review application requesting to reviewthe judgment on the grounds, which are now canvassed before this Court.

13. At this stage, it is required to be noted that one of the appealsbeing Civil Appeal No. 6523 of 2014 filed by M/s. G.D. Builders is againstthe decision of the Delhi High Court in the case of G.D. Builders Vs.H

Union of India reported in (2013) 32 STR 673 (Delhi). It is to benoted that the said decision of the Delhi High Court in the case of G.D.Builders (supra) has been specifically overruled by this court in thecase of Larsen and Toubro Limited (supra). The decision of theDelhi High Court in the case of G.D. Builders (supra) has beenconsidered by this Court in the case of Larsen and Toubro Limited(supra) in paragraphs 28, 29, 30, 32, 33, 38 and 39 and ultimately, thisCourt opined that the decision of the Delhi High Court in the case ofG.D. Builders (supra) is in fact contrary to long line of decisions. Itis further specifically observed and held that the decision of the DelhiHigh Court in the case of G.D. Builders (supra) is wholly incorrect inits conclusion that the Finance Act, 1994 contains both the charge andmachinery for levy and assessment of service tax on indivisible workscontracts. It is reported that while deciding the group of matters in thecase of Larsen and Toubro Limited (supra), the papers of the appealfiled by M/s. G.D. Builders being Civil Appeal No. 6523 of 2014 werealso called and the learned counsel appearing on behalf of the G.D.Builders was also heard. It appears that, however, the Civil Appeal No.6523 of 2014 filed by M/s. G.D. Builders against the decision of theDelhi High Court has not been specifically disposed of. Therefore, oncethe decision of the Delhi High Court in the case of G.D. Builders (supra),which is the subject matter of Civil Appeal No. 6523 of 2014 has beenheld to be wholly incorrect, Civil Appeal No. 6523 of 2014 filed by M/s.G.D. Builders has to be allowed and the judgment and order passed bythe Delhi High Court has to be quashed and set aside.

13.1 Now, so far as Civil Appeal No. 6525 of 2014, Civil AppealNo. 6526 of 2014 and Civil Appeal No. 2666 of 2022 are concerned, theHigh Court has dismissed the said writ petitions preferred by the respectiveassesses relying upon its earlier decision in the case of G.D. Builders(supra). Once the decision of the Delhi High Court in the case of G.D.Builders (supra) is held to be wholly incorrect by this Court in the caseof Larsen and Toubro Limited (supra), Civil Appeal No. 6525 of2014, Civil Appeal No. 6526 of 2014 and Civil Appeal No. 2666 of 2022are also to be allowed.

13.2 So far as Civil Appeal Nos. 8673-8684 of 2013 preferred bythe assessee – M/s. Total Environment Building Systems Pvt. Ltd. areconcerned, the same are against the judgment and order passed by theHigh Court of Karnataka in Writ Appeal Nos. 3481-3492 of 2009 by

Awhich the Division Bench of the High Court has dismissed the said writappeals and has confirmed the judgment and order passed by the learnedSingle Judge dismissing the writ petitions in which the appellant - assesseechallenged the assessment orders levying Service Tax, on the ground ofalternative remedy available by way of statutory appeal. However, inview of the binding decision of this Court in the case of Larsen andBToubro Limited (supra), the assessee is not liable to pay the servicetax till the date of amendment of the provision on the indivisible/compositeworks contracts and therefore, the said appeals also deserve to be allowedand the assessment orders levying the service tax are to be set aside.

13.3 Following the binding decision of this Court in the case ofCLarsen and Toubro Limited (supra), taking the view that for theperiod pre-Finance Act, 2007, service tax was not leviable on theindivisible/composite works contracts, the Civil Appeal Nos. 4547-4548of 2014, Civil Appeal No. 2667 of 2022 and Civil Appeal No. 2668 of2022 arising out of the common judgment and order passed by the

DGuwahati High Court and the respective decisions of the CESTAT passedagainst the respective assesses are also to be allowed.

13.4 Now, so far as Civil Appeal No. 6792 of 2010 preferred bythe Revenue against the judgment and order passed by the CESTAT,West Zonal Bench in Appeal No. ST/275 of 2006 is concerned, in viewEof the binding decision of this Court in the case of Larsen and ToubroLimited (supra), the same deserves to be dismissed.

14. In view of the above and for the reasons stated above, CivilAppeal Nos. 8673-8684 of 2013, Civil Appeal No. 6525 of 2014, CivilAppeal No. 6523 of 2014, Civil Appeal No. 6526 of 2014, Civil AppealFNo. 2666 of 2022, Civil Appeal Nos. 4547-4548 of 2014, Civil AppealNo. 2667 of 2022 and Civil Appeal No. 2668 of 2022 are hereby allowedand impugned judgments and orders passed by the respective High Courts/Tribunals taking the view that for the period pre-Finance Act, 2007, therespective assesses are/were liable to pay the service tax on indivisible/composite works contracts are hereby quashed and set aside.GConsequently, the respective assessment orders/orders in originals levyingthe service tax on the respective assesses on the indivisible/CompositeWorks Contracts for the period prior to pre-2007 are hereby quashedand set aside. Necessary consequences shall follow.

Civil Appeal No. 6792 of 2010 is hereby dismissed.H

In the facts and circumstances of the case, there shall be no orderas to costs.

Note :-I have had the advantage of perusing the supplementaryjudgment and order proposed by my learned Sister, B.V.Nagarathna, J. As such, Her Ladyship has agreed withthe conclusions arrived at by me in the present judgmentand order, however, has thought it fit to give additionalreasons for the conclusions and has dealt with thesubmissions made by Ms. Madhavi Divan on merits.However, for the reasons stated above as this Courthas not agreed with the prayer made by Ms. Divan,learned ASG to reconsider the decision in the case ofLarsen and Toubro Limited (supra) on the principleof stare decisis and on the principle of consistency, Ideem it proper not to deliberate further on merits, asobserved above, the issue involved is squarely coveredby the decision of this Court in the case of Larsen andToubro Limited (supra), which has been subsequentlyfollowed by this Court as well as by various High Courtsand Tribunals.

B. V. NAGARATHNA

I have had the advantage of perusing the judgment proposed byHis Lordship M.R. Shah J. While I agree with the conclusions arrived atby him, I wish to supplement the reasons for the conclusions.

(2) As already stated, the issue in these appeals relates to the levyof service tax on composite works contract prior to the amendmentmade to the Finance Act, 1994 in the year 2007 by which Section 65(105)(zzzza) was introduced which gives the definition to the expression “workscontract.”

(3) While it is not essential to narrate the details of each of thecases under consideration as it has been made in the judgment proposedby M.R. Shah J., it is however necessary to answer the principalsubmission made by Ms. Madhavi Diwan, learned Additional SolicitorGeneral appearing for the revenue with detailed reasoning. Shecontended that the judgment of this Court in Commissioner, CentralExcise and Customs, Kerala vs. Larsen and Toubro Ltd. [(2016) 1SCC 170] (hereinafter referred as “Larsen & Toubro Ltd.”) requires

ABC

Areconsideration as in the said case it was held that service tax oncomposite works contract was not leviable prior to the amendment madeto the Finance Act, 1994, in the year 2007, whereas according to her, infact, it was leviable even prior thereto and the amendment made to theFinance Act, 1994, in the year 2007 by insertion of Section 65(105)(zzzza)

is only clarificatory in nature. Hence, the judgment in Larsen and ToubroBLtd. (supra) holding otherwise calls for reconsideration.

(4) Per contra, Sri Arvind P. Datar learned senior advocateappearing on behalf of some of the assesses and other learned seniorcounsel contended that the judgment in Larsen and Toubro Ltd. (supra)does not call for reconsideration. Further, in the said case the judgmentCof the Delhi High Court in G.D. Builders vs. Union of India [(2013)32 STR 673] has been held to be not correctly decided and was thereforeoverruled.

(5) Before proceeding to consider the aforesaid rival contentions,it would be useful to discuss the evolution, meaning and content of theDexpression works contract in the context of sales tax law and as well asunder the service tax regime. This is, having regard to the definition ofworks contract being inserted w.e.f. 1[st] June, 2007 to the Finance Act,1994 which seeks to impose service tax on the service aspect of workscontract. The reason for this exercise is because works contract byEitself is not taxable. works contract as defined by the amendment hastwo components, namely, sale component and service component. Itis only when both the components are satisfied and co-exist that acontract becomes works contract as defined. Further, it is only on theservice component of the works contract that the service tax is leviablew.e.f. 1[st] June, 2007. As far as the sale component in works contractFis concerned, the Sales Tax laws of the respective States would apply. Itis also necessary to state that after the enforcement of the Central Goodsand Services Tax Act (CGST), 2017 regime the matter is covered underthat Act. Therefore, it is necessary to gather the meaning of workscontract from judicial precedent in order to answer the rival submissionsGin the instant case.

Section 65(105)(zzzza) of the Finance Act, 1994 as amended bythe Finance Act, 2007 which defines work contract, has been extractedas under, for ease of reference:

“ ‘Works contract’ means contract wherein,-

transfer of property in goods involved in the execution of suchcontract is leviable to tax as sale of goods, and

(ii) such contract is for the purposes of carrying out,—

(a) erection, commissioning or installation of plant, machinery,equipment or structures, whether pre-fabricated or otherwise,installation of electrical and electronic devices, plumbing, drainlaying or other installations for transport of fluids, heating, ventilationor air-conditioning including related pipe work, duct work and sheetmetal work, thermal insulation, sound insulation, fire proofing orwater proofing, lift and escalator, fire escape staircases orelevators; or

(b) construction of new building or civil structure or partthereof, or of pipeline or conduit, primarily for the purposes ofcommerce or industry; or

(c) construction of new residential complex or part thereof; or

(d) completion and finishing services, repair, alteration, renovationor restoration of, or similar services, in relation to (b) and (c); or

(e) turnkey projects including engineering, procurement andconstruction or commissioning (EPC) projects.”

reading of the aforesaid definition would indicate that tworequisites must be satisfied before service tax on works contract couldbe levied. In other words, contract in order to be works contract mustinvolve:

“(i) transfer of property in goods involved in the execution of suchcontract is leviable to tax as sale of goods, and

(ii) such contract is for the purposes of carrying out,—

(a) erection, commissioning or installation of plant, machinery,equipment or structures, whether pre-fabricated or otherwise,installation of electrical and electronic devices, plumbing, drainlaying or other installations for transport of fluids, heating, ventilationor air-conditioning including related pipe work, duct work and sheetmetal work, thermal insulation, sound insulation, fire proofing orwater proofing, lift and escalator, fire escape staircases orelevators; or

(b) construction of new building or civil structure or partthereof, or of pipeline or conduit, primarily for the purposes ofcommerce or industry; or

(c) construction of new residential complex or part thereof; or

(d) completion and finishing services, repair, alteration, renovationBor restoration of, or similar services, in relation to (b) and (c); or

(e) turnkey projects including engineering, procurement andconstruction or commissioning (EPC) projects.”

Thus, works contract has two essential components: firstly, saleCof goods involved in the execution of such contracts which would attractSales Tax or Value Added Tax (VAT) as the case may be, i.e., prior tothe enforcement of the Goods and Services Tax regime and secondly, aservice component which is specified in clause (ii)(a)-(e) of the definitionof works contract which would attract Service Tax under the provisionsof the Finance Act, 1994 as amended in the year 2007. If both the aboveDrequisites are present, then Service Tax on works contract is leviable onthe service component. This is clear from the use of the word “and”between components (i) and (ii) of the definition of works contract underClause (zzzza) of Section 65 of the Finance Act, 1994 which is as perthe amendment in the year 2007. Thus, the definition speaks of aEcomposite works contract comprising of an element of sale and anelement of service.

Having regard to the specific definition of works contract introducedin the Finance Act, 1994, w.e.f. 1[st] June, 2007 and bearing in mind thatboth clauses (i) as well as (ii) of the definition have to be satisfied beforeFthe levy of service tax on the service component of works contract, itis necessary to understand the scope and ambit of the expression “transferof property in goods” in clause (i) of the definition of works contractfrom various judgments of this Court. Further, sales tax/VAT could alsobe levied on such transfer of goods involved in the execution of suchcontracts and service tax on as specified in clause (ii) of the definitionGof works contract.

The evolution of the concept of works contract is noted as underas it is on the service component of such contract that service tax isleviable. The reference to judgments on works contract under Sales Taxlaw would be pertinent.

A. Prior to the 46[th] Amendment of the Constitution, levy of salestax on sale of goods involved in the execution of works contractwas held to be unconstitutional in Gannon Dunkerley (I) – Stateof Madras vs. Gannon Dunkerley and Co. (Madras) Ltd. [AIR1958 SC 560]; [1959 SCR 379]. Constitution Bench of thisCourt held that in building contract where the agreement betweenthe parties was that the contractor should construct the buildingaccording to the specifications contained in the agreement and inconsideration, received payment as provided therein, there wasneither contract to sell the materials used in the construction northe property passed therein as movables. It was held that in thebuilding contract which was one (entire and indivisible), there wasno sale of goods and it was not within the competence of theconcerned provincial State Legislature (Madras Legislature) toimpose tax on the supply of the materials used in such contracttreating it as sale. Consequently, it was held that in buildingcontract which was one, entirely indivisible, there was no sale ofgoods and it was not within the competence of the ProvincialState Legislature to impose tax on the supply of materials used insuch contract treating it as sale. This was on the premise thatthe works contract was composite contract which is inseparableand indivisible.

B. As result of this dictum, the Law Commission of India in its61[st] Report specifically examined the taxability of works contractand examined the particular question whether the power to taxindivisible contract of works should be conferred on the States.This led to insertion of Clause (29-A) to Article 366 of theConstitution. For ease of reference, the same is extracted as under:

“Article 366. Definitions. - In this Constitution, unlessthe context otherwise requires, the following expressionshave the meanings hereby respectively assigned to them,that is to say –

[(29-A) “tax on the sale or purchase of goods” includes –

(a)X-X-X-X-X

(b) tax on the transfer of property in goods (whether asgoods or in some other form) involved in the execution of aworks contract;”

ABC

AC. In Gannon Dunkerley (II) - Gannon Dunkerley and Co.vs. State of Rajasthan [1993 (1) SCC 364],the ConstitutionBench of this Court explained the effect of the legal fictionintroduced by sub- clause (b) of Clause (29-A) of Article 366 ofthe Constitution. The following principles were enunciated, tooutline the operation of sub- clause (b) of Clause (29-A) of ArticleB366:

a) That by virtue of the legal fiction in Clause 29-A, even in asingle indivisible works contract, there is deemed sale of goodsand such sale has all the incidents of ‘sale of goods.’

Cb) That the value of goods involved in the execution of workscontract may be determined by taking into account the value ofthe entire works contract and deducting therefrom, the chargestowards labour and services.

c) That the following charges towards labour and services wereDto be excluded in determining the value of goods sold in executinga works contract:

i) Labour charges for execution of the works;

ii) Amount paid to sub-contractor for labour and services;

iii) Charges for planning, designing and architect’s fees;

iv) Charges for obtaining on hire or otherwise machinery and toolsused for the execution of the works contract;

v) Cost of consumables such as water, electricity, fuel, etc. usedin the execution of the works contract the property in which is notFtransferred in the course of execution of works contract; andvi) Cost of establishment of the contractor to the extent it is relatableto supply of labour and services;

vii) Other similar expenses relatable to supply of labour andservices;Gviii) Profit earned by the contractor to the extent it is relatable tosupply of labour and services.

D. Therefore, under the regime that existed prior to the amendmentand insertion of Clause (29A) to Article 366 of the Constitution, atypical works contract would not involve sale of goods and noH

sales tax was leviable on such works contract. However,subsequently, by way of the Constitution (Forty-sixth Amendment)Act, 1982, Clause (29-A) came to be inserted into Article 366 ofthe Constitution of India, providing for an inclusive definition ofthe expression “tax on the sale or purchase of goods” in relationto various transactions and dealings including “tax on the transferof property in goods (whether as goods or in some other form)involved in the execution of works contract.”

E. Following the introduction of the said clause, most Statesamended their Sales Tax statutes to cover ‘works contract.’ TheConstitutional validity of the aforementioned provisions by whichthe legislatures of the States were empowered to levy sales taxon certain transactions described in sub-clauses (a) to (f) of Clause(29-A) of Article 366 of the Constitution as also the question,whether, the power of the State legislature to levy tax on thetransfer of property in goods involved in the execution of workscontract is subject to the restrictions and conditions contained inArticle 286 of the Constitution, were considered by ConstitutionBench of this Court in Builders Association of India vs. Unionof India[(1989) 2 SCC 645]. Therein, while upholding theconstitutional validity of the aforementioned provisions, theConstitution Bench explained the unique features of compositecontract relating to work and materials and expounded on themeaning, effect and amplitude as also contours of the provisionspertaining to the taxing power of the States in relation to workscontract particularly in paragraphs 38-40 of the judgment.

F. In light of the said discussion, this Court concluded that thetransfer of any goods in Sub-clauses (a) to (f) of Clause (29A) ofArticle 366 of the Constitution is by way of deeming provisioni.e., deemed sale. This Court however, cautioned that the levyof sales tax after the 46th Amendment to the Constitution of Indiahas to still comply with the restrictions imposed under Articles286 and 269 of the Constitution.

G. Later three-judge bench of this Court in State of AP v. KoneElevators [(2005) 3 SCC 389] had taken the view that contractfor manufacture, supply and installation of lifts is “sale” and theentire value of the consideration can therefore be taxed under thesales tax law. However, the matter was subsequently referred to

ABC

Aa larger Bench to review the issue afresh. This Court, on re-hearing the matter referred to it, in Kone Elevator India Pvt.Ltd. vs. State of Tamil Nadu [(2014) 7 SCC 1], observed thatthe installation obligation in contract for manufacture, supplyand installation of lift is not merely incidental, but was profoundpart of the entire contract. That various components wereBassembled together and installed at site as permanent fixture tothe building. The goods, skill and labour elements are intimatelyconnected with one another and the contract is notdivisible. Therefore, this Court concluded that contract formanufacture, supply and installation of lifts was works contract.CIt was also observed that even after the 46th Amendment, if Article366 (29A)(b) is to be invoked, as necessary concomitant, it mustbe shown that the terms of the contract would lead to conclusionthat it is ‘Works Contract’. In other words, unless contract isproved to be ‘Works Contract’ by virtue of the terms agreed toas between the parties, invocation of Article 366 (29A)(b) of theDConstitution, cannot be made. That in circumstances when nodefinite conclusion can be made to the effect that given contractis works contract, the same will have to be declared as ‘sale’attracting the provisions of the relevant sales tax enactments.

H. In the case of Bharat Sanchar Nigam Ltd. vs. Union ofEIndia[2006] 145 STC 91 (SC), the question that came up fordecision before thisCourt was with regard to the nature of thetransaction by which mobile phone connections were obtained, asto, whether, it is sale or service or both. This Court held thatproviding telephone connection which operates by transmission

Fof electromagnetic waves or radio frequencies are not ‘goods’for the purpose of Article 366(29A) of the Constitution and thatthe goods in telecommunication are limited to the handsets suppliedby the service provider and as far as the SIM cards are concerned,the issue was left for determination by the assessing authorities.

I.Subsequently, in Larsen and Toubro Limited and Another vs.State of Karnataka and Another [(2014) (1) SCC 708], thisCourt deciphered the meaning of the works contract from theearlier judgments and in para 72 opined as under:-

“72. In our opinion, the term “works contract” in Article 366(29-A)(b) is amply wide and cannot be confined to particular

understanding of the term or to particular form. The termencompasses wide range and many varieties of contract.Parliament had such wide meaning of “works contract” in itsview at the time of the Forty-sixth Amendment. The object ofinsertion of clause (29-A) in Article 366 was to enlarge thescope of the expression “tax on sale or purchase of goods”and overcome Gannon Dunkerley (1) [State ofMadras v. Gannon Dunkerley and Co. (Madras) Ltd., AIR1958 SC 560 : 1959 SCR 379]. Seen thus, even if in contract,besides the obligations of supply of goods and materials andperformance of labour and services, some additional obligationsare imposed, such contract does not cease to be works contract.The additional obligations in the contract would not alter thenature of contract so long as the contract provides for contractfor works and satisfies the primary description of workscontract. Once the characteristics or elements of workscontract are satisfied in contract then irrespective of additionalobligations, such contract would be covered by the term “workscontract”. Nothing in Article 366(29-A)(b) limits the term“works contract” to contract for labour and service only. Thelearned Advocate General for Maharashtra was right in hissubmission that the term “works contract” cannot be confinedto contract to provide labour and services but is contractfor undertaking or bringing into existence some “works”. Weare also in agreement with the submission of Mr K.N. Bhatthat the term “works contract” in Article 366(29-A)(b) takeswithin its fold all genre of works contract and is not restrictedto one specie of contract to provide for labour and servicesalone. Parliament had all genre of works contract in view whenclause (29-A) was inserted in Article 366.”

(underlining by me)

J.Further, the difference between contract for work (or service)and contract for sale (of goods) was considered and by placingreliance on Commissioner of Sales Tax vs. Purshottam Premji[(1970) 2 SCC 287], it was observed that the primary differencebetween contract for work (or service) and contract for saleof goods is that, in the former, there is in the person performingwork or rendering service no property in the thing produced as

ABC

DEF

Awhole, notwithstanding that part or even the whole of thematerials used by him may have been his property. In the case ofa contract for sale, the thing produced as whole has individualexistence as sole property of the party who produced it, at sometime before delivery, and the property therein passes only underthe contract relating thereto to other party for price. It was alsoBobserved that the factors highlighted to distinguish contract forwork from contract for sale are relevant but not exhaustive.

K. In paragraph 89of the Larsen and Toubro Limited andAnother (supra) this Court observed that three conditions mustbe fulfilled to sustain the levy of tax on the goods deemed to haveCbeen sold in execution of the works contract, namely, (i) theremust be works contract, (ii) the goods should have been involvedin the execution of the works contract, and (iii) the property inthose goods must be transferred to third party either as goods orin some other form. In building contract or any contract to doDconstruction, the above three things are fully met. In contract to

build up flat there will necessarily be sale of goods element.Works contract also includes building contracts and, therefore, itcan be stated that building contracts are species of workscontract.

EL. With reference to the aspect theory, it was held that though theState Legislature does not have the power to tax services byincluding the cost of such service in the value of goods but thatdoes not detract the State to tax the sale of goods element involvedin the execution of works contract in composite contract likecontract for construction of building and sale of flat therein. InFlight of the above discussion, the legal proposition was summarisedin paragraph 97 of the judgment.

Evolution of the practice in relation to the levy of service taxon works contract:

G(6) Service tax was introduced in India vide the Finance Act,1994. Service tax is legislated by Parliament under the residuary entryi.e. Entry 97 of List I of the Seventh Schedule of the Constitution ofIndia read with Article 248 of the Constitution. The service tax provisionshave the following basic scheme:

(i) Section 65 of the Act provides for taxable services;

(ii) Section 66 of the Act provides for the charge of service taxby the person designated as “the person responsible forcollecting the service tax” for the Government;

(iii) Section 67 of the Act provides for the value of taxableservice which is to be subjected to 5% service tax; and

(iv) Section 68 of the Act provides for the collection andpayment mechanism for service tax.

It is necessary to trace the evolution of charging service tax onworks contract as discerned by this Court in the aforesaid judgments.While considering the rival contentions of the parties, it is also necessaryto examine the issue of levying service tax on contracts said to be in thenature of works contract, both prior to, and following the introduction ofan express charging provision to impose tax on works contract althoughwe are concerned with the period prior to the definition of works contractw.e.f. 1[st] June, 2007 to Finance Act, 1994. This is with reference to thefollowing judgments:

a) In Tamil Nadu Kalyana Mandapam Association vs. Unionof India[(2004) 5 SCC 632],this Court examined the question,whether, the inclusion of taxation on kalyana mandapams, withinthe tax net of Section 66 and 67 of the Finance Act, 1994 asamended in the year 1996 was unconstitutional. It was held that atax on services rendered by mandap-keepers and outdoor caterersis in pith and substance, tax on services and not tax on sale ofgoods or on hire-purchase activities. The nature and character ofthis service tax is evident from the fact that the transactionbetween mandap-keeper and his customer is definitely not inthe nature of sale or hire-purchase of goods. It is essentiallythat of providing service. The manner of service providedassumes predominance over the providing of food in suchsituations which is definite indicator of the supremacy of theservice aspect. The legislature in its wisdom noticed the saidsupremacy and identified the same as potential region to collectindirect tax.

b) The question, whether, the charges collected towards theservices for evolution of prototype conceptual designs, on whichservice tax had been paid under the Finance Act, 1994 as amendedfrom time to time, were also liable to tax under the Karnataka

Value Added Tax Act, 2003, (KVAT) for the sale of advertisementmaterial following the creation of the design-concept, wasconsidered by this Court in Imagic Creative Pvt. Ltd. vs. TheCommissioner of Commercial Taxes and Ors. [(2008) 2 SCC614]. This Court observed that payments of service tax as alsoof KVAT are mutually exclusive. That they should be held to beapplicable having regard to the respective parameters of servicetax and the sales tax as envisaged in composite contract ascontradistinguished from an indivisible contract. Thus, distinctionwas made between an indivisible contract and compositecontract. In doing so, it was held that composite contract, wouldhave to be construed such that the legal fiction in Article 366(29A) allowing tax on the sale element of works contract wouldhave to be applied only to the extent for which it was enacted,i.e., to the extent of the value of the sale component of the contractand should not be applied in relation to the service element of thetransaction. That taxes, in the nature of service tax could beapplied in relation only to the service element.

c) In Nagarjuna Construction Company Ltd. vs. Governmentof India and Ors. [(2013) 1 SCC 721], this Court discussed theeffect of introduction of an express charging provision to imposetax on works contract, w.e.f. 01[st] June, 2007, on works contractwhich were entered into prior to 01[st] June, 2007. In the said case,the appellant therein was said to be in the business of carrying outcomposite construction contracts. The appellant-assessee had paidsales-tax/VAT on those contracts under the Andhra PradeshGeneral Sales Tax Act, 1957, Andhra Pradesh Value Added Tax

Act, 2005 and other State enactments. Prior to 01[st] June, 2007,the assessee had paid service-tax under the category of ‘erection,commissioning or installation service’ as appearing under Section65 (105) (zzd) of the Finance Act, 1994, or, as ‘commercial orindustrial construction service’ under Section 65 (105) (zzq) andas ‘construction of complex service’ under Section 65 (105) (zzzh).

d) With effect from 01[st] June, 2007, the charging provision, Section65 (105) (zzzza) was introduced by defining works contract.The Central Government also introduced, w.e.f. 01[st] June, 2007the Works Contract (Composition Scheme for Payment of ServiceTax) Rules, 2007 (hereinafter referred to as ‘the 2007 Rules’).

Under this scheme, an option of composition was offered @ 2%of the gross amount charged on the works contract. Prior to thecomposition, the effective tax rate under the other category ofservices would work out to be approximately 3.96% of the grossamount.

e) The appellant in Nagarjuna Construction Company Ltd.(supra) sought to claim benefit of the Composition Scheme underthe 2007 Rules, however, the assessee was disabled to do sobecause of clause in Circular No. 98/1/2008-ST, dated4th January, 2008 which provided that taxable service, onceclassified under the old regime, could not be classified differently,post 01[st] June, 2007 simply because the consideration, or partthereof, was received post 01[st] June, 2007. The vires of CircularNo. 98/1/2008-ST was challenged before this Court. In upholdingthe validity of the said Circular, this Court held that the appellant,who had paid service tax prior to 1st June, 2007 for the taxableservices, was not entitled to change the classification of the singlecomposite service for the purpose of payment of service tax onor after 1[st] June, 2007 and hence, was not entitled to avail of theComposition Scheme. It was observed that the appellant-assesseehad already paid service tax on the basis of classification of servicecontract which was in force prior to 1[st] June, 2007 and the saidcontract could not be classified differently following the introductionof Section 65 (105) (zzzza) and the 2007 Rules.

f) Thus, Works Contract Services were brought under the servicetax net as per an amendment to of the Finance Act, 1994 byintroduction of Clause (zzzza) to Section 65(105). The saidintroduction was made pursuant to the Finance Act, 2007, whichexpressly made the service component in such works contractliable to service tax w.e.f. 1[st] June, 2007. The amendment wasmade to the said section of the Finance Act, 1994 by which workscontract which were indivisible and composite could be split sothat only the labour and service element of such contracts wouldbe taxed as service tax.

(7) Having noted the above developments, it is necessary to discussthe judgment in Larsen and Toubro Ltd. (supra) in detail as learnedASG, Ms. Divan has vehemently submitted that the said judgment requiresreconsideration. It may be noted that this judgment concerned the position

Aof law prior to the amendment made to the Finance Act, 1994, w.e.f. 1[st]June, 2007, incorporating the definition of works contract as under:

a) In the aforesaid case, this Court traced the historical settingwithin which the controversy leading up to the 46[th] amendment inthe context of levy of sales tax on works contract progressed.BTaking up the question as to whether service tax could be leviedon the service element of works contract, it was observed thatservice tax was introduced by the Finance Act, 1994 and variousservices were set out in Section 65 thereof as being amenable totax. The legislative competence of such tax is traceable to Article248 read with Schedule VII List I Entry 97 to the Constitution ofCIndia. The controversy in the said case was with regard to theperiod prior to the 2007 Amendment made to the Finance Act,1994 in the year 2007 which introduced the definition and conceptof works contract as being separate subject-matter of taxation.By the said amendment works contract, which were indivisibleDand composite were split so that only the labour and service elementof such contracts would be taxed under the heading service tax.Thus, the tax was not on works contract as such. In the said case,the Revenue raised four arguments to assail the judgments ofvarious Tribunals and High Courts which had decided against theRevenue on the point. By contrast, the assesses assailed theEjudgments of the Tribunal and the High Courts against them, inparticular the judgment in G.D. Builders vs. Union of India[(2013) 32 STR 673], of the Delhi High Court. According to theassesses there was no service tax leviable on service element ofworks contract prior to amendment being made in the year 2007,Finsofar as the indivisible works contract were concerned and whatwas taxable under the Finance Act, 1994 was only cases of pureservice in which there was no goods element involved. It wasurged that the judgment of the Delhi High Court in G.D. Builders(supra) was wholly incorrect and the minority judgment of thejudicial members of Larger Bench of the Delhi Tribunal in LarsenG& Toubro Ltd. vs. CST (in ST Appeal No.58658 of 2013,decided on 19.03.2015), had comprehensively discussed all theauthorities that were relevant to the issue and arrived at the correctconclusion. Thus, the assesses assailed the judgment of the DelhiHigh Court in G.D. Builders (supra) and considered along withHLarsen & Toubro Ltd. vs. CST (supra).

b) Considering the definition of ‘taxable service’ in sub-Section105 of Section 65 of the Finance Act, 1994 and the relevant clausestherein, namely, (g), (zzd), (zzh), (zzq) and (zzz-h); Charge ofservice tax in Section 66; valuation of taxable services for chargingservice tax [Section 67 and Section 65(105)(zzzza)] as well asthe Rule 2-A of Service Tax Act (determination of value) Rules2006, this Court observed that crucial to the understanding anddetermination of the issue at hand was the second GannonDunkerley and Co. vs. State of Rajasthan [(1993) 1 SCC 364](Gannon Dunkerley II) (supra) . That in the said judgment themodalities of taxing composite indivisible works contract was goneinto which has been referred to above. It was observed that thevalue of the goods involved in the execution of the works contractwill have to be determined by taking into account the value ofentire works contract and deducting therefrom the chargestowards labour and services which would cover –

“(a) labour charges for execution of the works;

(b) amount paid to sub-contractor for labour and services;

(c) charges for planning, designing and architect’s fees;

(d) charges for obtaining on hire or otherwise machinery andtools used for the execution of the works contract;

(e) cost of consumables such as water, electricity, fuel, etc.used in the execution of the works contract the property inwhich is not transferred in the course of execution of workscontract; and

(f) cost of establishment of the contractor to the extent it isrelatable to supply of labour and services;

(g) other similar expenses relatable to supply of labour andservices;

(h) profit earned by the contractor to the extent it is relatableto supply of labour and services.”

For the purposes of arriving at the basis for the levy of sales taxon works contract, the amount deductible under the aforesaid headswill have to be determined in light of the facts of particular caseand on the basis of the material produced by the contractor.

Ac) Referring to the aforesaid eight heads of deductions it wasobserved that in light of the judgment in Gannon Dunkerley II(supra) the same has to be indicated in the contractor’s account.However, if it is found that the Contractor has not maintainedproper accounts or their accounts are found to be not worthy ofcredence, it is left to the legislature to prescribe formula on theBbasis of fixed percentage of the value of the entire works contractas relatable to the labour and service element of it. It was observedthat “unless the splitting of an indivisible works contract isdone taking into account the eight heads of deduction, thecharge to tax that would be made would otherwise contain,Capart from other things, the entire costs of establishment, otherexpenses and profits earned by the contractor and wouldtransgress into forbidden territory, namely, into such portionof such cost, expenses and profit as would be attributable inthe works contract to the transfer of property in goods insuch contract.” Therefore, it was found that the assesses wereDright in contending that the service tax charging section itself mustlay down with specificity the levy of service tax on the serviceelement of works contract, and the measure of tax can only beon that portion of works contract which contain service elementwhich is to be derived from the gross amount charged for theEworks contract less the value of property in goods transferred inthe execution of the works contract. Since this had not been doneby the Finance Act, 1994, any charge to tax under the five headsin Section 65(105) would only be of service contracts simpliciterand not composite indivisible works contract. Those five headsfor ease of reference are noted as under:

“(g) to client, by consulting engineer in relation to advice,consultancy or technical assistance in any manner in one ormore disciplines of engineering but not in the discipline ofcomputer hardware engineering or computer softwareengineering;

(zzd) to customer, by commissioning and installation agencyin relation to erection, commissioning or installation;

(zzh) to any person, by technical testing and analysis agency,in relation to technical testing and analysis;

(zzq) to any person, by commercial concern, in relation toconstruction service;

(zzzh) to any person, by any other person, in relation toconstruction of complex;

Explanation : For the purposes of this sub-clause, constructionof complex which is intended for sale, wholly or partly, by abuilder or any person authorized by the builder before, duringor after construction (except in cases for which no sum isreceived from or on behalf of the prospective buyer by thebuilder or person authorized by the builder before the grantof completion certificate by the authority competent to issuesuch certificate under any law for the time being in force)shall be deemed to be service provided by the builder to thebuyer;”d) Speaking about the mutually exclusive taxation and powers ofthe Centre and the State, the dichotomy between the sales taxleviable by the State and service tax leviable by the Centre wasemphasised by this Court in the aforesaid judgment. In the contextof composite indivisible works contract, only Parliament can taxthe service element contained in these contracts and State onlycan tax the transfer of property in goods element contained inthese contracts. Thus, it is important to segregate the two elementscompletely for the purpose of taxation. Hence, it was held thatworks contract is separate species of contract distinct fromcontracts for service simpliciter recognised in the world ofcommerce and law as such and has to be taxed separately assuch. Referring to the decision of works contract in GannonDunkerley I, (supra) Kone Elevator India (P) Limited (supra),Larsen & Toubro Ltd. and others vs. State of Karnataka (supra)all arising under the Sales Tax law, it was emphasised that therewas no charging section to tax works contract in the Finance Act,1994 i.e. until the amendment made with the insertion of sub-

clause (zzzza) to clause 105 of Section 65 of the Finance Act,1994. Ultimately, in para 23 it was observed as under:-

“23. close look at the Finance Act, 1994 would show thatthe five taxable services referred to in the charging Section65(105) would refer only to service contracts simpliciter andnot to composite works contracts. This is clear from the verylanguage of Section 65(105) which defines “taxable service”as “any service provided”. All the services referred to in thesaid sub-clauses are service contracts simpliciter without anyother element in them, such as for example, service contractwhich is commissioning and installation, or erection,commissioning and installation contract. Further, under Section67, as has been pointed out above, the value of taxable serviceis the gross amount charged by the service provider for suchservice rendered by him. This would unmistakably show thatwhat is referred to in the charging provision is the taxation ofservice contracts simpliciter and not composite works contracts,such as are contained on the facts of the present cases. It willalso be noticed that no attempt to remove the non-serviceelements from the composite works contracts has been madeby any of the aforesaid sections by deducting from the grossvalue of the works contract the value of property in goods

transferred in the execution of works contract.”

It was also observed that while introducing the concept of servicetax on service element of indivisible works contract variousexclusions are also made, such as, works contract in respect ofroads, airport, airways transport, bridges, tunnels and dams, possiblyFin the national interest. The implication of the exclusion meansthat such contracts were never intended to be the subject-matterof the service tax.

e) Further, in Larsen & Toubro Ltd. (supra) the correctness ofthe judgment in G.D. Builders vs. Union of India [(2013) 32STR 673] was also considered. In the said case, it was held bythe Delhi High Court that Section 65(105)(g), (zzd), (zzh), (zzq)and (zzzh) were good enough to tax indivisible composite workscontract and that even when rules are yet to be framed forcomputation of taxes, taxes would be leviable. This propositionwas based on the judgment in Mahim Patram (P) Ltd. vs. Union

of India [(2007) 3 SCC 668]. It was observed that in G.D.Builders (supra) there was misreading of Mahim Patram(supra) which was case related to tax under the Central SalesTax Act; that in Mahim Patram (supra), it was observed thatunder Section 9(2) of the Central Sales Tax Act power is conferredon officers of various States to utilise the machinery providedunder the provisions of the States’ sales tax statutes for thepurposes of levy and assessment of Central Sales Tax under theCentral Act. That Rules could also be made in exercise of powerunder Section 13(3) of the Central Sales Tax Act as result ofwhich the necessary machinery for the assessment of CentralSales Tax was found to be there. Therefore, even in the absenceof Rules made under the Central Sale Tax Act the machineryprovided under the State Sales Tax statute for the purpose of levyand assessment Central Sales tax under the Central Act could beutilized and the same is different from saying that no Rules beingframed at all under the Central Sale Tax Act. Merely because norules were framed for computation under the Central sales taxAct it did not follow that no tax was leviable under the said Act.Hence, the observations of the Delhi High Court in G.D. Builderswere not approved.

f)With specific reference to para 51 of the judgment of the DelhiHigh Court in G.D. Builders case (supra), it was observed thatthe said judgment had ignored the decision by this Court in GannonDunkerley II (supra) inasmuch as the manner of bifurcation ofthe service element from composite works contract wasdelineated in the said case. That the service element had to bededucted from the gross amount charged thereof and not the grossamount of the works contract as whole from which variousdeductions have to be made to arrive at the service element in thesaid contract. Therefore, it was held that G.D. Builders (supra)was not correctly decided by observing in paragraph 39 as underafter quoting paragraph 31 of the judgment of Delhi High Court inG.D. Builders:

“We are afraid that there are several errors in this paragraph.The High Court first correctly holds that in the case of compositeworks contracts, the service elements should be bifurcated,ascertained and then taxed. The finding that this has, in fact,

been done by the Finance Act, 1994 Act is wholly incorrect asit ignores the second Gannon Dunkerley [(1993) 1 SCC 364]decision of this Court. Further, the finding that Section 67 ofthe Finance Act, which speaks of “gross amount charged”,only speaks of the “gross amount charged” for service providedand not the gross amount of the works contract as wholefrom which various deductions have to be made to arrive atthe service element in the said contract. We find thereforethat this judgment is wholly incorrect in its conclusion that theFinance Act, 1994 contains both the charge and machinery forlevy and assessment of service tax on indivisible workscontracts.”

It was categorically observed that since the Finance Act, 1994lays down no charge or machinery to levy and assess servicetax on indivisible composite works contract, therefore, servicetax was not existent at all under the Act and hence anyexemption qua service tax “levied” did not arise at all.

(8) As already noted, the definition of works contract was broughtunder the service tax net as per Section 65(105)(zzzza) of the FinanceAct, 1994 by the insertion of the said definition. The said introductionwas made pursuant to the Finance Act, 2007, which expressly made theEservice element in such works contract liable to service tax w.e.f. 1[st]June, 2007. By the said amendment, works contract which were indivisibleand composite could be split so that only the labour and service elementof such contracts would be taxed under the heading “Service Tax”.9) It is in the above backdrop that the definition of Works contractFinserted for the first time by virtue of Section 65(105)(zzzza) under theFinance Act, 2007 assumes significance and has to be applied w.e.f. 1[st]June, 2007. Thus, on and from the enforcement of the amendment in theFinancial Year 2007, i.e. 1[st] June, 2007 the tax on the service componentof works contract became leviable. Therefore, till then it was not soleviable as there was no concept of works contract under the said Act.

10) Recognising this aspect of the matter in Larsen and ToubroLtd. (supra), this Court held that Service Tax on works contract was notleviable, meaning thereby, that such tax on the service component ofworks contract as defined above did not attract Service Tax prior to theamendment.

11) Further, in Commissioner of Service Tax and Others vs.Bhayana Builders Private Limited and Others [(2018) 3 SCC 782],this Court considered the correctness of the judgment of the LargerBench of Customs, Excise and Service Tax Appellate Tribunal (for short,“CESTAT”) dated 06.09.2013 in the case of Bhayana Builders (P)Ltd. vs. CST [(2013) SCC OnLine CESTAT 1951]. In the said case,reliance was placed on Larsen and Toubro Ltd. (supra) and it was heldthat when there was no levy of service tax on works contract, no questionof any exemption would arise. It was further held that the CentralGovernment is empowered to grant exemption from the levy of servicetax either wholly or partially, only when there is any “taxable service” asdefined in sub-clauses of clause (105) of Section 65 of the Finance Act,1994 and not otherwise. This Court agreed with the view taken by theFull Bench of the CESTAT in the judgment dated 06.09.2013 anddismissed the appeals of the Revenue.

12) Therefore, reliance placed by the assesses in the present caseon the aforesaid judgments is just and proper. On the other hand, thecontention of Ms. Diwan, learned ASG to the effect that even prior tothe aforesaid amendment being made to the Finance Act, 1994 servicetax on works contract was leviable is not correct. It was being levied onpurely service contract and not on service element of works contract asthere was no definition of works contract till then. Hence, the amendmentmade to the Finance Act, 1994 by insertion of the definition of workscontract as under clause (zzzza) is not clarificatory in nature. Havingfound that the Service Tax was not at all leviable on service element ofa works contract, Parliament felt the need for the amendment and wasso incorporated by the Finance Act, 2007.

13) Thus, the judgment in Larsen and Toubro Ltd. (supra) hasbeen correctly decided and does not call for reconsideration insofar asthe period prior to 1[st] June, 2007 is concerned. In view of the abovediscussion, I agree with the result arrived at by His Lordship M.R. ShahJ. vis-à-vis allowing all civil appeals under consideration except CivilAppeal no. 6792 of 2010 which is dismissed. No costs.

Appeals disposed of.