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M/s. Total Environment Building Systems Pvt. Ltd. vs The Deputy Commissioner of Commercial Taxes & Ors.

Civil Appeal · 2022 INSC 780Decided 2 Aug 2022
Civil Appeal Nos. 8673-8684 of 2013
M.R. Shah · B.V. Nagarathna

Background

This judgment decides a group of appeals raising a common question: whether service tax could be charged on "composite works contracts" (contracts combining both goods/materials and services, such as construction contracts) for the period before the Finance Act, 2007 specifically brought works contracts into the service tax net via Section 65(105)(zzzza). Total Environment Building Systems had challenged assessment orders levying service tax on it for this pre-2007 period; its writ petitions and writ appeal were dismissed by the Karnataka High Court on the ground that it had an alternative statutory appeal remedy. Several other companies (YFC Projects, G.D. Builders, NBCC, Unitech, Larsen & Toubro/L&T Hydrocarbon) had similar appeals pending, mostly rejected by High Courts relying on a Delhi High Court ruling in G.D. Builders v. Union of India that had held such tax was leviable even before 2007.

Decision Breakdown

The Supreme Court held that the Delhi High Court's G.D. Builders ruling had already been expressly overruled by the Supreme Court's own earlier decision in Commissioner, Central Excise and Customs, Kerala v. Larsen and Toubro Limited (2016), which held that Parliament's 2007 amendment introducing a specific charge for works contracts was not merely clarificatory, before that amendment, there was no valid legal machinery to tax the service element of an indivisible works contract at all. The Revenue's request to revisit or refer the Larsen and Toubro precedent to a larger bench was rejected on the principle of stare decisis (respecting settled precedent), since it had stood unchallenged and been consistently followed by courts and tribunals since 2015. Applying that binding precedent, the Court allowed the appeal of Total Environment Building Systems Pvt. Ltd. (along with the other assessees' appeals), quashed the tax assessment orders levied against it for the pre-2007 period, and dismissed the sole Revenue appeal in the group. Justice Nagarathna wrote a concurring supplementary opinion agreeing with the result but adding independent reasoning on the merits.

Lesson Learnt

Tax authorities cannot levy a tax retroactively for a period before Parliament created a specific legal mechanism for that tax: here, service tax on composite works contracts was legally uncollectable for periods before the 2007 amendment introduced both the charge and the machinery to assess it, and settled Supreme Court precedent on such questions will not be lightly reopened.

Official source (sci.gov.in)View Judgment (PDF)

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