Composite works contracts involving transfer of goods cannot be taxed as Management, Maintenance or Repair services.

The appellant, a PWD contractor, executed reconstruction, repair, improvement, and maintenance works relating to irrigation canals for the Kerala Government and other departments.

In Appeal No. ST/21090/2016, a show-cause notice dated 31 May 2010 demanded ₹2,93,140 as service tax under Management, Maintenance or Repair Service (MMRS) for the period 16 June 2005 to 31 March 2009. The adjudicating authority confirmed the demand and imposed penalties.

In Appeal No. ST/21091/2016, a further demand was confirmed for the period 1 April 2010 to 31 December 2010, comprising ₹46,919 under MMRS and ₹15,175 under Manpower Recruitment and Supply Agency Service.

The Commissioner (Appeals) set aside the penalties but upheld the service-tax demands by a common order dated 28 April 2016. The appellant challenged the confirmation of the demands before the CESTAT.

The appellant contended that the canal works were composite works contracts involving transfer of goods, on which VAT had been paid under the Kerala VAT law.

Whether service tax could be levied under the category of Management, Maintenance or Repair Service on composite canal-repair and maintenance contracts involving transfer of property in goods and payment of VAT?

Whether the extended period of limitation could be invoked when the first appellate authority had found no deliberate suppression of facts or intention to evade tax?

Whether the demand under Manpower Recruitment and Supply Agency Service was sustainable when the value of the activity was below the applicable taxable threshold?

The Tribunal applied Section 65(105)(zzzza) of the Finance Act, 1994, which defined works contract service as a contract involving transfer of property in goods leviable to tax as a sale of goods and covering specified construction, repair, alteration, renovation, or restoration activities.

It relied principally on Commissioner of Central Excise & Customs v. Larsen & Toubro Ltd., 2015 (39) S.T.R. 913 (S.C.), which held that the pre-2012 taxable-service provisions covered service contracts simpliciter and not composite works contracts involving a non-service element such as transfer of property in goods.

The Tribunal also relied on Agarwal Engineering Works v. C.C., C. Ex. & S.T., 2019 (24) G.S.T.L. 264 (Tri.-Hyd.), where maintenance and repair contracts involving both labour and materials, with VAT deducted and paid to the Government, were held not taxable under MMRS.

As to limitation, the Tribunal applied the principle that the extended period is unavailable absent suppression of facts or an intention to evade tax.

It further accepted the applicable small-service-provider exemption or taxable-threshold principle in relation to the manpower-supply activity.

The Tribunal found that the appellant’s canal-repair and maintenance contracts involved both provision of services and transfer of materials, as evidenced by the appellant’s payment of VAT under the Kerala VAT Rules.

Applying Larsen & Toubro, it held that composite works contracts could not be brought to tax under a separate service category such as MMRS when the statutory scheme taxed service contracts simpliciter and specifically addressed composite contracts through the works-contract framework.

The Department’s contrary reasoning—that the canal was not used for commerce or industry and therefore the activity could not qualify as a works contract—did not justify taxing the composite contracts under MMRS.

The Tribunal further held that the extended limitation period was unavailable because the appellate authority had found no deliberate suppression and the VAT certificate corroborated the appellant’s disclosure and tax treatment.

Finally, although the manpower activity was taxable in principle, the demand was unsustainable because its value was below the applicable taxable limit.

The extended-period demand was also invalid in the absence of suppression or intent to evade tax.

The manpower-supply demand was unsustainable because the activity fell below the applicable taxable threshold.

Accordingly, the impugned appellate orders were set aside and both appeals were allowed, with consequential relief as permissible in law.