Joint Venture is not liable to pay Service Tax

Joint Venture is not liable to pay Service Tax

RS Sharma Advocate

Joint Venture is not liable to pay service tax when works contract has been executed by a sub-contractor as there is no transfer of property by JV to the client as also affirmed by Larger Bench of CESTAT by a recent Ruling AIT-2015-48-CESTAT as there is no transfer of property by JV to the client.

Where execution of the whole of the  work is sub-contracted  on back to back basis by the Joint Venture to sub- contractors,  in the absence of any transfer of property in goods involved in the execution of such works, from the main contractor to the Government/ Government undertakings, levy of service tax in the hands of main contractor  is  illegal  under Works Contract Service as defined under Section 65(105)(zzzza) of the Finance Act,1994 is there is no transfer of property in execution of works contract by the Joint Venture.

It is only the sub-contractor who effects transfer of property in goods as no goods vest in the Joint Venture so as to be subject-matter of a retransfer. By virtue of article 366(29A)(b) of the Constitution once the work is assigned by the Joint Venture , the only transfer of property in goods is by the sub-contractor(s) who pays VAT on the goods involved in the execution of the works. Once the work is assigned by Joint Venture to its sub-contractor(s)., JV ceases to execute the works contract in the sense contemplated by Article 366 (29A)(b) of the Constitution because property passes by accretion  there is  no property  in goods with the Joint Venture which is capable of a retransfer, whether as goods or in some other form.

W.e.f. 01.06.2007 (by the Finance Act, 2007) sub-clause (zzzza) was inserted in Section 65(105) to bring “works contract” within the ambit of service tax.  This provision reads:

(zzzza) to any person, by any other person in relation to the execution of a works contract excluding works contract in respect of roads, airports railways, transport terminals, bridges, tunnels and dams.

Explanation: For the purposes of this sub-clauses, “works contract” means a contract wherein,-

(i) Transfer of property in goods involved in the execution of such contract 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, drain laying or other installations for transport of fluids, heating, ventilation or air-conditioning including related pipe work, duct work and sheet metal work, thermal insulation, sound insulation, fire proofing or water proofing, lift and escalator, fire escape staircases or elevators; or

(b) Construction of a new building or a civil structure or a part thereof, or of a pipeline or conduit, primarily for the purposes of commerce or industry; or

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

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

(e) turnkey projects including engineering, procurement and construction or commissioning (EPC) projects.

Joint Venture cannot be considered as having provided the taxable (works contract) service, enumerated and defined in Section 65 (105)(zzzza) of the Act as it does not fall within the ambit and scope of the definition of taxable service.

(Writer is an Advocate based in Delhi/Gurgaon and is advising several MNCs, Joint Ventures, PSUs & Indian Corporates on service tax, central excise, customs & Foreign  Trade matters. He can be mailed atrssharma@gmail.com )

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