2006 (10) TMI 33 - AT - Service Tax

Valuation(Service tax)-Alleged that assessee were short paid the levy by not taking into consideration some taxable services- After considering all the fact and prior decision ,decision made in favour of assessee.

Summary

Issues:
1. Allegation of incorrect calculation of service tax on supply, installation, and commissioning services.
2. Interpretation of Notification No. 19/2003 regarding exemption conditions.
3. Comparison with previous judgments on similar issues.
4. Consideration of whether work contract should be vivisected for tax purposes.

Analysis:

1. The appeal in this case arose from an Order-in-Original confirming Service Tax on services of "Supply, Installation, and Commissioning" due to alleged incorrect valuation by the assessee. The Revenue contended that the levy was underpaid as the assessee did not include the labor component and other elements in the charges. The appellants argued that they had correctly paid the duty and the alleged elements were not required to be added. The Revenue relied on Notification No. 19/2003, stating that tax should be calculated at 33% of the gross amount charged for supplying and commissioning machinery. The appellants claimed the exemption was subject to specific conditions.

2. The learned Commissioner's interpretation of the exemption notification was challenged by the appellants, stating that adding words not present in the notification was impermissible. The appellants cited judgments like CCE v. Larsen & Toubro Ltd. and Daelim Industrial Co. Ltd. v. CCE to support their contention. They argued that the Tribunal had previously set aside similar demands, following the principle that a work contract cannot be divided for tax purposes. The Tribunal upheld the assessees' contention, emphasizing that a construction contract cannot be subjected to service tax as a consultancy service, and the entire activity should be considered as a work contract.

3. The Tribunal's decision in this case was consistent with previous rulings, including Daelim Industrial Co. Ltd. and Larsen & Toubro Ltd., where demands were set aside based on the principle that a work contract cannot be dissected for tax assessment purposes. The Tribunal highlighted that the primary objective of the contract in question was construction, not rendering services, and therefore, service tax could not be levied on the service portion of the contract. The judgments cited supported the conclusion that the confirmation of the demand was not justified, leading to the allowance of the appeal with any consequential relief.

4. In conclusion, the Tribunal's analysis focused on the correct valuation of services for Service Tax purposes, the interpretation of exemption conditions under Notification No. 19/2003, and the consistent application of the principle that a work contract should not be vivisected for tax assessment. The judgment provided clarity on the treatment of construction contracts in relation to service tax, emphasizing the need to consider the nature of the contract in its entirety rather than isolating specific components for taxation.