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Issues involved: Interpretation of service tax liability on contracts related to Automated Teller Machines (ATMs) u/s Notification No. 19/2003-ST and applicability of service tax prior to 1-5-2006.
Summary: The Appellate Tribunal CESTAT CHENNAI addressed the demand for service tax amounting to over Rs. 7.6 crores on the appellants for the period July 2003 to July 2005 concerning 'Commissioning or Installation Service', along with a penalty imposition by the lower authority. Upon reviewing the records and arguments from both sides, it was observed that the appellants had engaged in contracts with various banks for services related to ATMs, including site selection, installation, certification, etc. The demand for tax was based on the gross amount received by the appellants from the customer-banks. The Commissioner determined that service tax was applicable on 33% of the gross amount under Notification No. 19/2003-ST, which granted abatement of 67% for supplying plant, machinery, or equipment and their commissioning or installation. The appellants contended that the contracts were indivisible, and thus no service tax should be levied. The Senior Advocate cited case law supporting this argument, emphasizing that services related to ATMs became taxable only from 1-5-2006. However, the department argued that the definition of 'commissioning or installation' during the dispute period covered the services provided by the appellants to the banks for ATMs, as ATMs were considered machinery or equipment falling under this definition. After careful consideration, the Tribunal noted the absence of judicial authority supporting the department's stance. Citing various judicial precedents, the Tribunal found merit in the appellants' argument that prior to 1-5-2006, indivisible services under turnkey contracts for ATMs were not taxable. Notably, the decision in Widia GMBH v. CCE [2006] 5 STT 414 was deemed relevant, where a similar service was held non-taxable before its inclusion as a taxable service. Consequently, the Tribunal granted the appellants a waiver of pre-deposit and stay of recovery concerning the tax and penalty amounts. Due to the significant stakes involved, the appeals were scheduled for expedited hearing and disposal on 17-4-2007, including the department's Appeal No. S/130/06 against one of the impugned orders.
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