2011 (3) TMI 538 - AT - Service Tax

Demand - Consulting Engineer s Service and Installation & Commissioning Service - there is clear intention in the contract for providing the services of designing & other technical assistance, erection, installation, commissioning, for consideration as mentioned in the contract - the consideration for designing and other technical assistance in cost centres A & B of each section and for erection, installation and testing & commissioning in cost centres D & E of each section - While with effect from 1-6-2007, following the principle of harmonious construction, it can be said that while section 65(105)(zzzza) would cover the services defined by section 65(105)(zzd), section 65(105)(zzq), section 65(105)(zzzh) and EPC contracts which involve transfer of property is goods on which tax as sale of goods is leviable, and section 65(105)(zzd), 65(105)(zzq) and section 65(105)(zzzh) will cover erection, installation or commissioning service, commercial or industrial construction services and residential construction services respectively not involving transfer of property in goods, but it does not mean that prior to 1-6-2007, the services covered by section 65(105)(zzd), 65(105)(zzq) and 65(105)(zzzh) involving transfer of property or goods were not taxable Regarding time limitation - appellant s action of not declaring the amounts received in respect of the jobs covered under cost centres A & B and D & F in the ST-3 return and not paying service tax in respect of the same, amounts to suppression of the relevant information with intent to evade the payment of tax - Decided against the assessee Regarding penalty - there was suppression of relevant information with intent to evade the service tax and there is no valid reason for not paying the service tax payable by the due date, penalty has been rightly imposed under sections 76 and 78 of the Finance Act, 1994 - Decided against the assessee

Issues Involved:
1. Nature of the contract: Whether it is an indivisible lump sum turnkey contract or a divisible contract for supply of goods and services.
2. Provision of taxable services: Whether the appellant provided taxable services of "Consulting Engineer's Service" and "Erection, Installation or Commissioning Service."
3. Taxability prior to 1-6-2007: Whether these services could be charged to service tax before 1-6-2007.
4. Extended limitation period: Whether the longer limitation period under section 73(1) of the Finance Act, 1994 is applicable.
5. Imposition of penalties: Whether penalties under sections 76 and 78 of the Finance Act, 1994 are justified.

Detailed Analysis:

1. Nature of the Contract:
The appellant contended that their contract with DMRC is an indivisible lump sum turnkey contract for delivering a fully functional train control, signaling, and telecommunication system. The department argued that the contract is divisible into components of sale and service, with distinct charges for goods and services. The Tribunal concluded that the contract is indeed divisible, with clear demarcations for various services and goods provided, as evidenced by the detailed milestone payments and pricing documents. The Tribunal rejected the appellant's reliance on the Daelim Industrial Co. Ltd. case, stating that the contract in question is not an indivisible works contract but a composite contract for sale and service.

2. Provision of Taxable Services:
The Tribunal found that the activities covered by cost centers A and B, which involve preparing various plans, designs, and technical specifications, fall under "Consulting Engineer's Service." Similarly, the activities under cost centers D and E, which include erection, installation, testing, and commissioning, are covered under "Erection, Installation or Commissioning Service." Therefore, these services provided by the appellant were taxable.

3. Taxability Prior to 1-6-2007:
The appellant argued that services provided under a turnkey works contract became taxable only from 1-6-2007 under section 65(105)(zzzza) of the Finance Act, 1994. The Tribunal disagreed, stating that even prior to 1-6-2007, contracts involving services like "Consulting Engineer's Service" and "Erection, Installation or Commissioning Service" were taxable. The introduction of section 65(105)(zzzza) did not imply that such services were not taxable earlier; rather, it provided a new machinery for assessment of service tax on specific types of contracts.

4. Extended Limitation Period:
The Tribunal upheld the use of the extended limitation period under section 73(1) of the Finance Act, 1994. The appellant had initially paid service tax but later stopped without informing the department, and did not declare the amounts received for taxable services in their ST-3 returns. This omission amounted to suppression of information with intent to evade tax, justifying the extended limitation period.

5. Imposition of Penalties:
The Tribunal confirmed the imposition of penalties under sections 76 and 78 of the Finance Act, 1994. The appellant's cessation of service tax payments was not justified, as the contract was clearly divisible and taxable. Additionally, the appellant provided no valid reason for not paying service tax on another pure service contract with M/s. Mitsubishi Corporation Ltd. The penalties were deemed appropriate due to the suppression of relevant information and the intent to evade tax.

Conclusion:
The appeal was dismissed, and the Tribunal found no infirmity in the impugned order, confirming the tax demands, interest, and penalties imposed on the appellant.

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