2012 (8) TMI 750 - AT - Service Tax

Demand of service tax - Held that - Laying of pipeline for water supply projects will not come under the category of erection, commissioning and installation service - Board s Circular dated 24-5-2010 makes it absolutely clear that unless the activity undertaken results in the emergence of an erected, installed and commissioned plant, machinery, equipment or structure , the activity will not come under the category of erection, commissioning and installation service. Laying of pipelines cannot be construed as a plant, machinery or equipment or structure.

Summary

Issues:
1. Classification of activity as "erection, commissioning, and installation service" for service tax liability.
2. Inclusion of value of goods supplied in service tax demand calculation.
3. Financial hardship faced by the appellant.

Issue 1: Classification of Activity for Service Tax Liability
The appellant, a manufacturer of pipes and service tax assessee, undertook activities related to water projects, including laying pipelines. The department claimed these activities fell under "erection, commissioning, and installation service" for service tax purposes. The Commissioner confirmed a substantial duty demand, interest, and penalties. The appellant argued that similar cases had ruled in favor of not categorizing such activities under the mentioned service tax category. They contended that their activities constituted a works contract, not subject to service tax. The appellant also highlighted discrepancies in the Commissioner's calculation, including the inclusion of goods' value already taxed under VAT/Sales Tax. The appellant referenced legal precedents and circulars to support their position.

Issue 2: Inclusion of Goods Value in Service Tax Demand
The appellant challenged the inclusion of goods' value in the service tax demand calculation, arguing that the value of goods already taxed under VAT/Sales Tax should be excluded. The appellant claimed that the Commissioner's failure to consider the value of services provided separately was a flaw in the order. The appellant's financial difficulties were also cited to emphasize the potential undue financial burden of any pre-deposit requirement.

Issue 3: Financial Hardship
The appellant highlighted their significant accumulated losses, exceeding Rs. 38.00 crores, to demonstrate their financial distress. They requested a complete waiver of the pre-deposit of the dues adjudged due to their extreme financial difficulties. The appellant's financial situation was a crucial factor in the Tribunal's decision to grant a full waiver of the dues adjudged and stay the recovery during the appeal's pendency.

In conclusion, the Tribunal ruled in favor of the appellant, granting a full waiver of the dues adjudged and staying the recovery during the appeal process. The decision was based on the appellant's prima facie case for not categorizing their activities under the "erection, commissioning, and installation service" for service tax liability, the inclusion of goods' value in the tax demand calculation, and the appellant's severe financial hardship. The Tribunal's decision was influenced by legal precedents, circulars, and the appellant's financial circumstances.