2004 (12) TMI 4 - Commissioner - Service Tax

Service Tax Consulting Engineer Turnkey project executed by conglomerate Members not liable to pay service tax

Summary

Issues Involved:
1. Classification of services under Consulting Engineer's service.
2. Nature of the contract as Turnkey Contract.
3. Liability to pay service tax on the services provided.
4. Applicability of previous judgments and legal precedents on similar cases.

Issue-wise Detailed Analysis:

1. Classification of Services under Consulting Engineer's Service:
The primary issue was whether the services provided by the appellants fell under the category of Consulting Engineer's service, which is taxable under Section 65 of the Finance Act, 1994. The Adjudicating Authority had determined that the services provided by the appellants were explicitly categorized under Consulting Engineering Services due to the bifurcation of the project stages and the requirement for owner approval on designs and drawings.

2. Nature of the Contract as Turnkey Contract:
The appellants contended that the contract entered into with Petronet LNG Ltd. was a work contract on a turnkey basis. They argued that the dominant idea of the contract was the completion and handover of an operable LNG Re-gassification plant, which should be considered a turnkey project. The contract included clauses that emphasized the turnkey nature, such as the obligation to provide a completed facility, the fixed lump sum price, and the issuance of a Final Acceptance Certificate upon completion.

3. Liability to Pay Service Tax on the Services Provided:
The Adjudicating Authority had ordered the appellants to pay service tax on the grounds that the services provided were taxable under Consulting Engineer's service. However, the appellants argued that the contract was a composite contract for the execution of work on a turnkey basis and should not be vivisected for the purpose of imposing service tax on individual components.

4. Applicability of Previous Judgments and Legal Precedents:
The appellants relied on previous judgments, particularly the case of M/s Daelim Indus. Co. Ltd. v. CCE, Vadodara, where it was held that a work contract on a turnkey basis cannot be vivisected and subjected to service tax as Consulting Engineer's service. The Tribunal and the Supreme Court had upheld this view. Additionally, similar judgments in the cases of Larsen and Toubro Ltd. and Rolls Royce Industries Power (I) Ltd. supported the appellants' position that the design element of a work contract should not be subjected to service tax by vivisecting the contract.

Conclusion:
The Commissioner (Appeal) reviewed the relevant clauses of the contract and the definitions of turnkey contracts from authoritative sources. It was concluded that the contract entered into by the appellants was indeed a turnkey contract. The services provided did not fall within the meaning of taxable service rendered by Consulting Engineers as defined under Section 65 of the Finance Act, 1994. Consequently, the impugned order was set aside, and the appeal was allowed, relying on the judgments of the Hon'ble CESTAT and the Supreme Court. The stay application also stood disposed of.