2013 (9) TMI 713 - AT - Service Tax

Stay application - Valuation - inclusion of cost of goods sold - erection, installation and commissioning services Held that - Proviso to Rule 3(1) of the Service Tax Rules,2007 reads as Provided that nothing contained in this Explanation shall apply to a Works Contract, where the execution under the said contract has commenced or where any payment, except by way of credit or debit to any account, has been made in relation to the said contract on or before 07.07.2009. . Thus, appellant is not required to include the value of the plant and machinery for discharge of Service Tax liability under erection, installation and commissioning services rendered by him as the said proviso specifically provides for inapplicability of the said explanation for the contract entered prior to 07.07.2009, wherein the work has commenced - From the contract which was produced before us, we find and more specifically the supply contract, it indicates that the ownership of the plant and machinery gets passed over to the service recipient, as and when the said machinery is delivered at the site of the said M/s VPCL or M/s EPGL - Issue needs to be considered in depth - Appellant has made out a case for waiver of pre-deposit of the amounts involved Appeal allowed stay granted.

Summary

Issues:
1. Whether the value of plant and machinery procured by the appellant and supplied to the service recipients can be included for the discharge of Service Tax liability for the services provided under erection, installation, and commissioning services.

Analysis:
The appellant filed a Stay Petition seeking a waiver of pre-deposit of Service Tax, interest, and penalties amounting to Rs.80.94 crores. The Service Tax liability, interest, and penalties were confirmed by the adjudicating authority, stating that the appellant did not discharge the Service Tax liability on the value of plants and machinery procured for the service recipients. The appellant argued that they had separate contracts for supply and erection services with the service recipients and that the demand was raised incorrectly. They referred to the Works Contract (Composite scheme for payment of Service Tax) Rules, 2007, and subsequent amendments to support their case for not including the value of indigenously procured goods for Service Tax liability discharge.

The appellant contended that the plant and machinery procured were the properties of the service recipients once delivered to the site, as per the supply contracts. On the other hand, the Additional Commissioner argued that the appellant was responsible for the functioning of the plant post-installation and commissioning, and therefore, should discharge Service Tax liability on the value of the machinery supplied. He cited previous tribunal decisions and the appellant's own case to support this stance.

After considering the submissions, the Tribunal focused on whether the value of the procured plant and machinery should be included for Service Tax liability. They noted that the contract was entered into before 07.07.2009 and that the appellant had separate agreements for supply and erection services, having already paid Service Tax on the latter. The Tribunal analyzed the relevant rule and explanation, finding that the proviso to the explanation exempted contracts entered before 07.07.2009 from including the value of goods for Service Tax liability. They also observed that the ownership of the machinery passed to the service recipients upon delivery at the site, based on the supply contract.

Consequently, the Tribunal allowed the application for waiver of pre-deposit and stayed the recovery of the amounts until the appeal's disposal. Both parties requested an early disposal of the matter, which the Tribunal scheduled for 25.06.2013.