2013 (11) TMI 1505 - AT - Service Tax

Stay application - works contract - composite contract or not - Department had issued a demand notice by adding the value of supply of materials/equipments to the portion of civil works, while computing the service tax liability - Penalty u/s 78 - Held that - prima facie, it is clear that a composite contract or turn-key project could be vivisected and the service portion of the contract could be separated from the pure supply portion of the equipments and materials contract. After going through the sample copies of the invoices and contracts relating to pure supply of materials, prima facie, we find that the Applicant have raised separate invoices for supply of equipments/parts on which VAT had been discharged by them. In these circumstances, we are of the view that the Applicant could able to make out a prima facie case for total waiver of predeposit of the dues adjudged. Accordingly, predeposit of all dues adjudged is waived and its recovery stayed during pendency of the Appeal - Stay granted.

Issues:
Application for waiver of predeposit of Service Tax and penalty under Sections 77 and 78 of the Finance Act, 1994.

Detailed Analysis:

Issue 1: Predeposit of Service Tax and Penalty
The Applicant sought a waiver of predeposit of Service Tax amounting to Rs.1.87 crore and an equal penalty imposed under Sections 77 and 78 of the Finance Act, 1994. The Applicant had entered into an agreement with M/s. Karnataka Power Transmission Corporation Ltd. for establishing a sub-station. The dispute arose concerning the payment of service tax on the supply of materials/equipments and civil works portion of the project. The Applicant contended that they correctly paid service tax on the civil works portion, including the supply of materials, after availing specific notifications. The Department, however, issued a demand notice by adding the value of materials/equipments to the civil works portion, thereby increasing the service tax liability. The Applicant argued that the project could be vivisected, and they were not liable to pay service tax on the pure supply of materials/equipments. The Revenue, on the other hand, claimed that the turn-key project could not be divided into separate parts to avoid service tax payment.

Issue 2: Interpretation of Tribunal's Decision
The Tribunal analyzed the legal provisions and the decision of the Larger Bench in the case of CCE, Raipur vs. BBSK Pvt. Ltd. The tribunal noted that a composite contract or turn-key project could be vivisected, separating the service portion from the pure supply portion of the contract. The Applicant presented separate invoices for the supply of equipments/parts on which VAT had been paid. Based on this analysis and the legal precedent, the Tribunal found that the Applicant had a prima facie case for a total waiver of predeposit of the dues adjudged. Consequently, the Tribunal granted the waiver of predeposit and stayed the recovery of all dues during the pendency of the appeal.

Conclusion
The Tribunal, after considering the arguments from both sides and examining the relevant contracts and invoices, concluded that the Applicant had correctly discharged the service tax liability on the civil works portion of the project. The Tribunal accepted the Applicant's contention that the turn-key project could be vivisected, and the service tax was not applicable to the pure supply portion of materials/equipments. Therefore, the Tribunal granted a total waiver of predeposit of the dues adjudged and stayed the recovery during the appeal process. The decision was based on the interpretation of legal provisions and the Tribunal's previous ruling on vivisection of composite contracts.

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