2014 (5) TMI 339 - AT - Service Tax

Services provided to railways - Erection, installation and commissioning service - pumping of water from Mahi River to railway s overhead tanks, boring for tube wells, developing and testing of tube wells, painting and dismantling of lever frames, erection of structures, laying of S&T cables and supply and installation of signaling material in connection with providing interlocking of railways - Held that - even if their contracts with the railways are vivisected for charging the service tax on the taxable service components, the component of the taxable service would be very small whose value during each year would be within the exemption limit prescribed under Notification No. 6/2005-S.T. However, on going through the impugned order, we find that in para 6.1 of the order, the Commissioner (Appeals) had given a categorical finding that the appellant have not disputed that their service to railways falls under the category of erection, installation and commissioning service and their main contention is that the same is not taxable as the service has been provided to the railways. In the impugned order, the appellant s contracts with the railways have nowhere been analyzed for ascertaining as to whether the contracts were providing erection, installation and commissioning service or otherwise. In view of this, the impugned order is not sustainable. The same is set aside and the matter is remanded to the Commissioner (Appeals) for de novo decision after hearing the appellant and examining their contracts with the railways. - Decided in favour of assessee.

Summary

Issues:
1. Taxability of services provided to railways under erection, installation, and commissioning category.
2. Applicability of penalty under Sections 76, 77, and 78 of the Finance Act, 1994.
3. Interpretation of contracts with railways for service tax liability determination.

Analysis:

Issue 1: Taxability of services provided to railways under erection, installation, and commissioning category:
The appellant contended that their contracts with railways involved activities like supply of materials, pumping water, boring tube wells, and other non-taxable services. They argued that even if service tax was applicable, the value would fall below the exemption limit. The Commissioner (Appeals) found that the services provided indeed fell under "erection, installation, and commissioning service." However, the order lacked analysis on whether these contracts constituted taxable services. The Tribunal set aside the order, remanding the matter to the Commissioner (Appeals) for a fresh decision after a detailed examination of the contracts to determine the taxability of services provided to railways. The Commissioner was directed to ascertain if the contracts were indivisible service contracts, the nature of the services provided, and if the service component was taxable, emphasizing compliance with relevant legal precedents.

Issue 2: Applicability of penalty under Sections 76, 77, and 78 of the Finance Act, 1994:
The appellant argued that in the absence of service tax liability, penalties under Sections 76, 77, and 78 should not apply. The Commissioner (Appeals) imposed penalties under these sections, albeit at reduced amounts. The Tribunal did not delve into the penalty issue due to the primary dispute regarding taxability. It directed the Commissioner (Appeals) to first determine the tax liability before addressing the quantification of service tax demand and imposition of penalties, stressing adherence to legal precedents in penalty imposition.

Issue 3: Interpretation of contracts with railways for service tax liability determination:
The Tribunal highlighted the need for a thorough examination of the contracts between the appellant and railways to ascertain the nature of services provided and their taxability. It emphasized the importance of analyzing whether the contracts were indivisible service contracts or mixed contracts involving both material supply and services. The Commissioner (Appeals) was instructed to provide clear findings on the taxability of services under the contracts with railways before proceeding with the quantification of tax demand and penalty imposition. Legal precedents such as the judgments in CCE, Raipur v. BSBK Pvt. Ltd., Alstom Projects India Ltd. v. CST, Delhi, and Instrumentation Ltd. v. CCE, Jaipur-I were cited for guidance in determining tax liability based on contract analysis.

This detailed analysis of the judgment provides insights into the issues of taxability, penalty imposition, and contract interpretation, offering a comprehensive understanding of the legal complexities involved in the case.