2014 (8) TMI 414 - AT - Service Tax

Erection, commissioning and installation service - Service done by the foreign persons who did not have office in India - Notification No. 19/2003-S.T., dated 21-8-2003 and Notification No. 1/2006-S.T., dated 1-3-2006 - Held that - There is only one contract between the appellant and the foreign supplier, which relates to the value of textile machinery supplied by him. Such supply of textile machinery includes the work of installation, erection and commissioning. There is no separate payment for the said job, reflected in the contract. The appellants have paid the customs duty by treating the entire value as the value of textile machinery. Once the appellant has paid Customs duty on the entire value, which according to the Revenue includes the value of erection, commissioning, it is not proper to artificially segregate the said value into two parts i.e. value of the machinery and value of services. Further the adoption of the notf. in question for arriving at the artificial deemed value of the services is also not proper inasmuch as the said notification provided option to assessee to seek abatement of 67% in the value of services for payment of Service Tax. These notifications are applicable to the accepted and admitted service providers and grants option to them. The same have no applicability to the facts of the present case. - Prima facie case in favour of assessee - Stay granted.

Summary

Issues:
1. Service Tax liability on installation, erection, and commissioning services provided by foreign suppliers.
2. Valuation of services under the contract and applicability of relevant notifications.
3. Justification of imposition of penalties.
4. Point of limitation for demanding Service Tax.

Analysis:
1. The appellant imported textile machinery and cleared it by paying duty on the entire contract value, which included installation and commissioning services provided by foreign suppliers. The Revenue initiated proceedings for Service Tax on the basis that the foreign persons who performed the services did not have an office in India.

2. The Commissioner dropped the demand for the period before a certain date but confirmed Service Tax for the remaining period. The valuation of services was determined using Notification No. 19/2003-S.T. and Notification No. 1/2006-S.T. The demand for Service Tax was confirmed along with penalties under Sections 76 and 78 of the Finance Act, 1994.

3. The appellant argued that since the foreign exporters had offices in India and customs duty was paid on the entire machinery value, the Service Tax liability should not fall on them. The appellant contested the valuation of services based on the notifications cited by the Commissioner, claiming they were optional and not applicable in this case. The appellant also raised the issue of limitation.

4. The Revenue argued that customs duty payment on the machinery value did not absolve the appellant from paying Service Tax on the services provided. The Revenue supported the valuation method used by the adjudicating authority and requested the appellant to deposit the Service Tax amount.

5. The Tribunal agreed with the appellant, noting that there was only one contract covering both the machinery supply and services. The Tribunal found it improper to artificially segregate the contract value into machinery and service components, especially when customs duty was paid on the entire value. The Tribunal also deemed the notifications cited by the Commissioner as inapplicable to the case, as they were meant for admitted service providers seeking abatement.

6. Considering the arguments, the Tribunal found a prima facie case in favor of the appellant and unconditionally allowed the stay petition, ordering accordingly.