2014 (11) TMI 580 - AT - Service Tax

Valuation - Erection, commissioning and installation service - Imposition of interest and penalty - Held that - Service tax levy is confined to supply/rendering/provision of service. It does not extend to supply of goods, if the same is involved in a composite contract involving supply of service. Therefore, in a contract which involves both supply of goods as well as supply of services, service tax liability can be fastened only on the value of the service rendered. This is the position in law as explained by the hon ble Delhi High Court in the case of G.D. Builders vs. Union of India - 2013 (11) TMI 1004 - DELHI HIGH COURT . Therefore, the question of inclusion of value of goods supplied in a composite contract for the purpose of levy of service tax is clearly unsustainable. Therefore, the matter has to go back to the adjudicating authority to determine and exclude the value of the goods supplied in the contract undertaken by the appellant and thereafter, re-determine the service tax liability of the appellant - Matter remanded back - Decided in favour of assessee.

Summary

Issues:
1. Confirmation of service tax demand against the appellant.
2. Nature of the activity undertaken by the appellant - composite in nature involving supply of goods and rendering of services.
3. Dispute regarding service tax liability based on the exclusion of the value of goods supplied.
4. Rejection of reconciliation statement by the Revenue.
5. Request for remand back to the adjudicating authority for reconsideration.
6. Other issues not considered in the impugned order.

Analysis:

Issue 1:
The appeal challenged the Order-in-Original confirming a service tax demand of Rs. 1,78,35,303 against the appellant along with interest and penalty. The period of demand was from October 2004 to March 2009.

Issue 2:
The appellant contended that the activity of erection, commissioning, and installation was composite, involving both supply of goods and rendering of services. They argued that service tax should only apply to the labor charges, excluding the value of goods supplied.

Issue 3:
The appellant's consultant submitted that the service tax liability should be calculated by excluding the value of goods supplied. The department rejected the reconciliation report provided by the appellant, citing various grounds, including the composite nature of the work orders.

Issue 4:
The Revenue rejected the reconciliation statement filed by the appellant, leading to the request for remand back to the adjudicating authority for reconsideration.

Issue 5:
The Tribunal acknowledged that service tax liability is limited to the value of services rendered and does not extend to the supply of goods in a composite contract. Citing a Delhi High Court case, the Tribunal directed the matter to be remanded back to determine and exclude the value of goods supplied in the contract for reevaluation of the service tax liability.

Issue 6:
The appellant was granted the opportunity to raise other issues before the adjudicating authority, and all contentions were kept open for further consideration.

In conclusion, the appeal was allowed by way of remand for a fresh determination of the service tax liability after excluding the value of goods supplied. The appellant was instructed to provide all evidence supporting their calculation and given the liberty to raise additional issues before the adjudicating authority.