2015 (1) TMI 231 - AT - Service Tax

Erection and commissioning service or works contract service - agreements entered into with the foreign suppliers for equipment includes service portion also and therefore the contract has to be treated as one of a contract entered into between the parties for execution of works contract for the appellants - Held that - It is quite clear that the submissions made that the entire value has been declared in the Bill of Entry has not been clearly made with the supporting evidences/documents before the learned Commissioner and this has resulted in a wrong conclusion. Moreover the agreements also in our opinion are required to be gone into in greater detail than what has been done. From the contract it becomes quite clear that the equipment suppliers did not undertake or were required to take erection, commissioning and installation of the equipments supplied by them. Prima facie from the Contract it appears that the erection, commissioning and installation work is not to be undertaken by the foreign suppliers. The very fact that appellants have made 90% of the payment due to the foreign suppliers would also support the case of the appellant that there is no component of erection, commissioning or installation service in the payment since the erection, commissioning and installation has not at all started leave alone getting completed. If erection, commissioning or installation service was part of the supply contract, the amount attributable to such service need not have been paid by the appellant. - Matter remanded back - Decided in favour of assesse.

Summary

Issues:
Interpretation of works contract service in agreements with foreign suppliers; Treatment of service portion in equipment supply contracts; Customs duty implications on equipment import; Prima facie determination of erection, commissioning, and installation obligations in contracts.

Analysis:

1. The case involved an agreement between Travancore Titanium Products Ltd. (TTPL) and MECON Ltd. for consultancy services related to plant enhancement and diversification, including an effluent treatment plant. Subsequently, MECON entered into an agreement with foreign suppliers for the supply of critical equipment and services for Copperas Recovery Plant and Acid Recovery Plant at TTPL.

2. The demand for service tax against TTPL was contested on the grounds that the agreements with foreign suppliers included a service portion, categorizing the contracts as works contracts. The contention was that the foreign suppliers were not obligated to provide erection, commissioning, and installation services, as indicated in the agreements.

3. The appellant argued that the erection and installation of imported equipment had not occurred, leading to separate customs duty demands. The appellant emphasized that the contracts focused on providing basic engineering, design, equipment supply, advisory services, and training, without explicit obligations for erection and commissioning.

4. The Commissioner's stance was that the agreements constituted composite contracts for both equipment supply and erection services, justifying the classification as works contracts. The Commissioner's observations highlighted the service element in the contracts and the need for a comprehensive assessment based on the agreement terms.

5. Upon reviewing the submissions, the Tribunal found discrepancies in the evidence presented before the Commissioner, leading to a flawed conclusion. The Tribunal emphasized the need for a detailed examination of the agreements to determine the actual obligations regarding erection, commissioning, and installation services by the foreign suppliers.

6. The Tribunal concluded that a fresh consideration by the Commissioner was necessary, directing a reassessment of the matter with a thorough analysis of all submissions. The impugned order was set aside, and the case was remanded to the original adjudicating authority for a comprehensive review and reasoned decision.

7. The Tribunal waived the pre-deposit requirement, allowing for further examination of the case, emphasizing the importance of addressing all aspects raised during the proceedings for a well-informed decision.

This detailed analysis of the judgment highlights the complexities surrounding works contracts, service tax implications, and the need for a meticulous review of contractual obligations in international agreements for equipment supply and related services.