2005 (10) TMI 1 - AT - Service Tax

Applicability of service tax on commissioning and installation service - Where excise duty has been paid on erection and commissioning charges

Summary

Issues:
1. Liability of service tax on erection and commissioning charges under a composite contract.
2. Applicability of exemption notifications No. 12/2003-S.T. and No. 19/2003-S.T.
3. Classification of activities as service provision or manufacturing.
4. Interpretation of the contract terms and payment of excise duty.
5. Determination of liability for service tax and penalty imposition.

Analysis:

Issue 1: Liability of service tax on erection and commissioning charges under a composite contract
The case involved a dispute regarding the liability of service tax on erection and commissioning charges under a composite contract entered into before the levy of service tax on such services. The Tribunal observed that even though the contract was initiated before the imposition of service tax on commissioning and installation services, the major work was executed post the levy coming into effect. It was held that the gross amount charged for erection and commissioning services is liable to service tax, irrespective of excise duty payment on these charges.

Issue 2: Applicability of exemption notifications No. 12/2003-S.T. and No. 19/2003-S.T.
The appellant argued for exemption from service tax under notification No. 12/2003-S.T. and notification No. 19/2003-S.T. However, the Tribunal noted that the exemption under these notifications is optional and subject to specific conditions. It was clarified that the benefit of these notifications is allowed based on certain criteria, and failure to meet these conditions may result in the liability to pay service tax.

Issue 3: Classification of activities as service provision or manufacturing
The appellant contended that the activities of installation and commissioning were part of manufacturing and not service provision. The Tribunal referred to precedents and held that when a manufacturer provides erection, commissioning, or installation services post-manufacturing, the charges for such services are subject to service tax. The argument that the appellant was not a commissioning agency was deemed insufficient to avoid service tax liability.

Issue 4: Interpretation of the contract terms and payment of excise duty
The Tribunal analyzed the contract terms, noting separate pricing for the lubrication systems and erection/commissioning charges. Despite excise duty payment on the latter, it was established that the charges for erection and commissioning were subject to service tax. The Tribunal emphasized that excise duty payment did not exempt the charges from service tax liability.

Issue 5: Determination of liability for service tax and penalty imposition
The Tribunal concluded that the appellant was liable for service tax on the erection and commissioning charges as per the original authority's decision. However, since there was no evidence of mala fide intent, the penalty imposed was set aside. The appeal was disposed of with the affirmation of the service tax liability but the removal of the penalty.

This detailed analysis of the judgment highlights the key legal aspects and reasoning behind the Tribunal's decision regarding the liability of service tax on erection and commissioning charges under a composite contract.