2015 (7) TMI 819 - AT - Service Tax

Invocation of extended period of limitation - Willful suppression of facts - Works contact - lump sum turnkey contract - A lot of emphasis have been given by the senior counsel that the department had knowledge about their activities. - Held that - So far the first question referred is concerned whether the works contract can be vivisected even prior to 1.6.2007 and the service portion discernible in the contract can be subjected to levy of Service Tax, the same as indicated by the learned third Member is covered by majority decision (five Members Bench) of this tribunal in the case of L&T Ltd. vs. Commissioner of Service Tax, Delhi (2015 (3) TMI 748 - CESTAT NEW DELHI (LB)), the issue stands covered in favour of the Revenue and against the assessee i.e. the indivisible works contract can be split up for the purpose of levy of Service Tax prior to 1.6.2007. In 2003, when the new service installation and commissioning was introduced, the appellant themselves were vivisecting the lump sum turnkey contracts and were to collect service tax under the category of consulting engineering service. There was no reason whatsoever not to charge, collect and pay the service tax in similar manner in respect of installation and commissioning service when separate consideration for that service was already available in each of these contracts, and installation and commissioning was the dominant service in these contracts. - this is a clear cut case of wilful statement as also suppression of facts. Submissions of some letters/contracts in the facts of this case will not make any difference. - Decided against Assessee.

Summary

Issues Involved:
1. Vivisection of works contract prior to 1.6.2007 for service tax levy.
2. Applicability of extended period of limitation for service tax demand.

Issue-wise Detailed Analysis:

1. Vivisection of Works Contract Prior to 1.6.2007:
The primary issue was whether a works contract could be vivisected before 1.6.2007 to levy service tax on the service portion. The matter was referred to a five-Member Bench of the Tribunal, which decided that works contracts could indeed be vivisected prior to this date. The appellant's counsel agreed that this issue was already settled by the Larger Bench, affirming that the service portion discernible in the contract could be subjected to service tax even before 1.6.2007. This position was concurred by the third Member, aligning with the Member (Technical).

2. Applicability of Extended Period of Limitation:
The second issue revolved around whether the extended period of limitation could be invoked, except in the case of the contract with Chennai Petroleum Corporation Ltd. (CPCL). The Member (Technical) held that the extended period was applicable based on the Gujarat High Court's decision in Neminath Fabrics Pvt. Ltd. and the Tribunal's decision in Usha Rectifier Corporation. The Member (Judicial) disagreed, suggesting that the demand was time-barred.

The appellant's counsel argued that the extended period was inapplicable as the facts were known to the department since 2003, and there was no suppression of facts. They provided a detailed list of dates and events to demonstrate that the department had knowledge of the contracts and activities. The counsel cited several judgments to support the contention that no mens rea could be attributed in cases of divergent views by various forums.

The special counsel for the Revenue countered that the appellant's claim of bona fide belief was unfounded. They argued that the appellant was aware of the service tax applicability but chose not to pay, citing the 46th Amendment to the Constitution which allowed the splitting of indivisible works contracts for tax purposes. The special counsel emphasized that the appellant did not disclose relevant details in their ST-3 returns, amounting to suppression of facts.

The third Member examined the facts and concluded that the appellant did not have a bona fide belief regarding non-taxability of the erection, commissioning, and installation services. The appellant's failure to disclose these services in their returns indicated willful misstatement and suppression of facts, justifying the invocation of the extended period of limitation.

The majority order confirmed that the works contract could be vivisected for service tax purposes before 1.6.2007. It also held that the extended period of limitation was applicable, except for the contract with CPCL, concurring with the Member (Technical) on both points. The demand was not time-barred under the given facts and circumstances, except in relation to the CPCL contract.