2015 (9) TMI 1328 - AT - Service Tax

Erection, commissioning and installation service - Penalty u/s 76, 77 & 78 - Turnkey project - Works contract - Held that - It is common practice while setting up large plants that the selection of supplier is recommended by the consultant who provides both technology as well as Design Engineering. Only because supplier of components is authorized in advance by the consultant does not mean that purchases were made by the consultant. Further we find nothing wrong in modifying and amending an agreement to suit both parties. What needs to be examined is actual service provided by the appellant. In this case, as a result of the amendment, the actual services provided by the appellant related to services of testing and other related service through which gave their expertise to their client. - The issue is the amount actually received from their client i.e. M/s. Shreya Biotech Pvt. Ltd for the service provided by the appellant. At the material time service tax was levied on receipt basis. And appellant have paid service tax on the amount received by them from their client M/s. Shreya Biotech Pvt. Ltd which is confirmed by M/s. Shreya Biotech Pvt. Ltd to the Commissioner. Therefore service tax has been correctly paid by the appellant. Appellant were under a genuine misconception that turnkey projects, i.e. Works Contract projects were not leviable to the service tax as Works Contract came into the fold of service tax on 1/6/2007. Keeping the entire circumstances of the case in view, we find that Commissioner has quite appropriately exercised his discretion under Section 80 on the basis of reasonable cause for waving penalties under Section 76, 77 and 78. - Decided against Revenue.

Summary

Issues:
1. Confirmation of duty amount by the Commissioner
2. Dropping of demand for a specific amount
3. Imposition of penalties under Sections 76, 77, and 78 of the Finance Act, 1994

Confirmation of Duty Amount by the Commissioner:
The appellant had a turnkey contract with a client for the erection, commissioning, and installation of an Insulin Manufacturing Plant. The contract value was &8377; 45,68,12,000. The Commissioner confirmed a duty demand of &8377; 57,19,730 based on the amendment to the contract in 2008, where the appellant received payment only for the service components, while materials and equipment were directly supplied by suppliers to the client. The Commissioner reasoned that service tax was liable on the total contract price, leading to the confirmed duty amount. The appellant's argument regarding the amendment and the actual services provided was considered.

Dropping of Demand for a Specific Amount:
The Commissioner dropped a demand of &8377; 67,01,871 based on the supply and components portion of the contract. The appellant's client amended the contract to procure materials themselves due to EOU benefits. The addendum to the contract clarified that direct purchases would be made by the client to suppliers with the contractor's authorization. The Tribunal noted that the selection of suppliers by the consultant was a common practice in large plant setups. The focus was on the actual services provided by the appellant post-amendment, which primarily involved testing and related services.

Imposition of Penalties under Sections 76, 77, and 78:
The Commissioner refrained from imposing penalties under Sections 76, 77, and 78 of the Finance Act, 1994. The appellant had voluntarily discharged the full liability of &8377; 57,19,730 along with interest, based on a genuine misconception regarding the levy of service tax on turnkey projects. The Commissioner waived the penalties under Section 80 of the Finance Act, considering the circumstances and the appellant's reasonable cause for the misconception. The Tribunal upheld the Commissioner's decision, emphasizing the appropriate exercise of discretion under Section 80.

In conclusion, the Tribunal dismissed the Revenue's appeal, affirming the Commissioner's order regarding the duty amount confirmation, dropping of a specific demand, and the waiver of penalties under Sections 76, 77, and 78 of the Finance Act, 1994. The judgment highlighted the importance of examining the actual services provided, the impact of contract amendments, and the exercise of discretion in penalty imposition based on reasonable cause.