2007 (8) TMI 180 - AT - Service Tax

Turnkey works contract for entire work Value of services shown separately Can contract be divided, to cover services under category of Consulting Engineer Services Referred to Larger Bench whether a contract for construction is a works contract on a turnkey basis & not a consultancy contract

Summary

Issues:
1. Whether the contract for construction is a works contract on a turnkey basis or a consultancy contract.
2. Vivisection of a works contract for the purpose of levying service tax.

Analysis:
1. The case involved the respondents, engaged in providing taxable services, filing a claim for refund under the head "commissioning and installation" for a turnkey works contract with Indian Oil Corporation Ltd. The assessees argued that the contract cannot be split for levying service tax, citing relevant legal precedents. A show cause notice was issued rejecting the claim based on separate valuation of services. The Deputy Commissioner rejected the claim, but the Commissioner (Appeals) overturned this decision relying on a specific legal precedent. The Revenue appealed against this decision.

2. The Revenue relied on a Tribunal's decision where separate bills were raised for designing and engineering, leading to the conclusion that the contract was divisible for service tax purposes. On the other hand, the assessees cited a different Tribunal's decision where a contract with separate pricing for different components was considered a works contract on a turnkey basis, not subject to vivisection for tax purposes. The Tribunal noted the conflicting decisions and referred the case to a Larger Bench to determine whether a construction contract should be treated as a works contract or a consultancy contract, emphasizing the need for clarity on this issue.