2008 (6) TMI 9 - AT - Service Tax

Composite Works Contract with DMRC for design, manufacture, supply, installation & commissioning of Train Control & Signalling & Tele-communication System - Revenue contention that Works Contract is divisible into different identifiable activities and the appellant is liable to pay tax on Consulting Engineers Service, is not acceptable - Contract is not taxable prior to June 2007 moreover it can t be vivisected - Applicant made out a prima facie for waiver of pre-deposit of tax & penalties

Summary

Issues:
1. Whether the Applicants are liable to pay tax for services rendered under a Turnkey Contract.
2. Whether the Contract can be divided into different identifiable activities for the purpose of levying service tax.
3. Whether the Applicants are eligible for waiver of pre-deposit of tax and penalties.

Analysis:
1. The Applicants entered into a Turnkey Contract with Delhi Metro Rail Corporation for setting up signalling systems, including supply of equipment and services like Consulting Engineers Services. The Adjudicating Authority confirmed the demand of tax and penalties. The Applicant argued that activities under the Turnkey Contract should not be subjected to service tax as it is a Composite Works Contract. They relied on various Tribunal decisions to support their claim. The Tribunal found that the Turnkey Contract for design, manufacture, supply, installation, and commissioning of the system was a Composite Works Contract and waived the pre-deposit of tax and penalties until the appeal's disposal.

2. The Revenue contended that the Contract was divisible into different identifiable activities, making the Applicant liable to pay service tax based on Cost Centres. They argued that post the 46th amendment of the Constitution of India, it is permissible to levy sales tax on materials used in Works Contracts, which should also apply to the levy of service tax. The Tribunal noted previous decisions where pre-deposit of duty and penalty was waived on similar issues. The Tribunal acknowledged the Revenue's contention but decided to delve deeper into it during the appeal hearing scheduled for a later date.

3. After considering both sides and reviewing the records, the Tribunal found that the Applicant had made a prima facie case for the waiver of pre-deposit of the entire tax and penalties amount. Consequently, the pre-deposit was waived until the appeal's final disposal. Due to the substantial amount involved, the appeal hearing was scheduled for a specific date to address the matter comprehensively.

This judgment highlights the complexities surrounding the taxation of services under Composite Works Contracts and the interpretation of divisible activities for levying service tax. The Tribunal's decision to waive the pre-deposit indicates a preliminary acceptance of the Applicant's arguments, pending a detailed examination during the appeal hearing.