2008 (4) TMI 207 - AT - Service Tax

Turnkey projects for installing processing control systems - department has held that the charges contributable to engineering, erection & commissioning are liable to service tax held that service component of the contract may attract service tax as held by Commissioner but contention of appellant that Commissioner, Jaipur cannot demand duty in respect of units in the jurisdiction of other Commissionerate, is acceptable - financial hardship sick unit under BIFR stay partly granted

Summary

Issues:
Interpretation of service tax liability on turnkey projects; Jurisdiction of Commissioner for demanding duty; Invocation of extended period for demanding duty.

Analysis:
The case involved a dispute regarding the liability of service tax on turnkey projects for installing processing control systems. The department contended that charges related to engineering, erection, and commissioning were subject to service tax, resulting in a demand of Rs. 40,71,946 and penalties. The applicants argued that the composite contracts were for delivering a functional system, and any designing services were for themselves as they would hand over the system to clients. They questioned the demand for service tax on activities outside the jurisdiction of the Commissioner, citing financial hardship due to being under BIFR. The Department justified the extended period invocation due to non-registration and non-filing of returns by the applicants.

Upon review, the Tribunal noted the detailed contracts with clients, specifying rates, terms, and conditions for goods and services. The contract indicated prices inclusive of various charges but exclusive of taxes and duties. While the service component could attract service tax, the Tribunal acknowledged the merit in the argument that duty cannot be demanded for units outside the Commissionerate's jurisdiction. Considering the financial difficulties faced by the company and the partial pre-deposit made, the Tribunal directed the applicants to deposit a further sum within a specified period and waived pre-deposit of service tax and penalties, staying recovery pending appeal disposal.

In conclusion, the Tribunal's decision balanced the service tax liability on turnkey projects, jurisdictional issues, and the invocation of the extended period for demanding duty. The ruling considered the specifics of the contracts, financial challenges faced by the company, and the partial pre-deposit made, providing a directive for further deposit and staying recovery of service tax and penalties pending appeal resolution.