2016 (3) TMI 899 - AT - Service Tax

Demand of Service tax - Erection, installation and commissioning service - Appellant contracted with M/s MSETCL, which is work to be executed on turnkey basis in accordance with the composite contract comprising supply of components as well as labour - Held that - turnkey contracts also include supply of goods necessary for execution of the projects. It is a normal practice in such a contract to provide a detailed breakup, with invoices raised to mirror the contents of the payments in the contract, for regular payments to be made to the contractor. Such a break up is a necessary input for management of the finance related to the work itself, especially when a work is executed over a longer period of time. It does not allow for vivisecting a contract. Vide Notification 45/10-ST, all taxable services rendered in relation to transmission and distribution of electricity have been exempted from the purview of service tax. The expression relating to is very wide in its amplitude and scope. Therefore, all taxable services rendered in relation to transmission/distribution of electricity would be eligible for the benefit of exemption under the said Notification for the period prior to 27.02.2010. Also in exercise of the powers conferred by section 11C of the Central Excise Act, 1944 (1 of 1944), read with section 83 of the said Finance Act, the Central Government hereby directs that the service tax payable on said taxable services relating to transmission and distribution of electricity provided by the service provider to the service receiver, which was not being levied in accordance with the said practice, shall not be required to be paid in respect of the said taxable services relating to transmission and distribution of electricity during the aforesaid period. Therefore, the terms of the contract being very clear as an indivisible one, vivisection for the purpose of levying service tax on erection, installation and commissioning service is incorrect. Since the project is in relation to transmission and distribution of electricity up to 26th February 2010, the demand for service tax is not correct in law. - Decided in favour of appellant with consequential relief

Summary

Issues:
1. Classification of service tax liability on a composite contract for construction of power transmission lines.
2. Rejection of refund claim by the Deputy Commissioner of Service Tax.
3. Allegation of improper consideration of submissions by the first appellate authority.
4. Vivisection of an indivisible composite contract for levying service tax.
5. Applicability of service tax on a turnkey project related to transmission and distribution of electricity.

Analysis:
1. The case involved a dispute regarding the classification of service tax liability on a composite contract for the construction of power transmission lines. The appellant, a provider of various services, undertook a turnkey project for the Maharashtra State Electricity Transmission Company Ltd. The issue arose when the recipient of the services refused to reimburse the service tax paid by the appellant, claiming that the contract was beyond the scope of service tax levy.

2. The appellant filed a claim for refund after the rejection of the tax payment by the Deputy Commissioner of Service Tax. The claim was based on the argument that the tax had been legally collected for providing specific services. However, both the original authority and the first appellate authority concurred in rejecting the refund claim.

3. The appellant contested the decision of the first appellate authority on the grounds of improper consideration of their submissions. They argued that the authority failed to address and dispose of the various points raised by them, leading to an incomplete decision-making process.

4. The appellant further contended that the vivisection of the indivisible composite contract for the purpose of levying service tax was incorrect. They emphasized that the contract was intended for turnkey execution with a lump sum consideration, and the breakdown of the contract price in the invoice was merely indicative for billing purposes and cash flow control.

5. The tribunal analyzed the case in light of relevant legal precedents and notifications related to the transmission and distribution of electricity. It was observed that the contract, being clear as an indivisible one, should not be vivisected for levying service tax on specific services. Additionally, considering the project's nature in relation to electricity transmission and distribution, the demand for service tax was deemed incorrect in law. Consequently, the appeal was allowed with consequential relief granted to the appellant.