2008 (11) TMI 108 - AT - Service Tax

Commissioner (Appeals), has set aside the duty confirmation against respondent on the ground that turnkey project entered into by the assessee cannot be bifurcated so as to hold that a part of the contract would fall under category of Consulting Engineering Services in various decision Larger Bench lay down that a turnkey project cannot be vivisected - Tribunal s decision in Daelim Industrial Co. Ltd. was also upheld by SC - no infirmity in the Commissioner s order revenue s appeal rejected

Summary

Issues:
1. Whether a turnkey project can be bifurcated for the purpose of levying Service Tax on specific services provided within the project.

Analysis:
1. The case involved an appeal by the Revenue against the order passed by the Commissioner (Appeals), where the duty confirmation against the respondent was set aside on the grounds that the turnkey project cannot be bifurcated to hold a part of the contract as Engineering Services liable to Service Tax. The Revenue contended that the services provided fell under Consulting Engineer's services and were taxable. The appellants, as part of a consortium, had entered into a lump sum Turnkey Contract for the construction of an LNG Terminal. The dispute arose regarding the categorization of the services provided under the contract.

2. The adjudicating authority had categorized the services provided by the appellants as Consulting Engineering Services based on the clauses of the contract, which clearly distributed each stage of the project among the consortium members. The appellants argued that the contract was a construction contract on a turnkey basis and relied on previous Tribunal decisions to support their contention. The Commissioner (Appeals) analyzed the contract clauses and held that the project had been bifurcated among the consortium members, making it ineligible for turnkey categorization.

3. The Commissioner (Appeals) noted that the intention of the contract was the completion and handover of an LNG Re-gassification plant, and milestone payments were separately identifiable. The appellants' defense emphasized the completion of obligations under the contract through the Final Acceptance Certificate. The Commissioner (Appeals) considered various clauses of the contract and cited previous Tribunal decisions to support the conclusion that the service tax demand against the respondent was not justified, setting it aside.

4. During the proceedings, the respondent's advocate referred to previous Tribunal decisions to argue that a composite contract cannot be vivisected, and the design element of a work contract cannot be separately taxed under consulting engineers' category. The Tribunal, after considering the submissions, referred to a Larger Bench decision that emphasized the non-vivisection of turnkey projects for service tax purposes. The Tribunal concurred with the Commissioner (Appeals) and upheld the decision that part of a turnkey project cannot be bifurcated for service tax purposes, citing consistent Tribunal decisions and the Supreme Court's validation of such principles.

5. The Tribunal rejected the Revenue's appeal, affirming the decision of the Commissioner (Appeals) that the turnkey project could not be divided for levying service tax on specific services within the project. The judgment was pronounced on 25-11-2008.