2008 (10) TMI 150 - AT - Service Tax

Appellants who are registered with Excise Department for manufacture of medical equipment were also providing services like imparting training, erection, commissioning and installation of machines/equipments manufactured by them at customers place - no separate contract for erection and installation of the medical equipments - erection and installation charges are covered in the value of the medical equipments and the central excise duty was discharged thereon - services are incidental to delivery of goods to the customers - service tax not leviable - demand of tax and penalties are not sustainable

Issues:
- Whether the activities of training, erection, commissioning, and installation of machines/equipment amount to providing technical assistance and are subject to service tax.
- Whether the demand of tax for the period from 1-7-2003 to 30-9-2005, along with penalties and interest, is justified.
- Whether the activity of erection, commissioning, and installation of medical equipment is part of the sale of excisable goods and subject to Central Excise duty, thereby exempting it from service tax.

Analysis:
1. The case involved allegations that the appellants, engaged in manufacturing medical equipment, were providing services like training, erection, commissioning, and installation of machines/equipment, which were considered as technical assistance subject to service tax. The Commissioner confirmed the demand of tax for a specific period and imposed penalties and interest.

2. The appellants argued that they were not separately charging for erection and commissioning services, as these were included in the total invoice value of the medical equipment. They contended that the demand for service tax was unjustified, citing relevant legal precedents to support their position.

3. The Department's representative asserted that the appellants did provide services like erection and commissioning, which became taxable under service tax laws effective from a certain date. The representative relied on statements and documents to support the claim for levying service tax on these activities.

4. Upon review of the case, it was found that the appellants had paid Central Excise duty on the total invoice value of medical equipment, which included the cost of installation and commissioning. The Tribunal observed discrepancies in the calculation of taxable value based on invoices and relevant notifications.

5. The Tribunal acknowledged that the activities of erection, commissioning, and installation were integral to the sale of medical equipment, for which Central Excise duty had been duly paid. It was noted that there was no evidence of separate charges for these services, leading to the conclusion that levying service tax on such activities was not appropriate.

6. Citing legal principles from the Supreme Court, the Tribunal emphasized the importance of examining the nature of contracts and the predominant objective of the transactions to determine whether they constitute a sale or a works contract. In this case, the installation and commissioning activities were considered incidental to the sale of goods, warranting exemption from service tax.

7. The Tribunal rejected the Department's reliance on certain Supreme Court decisions, stating that those cases were not applicable to the present scenario where the erection and installation charges were included in the value of the medical equipment, and no separate contract existed for these services.

8. Ultimately, the Tribunal concluded that the demand for tax and penalties was not sustainable, setting aside the impugned order and allowing the appeal with consequential relief. The judgment highlighted the integration of installation and commissioning activities into the sale of goods, exempting them from service tax.

(Order dictated and pronounced in the open Court)

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