2016 (10) TMI 832 - AT - Service Tax

Taxability - erection of plant and machinery - services received from a foreign service provider - clause 39 read with clause Section 65 of the finance Act, 1994 w.e.f. 01-07-2003 - Section 66A of the Act read with Rule 2(d)(iv) of the Service Tax Rules, 1994 w.e.f. 18-04-2006 - the case of Commissioner, Central Excise & Customs Versus M/s Larsen & Toubro Ltd. and others 2015 (8) TMI 749 - SUPREME COURT referred - Held that - there is an EPC contract with an element of turnkey project which is not covered under taxable service prior of 01-06-2007. Since the same is covered in Works Contract Service (WCS). It is seen from para 12 of the Order-in-Original that the gross amounts totalling ₹ 44,98,87,883/- received vide Bill dates 20-07-2006, 21-07-2006, 25-07-2006, 23-08-2006 and 13-10-2006. Thus all the payments been received before the introduction of WCS w.e.f. 01-06-2007. This being the case, the judgment of Hon ble Apex court in Commissioner, Central Excise & Customs Versus M/s Larsen & Toubro Ltd. and others will apply to the facts and circumstance so of the case and service tax cannot be levied to such contracts executed prior to 01-06-2007 - erection of plant and machinery not taxable - appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Liability to pay service tax under 'Erection, Commissioning, or Installation Service'.
2. Classification of the contract as a composite contract involving both supply of goods and services.
3. Applicability of service tax on works contract services executed prior to 01-06-2007.

Analysis:
1. The appellant, engaged in the manufacture of instant coffee, was found to have erected two freeze drying plants on their premises. The Departmental Officers contended that there existed a contract between the appellant and a foreign supplier for the supply and erection of the plant, which falls under taxable services. A show cause notice was issued demanding service tax, which was confirmed by the adjudicating authority. The appellant argued that they are not liable to pay service tax under 'Erection, Commissioning, or Installation Service'.

2. The appellant submitted that the contract was a composite contract involving both supply of goods and provision of services, which should be classified as works contract services. They highlighted that the contract amount included the supervision for commissioning the plant, and the value of the service portion was not ascertainable from the lump sum EPC contract. The Tribunal agreed with the appellant, stating that their contract with an element of a turnkey project was not covered under taxable service before 01-07-2007, and therefore, it falls under Works Contract Service (WCS).

3. The Tribunal noted that all payments were received before the introduction of WCS on 01-06-2007. Citing a decision by the Hon'ble Apex court, the Tribunal held that service tax cannot be levied on contracts executed prior to 01-06-2007. Relying on the decision, the impugned order demanding service tax was deemed unsustainable and set aside. The appeal was allowed with consequential reliefs, if any, in favor of the appellant.