2007 (10) TMI 136 - AT - Service Tax

Works contract of supplying air /gas separation plant, erection, commissioning & installation became taxable only w.e.f. 2007 - for period prior to 2007 works contract cannot be covered under Consulting Engineering Services - work contract can t be vivisected and part of it can t subjected to duty

Issues Involved:
1. Classification of services rendered by the appellants.
2. Applicability of Service Tax on works contracts.
3. Invocation of the longer period for demand.
4. Relevance of previous judgments and Board's Circulars.

Issue-wise Detailed Analysis:

1. Classification of Services Rendered by the Appellants:
The core issue revolves around whether the services provided by the appellants, M/s. Air Liquide Engineering India Pvt. Ltd., fall under the category of 'Consulting Engineering Services'. The appellants argued that they are manufacturers of air and gas separation plants and not a consulting engineering services company. They contended that the design, engineering, erection, and commissioning activities are incidental to their primary business of manufacturing and supplying these plants on a turnkey basis. The Original Authority supported this view, concluding that these activities are part of a composite contract and cannot be isolated as consulting engineering services.

2. Applicability of Service Tax on Works Contracts:
The appellants argued that works contracts came under the Service Tax net only with effect from 2007. Therefore, for the period in question (1997-2002), these contracts should not be liable for Service Tax. The Tribunal upheld this view, referencing the decision in the case of M/s. Daelim Industrial Co. Ltd. v. CCE, which was affirmed by the Supreme Court. The Tribunal noted that the contracts in question were indeed works contracts on a turnkey basis, and as such, they could not be classified under 'Consulting Engineering Services' for the relevant period.

3. Invocation of the Longer Period for Demand:
The appellants challenged the invocation of the longer period for demand, arguing that there was no detailed discussion or reasonable ground for doing so in the Order-in-Revision. The Tribunal found merit in this argument, noting that the Commissioner did not provide sufficient reasons for invoking the longer period. The Tribunal emphasized that the impugned order was not a speaking order and lacked detailed grounds for the extended period, making the demand unsustainable even on the grounds of time-bar.

4. Relevance of Previous Judgments and Board's Circulars:
The Tribunal extensively referenced previous judgments, particularly the Daelim case, which set a precedent that works contracts on a turnkey basis could not be vivisected and taxed as consulting engineering services. The Tribunal also considered Board's Circulars, which clarified that charges for erection, installation, and commissioning are not covered under consulting engineering services. The Tribunal dismissed the relevance of the TELK case cited by the departmental representatives, stating that the facts of that case were different and not applicable to the present matter.

Conclusion:
The Tribunal concluded that the appellants' activities did not fall under 'Consulting Engineering Services' and that the works contracts were not liable for Service Tax for the period prior to 2007. The Tribunal also found the invocation of the longer period for demand unjustified. Consequently, the appeal was allowed with consequential relief, and the demand for Service Tax along with penalties was set aside.

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