2017 (7) TMI 687 - AT - Service Tax

Works contract service - Erection, Commissioning or Installation service - bidding for projects relating to various works in different States - the appellant was required to perform and undertake works of designing, supplying, fabrication, inspection, testing, installation and commissioning of pressure shaft liners otherwise called steel liners/penstocks forming part of the respective projects contracted upon by the main contractors - department has sought to bring the impugned activity into the fold of Erection, Commissioning or Installation service (ECIS), for the period January 2005 to March 2010 and under Works Contract Service (WCS), from April 2010 to March 2012. Held that - It is not disputed that assessee was functioning as a sub-contractor to main contractors for hydro-electric projects in Himachal Pradesh and Maharashtra. Assessee was required to perform and undertake activity of Installation and Commissioning of Pressure shaft liners also called steel liners/penstocks . As the dispute is around, the taxability or otherwise of this particular activity done by the assessee, we proceed to examine the same. Towards this end, it would be useful to understand the nature and scope of the said activity - This activity is performed within the excavated tunnel. The tunnel is formed and complete only after the steel liners are put in place and the space between liner and rock is filled with concrete and pressurised cement grout. It is also not disputed that these tunnels have been made in relation to hydro-electric projects as underground passages for conveyance of water. Thus, there is no doubt that the activity of fabricating penstock/steel liners are essential for the completion of tunnels. The work has been performed by the assessee on specific sub contract agreements for specific works detailed therein, the nature of work cannot, but, be otherwise than Works Contract and definitely not under ECIS as perceived by the department for the period upto March 2010. The nature and scope of the activity performed by the assessee also answers to the scope of works contract defined in Section 65 (zzzza) of Finance Act, 1994 for fabrication and installation work in respect of tunnel for transport of water from the Dam projects - Once it is clear that the impugned activity comes within the ambit of works contract , the same would also be taxable only w.e.f. 01.06.2007, when the said service was brought into the fold of service tax. The attempt by the department to categorise the very same activity for an earlier period under ECIS cannot then sustain. We find that the impugned activity of the assessee was nothing but works contract service in respect of tunnels/dams. We further find that since the works contract was in respect of tunnels for dams/power projects, the same would then be excluded from taxability thereunder in view of the exclusion in Section 65(105)(zzzza) of Finance Act, 1994 - demand cannot sustain - appeal allowed. Refund claim - claim on the basis that the activity does not amount to providing of taxable service as ECIS - Held that - as there can be no taxability on the impugned activity during the period of dispute, the said amount would be refundable only for limited purpose of ascertaining whether the claim is hit by unjust enrichment or otherwise, which aspect has not been considered in the impugned order, we remand the matter to the original authority - matter on remand. Appeal allowed - part matter on remand - decided in favor of appellant.

Issues Involved:
1. Taxability of the activity under "Erection, Commissioning or Installation service" (ECIS) and "Works Contract Service" (WCS).
2. Applicability of service tax on sub-contractors.
3. Period of taxability and retrospective application.
4. Exclusion of works related to tunnels and dams from service tax.
5. Imposition of penalties under various sections of the Finance Act, 1994.
6. Refund claims and unjust enrichment.

Issue-Wise Detailed Analysis:

1. Taxability of the Activity under ECIS and WCS:
The core issue was whether the activities performed by the assessee, such as the installation and commissioning of pressure shaft liners (steel liners/penstocks), fell under "Erection, Commissioning or Installation service" (ECIS) or "Works Contract Service" (WCS). The department initially categorized these activities under ECIS for the period from January 2005 to March 2010. However, from April 2010 to March 2012, the same activities were categorized under WCS. The tribunal found that the nature of work performed by the assessee, which involved the fabrication and installation of steel liners within tunnels for hydro-electric projects, was more appropriately classified under WCS. The tribunal emphasized that the work was an integral part of constructing tunnels and not independent plant, machinery, or equipment installation.

2. Applicability of Service Tax on Sub-Contractors:
The assessee argued that composite works contracts could not be taxed under any category before 01.06.2007, as supported by the Supreme Court's decision in CCE v. Larsen & Toubro Limited. The tribunal acknowledged that the activities performed by the assessee, as a sub-contractor, were not taxable under ECIS before 01.06.2007. The tribunal also noted that the same activities could not be taxed under different service heads for different periods.

3. Period of Taxability and Retrospective Application:
The tribunal held that the impugned activities were taxable only from 01.06.2007, when WCS was introduced. The attempt by the department to categorize the same activities under ECIS for the period before 01.06.2007 was not sustainable. This position was reinforced by the Supreme Court's decision in Commissioner of Central Excise & Customs, Kerala Vs. L&T, which clarified that composite contracts involving services and goods were taxable only from 01.06.2007.

4. Exclusion of Works Related to Tunnels and Dams from Service Tax:
The tribunal found that the activities related to the fabrication and installation of steel liners in tunnels for hydro-electric projects were excluded from service tax under Section 65(105)(zzzza) of the Finance Act, 1994. This exclusion applied to works contracts related to tunnels and dams, and therefore, the activities performed by the assessee were not taxable.

5. Imposition of Penalties:
Given the tribunal's finding that the activities were not taxable, the imposition of penalties under various sections of the Finance Act, 1994, was not justified. The tribunal set aside the penalties imposed on the assessee.

6. Refund Claims and Unjust Enrichment:
The assessee's appeal for a refund of ?28,06,915/- was initially rejected by the original authority and upheld by the lower appellate authority. The tribunal, however, held that since the activities were not taxable, the amount paid by the assessee was refundable. The tribunal remanded the matter to the original authority to ascertain whether the refund claim was hit by unjust enrichment. The tribunal instructed that if the incidence of duty paid had not been passed on, the refund should be granted to the assessee.

Conclusion:
The tribunal allowed the appeals filed by the assessee, set aside the differential service tax demands, and dismissed the department's appeal. The tribunal also remanded the refund claim issue for further examination regarding unjust enrichment. The judgment emphasized the proper classification of activities under WCS and the exclusion of works related to tunnels and dams from service tax.

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