2007 (11) TMI 93 - AT - Service Tax

Turnkey contract of supply installation and commissioning of ATM to banks ATM-related services came taxable only w.e.f 1-5-2006 & indivisible works contracts like the ones involved in the present case came taxable only w.e.f. 1-6-2007 bonafide belief so no penalty for disputed period

Issues Involved:
1. Levy of service tax on the supply, installation, and commissioning of ATMs.
2. Indivisibility of works contracts and their tax implications.
3. Applicability of service tax on ATM-related services before 1-5-2006.
4. Invocation of the extended period of limitation for tax demand.
5. Non-imposition of penalties by the Commissioner.

Detailed Analysis:

1. Levy of Service Tax on ATMs:
The department sought to levy service tax on 33% of the gross amounts charged by the assessee from banks for the supply, installation, and commissioning of ATMs, treating the assessee as a "commissioning and installation agency" under clause (28) of Section 65 of the Finance Act, 1994. The Commissioner confirmed the demand but dropped the penalties. The assessee contested the demand, arguing that the contracts were indivisible works contracts, not subject to service tax.

2. Indivisibility of Works Contracts:
The assessee argued that their contracts for ATMs were indivisible and could not be split into sale of goods and service components for tax purposes. They cited the Tribunal's decision in the Daelim Industrial Co. Ltd. case, which held that an indivisible works contract could not be vivisected for service tax. The Tribunal in the present case agreed, noting that indivisible works contracts became taxable only from 1-6-2007. The Commissioner himself found the contracts to be indivisible, supporting the assessee's position.

3. Applicability of Service Tax on ATM-related Services Before 1-5-2006:
The assessee contended that ATM-related services became taxable only from 1-5-2006 and indivisible works contracts from 1-6-2007. Therefore, the demand for the period July 2003 to July 2005 was unsustainable. The Tribunal agreed, stating that the introduction of ATM-related services as a taxable category on 1-5-2006 indicated that such services were not covered by any pre-existing taxable service category.

4. Invocation of the Extended Period of Limitation:
The assessee challenged the demand on the ground of limitation, arguing that they were registered with the department since 2003 and had been filing returns, making the department aware of their activities. The Commissioner acknowledged the assessee's bona fide doubt regarding their tax liability and dropped the penalties. The Tribunal found that this acknowledgment indicated no mala fides on the assessee's part, making the extended period of limitation inapplicable.

5. Non-imposition of Penalties:
The Commissioner dropped the proposal to impose penalties under Sections 76, 77, and 78 of the Finance Act, 1994, acknowledging the assessee's bona fide doubt regarding their tax liability. The Revenue appealed against this non-imposition of penalties, but the Tribunal upheld the Commissioner's decision, finding no intent to evade tax by the assessee.

Conclusion:
The Tribunal allowed the assessee's appeals, setting aside the impugned orders to the extent they were against the assessee, and dismissed the Revenue's appeal. The Tribunal held that the works contracts executed by the assessee were indivisible and not subject to service tax prior to 1-6-2007, and the extended period of limitation was not invocable. The Tribunal's decision was based on established legal principles and precedents, including the Daelim case and the Supreme Court's rulings on taxation statutes.

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