2018 (7) TMI 1669 - AT - Service Tax

Classification of services - Works contract or Erection, installation, and commissioning services? - EPC contracts - Benefit of abatement under N/N. 19/2003- ST dated 21.08.2003 and N/N. 1/2006-ST dt.01.03.2006 denied - period 01.07.2003 to 30.09.2007 - Imposition of penalty u/s 76 of FA - quantification of Interest under Section 75 of the Act - Held that - From N/N. 12/2003-ST, dated 20.06.2003, it is clear that the credit can be denied only on the non-fulfilment of conditions (a) & (b), which is not the case in the present appeal. Therefore, the appellant is entitled for abatement as contained in the N/N.12/2003-ST, dated 20.06.2003 - This substantiated from the fact that the appellant has paid the VAT on the portion of the materials sold and used in the erection and commissioning of the plant and machinery under Local Taxes Act. Considering the nature of the contract entered by the appellants and the services rendered to their clients, it is beyond doubt that they are engaged in providing EPC contracts, which falls under the category of Works Contract Acts. - Registration under the wrong classification earlier by the assessee will not help the revenue - in the earlier classification of the appellant, the erection, installation and commissioning services, would not preclude them from the benefit under Works Contract Service. The levy of service tax on the works contract, has been the subject matter of the appeal before the Hon ble Supreme Court in the case of Commr. of Central Excise & Customs, Kerala Vs. Larsen & Toubro Ltd. 2015 (8) TMI 749 - SUPREME COURT , where it has been held that leviability of service tax prior to 1st June, 2007, whereafter Finance Act, 2007, expressly made such contracts liable to service tax is not as per the Scheme of Finance Act, 1994 - the service tax is not leviable on the appellant prior to 01.06.2007 and therefore, the demand is only left for the period from 01.06.2007 to September, 2007. The availment of sale of the materials is not important in the case of Works Contract Service even miniscule portion of the supply of material will render as Works Contract Service. The contract covered by the second agreement is appropriately classifiable under the Work Contract Service under the Finance Act, 1994 and not under the Erection, Commissioning and Installation Service, and therefore not chargeable to service tax prior to 01.06.2007 - However, for the period starting from 01.06.2007 to 30.09.2007, the appellant has paid the service tax under Erection, Commissioning and Installation Service after availing the benefit of Notification Nos.19/2003-ST dated 21.08.2003 and Notification No.1/2006-ST dt.01.03.2006, the same is required to be recomputed and any excess or short payment is required to be adjusted as per extant provisions under the Act/the Rules. Appeal allowed in part.

Issues Involved:
1. Leviability of service tax on services rendered under EPC contracts.
2. Classification of contracts as works contracts.
3. Applicability of Notifications No. 19/2003-ST and No. 1/2006-ST.
4. Entitlement to abatement under Notification No. 12/2003-ST.
5. Applicability of penalties under Sections 76 and 78 of the Finance Act, 1994.
6. Bar of limitation on the demand.

Issue-wise Detailed Analysis:

1. Leviability of Service Tax on Services Rendered under EPC Contracts:
The primary issue was whether the services provided by the appellant under EPC contracts were liable to service tax. The appellant argued that their contracts, divided into supply and service components, constituted works contracts and should be taxed accordingly. The Tribunal referenced the Supreme Court's judgment in Larsen & Toubro Ltd., which held that service tax on works contracts is applicable only post-01.06.2007. Consequently, the Tribunal concluded that service tax was not leviable on the appellant prior to 01.06.2007, thus limiting the demand to the period from 01.06.2007 to 30.09.2007.

2. Classification of Contracts as Works Contracts:
The appellant contended that their contracts, although split into two agreements, were essentially works contracts. The Tribunal agreed, noting that both agreements were interdependent and contained a cross-fall breach clause, making them part of a single works contract. This classification was crucial as it determined the applicability of service tax only from 01.06.2007 onwards, aligning with the Supreme Court's ruling in Larsen & Toubro Ltd.

3. Applicability of Notifications No. 19/2003-ST and No. 1/2006-ST:
The appellant claimed benefits under these notifications for the abatement of service tax. The Tribunal found that the appellant had correctly availed these benefits for the period from 01.04.2006 to 30.09.2007. The Tribunal emphasized that the supply of materials, evidenced by VAT payments, justified the abatement claims under these notifications.

4. Entitlement to Abatement under Notification No. 12/2003-ST:
The Tribunal examined whether the appellant was entitled to abatement under Notification No. 12/2003-ST, which exempts the value of goods sold during the provision of services from service tax. The Tribunal concluded that the appellant met the conditions of the notification, as there was documentary proof of the sale of materials, and VAT was paid on these materials. Thus, the appellant was entitled to the abatement.

5. Applicability of Penalties under Sections 76 and 78 of the Finance Act, 1994:
The Revenue appealed against the non-imposition of penalties under Section 76. The Tribunal referenced the Kerala High Court's decision in Krishna Poduval, which stated that penalties under Sections 76 and 78 are independent. However, given the Tribunal's decision to classify the contracts as works contracts and limit the tax liability to post-01.06.2007, the Tribunal found the Revenue's appeal on penalties unsustainable.

6. Bar of Limitation on the Demand:
The appellant argued that the demand was barred by limitation, as all relevant facts were within the department's knowledge. The Tribunal did not explicitly address this issue in detail but implicitly accepted the appellant's argument by limiting the demand to the period post-01.06.2007.

Conclusion:
The Tribunal held that the contracts were works contracts and not chargeable to service tax prior to 01.06.2007. For the period from 01.06.2007 to 30.09.2007, the appellant's service tax liability under the Erection, Commissioning, and Installation Service needed to be recomputed. The appellant's appeal was partially allowed with consequential relief, and the Revenue's appeal was dismissed.

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