2018 (9) TMI 903 - AT - Central Excise

CENVAT Credit - Common inputs/input services used in manufacture of taxable goods as well as in trading activity - whether the supplies made by the appellant of various materials as indicated in paragraph No. 2 on a separate commercial invoices has to be considered as trading activity or otherwise? Held that - The appellant has in pursuance of such a contract had procured the said items from the market and used them in executing works contract which included the supply operation also to the extent of manufacturing by appellant as well as procurement from the open market - It is now settled law in the case of CCE & C Kerala Vs L&T Ltd 2015 (8) TMI 749 - SUPREME COURT by the Apex Court that the works contract remains works contract and cannot be vivisected for taxing various activities under different services. Appeal allowed - decided in favor of appellant.

Issues involved:
- Whether the supplies made by the appellant on separate commercial invoices constitute trading activity.
- Whether the appellant is liable to pay an amount equivalent to a percentage of the value of such services.
- Whether the lower authorities erred in their conclusions regarding the nature of the supplies made by the appellant.

Analysis:
1. The appellant, engaged in manufacturing excisable goods and undertaking turnkey projects, was alleged by the revenue authorities to be involved in trading activity based on the supplies of certain items on separate commercial invoices. The authorities contended that adding a profit margin to these items amounted to trading activity, making the appellant liable to pay a percentage of the value of such services. The appellant disputed this claim, asserting that the supplies were part of turnkey projects and not separate trading transactions. Both lower authorities ruled against the appellant, imposing penalties and demanding payments.

2. The appellant's counsel argued that the supplies were integral to the turnkey projects, as evidenced by the agreements with APTRANSCO. The agreements clearly outlined the nature of the projects, including the supply of materials, erection, and testing. The appellant maintained that the separate values assigned to various elements were for facilitating payments and not indicative of trading activity. Reference was made to established legal principles, emphasizing that the works contract could not be dissected for taxation purposes.

3. Upon reviewing the agreements and schedules, it became evident that the items supplied were essential components of the turnkey projects awarded to the appellant. The commercial invoices were found to be part of the overall project execution and not standalone trading transactions. The appellant provided a Chartered Accountant's certificate confirming that no additional amounts were received beyond the contracted project value. Citing relevant legal precedents, the Tribunal concluded that the lower authorities had erred in characterizing the supplies as trading activity.

4. The Tribunal held that the appellant's actions were in line with the terms of the turnkey projects, where the procurement of items from the market and their use in project execution did not constitute separate trading activity. Relying on established legal principles and the specific details of the case, the Tribunal found the impugned order unsustainable and set it aside, allowing the appeal in favor of the appellant.

This detailed analysis highlights the key legal arguments, factual considerations, and the Tribunal's reasoning leading to the decision in favor of the appellant.

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