2019 (1) TMI 381 - AT - Service Tax

Construction services - commercial or industrial construction services - construction of Onshore Terminal (OT) for the purpose of receiving, processing/purification and transportation of natural gas - exemption from payment of Service Tax - Section 65 (A)(2B) of the Finance Act, 1994 - extended period of limitation - Jurisdiction - Held that - There are no merits in the appellants arguments, as they have themselves applied for and got Centralized Registration with Hyderabad Commissionerate-II, and the Commissionerate has jurisdiction to issue the demand even when the services are provided outside territorial jurisdiction of Hyderabad Commissionerate-II, which comes out clearly from statement of Mr. Udaybhasker, that they have been granted Centralized Registration even for A.P. Chattisgarh. Further it is not in dispute that all the records and accounts relating to RIL project are maintained by appellant at its Hyderabad office - Thus the jurisdiction of Hyderabad Commissionerate cannot be questioned. The contract awarded to appellant is a composite one involving construction, erection, commissioning and installation of plant equipment, structure, instrumental, electrical, etc.,; it is nobody s case that services rendered under contract can be bifurcated activity wise for the tax implication; Revenue Authorities as well as the appellants were unanimous in their submissions that the entirety of the contract is to be taken as a single indivisible contract and taxability thereof or otherwise should be decided. In terms of contract, appellant was to construct a gas processing plant with certain alloyed facilities called as OT - The appellant was also to undertake the construction of certain common and infrastructure facility such as helipad; hanger; ATF refuelling facility; Radio room, portable water treatment system, permanent facilities like canteen building, office building, first aid centre; security control room; swipe and control access system; permanent warehouses; administrative buildings; accommodation buildings; health centre; construction of road; widening of road; construction of flyover as also construction of civil works for comprehensive protected water supply. The submission of the appellant that the Act does not prescribe a mechanism for taking such composite contracts is not correct as, provisions of Section 65A of the Finance Act, 1994, provides necessary statutory guidelines for determining, not only specific taxable category, but also its classification as taxable or non-taxable services. The submission of the appellant on this point seeks to give the word classification an unduly narrow meaning. Thus, the conclusion as to non-taxability of a composite service can be arrived at only in a situation where it is established that essential character of composite contract is imparted. The argument of appellant, it seems, that essential character of composite contract is imparted by the CICS activities, which are taxable - the contention that entirety of the service provided by the appellant is to be regarded as non-taxable is rejected. Whether demand for tax can be sustained under the category CICS? - Held that - The Notice records the activity of appellant is not a WCS, as there is no transfer of property in goods. The reason for excluding the service from the head Erection Commissioning or Installation Services , was that the appellant was not a Commissioning and Installation Agency . The allegation in the notice is that activity of appellant is CICS, Strenuously challenged by appellant contending that the essential character of the composite service was that of ECIS services, we need to look in to that before coming to a conclusion. It is clear that on standalone basis some of the services provided herein, were in the nature of ECIS services, while some others, again on a standalone basis, were either construction services falling under the head CICS or were non-taxable services as noted herein above. Since both sides are unanimous in contending that the contract is a composite contract and indivisible one, not amendable to being broken down in to its separate components attracting different tax classifications, it was necessary for the adjudicating authority to have examined which of the two taxable services i.e. ECIS or CICS imparted the essential character to the contract as a whole. It seems that no such exercise has been conducted by the adjudicating authority. In a pure service contract which is based on cost plus model, as is in the instant case, the essential character of the service rendered can be derived from details of the man hours spent for each activity along with the cost of such manpower. This aspect needs consideration to determine the essential character of the service rendered under the composite contract on the aforesaid basis. Extended period of limitation - Held that - We are not examining this plea as the same would be relevant only if on remand the adjudicating authority comes to a conclusion that the services rendered were taxable under the head of CICS - the issue left open for determination by the adjudicating authority. Appeal allowed by way of remand.

Summary

Issues Involved:

1. Jurisdiction of Hyderabad-II Commissionerate.
2. Classification of services under Commercial or Industrial Construction Services (CICS) or Erection, Commissioning, and Installation Services (ECIS).
3. Applicability of Section 65A(2)(b) of the Finance Act, 1994.
4. Whether the Onshore Terminal (OT) is a transport terminal.
5. Invocation of the extended period for demand.
6. Eligibility for exemption under Notification No. 1/2006-ST dated 1.3.2006.
7. Applicability of cum-tax benefit.
8. Imposition of interest and penalties.

Detailed Analysis:

1. Jurisdiction of Hyderabad-II Commissionerate:

The Tribunal held that the Hyderabad-II Commissionerate had jurisdiction to issue the demand as the appellant had applied for and received centralized registration with the Hyderabad Commissionerate-II. All records and accounts relating to the RIL project were maintained at the Hyderabad office, affirming the jurisdiction.

2. Classification of Services:

The Tribunal noted that the contract was a composite one involving construction, erection, commissioning, and installation. The adjudicating authority needed to determine whether the essential character of the service rendered fell under CICS or ECIS. The Tribunal found insufficient material on record to conclude which service imparted the essential character to the contract. The matter was remanded for further examination based on man-hours and cost of manpower spent on each activity.

3. Applicability of Section 65A(2)(b):

The Tribunal rejected the appellant's argument that the entirety of the service should be regarded as non-taxable due to the inclusion of non-taxable services. It was held that Section 65A provides guidelines for classifying composite services and determining their taxability.

4. Onshore Terminal as a Transport Terminal:

The Tribunal deferred the issue of whether the OT is a transport terminal. This determination would be necessary only if the adjudicating authority, on remand, concludes that the services fall under CICS. If so, the adjudicating authority must consider whether the OT qualifies as a transport terminal, taking into account the Tribunal's decision in AFCONS Infrastructure Ltd.

5. Invocation of Extended Period:

The Tribunal did not examine the plea regarding the extended period of limitation, leaving it open for determination by the adjudicating authority on remand, contingent on the classification of services under CICS.

6. Exemption under Notification No. 1/2006-ST:

The Tribunal agreed that if the services are classified under CICS and do not fall within the exclusion of a transport terminal, the appellant would be eligible to pay tax on only 33% of the value of services rendered, as per Notification No. 1/2006-ST dated 1.3.2006. The Revenue did not seriously dispute this eligibility.

7. Cum-Tax Benefit:

The Tribunal remanded the issue of cum-tax benefit for examination by the adjudicating authority, to be considered if any demand is confirmed under CICS.

8. Interest and Penalties:

The Tribunal did not address the imposition of interest and penalties, leaving it for determination by the adjudicating authority, contingent on the classification of services under CICS.

Conclusion:

All appeals, except appeal No. ST/30275/2016, were remanded for further examination. Appeal No. ST/30275/2016 was set aside as no demand could be raised under WCS. The adjudicating authority was directed to follow principles of natural justice and allow the assessee to submit supporting documents. The Revenue's appeals in respect of appeal Nos. ST/834/2009 and ST/835/2009 were disposed of by separate orders.