2019 (3) TMI 978 - AT - Service Tax

Nature of services - Benefit of abatement under N/N. 1/2006-ST dt. 1.3.2006 - Erection, Installation or Commissioning services - Department was of the view that to avail the benefit of notification, the plant, machinery, equipment and other material should be supplied by the service provider and not for simple supply of any other material for providing service - input tax credit - Held that - Perusal of the purchase order and invoices indicates that the appellant s activities are not restricted only as a service provider simplicitor, for example a purchase order / invoice clearly indicate supply and installation of power cables multi strand, Armoured copper UG, Tower implementation, shelter erection on site, supply and installation of earthing pits, supply and installation of aviation lamp for towers and so on. The SCN has also alluded to the appellant s letter dt. 21.09.2007 wherein the appellants have reported to have informed that major equipment would be supplied by the customer Nortel. While this may very well be so, there is no allegation by the department that entire equipment and material has been supplied in totality by Nortel. Whether for being considered as a composite works contract, the service provider is required to provide not only of the services required for execution of the contract but also all materials and equipments required for such execution? - Held that - When there is supply of material involved by the service provider in execution of the product project / work contracted to him, the activity done on such service provider cannot be mere service simplicitor but will be a composite contract comprising of both materials and services. It really does not matter what percentage of the materials is being provided by such service provider at his cost. However, necessary facts as to whether the appellants had actually supplied material also for the works executed by them is not forthcoming. More so because, the purchase order says for services only . It is seen that appellants have rendered ECIS in nature of laying foundation for tower, installation of machinery equipments etc. Though tower, machinery, equipments are provided by Nortel, the contractor would have to use other materials for rendering ECIS. The facts in such line have to be verified - matter remanded to adjudicating authority for de novo adjudication - appeal allowed by way of remand.

Summary

Issues:
Service tax liability under Notification No.1/2006-ST for Erection, Installation, or Commissioning services; Availment of input service tax credit against services; Imposition of penalties under various provisions of law.

Analysis:
The case involved appeals related to the service tax liability of the appellants under Notification No.1/2006-ST for Erection, Installation, or Commissioning services. The department alleged that the appellants did not meet the conditions of the notification as machinery and equipment were supplied by the service recipient, Nortel Networks. Show cause notices were issued denying the benefit of the notification, proposing service tax demands, interest, and penalties. Adjudication confirmed the demands and penalties, which were upheld by the Commissioner (Appeals), leading to the appeals before the Tribunal.

The appellants argued that the works contract was not taxable before 01.06.2007, citing legal precedents. They claimed eligibility for input services credit on other works where full tax was paid without abatement. The appellants contended that the contract was composite, involving both materials and services, and challenged the department's interpretation of the notification's applicability.

The department argued that the materials were supplied by Nortel, as per the purchase orders and agreements, and highlighted specific clauses indicating Nortel's ownership of supplied materials. They emphasized that the appellants declared "service charges only" in their invoices and acknowledged Nortel's supply of major equipment. The department maintained that the services provided should be treated as service simplicitor, not a composite works contract.

After hearing both sides, the Tribunal analyzed the agreements and purchase orders between the parties. The Tribunal noted conflicting clauses regarding material supply and service provision. It was observed that the appellants might have supplied goods as part of the contracted work, but further verification was needed. The Tribunal concluded that the matter required reexamination by the adjudicating authority to determine if the works were composite contracts involving both materials and services. The Tribunal set aside the impugned orders and remanded the case for fresh adjudication.

In conclusion, the Tribunal allowed the appeals by remand, emphasizing the need for a detailed review of whether the contracts constituted composite works involving both materials and services, in line with legal precedents and the specific terms of the agreements.