2019 (3) TMI 1330 - AT - Service Tax

Reverse charge mechanism - applicability of Section 66A of FA - Erection commissioning or installation service - Machine imported - branch office of manufacturer erected install the machinery - No separate contract for supply and installation - Held that - It is not the case of the Revenue that there is separate agreement for providing the service of erection, commissioning or installation and it is not even its case that the main purpose of invoices was for providing the services of installation (erection, commissioning and installation), nor is the case of the Revenue that the payment as per the invoices were made only towards the installation service - it appears that the fact of sale and purchase of machinery has been side-lined and the fact of installation is bloated to make it as though that is the only activity involved. The alleged service and installation has been carried out by the suppliers through their branches and hence we are of the view that Section 66 A has no role - there are no merits in the impugned order as also the demand, for which reason we set aside both - appeal allowed - decided in favor of appellant.

Summary

Issues:
Interpretation of Section 66A of the Finance Act, 1994 regarding liability for service tax under reverse charge mechanism for services of "Erection, Commissioning or Installation" received from foreign suppliers of machinery. Bar on proceedings due to limitation period.

Analysis:

Issue 1: Interpretation of Section 66A
The appellant, a manufacturer of printed materials, imported printing machines during 2008-09 to 2009-10 and faced a Show Cause Notice (SCN) alleging liability for service tax under reverse charge mechanism for services of "Erection, Commissioning or Installation" provided by foreign suppliers of the machines. The Order-in-Original confirmed the proposals in the SCN, which was upheld by the Commissioner of CE (Appeals). The appellant contended that the installation was carried out by the supplier's representative/branch, and no separate payment was made for installation. The Bill of Entry indicated the purchase of machines without a specific mention of installation services. The Tribunal observed that the primary activity was the sale and purchase of machinery, with installation being a subsequent activity carried out by the supplier's representative. There was no separate agreement for installation between the appellant and the foreign supplier. The Tribunal held that Section 66A did not apply as the installation was done by the suppliers through their branches, and the invoices did not solely reflect payment for installation services. Consequently, the Tribunal set aside the impugned order and demand, allowing the appeals.

Issue 2: Bar on Proceedings
The appellant argued that the proceedings were time-barred as the Bill of Entries were dated before the issuance of the SCN. However, the Tribunal did not find this argument relevant in the context of the main issue of liability under Section 66A. The Tribunal focused on the substance of the transactions and the lack of separate agreements for installation services, rather than the timing of the proceedings. Therefore, the Tribunal did not uphold the limitation argument and based its decision on the interpretation of the relevant provisions and the nature of the transactions involved.

In conclusion, the Tribunal's judgment clarified the application of Section 66A in the context of services related to the installation of imported machinery. It emphasized the importance of analyzing the substance of transactions and agreements to determine the tax liability under the reverse charge mechanism. The decision highlighted the need for a clear delineation between sale and purchase activities and additional services such as installation to avoid misinterpretation and undue tax burdens.