2019 (11) TMI 565 - AT - Service Tax

Nature of activity - service or not - Levy of service tax - service of erection and installation are provided by the foreign party to the appellant - reverse charge mechanism - N/N. 19/2003-ST dated 21/03/2003 - HELD THAT - The entire transaction is of purchase of imported bubble wrap machines. The appellants have discharged custom duty considering the total value of machine shown in the invoice. There is no separate charge for service such are erection and installation of such machinery. On the total value of the invoice, Custom duty was paid. The erection and installation is incidental to the sale/supply of the machine. Therefore, the entire transaction is of sale and purchase of the machine and, hence, no service is involved. Therefore, no Service Tax can be demanded. Appeal allowed - decided in favor of appellant.

Issues:
1. Liability to pay service tax on erection and installation of imported bubble wrap manufacturing machine.
2. Whether the entire transaction is for sale and purchase of the machine or involves separate services.
3. Applicability of service tax on the reverse charge mechanism.
4. Interpretation of notification 19/2003-ST dated 21/03/2003.
5. Relevance of previous judgments in similar cases.

Analysis:

Issue 1: Liability to pay service tax on erection and installation
The case revolved around the liability of the appellant to pay service tax on the erection and installation of an imported bubble wrap manufacturing machine. The department argued that the foreign supplier provided services of erection and installation, making the appellant liable for service tax under the reverse charge mechanism.

Issue 2: Sale and purchase transaction vs. separate services
The appellant contended that the entire transaction was for the sale and purchase of the machine, with no separate contract for erection and installation services. They highlighted that the invoice only reflected the sale of the machine without any bifurcation for services. The appellant argued that since custom duty was paid on the total value of the machine, no service tax could be demanded.

Issue 3: Applicability of service tax on reverse charge mechanism
The appellant relied on various judgments to support their argument that no service tax should be demanded as the entire transaction was a sale and purchase of the machine. They emphasized that the erection and installation were incidental to the sale/supply of the machine, and therefore, no separate service tax was applicable.

Issue 4: Interpretation of notification 19/2003-ST
The tribunal analyzed the implications of notification 19/2003-ST dated 21/03/2003, which was used to artificially bifurcate the sale value of the machine for service tax purposes. The tribunal concluded that since the entire value of the machine had already incurred custom duty, no additional service tax could be levied.

Issue 5: Relevance of previous judgments
The tribunal referred to previous judgments, including Bhavik Terryab, Allengers Medical Systems Ltd., and others, to support the decision that in cases of imported machines where the contract is all-inclusive without separate split-up for erection and commissioning, and excise duty is discharged on the total value, no liability for service tax exists.

In conclusion, the tribunal ruled in favor of the appellant, stating that the entire transaction was a sale and purchase of the machine, with no separate service involved. The judgment highlighted that in cases of imported machines, artificially bifurcating the service value from the total value was not sustainable. The appeal was allowed, setting aside the impugned order and remanding the case for further examination of factual details by the original authority.

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