2019 (11) TMI 675 - AT - Service Tax

Erection Commissioning or Installation Service - Composite works contract or not - Demand of service tax - project which they have undertaken for construction of floodlighting along the Indo-Bangladesh Border - Benefit of N/N. 45/2010-ST dt. 20.07.2010 and 11/2010-ST dt. 27.02.2010 - demand of mobilization advance which they have received from their clients which was subsequently adjusted in the final bill - service tax under reverse charge mechanism on the freight paid to the vendors under GTA services - extended period of limitation - penalties. Project for construction of floodlighting around Indo Bangladesh Border in the State of Tripura - demand of service tax - HELD THAT - It is evident from the records before us that the project was awarded by Ministry of Home Affairs to M/s Coastal Projects Private Limited A Government of India Enterprise who have further subcontracted the same to the appellant on back to back basis. The contract involved both supply of material and installation and commissioning of the equipment with no clear demarcation/vivisection between the service component and the material component thereof - We therefore do not agree with Ld. DR that the contract can be vivisected in this case and the demand has been raised on the entire value of the contract including the material part of it because the appellant failed to provide the break up. Had there been a break up of the material and the service components in the contract itself the demand would have been raised on the service component ignoring the material. There is nothing on record which is placed before us which shows that there are two different contracts or a single contract with two separate distinct components for supply of material and rendition of services - In view of the above it is found that the contract in question is a composite works contract. Composite works Contract involve both rendition of service and deemed sale/sale of the materials used in rendering such services. The Hon. ble Apex Court has observed in the case of COMMISSIONER CENTRAL EXCISE CUSTOMS VERSUS M/S LARSEN TOUBRO LTD. AND OTHERS 2015 (8) TMI 749 - SUPREME COURT that works contract is a separate specie of contract known to the trade and commerce distinct from a contract for supply of goods or a contract for supply of services - In view of the above there is no hesitation in concluding that the contract in question is a composite works contract and could have been taxed only under the head of Works Contract Services post 01.06.2007 - It is not in dispute that the entire period in question is post 01.06.2007. Therefore the demand if any could have been raised under the Works Contract Service. The demand in this case has been made under Erection Commissioning and Installation Service. ECIS does not include the contract where transfer of materials is involved. Since the demand has been raised under ECIS and the nature of contract does not fall under this category the demand on this head it has to fail. Benefit of N/N. 45/2010-ST dt. 20.07.2010 and 11/2010-ST dt. 27.02.2010 - Case of appellant is that since the floodlighting along the Indo Bangladesh Border also involves transmission and distribution of electricity it should be treated as exempted under Notifications - HELD THAT - This argument however is not correct. Evidently from a bare perusal of the contract it is evident that the purpose of the contract is for providing floodlighting along the Indo Bangladesh Border in the State of Tripura and NOT for transmission and distribution of electricity. Merely because electricity is used in the flood lighting it does not a project for transmission and distribution of electricity. If this logic is accepted there could hardly be any service which is rendered by any service provider without use of electricity in some form and for this purpose being connected to the power grid - Merely because they are connected to a grid the service does not become transmission and distribution of electricity. Extended period of limitation - HELD THAT - It is not necessary to go into the question of limitation since it is found that the demand is not sustainable on merit itself being in the nature of Works Contract Service and being charged under Erection Commissioning and Installation Service. Goods Transport Agency Service - demand has been computed on the freight expenses incurred by the appellant during various years - HELD THAT - The appellant have conceded and paid service tax amounting to Rs. 3, 34, 653/- . The remaining amount of freight paid according to the appellant was paid to their vendors towards freight. The vendors in turn had availed the services of GTAs and paid them. In other words the appellants claim that they have only reimbursed to their vendors for the goods transport agencies services which they had paid. The department s contention is that they have not produced any evidence to substantiate this fact - Having accepted the assessee s records that amounts have been paid towards goods transport the department cannot reject the contention that a part of it was paid directly to their vendors and in the absence of any evidence to the contrary. In view of the above the contention of the department is not sustainable and the demand on this ground must also fail. Demand of interest on the delayed payment of service tax - tax on mobilization advances - it is the case of the department that an amount has been paid as advance towards rendition of service and service tax should have been paid as soon as the amount has been received - HELD THAT - It is the case of the appellant that it is not an advance for rendition of service but is in the nature of mobilization advance which is backed by bank guarantee and on such an advance they have paid interest to their customers. Therefore it is nothing but a secured loan which has no nexus to the service provider. The amount so received is a mobilization advance which has been adjusted against total bill on which they have discharged full amount of service tax - the demand under this head also needs to fail. Interest and penalties - HELD THAT - Since the demand on all three accounts is not sustainable interest and penalties also needs to be set aside. Appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
1. Demand of Service Tax under "Erection, Commissioning or Installation Services".
2. Demand of Service Tax under "Goods Transport Agency Services".
3. Demand of interest on mobilization advances.
4. Invocation of extended period of limitation.
5. Imposition of penalties.

Detailed Analysis:

1. Demand of Service Tax under "Erection, Commissioning or Installation Services":
The appellant was subcontracted by M/s Coastal Projects Private Limited for floodlighting along the Indo-Bangladesh Border. The contract was composite, involving both supply of materials and services, without a clear demarcation between the two. The appellant argued that such contracts fall under "Works Contract Service" as per the Supreme Court's ruling in Larsen & Toubro Limited [2015(39)S.T.R. 913 (S.C.)], which cannot be taxed under "Erection, Commissioning or Installation Services" (ECIS). The Tribunal agreed, stating that composite works contracts are distinct and cannot be taxed under ECIS. Thus, the demand under ECIS was set aside.

2. Demand of Service Tax under "Goods Transport Agency Services":
The appellant contended that a portion of the freight expenses was reimbursed to vendors who availed the services of Goods Transport Agencies (GTA), and not directly paid by them. The department's demand was based solely on the appellant's records of freight expenses. The Tribunal found the department's position untenable, as it accepted the appellant's records for freight expenses but rejected their claim without contrary evidence. Therefore, the demand under GTA services was also set aside.

3. Demand of Interest on Mobilization Advances:
The department argued that service tax should be paid on mobilization advances received. The appellant contended that these were secured loans backed by bank guarantees and not advances for services. The Tribunal referred to previous rulings, including GJF Construction Company Limited vs. CCE, Hyderabad, which held that mobilization advances are not taxable if they are in the nature of secured loans. Consequently, the demand for interest on mobilization advances was set aside.

4. Invocation of Extended Period of Limitation:
The appellant argued against the invocation of the extended period of limitation, stating that there was no intention to evade tax. The Tribunal did not find it necessary to address this issue since the demands were not sustainable on merit.

5. Imposition of Penalties:
Given that the demands were not sustainable, the Tribunal also set aside the imposition of penalties under sections 77 and 78 of the Finance Act, 1994.

Conclusion:
The Tribunal set aside the impugned order and allowed the appeal with consequential relief, if any. The demands under ECIS, GTA services, and interest on mobilization advances were found unsustainable, and the penalties were also set aside.