2022 (8) TMI 282 - AT - Service Tax

Valuation - Erection, Commissioning and Installation Services - non-inclusion of the value of goods/material supplied under the supply work orders in valuing the said taxable service - case of the Revenue as forthcoming from the SCN is that the separate work order for supply of goods and services have to be construed as a single EPC contract for the purposes of discharge of service tax and that there has been an artificial splitting in the value of goods and services so as to inflate the value of goods and suppress the value of services - extended period of limitation - applicability of N/N. 12/2003 - HELD THAT - The taxable category Erection, Commissioning and Installation Services could only cover pure service contracts within its fold. It is observed that the Ld. Commissioner on one hand treats the separate work orders for sale/supply of goods and provision of Erection, Commissioning and Installation Services as an indivisible EPC yet at the same time rejected the taxability thereof under the category, Works Contract Services which is clearly unsustainable in light of COMMISSIONER, CENTRAL EXCISE CUSTOMS VERSUS M/S LARSEN TOUBRO LTD. AND OTHERS 2015 (8) TMI 749 - SUPREME COURT . The composite contracts in this case were divided into supply obligation and service obligation between the parties inter se for a pre-agreed monetary consideration. Since the work order for Erection, Commissioning and Installation Services was for consideration in money, the gross amount charged for such services alone could be subjected to service tax under Section 67(1)(i) of the Finance Act. The valuation framework as contained in Section 67 of the Finance Act does not seek to include within its ambit, any amount charged for sale/supply of goods and we are in complete agreement with the Appellant that higher or lower profit margin with respect to sale of goods cannot be a ground for questioning the value of a taxable service - It is well settled that levy of tax on sale/supply of goods and provision of services are mutually exclusive and it is not in the domain to assess whether VAT/CST was correctly discharged or otherwise. Deduction with respect to sale of goods to the Appellant under N/N. 12/2003 - HELD THAT - When the Appellant has undisputedly not availed any credit of excise duty on the goods sold to TSL . The proviso to Notification No. 12/2003 only restricts the availment of credit in the hands of the service provider as evident from Clause (b) thereof and therefore, as to whether TSL was entitled to avail Cenvat credit of excise duty on the said goods is an altogether separate question having no bearing on the instant proceedings. As the appeal are allowed on merits, the aspect of limitation, need not be entered into - appeal allowed - decided in favor of appellant.

Summary

Issues involved:
Alleged undervaluation of taxable services due to non-inclusion of the value of goods in the service tax assessment.

Detailed Analysis:

1. Issue of Composite Contracts Taxation:
The case involved the taxation of composite contracts involving both goods and services under the category of "Erection, Commissioning and Installation Services." The Appellant argued that such composite contracts could not be taxed under this category, citing the decision in the L&T case that this category only covers pure service contracts. The Tribunal agreed, emphasizing that the taxable category could only cover service contracts simpliciter and not composite works contracts. The Ld. Commissioner's treatment of the contracts as an indivisible EPC while rejecting taxability under "Works Contract Services" was deemed unsustainable.

2. Valuation of Services:
The Tribunal highlighted that since the work order for "Erection, Commissioning and Installation Services" was for monetary consideration, only the gross amount charged for such services could be subject to service tax under Section 67(1)(i) of the Finance Act. It was reiterated that the valuation framework does not include amounts charged for sale/supply of goods. The Appellant's argument that profit margins from goods sales should not affect the valuation of services was accepted, emphasizing the mutual exclusivity of tax on goods and services.

3. Denial of Deduction under Notification No. 12/2003:
The Tribunal found the Ld. Commissioner's reason for denying deduction under Notification No. 12/2003 unsustainable, as the Appellant had not availed any excise duty credit on goods sold. The proviso to the notification only restricts credit availment by the service provider, making the issue of the recipient's entitlement to credit a separate matter unrelated to the proceedings.

4. Conclusion:
The Tribunal set aside the Order-in-Original, allowing the appeal on merits and refraining from commenting on the limitation aspect. The decision was based on the principles of taxation of composite contracts, valuation of services, and the applicability of deduction provisions. The judgment provided clarity on the taxation framework for composite contracts involving goods and services, ensuring adherence to legal precedents and statutory provisions.

This detailed analysis encapsulates the key arguments, legal interpretations, and conclusions drawn by the Tribunal in addressing the issues raised in the case.