2023 (1) TMI 690 - AT - Service Tax

Short payment of service tax - erection, installation and commissioning work service - Wrong classification of service under Works Contract Service - benefit of N/N. 1/2006 ST - circular No. B1/16/2007-TRU dated 22.05.2007 - HELD THAT - The aforesaid exemption entry is applicable on taxable category viz. Erection, commissioning or installation, under a contract for supplying a plant, machinery or equipment or structures and erection, commissioning or installation of such plant, machinery or equipment or structures. The Learned Commissioner denied the benefit of said entry to the Appellant on the ground that Appellant is not supplying plant, machinery, equipment or structures, but carrying out thermal insulation and hence benefit of 67% abatement from gross value would not be available to appellant as the condition laid down in the said Notification are not fulfilled by appellant - it cannot be considered that the said entry is applicable only on the supply of plant, machinery or equipment or structures. Besides, it is also applicable on any other material so Learned In the present matter there is no dispute on the facts that the Appellant is Commissioning and Installation agency and for providing the taxable services appellant has provided the thermal insulating materials i.e. Hot insulation including supply of LRB and Aluminium Sheet, Cold insulation with Thermocol and Aluminium Sheet, Insulation of Pipeline with black superion sleeve providing and fixing of black superion with cellotape , insulation with black nitrile rubber foam, sheet, etc. and on supply of goods appellant also paid sales tax/ VAT. Hence, the Appellant are eligible to the benefit of the Notification No. 1/2006-S.T., dated 1-3-2006. Wrong classification of service under Works Contract Service - HELD THAT - From the definition of Works Contract Service, it is clear that only specified categories of works contract are considered for levy of Service Tax under the said definition. These are enumerated in clauses (a) to (e). It is found that in clause (a) thermal insulation also mentioned and in the present matter appellant had also paid VAT/ sales tax on goods which is used in installation of thermal insulation. The impugned activity of the assessee was nothing but works contract service . There are no merit in the impugned order demanding service tax from appellant - appeal allowed.

Summary

Issues:
1. Eligibility for benefit under Notification No. 1/2006-S.T.
2. Classification of service under Works Contract Service.

Eligibility for benefit under Notification No. 1/2006-S.T.:
The appellant was accused of wrongly availing abatement for service tax calculation. The dispute arose from the nature of services provided, specifically thermal insulation work. The appellant argued that the services qualified for abatement under the notification as they involved supplying and applying thermal insulation materials. The appellant contended that the materials used were durable and akin to plant items, citing legal precedents. Additionally, they highlighted that the materials were purchased by clients and then applied by the appellant, qualifying as capital goods. The appellant emphasized that service tax should only apply to the labor component, not the material cost. The tribunal analyzed the notification's conditions and found that the appellant, as a commissioning and installation agency, did supply materials during service provision, making them eligible for the notification's benefit.

Classification of service under Works Contract Service:
The second issue revolved around the classification of the appellant's service as Works Contract Service. The revenue argued that the appellant incorrectly classified the service as installation of thermal insulation under Works Contract. The tribunal referred to the Finance Act, 2007, which introduced Works Contract Service and defined it to include various activities, including thermal insulation. The tribunal noted that the appellant had paid VAT/sales tax on materials used for insulation, aligning with the definition of works contract service. Therefore, the tribunal concluded that the appellant's activity fell under the purview of works contract service. Consequently, the tribunal set aside the impugned order, ruling in favor of the appellant and allowing the appeal with any consequential relief as per law.

In conclusion, the tribunal's judgment addressed the issues of eligibility for notification benefits and the classification of services under Works Contract Service, ultimately ruling in favor of the appellant based on the legal interpretations and factual analysis presented during the proceedings.