2023 (6) TMI 1158 - AT - Service Tax

Consulting Engineering Service or not - Activity of supply of basic equipments as well as supervision and erection and commissioning of the manufacturing lines - valuation of such service - HELD THAT - The Appellant raised consolidated bill to the client JUD, which include supply of materials and providing technical assistance for setting up the cement plant. Out of gross receipt of Rs.65,76,56,249/-, the Appellant has supplied machinery and equipments valued at Rs.13,68,01,000/-from their own manufacturing unit, which include an amount of Rs.2,42,91,584/- paid towards Central Excise duty. The Appellant is not a consulting engineer firm. They are a manufacturing firm and whenever physical execution of erection and commissioning is sought along with supply of their own manufactured goods, they assist the buyer in procurement of bought out items. In the present case, JUD themselves undertook the erection and commissioning activity. Apart from the Appellant they have engaged various other service providers also to assist them in the erection and commissioning activities. Hence, the allegation of the department that the Appellant has rendered 'Consulting Engineer' service is not supported by any evidence - the Appellant has appropriately paid service tax on the services rendered towards supervision of erection and commissioning of the plant. The value of bought out items sold to JUD on a profit cannot be considered as Consulting Engineer service for the purpose of demanding service tax. A composite contract cannot be bifurcated to artificially arrive at the service value - the demand in the impugned order is not sustainable - Since the demand itself is not sustainable, the question of demanding interest and imposing penalty does not arise. Appeal allowed.

Summary

Issues Involved:

1. Whether the Appellant provided 'Consulting Engineering Service' to JUD.
2. Determination of the value of such service, if provided.

Summary:

Issue 1: Provision of 'Consulting Engineering Service'

The Department alleged that the Appellant provided 'Consulting Engineering Service' to JUD and failed to discharge service tax amounting to Rs. 1,81,30,014/-. The Appellant contended that their role was not that of a 'Consulting Engineer' as defined under Section 65(31) of the Finance Act, 1994. They argued that their agreement with JUD was primarily for the supply of machinery and equipment, with technical assistance for erection and commissioning being incidental. The Tribunal observed that the contract was mainly for the supply of goods, and any service rendered was incidental. The Appellant had paid service tax of Rs. 8,76,154/- for supervision services, which was deemed appropriate. The Tribunal concluded that the allegation of providing 'Consulting Engineer Service' was not supported by evidence.

Issue 2: Value of the Service Provided

The Department considered the amount of Rs. 52,08,55,249/- as the value for 'Consulting Engineer Service' after excluding the value of the Appellant's own manufactured goods. The Appellant argued that this amount pertained to bought-out items sold to JUD and not for any consulting services. The Tribunal noted that the Appellant supplied both their own manufactured goods and bought-out items, with the latter being sold at a profit, which is a normal trade practice. The Tribunal held that the value of bought-out items could not be considered as the provision of 'Consulting Engineer Service' for the purpose of demanding service tax. The Tribunal cited the decision in Jyothi Ltd Vs Commissioner of Central Excise, which supported the view that a composite contract cannot be bifurcated to artificially arrive at the service value.

Conclusion:

The Tribunal set aside the demand in the impugned order, holding that the demand was not sustainable. Consequently, the question of demanding interest and imposing penalties did not arise. The appeal filed by the Appellant was allowed.