2023 (9) TMI 812 - AT - Service Tax

Non-payment of service tax - erection, commissioning and installation services - composite works contract service - extended period of limitation - suppression of facts or not - HELD THAT - At paragraph 8.1 of the impugned order dated 22.01.2014, the Ld. Commissioner accepts that the assessee was a manufacturer and supplier of WTGs / Windmills and were also providing erection, commission and installation work against the composite contract work order, to make the WTG operational. This is the understanding between the parties and hence, the manner of raising the invoices does not matter. It is also a fact borne on the record that sale of the materials involved were subject to VAT, but however, the same was exempted. At paragraphs 8.1 and 8.2, the Ld. Commissioner, in the impugned order, has categorically observed that the assessee had undertaken the provision of service based on a composite contract. Further, the very fact that the Ld. Commissioner has allowed 67% abatement towards the material cost and 33% towards the service thereby extending the benefit of Notification No. 01/2006-S.T. dated 01.03.2006 itself suggests that the service rendered by the appellant was nothing but works contract. These facts, according to us, are sufficient to uphold the claim of the appellant that the nature of service was clearly works contract service. There was no tax liability since the appellant continued to pay tax under works contract service for the periods under dispute, which is also as per the decision of the Hon ble Apex Court in the case of M/s. Larsen Toubro Ltd. 2015 (8) TMI 749 - SUPREME COURT and therefore, the appellant has to succeed. The nature of service rendered by the appellant in the case on hand is in the nature of a composite works contract, since it involves both service as well as transfer of the property in goods/materials. This is clearly, therefore, not taxable under the head of erection, commissioning and installation service prior to 01.06.2007 as declared by the Hon ble Apex Court. Hence, just because the Revenue brought to tax under a category other than works contract service, the same does not tantamount to suppression of facts, etc., to justify invoking the larger period of limitation. The impugned orders reclassifying the impugned service under erection, commissioning and installation cannot sustain and resultantly, the same are set aside - Appeal allowed.

Summary

Issues Involved:
1. Classification of services under composite contracts.
2. Applicability of Service Tax on composite contracts.
3. Invocation of the extended period of limitation.
4. Imposition of penalties.

Summary:

1. Classification of Services under Composite Contracts:
The appellant, a manufacturer of Wind Turbine Generators (WTG), engaged in both supply and erection, commissioning, and installation services, was found to have raised two sets of invoices for these activities. The adjudicating authority recognized that the appellant entered into a composite contract for the purchase and erection of WTGs, noting that civil works and electrical installations were inseparable from the erection, commissioning, and installation work. Thus, the value of materials formed part of the assessable value.

2. Applicability of Service Tax on Composite Contracts:
The appellant argued that their activities constituted a composite contract, taxable under works contract service from 01.06.2007, as per Section 65(105)(zzzza) and clarified by the Supreme Court in Commissioner of Central Excise and Customs, Kerala v. M/s. Larsen & Toubro Ltd. The Tribunal upheld this view, noting that the appellant paid tax under works contract service and that the service rendered was indeed a works contract, thus not taxable under 'erection, commissioning, and installation service' prior to 01.06.2007.

3. Invocation of the Extended Period of Limitation:
The appellant argued that the extended period of limitation could not be invoked as the demand was based solely on expenses reflected in the balance sheet and P&L account, without any evidence of suppression. The Tribunal agreed, stating that the consistent declaration of services under 'works contract' and payment of tax accordingly did not justify invoking the larger period of limitation.

4. Imposition of Penalties:
The appellant contended that penalties could not be sustained for the same reasons that the extended period of limitation could not be invoked. The Tribunal set aside the penalties, aligning with the view that reclassification of the service under 'erection, commissioning, and installation' was unjustified.

Conclusion:
The Tribunal concluded that the services rendered by the appellant were indeed works contract services and not taxable under 'erection, commissioning, and installation service' prior to 01.06.2007. Consequently, the impugned orders were set aside, and the appeals were allowed with consequential benefits as per law.

(Order pronounced in the open court on 15.09.2023)