2024 (2) TMI 1131 - AT - Service Tax

Classification of services - activity for laying of pipe line for irrigation projects - Erection, commissioning and installation services or not - time limitation - HELD THAT - Since, it is undisputed that the activity under taken by the appellant is laying of pipeline for irrigation projects for the period involved under a composite contract, and the show cause notice also demands service tax under erection, commissioning and installation charges , we find that the entire demand needs to be set aside as unsustainable. It is noted that similar issue came up before the Larger Bench of the Tribunal in the case of M/S. LANCO INFRATECH LTD. AND OTHERS VERSUS VERSUS CC, CE ST, HYDERABAD 2015 (5) TMI 37 - CESTAT BANGALORE (LB) and the Larger Bench, after considering the various decisions and the provisions of Finance Act, 1994 held that Where under an agreement, whether termed as works contract, turnkey or EPC, the principal contractor, in terms of the agreement with the employer/ contractee, assigns the works to a sub-contractor and the transfer of property in goods involved in the execution of such works passes on accretion to or incorporation into the works on the property belonging to the employer/ contractee, the principal contractor cannot be considered to have provided the taxable (works contract) service enumerated and defined in Section 65(105)(zzzza) of the Act. The above reproduced Larger Bench ratio would squarely cover the issue in favour of the appellant in the case in hand. Accordingly, the entire demand which has been raised by the show cause notice is liable to be set aside. There are strong force in the contentions raised by the Learned Counsel that prior to 01.06.2007 the demand on the appellant cannot be sustained in view of the judgment of the Apex Court in the case of STATE OF ANDHRA PRADESH ORS. VERSUS LARSEN TOURBO LTD. ORS. 2008 (8) TMI 21 - SUPREME COURT , as it is the admitted fact that contracts which are awarded to the appellant are for supply, erection commissioning of various irrigation projects. That would mean that the entire contract is a works contract. The impugned order is set aside - appeal allowed.

Summary

Issues:
The issues involved in the judgment are whether the activities undertaken by the appellant fall under 'erection, commissioning and installation services' for the period in question, and whether the demand for service tax on the appellant is sustainable.

Issue 1: Classification of Services
The appellant was executing contracts for various organizations on a composite/Turnkey basis, which included activities like laying pipelines for irrigation projects. The Adjudicating Authority confirmed the demand for service tax under 'erection, commissioning and installation services'. The appellant contended that the activity falls under works contract services and cited relevant judgments. The Tribunal noted that the activity of laying pipelines for irrigation projects cannot be taxed under 'erection, commissioning and installation services' based on previous rulings.

Issue 2: Precedent and Legal Interpretation
The Tribunal referred to a Larger Bench ruling which addressed various issues related to the classification of services, including the construction of canals and laying of pipelines for irrigation purposes. The Larger Bench held that such activities should be classified under Commercial or Industrial Construction Service (CICS) and not under Erection, Commissioning or Installation Service (ECIS). The Tribunal applied this ruling to the current case and concluded that the demand for service tax on the appellant was unsustainable.

Conclusion:
The Tribunal set aside the impugned order and allowed the appeal, providing consequential benefits to the appellant. The judgment highlighted the importance of legal interpretation and precedent in determining the classification of services for taxation purposes. The ruling emphasized that activities like laying pipelines for irrigation projects should be classified appropriately under works contract services rather than under erection, commissioning, and installation services for the purpose of service tax liability.