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2024 (4) TMI 628 - AT - Service TaxValuation of service - works contract service - inclusion of cost of material (for which separate bill raised) in providing the service - inclusion on the ground that the service is classifiable under works contract service and accordingly all the goods used for providing such works contract service should be included in the gross value of the service under the composition scheme - HELD THAT - As per the facts of the present case there are clear contracts between the appellant and the service recipient separately for sale of goods and for Erections, Commissioning and Installation services. Since there is a clear contract for supply of material and supply of services and in respect of the goods sale bills were issued by the appellant and VAT on the sale of goods were paid the transection of supply of goods is clearly and independently a transection of sale of goods which has no connection with the provision of service. In the present case the contract of the service namely erection, commissioning, installation service being a pure service the same is not exigible to Sales Tax, VAT/CST etc. as per the law therefore the condition Number 2 above is also not applicable therefore in the present case being a service simpliciter as per the separate contract the same is not classifiable under works contract service. The appellant have admittedly paid the service tax on the erection, commissioning, and installation at the applicable rate of service tax therefore the allegation of the department that the appellant have not included the value of goods in the works contact service is incorrect. This issue has been considered by the Hon'ble Supreme Court, in BSNL v. Union of India 2006 (3) TMI 1 - SUPREME COURT , wherein it has held that works contracts involved a kind of service and sale at the same time. In such a case, the splitting of the service and supply was constitutionally permitted. Further, it has been held that if there is an instrument of contract which may be composite in form in any case and if the transaction in truth represents two distinct and separate contracts and is discernible as such, in that case it has become permissible to separate agreement to sale from the agreement to render service. The Hon ble Supreme Court in the case of Imagic Creative Pvt. Ltd. v. Commissioner of Commercial Taxes 2008 (1) TMI 2 - SUPREME COURT has categorically held that payments of VAT and service tax are mutually exclusive. Further, it was observed that even in case of indivisible contracts, it would be difficult to hold that the entire contract value be subjected to service tax or VAT. Similarly in the case of Commissioner of Service Tax-V, Mumbai v. UFO Moviez India Ltd. 2022 (7) TMI 1064 - SUPREME COURT , the Hon'ble Supreme Court has held that where a person has regularly paid sales tax on a particular transaction, there is no question of levying service tax on the same transaction. In the present case undisputedly the appellant had manufactured and also purchased the goods from the independent supplier and sold to its customers therefore irrespective of whether the said goods were sold in transit or by way of high seas sale, when the provisions itself prescribes non-taxability of trading of goods, no service tax can be levied on the profit margin arising from such trading of goods. Thus, no service tax can be demanded on the sale of goods or by way of including the value of goods in the service. Further as per the contract and the transaction made thereunder there is clear distinction between the provision of service and transaction of sale of goods therefore the service has been correctly classified under erection commissioning and installation service and paid the service tax correctly. The impugned orders are set aside - appeal allowed.
Issues Involved:
1. Incorrect provisions in show cause notices. 2. Classification of contracts as works contracts. 3. Inclusion of value of goods in taxable value of services. 4. Double taxation under VAT and service tax. 5. Service tax on trading of goods. 6. Limitation, penalties, and interest. Summary: Incorrect Provisions in Show Cause Notices: The show cause notices issued for the period from October 2012 to December 2015 invoked incorrect provisions of the law, specifically Section 65(105)(zzzza) of the Finance Act, 1994, and Notification No. 29/2007-ST, which were repealed and rescinded respectively w.e.f. 01.07.2012. Therefore, the demand based on these notices is liable to be set aside. Classification of Contracts as Works Contracts: The subject contracts do not constitute works contracts as defined u/s 65(105)(zzzza) of the Act. Contract Type 1 involves pure sale of goods without any service element. Contract Type 2 involves separate orders for sale and installation services. Contract Type 3, though a single order, distinctly bifurcates the value of goods and services. The Appellant has discharged appropriate excise duties and sales tax/VAT on goods and service tax on services. The profit margin on goods cannot be taxed as part of the service element. Inclusion of Value of Goods in Taxable Value of Services: Even if the contracts are considered works contracts, Rule 2A of the Service Tax (Determination of Value) Rules, 2006, mandates that the value of goods transferred should be excluded from the taxable value of services. This is supported by the judgments in Commissioner of C. Ex. & Cus., Kerala v. Larsen & Toubro Ltd. and Total Environment Building Systems Pvt. Ltd. v. Commissioner of Commercial Taxes. Double Taxation under VAT and Service Tax: The Appellant has paid VAT/CST on the sale value of goods, and the same transaction cannot be subjected to service tax again. This principle is upheld in Imagic Creative Pvt. Ltd. v. Commissioner of Commercial Taxes and Commissioner of Service Tax-V, Mumbai v. UFO Moviez India Ltd. Service Tax on Trading of Goods: No service tax is payable on trading of goods. Prior to 01.07.2012, trading was considered an exempted service u/s 66D(e) of the Act. Post 01.07.2012, trading is specified under the negative list. The Appellant's transactions, involving the purchase and sale of goods, fall under this category and are not liable to service tax. This is supported by judgments in Commissioner of Service Tax, Ahmedabad v. Om Air Travels Pvt. Ltd., Orion Appliances v. CST, Ahmedabad, and Prem Motors Pvt. Ltd. v. Commissioner of C. Ex. & CGST, Jaipur. Limitation, Penalties, and Interest: The extended period of limitation u/s 73(1) of the Act cannot be invoked as there was no suppression of information by the Appellant. The demand is based on financial statements, and the issue is interpretational. Consequently, penalties u/s 76 and 77 of the Act and interest u/s 75 do not arise. Conclusion: The impugned orders are set aside, and the appeals are allowed with consequential relief. The Appellant correctly classified and paid service tax on erection, commissioning, and installation services, and no service tax can be demanded on the sale of goods.
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