2024 (6) TMI 959 - AT - Service Tax

Valuation of service - transport/insurance charges received by the Appellant to be included in the gross value of service of erection and installation of transmission towers Service or otherwise - extended period of limitation. Inclusion of transport/insurance charges received by the Appellant - HELD THAT - The scope of work under the service contract was divided in two parts for which two separate considerations one for installation charges and other for transportation/insurance charges. Accordingly, under the service contract, the appellant used to provide transportation and insurance facility of the goods supplied to M/s PGCIL and further, used to provide service of installation of the transmission towers. The activities carried out by the Appellant under these agreements are different and independent, and accordingly, to be classified separately. From the service contract it clearly appeared that parties have bifurcated the amount for service of erection installation activity and separate amount for transportation/insurance separately. Therefore both the activities are defined separately in the impugned contract. Further the payments for the entire contract was not one composite fixed payment but it depends of each component individually. In the case of Jain carrying Corporation v. CCE 2014 (12) TMI 506 - CESTAT NEW DELHI the assessee entered into a contract for providing 3 different services - The Tribunal held that there is no justifiable reason to hold that the two services shall form part and parcel of 'cargo handling service' and the appeal was allowed. The demand of service tax confirmed on the facility of arranging for transportation/ insurance of goods offered by the appellant to their customer has been wrongly classified by the revenue as activity of incidental or ancillary to Installation Services . It is well settled position that in a transaction involving multiple supply of services, when an individual service is not merely a component ancillary to the overall supply but it is in itself distinct and independent supply, the same should not be classified as a component of single composite service - the demand of service tax confirmed by the Ld. Commissioner in the present matter is legally not sustainable. Extended period of limitation - HELD THAT - The allegation of suppression of facts and invocation of the extended period of limitation is not correct and legal. Accordingly, the entire demand being beyond the normal period, the same is not sustainable on the ground of time bar also. The impugned order is not sustainable and therefore is set aside - Appeal allowed.

Issues Involved:
1. Whether the transport/insurance charges received by the appellant should be included in the gross value of the service of erection and installation of transmission towers.
2. Whether the department was correct in not invoking Section 66F of the Finance Act, 1994.
3. Whether the services of transportation and insurance are distinct and independent from the installation service.
4. Whether the reliance on the cross-fall breach clause was justified.
5. Whether the tax should be charged only on the gross amount for works contract services.
6. Whether the appellant was denied the opportunity of pre-SCN consultation.
7. Whether the adjudication was time-barred.
8. Whether the appellant should have been given the benefit of abatement under Rule 2A(iii)(A) of the Service Tax (Determination of Value) Rules, 2006.
9. Whether the reimbursement of expenses qualifies as "consideration" for service tax levy.
10. Whether the transaction is revenue-neutral.
11. Whether the extended period of limitation was correctly invoked.

Detailed Analysis:

1. Inclusion of Transport/Insurance Charges:
The tribunal examined whether the transport/insurance charges should be included in the gross value of the service of erection and installation of transmission towers. It was found that the appellant had separate contracts for the supply of transmission line towers and for the erection/installation services. The transport and insurance services were provided under separate considerations and were billed independently. Thus, these services were distinct and should not be included in the gross value of the erection and installation services.

2. Non-Invocation of Section 66F:
The appellant argued that the department failed to reference Section 66F of the Finance Act, 1994, which deals with the bundling of services. The tribunal agreed that for the period post the negative list regime, bundling of services should be as per Section 66F. Since the department did not invoke this section, the proceedings were vitiated.

3. Distinct and Independent Services:
The tribunal found that the services of transportation and insurance were completed before the installation activities began. These services were independent and not merely ancillary or incidental to the installation service. The tribunal referenced various judgments to support this view, concluding that the services should be assessed independently.

4. Cross-Fall Breach Clause:
The tribunal noted that the Ld. Commissioner had placed undue reliance on the cross-fall breach clause to conclude that the contracts were indivisible. The tribunal emphasized that the contract must be read as a whole, and all clauses must be harmonized. The reliance on the cross-fall breach clause in isolation was unjustified.

5. Tax on Gross Amount:
The tribunal agreed with the appellant that the tax should be charged only on the gross amount for works contract services and not on the charges collected for transportation and insurance. The term "gross amount" should not be construed to include all billed amounts indiscriminately.

6. Pre-SCN Consultation:
The appellant argued that they were not given the opportunity for pre-SCN consultation, which is mandatory for demands above Rs. 50 lakhs. The tribunal noted that this omission violated the principles of natural justice, further vitiating the proceedings.

7. Time-Barred Adjudication:
The tribunal found that the adjudication was time-barred. The SCN was issued on 22.04.2021 for the period 2015-16 to 2017-18, invoking the extended period of limitation. The tribunal concluded that there was no suppression of facts or wilful misstatement by the appellant, as the transactions were recorded and audits were conducted regularly. Thus, the extended period of limitation was incorrectly invoked.

8. Benefit of Abatement:
The tribunal noted that even if the appellant was liable for service tax on transportation and insurance charges, they should have been given the benefit of abatement under Rule 2A(iii)(A) of the Service Tax (Determination of Value) Rules, 2006. The Ld. Commissioner's failure to allow this abatement rendered the demand erroneous.

9. Reimbursement as Consideration:
The tribunal agreed with the appellant that the reimbursement of expenses for transportation and insurance does not qualify as "consideration" for service tax purposes. The reimbursement was not for the provision of a taxable service but was merely a recovery of expenses incurred.

10. Revenue Neutrality:
The tribunal acknowledged that any service tax paid would have been available as credit to the customers, making the entire transaction revenue-neutral. This further supported the appellant's case for setting aside the demand.

11. Extended Period of Limitation:
The tribunal reiterated that the extended period of limitation could not be invoked without evidence of fraud, collusion, wilful misstatement, or suppression of facts. The appellant's regular filing of returns and the conduct of audits negated any allegations of suppression or intent to evade tax.

Conclusion:
The tribunal set aside the impugned order, finding that the demand for service tax on transportation and insurance charges was legally unsustainable. The appeals were allowed with consequential relief, and the issues of pre-SCN consultation and other procedural lapses were left open. The judgment emphasized the importance of adhering to legal provisions and principles of natural justice in tax adjudication.

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