2025 (1) TMI 141 - AT - Service Tax

Levy of service tax - Valuation - activities of erection, commissioning, and installation of machines, which are part of a composite contract for the sale and supply of machines - HELD THAT - As per the facts of the present case the respondent have manufactured and supplied the textile machines as per the contract and sale invoice was issued to the customers. The respondent-assessee is supposed to undertake the supply and also the erection, commissioning and installation of the machine at the customer s site. The sale value includes all the elements and there is no separate consideration received by the respondent on account of the service related to erection, commissioning and installation. In such case there is no amount available for charging service tax. The issue has been considered by this Tribunal in the respondent s own case of C.C.E S.T. -SILVASA VERSUS AALIDHRA TEXTOOL ENGINEERS PVT LTD 2022 (12) TMI 11 - CESTAT AHMEDABAD wherein this Tribunal has held that 'in the present case where the entire value has suffered excise duty and the buyer is under obligation to not only manufacture and supply the machinery but also to carry out activity of erection, commissioning and installation of the said machinery, the service tax cannot be demanded.' Conclusion - The entire value of the goods has to be taken as sale value, consequently, no service value is involved separately. Appeal of Revenue dismissed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment are:

• Whether the activities of erection, commissioning, and installation of machines, which are part of a composite contract for the sale and supply of machines, are liable to service tax.
• Whether the entire value of the contract, which includes the manufacturing and sale of machines along with incidental services, should be treated as a sale, thereby exempting it from service tax.
• Whether the classification of services post-01.06.2007 impacts the liability of service tax under the category of works contract service or erection, installation, and commissioning service.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Liability of Service Tax on Erection, Commissioning, and Installation

• Relevant Legal Framework and Precedents: The legal framework revolves around Section 65 of the Finance Act, 1994, which defines "erection, commissioning, or installation" services. The Tribunal referred to several precedents, including decisions in cases like Aalidhra Textool Engineers Pvt. Ltd., Allengers Medical Systems Ltd., and Neo Structo Construction Ltd., which consistently held that when the entire contract value is treated as sale, no service tax is applicable.
• Court's Interpretation and Reasoning: The court interpreted that the activities of erection, commissioning, and installation, when part of a composite contract for the sale of goods, do not attract service tax if the entire contract value is subjected to excise duty.
• Key Evidence and Findings: The evidence showed that the respondent did not receive separate consideration for the erection, commissioning, and installation services, and the entire contract value was treated as sale value, inclusive of excise duty.
• Application of Law to Facts: The court applied the law by considering the entire transaction as a sale, given that no separate charges were levied for the services, and excise duty was paid on the total value.
• Treatment of Competing Arguments: The appellant argued that the services were independent and taxable. However, the court dismissed this argument, citing the lack of separate consideration and the inclusion of service charges in the sale value.
• Conclusions: The court concluded that no service tax was payable on the erection, commissioning, and installation activities as they were incidental to the sale of goods.

Issue 2: Classification and Taxability Post-01.06.2007

• Relevant Legal Framework and Precedents: The classification of services post-01.06.2007 under works contract service was considered. The Tribunal referenced the Supreme Court's decision in Larsen & Toubro Ltd., which clarified the non-applicability of service tax on composite contracts before 01.06.2007.
• Court's Interpretation and Reasoning: The court did not delve deeply into this issue, as it had already determined that the service tax was not applicable due to the composite nature of the contract.
• Key Evidence and Findings: The court found that the show cause notices proposed the demand under erection, installation, and commissioning service, not under works contract service.
• Application of Law to Facts: The court applied the law by confirming that the service tax was not payable on the grounds that the entire value was subjected to excise duty.
• Treatment of Competing Arguments: The court did not address the classification issue in detail, as the primary issue of service tax applicability was resolved in favor of the respondent.
• Conclusions: The court concluded that the classification issue was moot, given the determination that service tax was not applicable.

3. SIGNIFICANT HOLDINGS

• Preserve Verbatim Quotes of Crucial Legal Reasoning: "The entire value of the goods has to be taken as sale value, consequently, no service value is involved separately."
• Core Principles Established: The judgment reinforces the principle that when a composite contract for the sale of goods includes incidental services like erection, commissioning, and installation, and the entire contract value is subjected to excise duty, no service tax is applicable.
• Final Determinations on Each Issue: The court upheld the impugned orders, concluding that the respondent was not liable to pay service tax on the erection, commissioning, and installation activities, and dismissed the appeals filed by the revenue.