2010 (8) TMI 145 - AT - Central Excise

Manufacture of textile machineries - contract with their customers for supply of textile machinery and the sale price quoted by them was inclusive of Installation and Commissioning charges - entire contract value as the assessable value of the machinery - Central Excise duty was paid - demand of service tax under the category of Erection, Commissioning and Installation charges - sale price is inclusive of Erection and Commissioning charges and they are not discharging the said charges separately - Held that - entire contract value is taken as an assessable value for the purpose of payment of excise duty, no service tax is liable to be paid by the assessee - demand and imposing penalties upon them is set-aside and appeal is allowed

Issues Involved:
1. Liability to pay Service Tax on Erection, Installation, and Commissioning charges.
2. Inclusion of Erection and Commissioning charges in the assessable value for Central Excise duty.
3. Invocation of extended period due to alleged suppression of facts.
4. Imposition of penalties under Sections 76, 77, and 78 of the Finance Act, 1994.

Detailed Analysis:

1. Liability to pay Service Tax on Erection, Installation, and Commissioning charges:
The appellant contended that the contract with their buyers was a composite one for selling and supplying textile machines in a fully installed, commissioned, and operational condition. They argued that the processes of Erection and Commissioning were incidental to the manufacturing activity and should be treated as a continuation of the manufacturing process. The excise duty was paid on the entire contract value, inclusive of Installation and Commissioning, and thus, no separate service tax should be levied. The Tribunal referred to the definition of "erection, commissioning or installation" under Section 65 (39a) of the Finance Act, 1994, and concluded that the appellant, being a manufacturing unit and not an agency providing such services, was not liable to pay service tax on these activities.

2. Inclusion of Erection and Commissioning charges in the assessable value for Central Excise duty:
The Tribunal noted that the appellants had paid Central Excise duty on the complete value without claiming any deduction for installation and commissioning charges. The Tribunal cited several cases, including Allengers Medical Systems Limited and CCE, Vapi v. Alidhara Textool Engineers Pvt. Limited, to support the view that when the entire contract value is taken as assessable for excise duty, and no separate charges for erection and commissioning are shown, no service tax is applicable. The Tribunal emphasized that the activities of erection, commissioning, and installation were incidental to the manufacturing process and thus should not attract separate service tax.

3. Invocation of extended period due to alleged suppression of facts:
The Commissioner had invoked the extended period alleging suppression with intent to evade payment of service tax, as the appellant did not disclose the collection of charges for Erection, Installation, and Commissioning services and did not file any ST-3 returns. However, the Tribunal did not delve deeply into this issue, as it allowed the appeal on the merit that no service tax was payable on the activities in question.

4. Imposition of penalties under Sections 76, 77, and 78 of the Finance Act, 1994:
Given the Tribunal's conclusion that the appellant was not liable to pay service tax on the erection, installation, and commissioning activities, the order confirming the demand and imposing penalties was set aside. The Tribunal referenced various judgments, including the decision in Neo Structo Construction Limited, to support this conclusion.

Conclusion:
The Tribunal held that the appellants were not liable to pay any service tax on the erection, installation, and commissioning charges since these activities were incidental to the manufacturing process and were included in the assessable value for Central Excise duty. Consequently, the impugned order confirming the demand and imposing penalties was set aside, and the appeal was allowed with consequential relief. The issue of the demand being barred by limitation was not addressed as it was deemed only of academic interest.

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