2014 (6) TMI 461 - AT - Service Tax

Waiver of pre deposit - works contract - Valuation - inclusion of value of supply and erection and commissioning of transformers - Cenvat Credit - Penalty - Held that - the denial of the Cenvat Credit on the inputs which has gone into manufacturing of the said transformers cannot be upheld for the reason that the activity of manufacture of transformers is excisable and the excise duty liability has been discharged by the appellant. Prima facie, the value of transformers cannot be included in such execution of works contract as there is no dispute that M/s. Sunil Hitech Engineers Ltd. had given them two separate contracts for supply of transformers and erection and commissioning of such transformers. Nature of contract - composite contract or separate contract - Held that - Tender as floated by MSEB/MSDEL, sought quote for supply and erection and commissioning of transformers separately; but while awarding the tender to M/s. Sunil Hitech Engineers Ltd., we find that MSEB/MSDEL had infact executed three separate contracts i.e. one for supply of transformers; one for erection and commissioning of such transformers; one for civil construction of required-for erectioning and commissioning of such transformers. It is also noticed that the said M/s. Sunil Hitech Engineers Ltd. who bagged the contract had given back to back contract to M/s. IMP. Powers Ltd. for supply of transformers and erectioning and commissioning of the same and had given the civil construction contract to somebody else. Prima facie, we are of the view that the ratio of the judgment of this bench in the case of M/s. Essar Projects (India) Ltd. (2013 (12) TMI 796 - CESTAT AHMEDABAD) would apply and hence we hold that the all appellants have made out a prima facie case for waiver of the duties, interest and penalties confirmed by the adjudicating authority. - Stay granted.

Summary

Issues Involved:
Confirmation of demand under Central Excise Act, 1944 and service tax liability, interest, and penalties on appellants. Eligibility to avail Cenvat Credit on inputs for manufacturing transformers. Imposition of penalties on Managing Directors. Vivisection of contracts to evade service tax liability.

Confirmation of Demand under Central Excise Act, 1944 and Service Tax Liability:
The judgment pertains to multiple appeals arising from the same Order-in-Original. The adjudicating authority confirmed the demand of duty under the Central Excise Act, 1944, interest, and penalties on the appellants. The issue arose from the appellant, a manufacturer of transformers, executing a contract for supply and erection of transformers. The authority held that the appellant was not eligible to avail Cenvat Credit on inputs used for manufacturing transformers as they discharged service tax liability under works contract services by availing a composition scheme. The appellant argued that they had cleared transformers on appropriate excise duty, and the denial of Cenvat Credit was unjustified.

Eligibility to Avail Cenvat Credit on Inputs for Manufacturing Transformers:
The appellant contended that the denial of Cenvat Credit on inputs used for manufacturing transformers was unwarranted. They argued that the activity of manufacturing transformers is excisable, and excise duty liability had been discharged. The tribunal observed that the denial of Cenvat Credit on inputs could not be upheld as the transformers were manufactured and cleared by the appellants with appropriate central excise duty payment.

Imposition of Penalties on Managing Directors:
Penalties were imposed on the Managing Directors of the appellants for alleged involvement in evading service tax by vivisecting contracts. The Managing Directors were accused of advising and aiding in evading service tax. The tribunal noted discrepancies in the factual matrix and penalties imposed, highlighting that the penalties were disproportionate to the alleged violations. The appellants argued that the adjudicating authority did not consider the complete facts of the case, leading to unjust penalties.

Vivisection of Contracts to Evade Service Tax Liability:
The issue of vivisecting contracts to evade service tax liability was central to the judgment. The tribunal analyzed the contracts between the appellants and other entities, noting separate contracts for supply, erection, and commissioning of transformers. The tribunal found that the contracts were distinct, and the value of transformers should not have been included in the execution of works contracts. The tribunal referenced previous judgments to support the appellants' case, indicating a prima facie case for the waiver of duties, interest, and penalties confirmed by the adjudicating authority.

In conclusion, the tribunal allowed applications for the waiver of pre-deposit amounts involved and stayed recovery until the disposal of the appeals. The judgment emphasized the need for a thorough examination of factual and legal aspects in cases involving Cenvat Credit, service tax liability, and contract vivisection to ensure fair treatment and compliance with relevant laws and regulations.