2016 (5) TMI 455 - AAR - Service Tax

Benefit of exemption notification no. 25/2012-ST is available or not - Activity of Testing & Commissioning, Integrated Testing & Commissioning and Trial runs of Trains under contract - Installation and commissioning of EMU and the platform - whether in the nature of erection, commissioning or installation of plant, machinery or equipment pertaining to metro - Whether in nature of original work - Held that - the General Conditions of Contract/ Conditions of Contract mention that tests on completion shall include Integrated Testing, wherein the contractor (applicant) shall follow satisfactory completion of tests on his equipment, sub-systems or systems to verify and confirm the compatibility and compliant performance of his equipment/subsystem/ system with the equipment/sub-system/system provided by others Therefore, based on said compatibility and compliant performance, trial runs for the metro are undertaken. Therefore, this whole process is nothing but commissioning i.e. bringing Rolling stocks into operation. Therefore, we agree with the applicant that the services provided i.e. in relation to testing & commissioning, integrated testing and commissioning, trial runs of trains, are by way of commissioning. Works Contract - original work - Held that - original work inter-alia means erection, commissioning or installation of plant, machinery or equipment or structures, whether fabricated or otherwise. - Rolling stock is at least plant and machinery and same would be commissioned by the applicant. Therefore, the applicant would satisfy this condition also i.e. providing services by way of commissioning of original work. Applicant is eligible for claiming exemption from payment of Service Tax in terms of Notification No. 25/2012-ST dated 20.06.2012 for the activities in relation to Testing & Commissioning, Integrated Testing & Commissioning and Trial runs of Trains to be undertaken under the contract. - Decided in favor of assessee.

Issues Involved:

1. Eligibility for claiming exemption from payment of Service Tax under Notification No. 25/2012-ST for activities related to Testing & Commissioning, Integrated Testing & Commissioning, and Trial Runs of Trains.

Detailed Analysis:

Issue 1: Eligibility for claiming exemption from payment of Service Tax under Notification No. 25/2012-ST for activities related to Testing & Commissioning, Integrated Testing & Commissioning, and Trial Runs of Trains

Applicant's Submission:

The applicant, Hyundai Rotem Company, has filed two applications for Advance Ruling regarding their contracts with Delhi Metro Rail Corporation (DMRC) and L&T Metro Rail Hyderabad Limited (L&T). The contracts involve design, manufacture, testing, supply, and commissioning of Rolling Stock. The applicant is required to undertake onshore integrated testing and commissioning of the trains. The applicant argues that these activities amount to "commissioning" of the rolling stock onto the metro rail system, which is essential for the seamless integration of the metro systems. They assert that these activities are part of the original works of setting up metro rail systems in Delhi and Hyderabad. The applicant relies on the definition of "machinery" and "plant" from previous Supreme Court rulings to argue that Rolling Stocks fall within these definitions and thus should be covered by the exemption Notification.

Revenue's Submission:

The Revenue submits that services related to the installation and commissioning of Rolling Stock will be exempt from Service Tax if these are for original works pertaining to Railways, including Monorail and Metro.

Relevant Legal Provisions:

- S. No. 14 of Notification No. 25/2012-ST dated 20.06.2012 exempts services by way of construction, erection, commissioning, or installation of original works pertaining to railways, including monorail or metro.
- Para 2(y) of the same notification defines "original works" as per Rule 2A of the Service Tax (Determination of Value) Rules, 2006, which includes erection, commissioning, or installation of plant, machinery, or equipment.

Analysis:

The Authority for Advance Rulings observed that the applicant's activities of testing and commissioning, integrated testing and commissioning, and trial runs of trains fall under the definition of "commissioning" as they bring the Rolling Stocks into operation. The contracts specifically mention integrated testing and commissioning as part of the contractor's obligations to verify and confirm the compatibility and performance of the equipment with other subsystems. Therefore, these activities are considered as commissioning.

Original Works:

The term "original works" includes erection, commissioning, or installation of plant, machinery, or equipment. Since Rolling Stocks are considered plant and machinery, the applicant's activities of commissioning these Rolling Stocks qualify as original works.

Pertaining to Railways, Including Monorail or Metro:

The services provided by the applicant pertain to metro rail systems, which is not contested by the Revenue. Therefore, this condition is satisfied.

Ruling:

The Authority ruled that the applicant is eligible for claiming exemption from payment of Service Tax in terms of Notification No. 25/2012-ST dated 20.06.2012 for the activities related to Testing & Commissioning, Integrated Testing & Commissioning, and Trial Runs of Trains to be undertaken under the contracts with DMRC and L&T.

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