2017 (11) TMI 1108 - AT - Service Tax

Erection, commissioning and installation service - Revenue held a view that the respondent did not discharge service tax on various services rendered to their clients under the said category - Held that - The fact that the respondent availed certain services from job workers to install and make it functional, the delivered equipment in the premises of the customers by itself will not vary the nature of contract and the fact that they have paid the sales tax on the full value - If the goods were sold and VAT is paid as per the State Govt. law for full value, no tax liability will arise under the Finance Act, 1994. The SCN proceedings against the respondent is to recover service tax under erection, commissioning and installation service . We note that the contracts which were proposed to be made liable for service tax are composite in nature involving supply of goods and certain element of service as claimed by the Revenue. If that be so, the tax liability of such service will arise only with effect from 1.6.2007 - On this ground also the proceedings could not have been concluded under works contract as the proposal is under entirely different service. Appeal dismissed - decided against Revenue.

Summary

Issues:
- Service tax liability under "erection, commissioning and installation service" as per Section 65(105)(zzd) of Finance Act, 1994.
- Whether the respondent is liable to pay service tax under the mentioned category.
- Nature of contracts entered into by the respondent.
- Applicability of service tax on composite contracts involving supply of goods and services.
- Relevant law laid down by the Hon'ble Supreme Court in Larsen & Toubro Ltd.

Analysis:

The appeal before the Appellate Tribunal CESTAT New Delhi concerned the service tax liability of the respondent under the category of "erection, commissioning and installation service" as per Section 65(105)(zzd) of the Finance Act, 1994. The dispute arose from the Revenue's contention that the respondent had not discharged service tax on various services provided to clients under this category. The original authority adjudicated the case and held that the respondent was not liable to pay service tax under this category, leading to the Revenue filing an appeal against this decision.

The Revenue argued that the respondent, engaged in the sale and installation of medical equipment, should be liable for service tax as they provided installation services in addition to supplying equipment. The Revenue highlighted that the respondent had engaged job workers for installation work and had spent money on such services, which should be considered part of the consideration received for the supply and installation of medical equipment. The Revenue contended that payment of VAT on the contract value did not absolve the respondent from service tax liability if they provided taxable services along with equipment supply.

On the other hand, the respondent's counsel argued that the disputed consideration amount had been subjected to VAT/sales tax and that the contracts could be categorized into two types: one involving only the sale of medical equipment and the other involving both sale and installation of equipment at customer premises. The respondent maintained that the impugned order had thoroughly examined these aspects, and there was no basis for the Revenue's appeal.

The Tribunal analyzed the terms of the contracts and the nature of transactions entered into by the respondent. It noted that the respondent had treated all transactions as sale transactions and had paid sales tax on the full consideration. Referring to a previous decision, the Tribunal emphasized that under the Finance Act, 1994, service tax liability arises only for the value of service in a works contract. If goods were sold and VAT was paid for the full value, no tax liability would arise under the Finance Act, 1994.

Additionally, the Tribunal considered the composite nature of the contracts involving both goods supply and services. It highlighted that tax liability for such services would only arise from 1.6.2007, as per the law laid down by the Hon'ble Supreme Court in Larsen & Toubro Ltd. The Tribunal concluded that the proceedings against the respondent for service tax under "erection, commissioning and installation service" could not be sustained, and hence, dismissed the Revenue's appeal.

In summary, the Tribunal upheld the original authority's decision, emphasizing that the respondent's transactions were treated as sale transactions, and the payment of VAT on the full consideration absolved them from service tax liability under the Finance Act, 1994.