2019 (2) TMI 212 - AT - Service Tax

Nature and classification of service - Works Contract services or not - It appeared to the department that the activity undertaken by them under various work orders is in the nature of Works Contract Services, for which, the appellants have not discharged service tax - period from 01.06.2007 to 31.12.2007 - Held that - Sub-clause (i) of the Explanation provides that Works Contract means a contract wherein transfer of property in goods involved in the execution of such contract is leviable to tax as sale of goods. The second clause enumerates the various services that would make the activity a Works Contract. Clause (e) specifies about the turnkey projects which involve both design, engineering as well as installation and commissioning activity. In the case before us, it is correct that in the agreement dated 26.11.2002 entered by the appellants with the foreign collaborator. The agreement is to undertake projects in the nature of turnkey projects also. From all these works orders, which are the subject- matter of the demand, it is concluded that the work undertaken by the appellants are only design, engineering, documentation, manufacture and supply of equipment/machinery and design involved in erection and commissioning of such machinery. The appellants have not undertaken any erection and commissioning activity as provided in sub-clause (a) or (e) of the definition of Works Contract Service. The supervision of erection and commissioning cannot be equated with civil work of erection and commissioning or installation of plant and machinery. When the appellants have not done any erection and commissioning activity. The levy of service tax under WCS is not attracted. The demand cannot sustain under Works Contract Services - appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
1. Classification of services under Works Contract Services.
2. Applicability of service tax on the activities performed by the appellants.
3. Interpretation of the definition of Works Contract Services under section 65(105)(zzzza) of the Finance Act, 1994.
4. Validity of the demand raised by the department.

Detailed Analysis:

1. Classification of Services under Works Contract Services:
The primary issue revolves around whether the activities performed by the appellants fall under the category of Works Contract Services. The appellants argued that their activities, which include design, engineering, manufacture, supply, and supervision of erection and commissioning of equipment, do not constitute Works Contract Services as defined in section 65(105)(zzzza) of the Finance Act, 1994. They emphasized that they only supervise the erection and commissioning and do not undertake the actual erection and installation, which is crucial for classifying an activity as a Works Contract.

2. Applicability of Service Tax on the Activities Performed:
The appellants contended that they have already discharged service tax on supervision of erection and commissioning under Consulting Engineer Services. They argued that their activities are limited to the manufacture and supply of goods, and the supervision of erection and commissioning does not amount to execution of a Works Contract. The department, however, claimed that the activities undertaken by the appellants are composite in nature and involve service elements of erection and commissioning, thus falling under Works Contract Services.

3. Interpretation of the Definition of Works Contract Services:
The tribunal examined the definition of Works Contract Services under section 65(105)(zzzza), which includes turnkey projects involving engineering, procurement, and construction or commissioning (EPC) projects. The tribunal noted that for an activity to be classified as a Works Contract, it must involve the transfer of property in goods and the execution of services such as erection, commissioning, or installation. The tribunal found that the appellants' work orders and agreements primarily involved design, engineering, manufacture, and supply, with only supervision of erection and commissioning, which does not constitute a Works Contract.

4. Validity of the Demand Raised by the Department:
The tribunal scrutinized the work orders and agreements provided by the appellants, including those with M/s. Jayaprakash Associates Ltd., M/s. J.K. Lakshmi Cements, and M/s. Zuari Cements Ltd. The tribunal observed that these documents clearly indicated that the appellants' obligations were limited to design, engineering, manufacture, and supply, with no involvement in actual erection and commissioning activities. The tribunal concluded that the supervision of erection and commissioning does not equate to the execution of such activities and, therefore, does not attract service tax under Works Contract Services. Consequently, the tribunal set aside the impugned order and allowed the appeal with consequential reliefs.

Conclusion:
The tribunal concluded that the appellants' activities do not fall under the definition of Works Contract Services as they only involve supervision of erection and commissioning, not the actual execution. Therefore, the demand raised by the department was not sustainable, and the appeal was allowed with consequential reliefs.