2019 (6) TMI 840 - AT - Service Tax

Classification of services - Appellant is engaged in providing and fixing of Diesel Generator Sets, Pumps to Government Departments - works contract services or Erection, Commissioning Installation services? - benefit of abatement under the Notification dated 01 March, 2006 - HELD THAT - The Supreme Court in COMMISSIONER, CENTRAL EXCISE CUSTOMS VERSUS M/S LARSEN TOUBRO LTD. AND OTHERS 2015 (8) TMI 749 - SUPREME COURT examined as to whether WC service can be classified under Section 65(105)(zzd) relating to ECI service and held that the scope of Section 65(105) (zzd) is limited to cover contract of service simplicitor only and not composite works contract. The Supreme Court noticed that it is only w.e.f 01 June, 2007 that Section 65(105)(zzzza) was introduced to cover composite works contract and so works contract cannot be covered under any other category of services prior to 01 June, 2007. Thus, w.e.f. 01 June, 2007 composite contract covering supply of goods and service would be under the category of WC service. It is, therefore, clear from the aforesaid judgment of the Supreme Court in Larsen Toubro that a Composite Works Contract has to be taxed under WC service and cannot be taxed under ECI service under Section 65(105)(zzd). The position, therefore, that comes out is that the nature of services rendered by the Appellant was WC service and not ECI service. The show cause notice alleged that the Appellant was providing ECI service and MMR service. The demand was confirmed by the Adjudicating Authority under ECI service and MMR service, but the Commissioner (Appeals) has confirmed the demand only under ECI service. The impugned order, therefore, deserves to be set aside for this reason alone since the demand made under a particular category of service found to be incorrect in a subsequent proceeding, cannot be sustained - Appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
1. Classification of services provided by the Appellant as 'Works Contract' (WC) or 'Erection, Commissioning or Installation' (ECI).
2. Entitlement to abatement under Notification dated 01 March, 2006.
3. Validity of demand under 'Management, Maintenance or Repair' (MMR) service.

Detailed Analysis:

1. Classification of Services:
The primary issue was whether the services provided by the Appellant fell under 'Works Contract' (WC) service or 'Erection, Commissioning or Installation' (ECI) service. The Appellant contended that their services, which involved supplying, installing, testing, and commissioning Diesel Generator Sets, should be classified under WC service. However, the Commissioner (Appeals) classified these services under ECI service, citing a lack of documentary evidence to support the Appellant's claim.

The Tribunal referred to the definition of ECI service under Section 65(39a) of the Finance Act, which includes services related to the erection, commissioning, or installation of plant, machinery, or equipment. In contrast, WC service, defined under Section 65(105)(zzzza), includes composite contracts involving the transfer of property in goods and services, such as the installation of machinery and equipment.

The Tribunal noted that the Appellant provided goods as part of their service, as evidenced by the abatement granted under the Notification dated 01 March, 2006. This indicated that the service involved a composite contract, including both goods and services. The Tribunal relied on the Supreme Court's decision in Larsen & Toubro Ltd., which established that composite works contracts should be classified under WC service, not ECI service.

2. Entitlement to Abatement:
The Commissioner (Appeals) granted the Appellant an abatement of 67% of the gross value under the Notification dated 01 March, 2006, which applies to services where the value of goods is included in the gross amount. The Tribunal upheld this abatement, noting that the Appellant had not availed of CENVAT credit or the benefits under Notification No. 12/2003-ST, making them eligible for the abatement.

3. Validity of Demand under MMR Service:
The show cause notice issued to the Appellant included allegations of providing services under both ECI and MMR categories. The Adjudicating Authority confirmed the demand under both categories, but the Commissioner (Appeals) confirmed the demand only under ECI service. The Tribunal noted that there was no cross-appeal by the Department regarding the MMR service classification.

The Tribunal concluded that since the demand was confirmed under ECI service, which was found to be incorrect, the impugned order could not be sustained. The Tribunal cited Supreme Court judgments in Hindustan Polymers Company and Reckitt & Colman of India, emphasizing that a demand made under an incorrect service category cannot be upheld.

Conclusion:
The Tribunal set aside the impugned order dated 23 December, 2015, and allowed the appeal. The classification of services provided by the Appellant was determined to be under WC service, not ECI service. The demand made under the incorrect service category could not be sustained, and the Appellant was entitled to the abatement as per the Notification dated 01 March, 2006.