2021 (2) TMI 455 - AT - Service Tax

Levy of Service Tax - erection commissioning and installation services - commercial or industrial construction services - consultancy engineering services - contracts which are turnkey contracts and involve both supply of goods and provision of services and when the amounts payable for services are mentioned separately and amounts payable for the goods are mentioned separately - argument of the Revenue is that the contracts are divisible not only between the different individual companies of the consortium but also between the supply of goods and rendering of services these cannot be treated as composite works contracts. HELD THAT - Identical matter came up before this Bench in respect of same assessee in the case of M/S BEEKAY ENGG. CORPN. LTD. VERSUS CCE RAIPUR 2018 (1) TMI 1620 - CESTAT NEW DELHI where it was held that prior to June 2007 the Works Contract Services were not subjected to Service Tax - The learned Commissioner should have followed the ratio of the above decision which were binding on him. Learned Counsel for the appellant has demonstrated that these cases were specifically cited before learned Commissioner but no finding has been given as to why they were not being followed. Learned Commissioner however sought to distinguish the case of the appellant from the judgement of the Supreme Court in the case of COMMISSIONER CENTRAL EXCISE CUSTOMS VERSUS M/S LARSEN TOUBRO LTD. AND OTHERS 2015 (8) TMI 749 - SUPREME COURT - In our view when the applicability of judgement of the Supreme Court in the case of Larsen and Toubro Ltd . to the appellant s case has been decided by this Tribunal judicial discipline required the Commissioner to follow it. He just ignored it. The impugned order is not sustainable and needs to be set aside - Appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
1. Applicability of service tax on turnkey contracts involving supply of goods and services.
2. Distinction between indivisible and divisible contracts for service tax purposes.
3. Binding nature of judicial precedents on lower authorities.

Issue-wise Detailed Analysis:

1. Applicability of Service Tax on Turnkey Contracts:
The appellant, a manufacturer of excisable goods, also rendered services under various heads like erection, commissioning, or installation services. During an audit, it was found that the appellant did not pay service tax on certain amounts recorded as "Turnkey receipts" in their profit and loss account for the period April 2004 to March 2008. A show cause notice was issued demanding service tax amounting to ?6,39,26,719/-. The appellant argued that their contracts were composite turnkey contracts involving both supply of goods and services, and as per the Supreme Court ruling in Larsen & Toubro Ltd., no service tax could be levied on such contracts prior to June 1, 2007, when "Works contract Service" was introduced.

2. Distinction Between Indivisible and Divisible Contracts:
The Commissioner, in the impugned order, held that the contracts were divisible and service tax could be levied on the service component. The appellant countered that even though the contracts mentioned separate amounts for goods and services, they were still composite works contracts. The appellant cited previous Tribunal decisions in their favor, which held that such contracts could not be taxed under erection, commissioning, or installation services prior to June 1, 2007.

3. Binding Nature of Judicial Precedents:
The Tribunal noted that the Commissioner did not follow binding judicial precedents, specifically the Tribunal's own decisions in the appellant's earlier cases. The Commissioner distinguished the appellant's case from the Supreme Court's ruling in Larsen & Toubro Ltd. by arguing that the contracts were divisible. However, the Tribunal held that judicial discipline required the Commissioner to follow the binding precedents, which were not adhered to.

Conclusion:
The Tribunal found that the contracts in question were composite works contracts and could not be subjected to service tax under the heads of erection, commissioning, and installation services prior to June 1, 2007. The impugned order was set aside, and the appeal was allowed with consequential relief. The Tribunal emphasized the importance of following binding judicial precedents and criticized the Commissioner for ignoring them.