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2022 (9) TMI 902 - AT - Service TaxLevy of Service Tax - Off-shore Engineering and Technical services - composite engineering, procurement and construction (EPC) contract on a turnkey basis - independent contract or not - whether no part of the contract could have been separately subjected to levy of service tax by treating it to be a service rendered by a consulting engineer? - Extended period of limitation - HELD THAT - A works contract means a contract for the purpose of carrying out, amongst others, turnkey projects including EPC projects. The Commissioner did record a finding, after perusal of the five contracts, that the Guarantee Agreement for EPC contract on turnkey basis is the base contract for the other four contracts, but observed that since the scope of work in all these four contracts is different for different prices, the four contracts are independent of each other and, therefore, would individually be subjected to levy of service tax. The Supreme Court in Larsen and Toubro 2015 (8) TMI 749 - SUPREME COURT held that works contract service became taxable w.e.f. 01.06.2007 and that any segment of works contract service was not taxable under a different category. The submission advanced by the Revenue that service tax was payable on the amount earmarked for drawing, design, etc., activities in a works contract under the category of consulting engineer service was repelled. Such being the position, it would not be necessary to examine the remaining contentions advanced by learned counsel for the appellant that the Off-shore services could not have been taxed in India or that the extended period of limitation could not have been invoked. The impugned order dated 31.01.2007 passed by the Commissioner cannot be sustained and is set aside - Appeal allowed - decided in favor of appellant.
Issues Involved:
1. Whether the appellant undertook a composite Engineering, Procurement, and Construction (EPC) contract on a turnkey basis. 2. Whether the Off-shore Engineering and Technical Services contract could be considered independent for the levy of service tax. 3. Whether the activities for Off-shore services were liable to be taxed in India. 4. Whether the extended period of limitation could be invoked. 5. Whether the penalty was leviable. Detailed Analysis: 1. Composite EPC Contract on Turnkey Basis: The appellant argued that they executed a composite EPC works contract on a turnkey basis with BALCO to set up a captive power plant. The contract was divided into five separate contracts for operational convenience. The Guarantee Agreement and the four project contracts were integral parts of a single works contract transaction. The Tribunal acknowledged that the Tender Enquiry, Bid Document, and Letter of Intent indicated an EPC contract on a turnkey basis. The Tribunal referred to section 65(105)(zzzza) of the Finance Act, which includes turnkey projects under works contract service. The Tribunal concluded that the separate project contracts were integral parts of a single works contract transaction, supported by the cross-fall breach clause in the Guarantee Agreement. 2. Independent Contract for Levy of Service Tax: The Commissioner had treated the four contracts as independent contracts and confirmed the demand of service tax on the Off-shore Engineering and Technical Services contract. However, the Tribunal found that the contracts were not independent but part of a single EPC contract on a turnkey basis. The Tribunal relied on precedents such as BSES Ltd. vs. Fenner India Ltd., Indure Limited vs. Commercial Tax Officer, and Larsen & Toubro Ltd. vs. Commissioner of C. Ex. & Cus., which held that composite contracts executed on a turnkey basis could not be vivisected for the levy of service tax. 3. Taxability of Off-shore Services: The appellant contended that the activities for Off-shore services took place in China and were not liable to be taxed in India. The Tribunal did not find it necessary to examine this contention in detail, given the conclusion that the entire EPC contract was a single works contract not subject to service tax under the category of consulting engineer service. 4. Extended Period of Limitation: The appellant argued that the extended period of limitation could not be invoked. The Tribunal did not address this issue explicitly, as the primary conclusion that the contract was a single works contract rendered the demand for service tax invalid. 5. Levy of Penalty: The appellant contended that the penalty was not leviable. The Tribunal did not address this issue explicitly, as the primary conclusion that the contract was a single works contract rendered the demand for service tax and associated penalties invalid. Conclusion: The Tribunal set aside the impugned order dated 31.01.2007 passed by the Commissioner, concluding that the appellant had executed a composite EPC contract on a turnkey basis, and no part of it could be subjected to service tax separately. The appeal was allowed, and the demand for service tax and penalties was invalidated.
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