2022 (12) TMI 11 - AT - Service Tax

Levy of service tax - respondent have discharged excise duty on their total sale value including the erection, installation and commissioning of such machinery for the period July-2003 to March-2008 - HELD THAT - There is no dispute that the respondent is a manufacturer of textile machinery and as per the contract they have supplied the goods along with Erection, Commissioning and Installation at the buyer s site. On the entire activity, right from the manufacturing upto the commissioning of machinery at buyer s site, the total value is towards the sale of goods. There is no bifurcation of the value in sale of goods and service of Erection, Installation and Commissioning. In such position the entire value of the goods has to be taken as sale value, consequently, no service value is involved separately. In the identical set of transaction, this tribunal has consistently taken a view that when there is a manufacturing and sale of the goods on a particular sale price which involves incidental service such as in the present case, no service tax can be demanded once the entire value is towards sale and has suffered the central excise duty. Reliance can be placed in the cases of COMMR. OF C. EX., VAPI VERSUS ALIDHARA TEXTOOL ENGINEERS PVT. LTD. 2009 (1) TMI 129 - CESTAT AHMEDABAD and COMMR. OF C. EX., VAPI VERSUS ALIDHARA TEXTOOL ENGINEERS PVT. LTD. 2009 (1) TMI 129 - CESTAT AHMEDABAD - From the above judgments, it is settled that where the entire value of the goods is towards sale of the goods and subjected to excise duty/customs duty no part of the same can be said to have been collected towards any service. Therefore, involving the same set of facts, in the present case where the entire value has suffered excise duty and the buyer is under obligation to not only manufacture and supply the machinery but also to carry out activity of erection, commissioning and installation of the said machinery, the service tax cannot be demanded. Classification of the service - erection, installation and commissioning service or works contract service? - taxability - HELD THAT - The show cause notices have proposed the demand under erection, installation and commissioning service. We have decided that the service tax is not payable on the erection, installation and commissioning of service in the facts of the present case as the entire value has suffered excise duty and on this ground service tax is not payable. Therefore, we are not dealing with the second issue about classification of the service that whether the service tax is payable under erection, installation and commissioning service or works contract service. The respondent is not liable to pay service tax in the given transaction of the present case therefore, the revenue s appeal is not sustainable - Appeal of Revenue dismissed.

Issues Involved:
1. Classification of service post 01.06.2007.
2. Applicability of service tax on composite activities involving manufacturing, erection, installation, and commissioning.
3. Bifurcation of value between sale of goods and services.
4. Legality of altering service classification at the appellate stage.

Issue-Wise Detailed Analysis:

1. Classification of Service Post 01.06.2007:
The revenue contended that post 01.06.2007, the supply of goods along with erection, installation, and commissioning should be classified under Works Contract Service, making it liable for service tax. The adjudicating authority had previously dropped the demand for this period, leading to the current appeal by the revenue.

2. Applicability of Service Tax on Composite Activities:
The respondents argued that their activities, including manufacturing, packing, transporting, delivering, erecting, and installing textile machinery, were part of a composite sale. They had paid excise duty on the total sale value, which included erection, installation, and commissioning. The respondents cited several judgments to support that no separate service tax should be levied on these activities as they were incidental to the sale of goods.

3. Bifurcation of Value Between Sale of Goods and Services:
The respondents maintained that there was no divisible portion of service in the entire supply of machinery. The contract did not bifurcate the value towards sale and services, and the entire activity was treated as a sale of goods, on which excise duty was paid. They argued that the entire value should be taken as the sale value, with no separate service value involved.

4. Legality of Altering Service Classification at the Appellate Stage:
The respondents contended that the demand in the show cause notice was raised under erection, installation, and commissioning service, whereas the department was now seeking confirmation under Works Contract Service. They argued that the classification of service proposed in the show cause notices could not be altered or changed at the appellate stage.

Tribunal's Findings:

Composite Nature of Activity:
The Tribunal found that the respondents were engaged in manufacturing textile machinery and supplied the goods along with erection, commissioning, and installation at the buyer's site. The total value was towards the sale of goods, with no bifurcation between sale and service. Consequently, no service tax could be demanded once the entire value was towards the sale and had suffered central excise duty.

Precedent Judgments:
The Tribunal cited several precedents, including M/s. Alidhara Texspin Engineers and M/s. Allengers Medical Systems Ltd., which consistently held that when the entire contract value is taken as the assessable value for excise duty, no separate service tax is liable. The Tribunal emphasized that the incidental processes of erection, installation, and commissioning were part of the manufacturing activity and thus not subject to service tax.

Non-Alteration of Service Classification:
The Tribunal noted that the show cause notices had proposed the demand under erection, installation, and commissioning service. Since the service tax was not payable on these activities in the given facts, the Tribunal did not address the issue of whether the service should be classified under Works Contract Service.

Conclusion:
The Tribunal concluded that the respondents were not liable to pay service tax on the given transactions, as the entire value had suffered excise duty. The revenue's appeal was dismissed, and the adjudicating authority's order was upheld.

Pronouncement:
The judgment was pronounced in the open court on 28.11.2022, dismissing the appeals filed by the revenue.

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