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TMI Blog2010 (1) TMI 186X X X X Extracts X X X X X X X X Extracts X X X X ..... ase was related to interpretation of law. thus no penalty u/s 78 and for the penalty u/s 76 the matter is to be remanded. - ST/21 & 42 OF 2008 - A/16-17/WZB/AHD. OF 2010 - Dated:- 5-1-2010 - ASHOK JINDAL, JUDICIAL MEMBER AND B.S.V. MURTHY, TECHNICAL MEMBER V. Sridharan and Sandeep Sachdeva for the Appellant. R. Nagar for the Respondent. ORDER B.S.V. Murthy, Technical Member. - The appellants, M/s. Jaihind Projects Ltd., are, inter alia, engaged in laying of pipelines. The appellants provide this services to customers like ONGC, GAIL, BPCL, IOCL, etc. 2. The appellants are also engaged in providing the service of sand blasting, coating and painting of the pipelines to a customer namely Essar Projects Ltd. 3. The activity of "construction of pipeline" was made liable to service tax under the category of 'commercial or industrial construction service' with effect from 16-6-2005. Accordingly, the appellants duly obtained requisite registration and started discharging service tax on the said services rendered on or after 16-6-2005. 4. As per the arrangement with the customers, the appellants have not only to provide the construction services, but also su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce, from so much of the service tax leviable thereon under section 66 of the said Act, as is in excess of the service tax calculated on a value which is equivalent to thirty-three per cent of the gross amount charged from any person by such commercial concern for providing the said taxable service : Provided that this exemption shall not apply in such cases where (i) the credit of duty paid on inputs or capital goods has been taken under the provisions of the Cenvat Credit Rules, 2004; or (ii) the commercial concern has availed the benefit under the notification of the Government of India, in the Ministry of Finance, (Department of Revenue) No. 12/2003-Service Tax, dated 20-6-2003[G.S.R. 503(E), dated 20-6-2003]. "Explanation. For the purposes of this notification, the 'gross amount charged' shall include the value of goods and materials supplied or provided or used by the provider of the construction service for providing such service." The abovesaid Notification has been superseded by Notification No. 1/2006-ST. 10. According to the impugned order, the pipe has been used for providing the service of laying the pipeline. Therefore, as per the Explanation to the Notif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ice. The total amount charged by the service provider from the service receiver would also certainly consist of certain amount for such supply or provision or use of goods. As per notification, value of such material charged for by the service provider would also form part of the value on which the factor of 33 per cent is to be applied. 12.3 The notification only stipulates that all the amounts charged by the service provider, be it for supply of goods as part of providing the service or for use of goods during the course of providing the service or charges for providing the service, should form part of the gross amount charged on which the factor of 33 per cent would be applied. 12.4 However, the sine qua non for an amount to form part of the value for the purposes of the notification is that it should be the amount 'charged' by the service provider. Where there is no amount 'charged' for by the service provider be it for goods or for services, the question of the same forming part of the value for applying the factor of 33 per cent just cannot arise. 13. Explanation to the notification is only clarifying the scope of the main/operative part of the Notification-Explanation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Explanation. The Explanation says that, for the purpose of Entry 22, potteries industry 'includes' manufacture of the nine articles of pottery named therein. It seems to us that the word 'includes' has been used here in the sense of 'means'; this is the only construction that the word can bear in the context. In that sense it is not a word of extension, but limitation; it is exhaustive of the meaning which must be given to potteries industry for the purpose of Entry 22. The use of the word 'includes' in the restrictive sense is not unknown. The observation of Lord Watson in Dilworth v. Commissioner of Stamps, which is usually referred to on the use of 'include' as a word of extension, is followed by these lines : But the word 'include' is susceptible of another construction, which may become imperative, if the context of the Act is sufficient to show that it was not merely employed for the purpose of adding to the natural significance of the words or expressions defined. It may be equivalent to 'mean and include', and in that case it may afford an exhaustive explanation of the meaning which, for the purposes of the Act, must invariably be attached to these words or expressions. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xpression "used" has to be read as "supplied and used by the service provider". Thus free supply material will not be included in the gross amount charged for the purpose of Notification. 16. Pipe cannot be said to be used for providing the service of construction of pipelines. 16.1 Suppose, a contractor is to perform installation service of a computer system. For the purpose of this installation service, wires, nuts, bolts, etc. are used for providing the installation service of computer system. A computer system itself cannot be said to be used for providing the installation service of computer system. 16.2 Suppose, the painting of aircraft is a taxable service. The aircraft cannot be said to be used for providing the painting service. What is used in the painting service is the paint and other consumable and not the aircraft itself. 16.3 In the present case, the goods such as cement, steel, nuts, bolts, valves, flanges etc. are used for providing the service of construction of pipelines. However, pipes are not used for providing the construction service of pipeline. Pipe is the subject of the service of laying the pipeline. Pipe is not the material which is used in provi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g the notification. 18. Yet another intrinsic evidence or internal aid to construction clinches the issue. 18.1 Notification No. 12/2003-ST grants exemption from levy of service tax of the value of the goods and material sold by the service provider to service receiver for providing the taxable service. Obviously, in the context of Notification 12/2003, material given by customer is not relevant. 18.2 It is further submitted that the fact that the Notification No. 15/2004, stipulates that the benefit of Notification No. 12/2003-ST should not be availed itself establishes that Explanation to Notification No. 15/2004 ST is meant to cover the situation when some material has been supplied by the service provider to the service receiver. 18.3 If the intention of Notification No. 15/2004 was to cover the material supplied by the service receiver to service provider, there cannot be a stipulation about non-availment of Notification No. 12/2003-ST as a condition for availing the Notification No. 15/2004-ST. 19. The finding of the ld. Commissioner that no goods and material has been supplied by the appellants is factually incorrect and beyond the show-cause notice. 19.1 The ld. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1-8-2005 Suo motu obtained registration under Service Tax under the category of 'commercial or industrial construction service' and 'erection, commissioning and installation service' (much before even any query by any authority). 29-10-2005 Suo motu paid Service Tax of Rs. 10,32,069 under the category of 'commercial or industrial construction service' (i.e., much before any query by any authority). 2-12-2005 Summons issued by the Department to the appellants for providing detail of the services provided. 15-12-2005 Paid Service Tax of Rs. 8,65,643 under the category of 'commercial or industrial construction service' for the period from 16-6-2005 to 30-9-2005. 19-12-2005 Reply to the summons dated 2-12-2005 wherein it was mentioned that service tax of Rs. 18,97,712 has been paid and that the appellants have not even filed their first return as they are unable to calculate tax in absence of certain data from customer. 7-2-2006 Service Tax Return filed for the period from April, 2005 to September, 2005, though due on 25-10-2005. 8-2-2006 Statement of Mr. Navin N. Darji has been re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Union of India [2008] 16 STT 403 have granted interim relief to the assessees. CESTAT has also done so in P. Chandran's case (supra). This shows that the question involved in the present case is a question of law and the view taken by the appellant is an eminently possible view. In view of the above, the extended period of limitation cannot be invoked in the present case. Therefore, penalty cannot be imposed either under section 76 or section 78. 21. On the other hand, learned SDR on behalf of the revenue submitted that the Commissioner has correctly interpreted the meaning of words "supplied or provided or used" in the Notification No. 15/04-ST. He also submits that the appellant's contention that the pipe is the objective and therefore, pipe cannot be said to have been used in laying pipeline as contended by the appellant, is not correct. He submits that the service is of construction of pipeline and admittedly the construction of pipelines involved every items of works under various heads like main line activities, mechanical activities, civil activities, electrical activities etc. He also submits that the decisions relied upon by the appellants in support of their contenti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 994 and the Valuation Rules. The fact that it is not only the supplies made by the service provider or materials used by him which form a part of the service, but also other considerations which are non-monetary in nature, are also required to be taken into account. Rule 3 of Service Tax (Determination of Value) Rules, 2006 reads as under : Rule 3: Manner of determination of value. Subject to the provisions of section 67, the value of taxable service, where the consideration received is not wholly or partly consisting of money, shall be determined by the service provider in the following manner : (a) the value of such taxable service shall be equivalent to the gross amount charged by the service provider to provide similar service to any other person in the ordinary course of trade and the gross amount charged is the sole consideration; (b) where the value cannot be determined in accordance with clause (a), the service provider shall determine the equivalent money value of such consideration which shall, in no case be less than the cost of provision of such taxable service. 24. In this case, in our opinion, rule 3 squarely applies to the present case and supply of pipes by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e exemption, the appellants would be eligible for the benefit of Cenvat credit on the inputs and capital goods and also will be eligible to exclude the value of goods sold by him. He also would be eligible to avail Cenvat credit so long as he has the duty-paying documents and it has to be remembered that the rules do not require that he should have discharged the burden of duty himself for the purpose of availment of Cenvat credit. Therefore, we are not in a position to accept this contention. Appellants have cited the decision of Hon'ble Supreme Court in the case of M/s. Oblum Electrical Industries (P.) Ltd. (supra) and M/s. Cine Super 8 (P.) Ltd.'s case (supra) We have already reproduced relevant extracts in this order. In view of the observations made by us that the Explanation is in consonance with the main part of the notification and actually clears the ambiguity with regard to the goods supplied or provided or used, we do not agree with the contention that the interpretation given by the department explains or adds to the scope of the notification. The next point raised by the appellant is that the expression "includes" used in the Explanation is employed in the sense "means ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y be flowing by some other method. Unless such consideration is proved, department would not be able to add such value unless expression "used" is mentioned in the notification. Therefore, where the goods or materials are supplied free of cost by 3rd party or receiver, the expression "used" would come into play. The objective of the Explanation and the proviso is to ensure that in different situations, the liability of service tax would remain the same and it is very difficult to find fault with this objective. The appellants also relied upon the decision of Tribunal in case of P. Chandran (supra). In this case, it was only a stay order and the matter would not have been considered in depth. 28. We are also unable to accept the view canvassed by the appellant that expression "supplied", "provided" or "used" has to be taken to meaning "supplied and used" by the service provider or "provided and used" by the service provider. As already mentioned earlier, expression "supplied" and "provided" has the same meaning. By using the word "or" between the words "provided" and "used", legislative intent seems to be to ensure that whether it is supplied or provided or used, the value of such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2005 under the category of "Commercial or Industrial Construction Service" defined under section 65(25b) of Finance Act, 1994. CBEC vide Circular No. B1/6/2005-TRU, dated 27-7-2005 has clarified that the construction of long distance pipeline which was earlier excluded from the coverage of construction services would now be liable to service tax. The noticee have filed ST-3 returns for the period from (1) April 2005 to September 2005, (2) October 2005 to March 2006 and (3) April 2006 to September 2006 claiming exemption/abatement under Notification No. 15/2004-ST, dated 10-9-2004 and Notification No. 1/2006-ST, dated 1-3-2006 exist during the relevant period. Shri Navin N. Darji, Manager (Finance Accounts) in his statement dated 30-5-2006 has stated that the materials/pipes used in providing the service was supplied by the recipient of the services, i.e., IOCL, BPCL, GAEL and GAIL and they have not included the value of free pipes supplied by the clients for calculating the gross amount charged and the gross amount charged is taken as amount of bills raised by them to the clients. The noticee have raised bills for service charges only and have availed abatement of 67 per cent o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for service charges. In other words, the said service provider has charged their clients in respect of the services provided by them and not for the value of materials/goods since they have not provided materials/goods to their clients. The issue to be decided is whether in the above situation, benefit of Notification No. 1/5/2004, dated 10-9-2004 and Notification No. 1/2006, dated 1-3-2006 is available to the said service provider with regard to the commercial or industrial construction service or not. On going through the Notification No. 14/2004, it appears that it has been clearly explained in the said notification that for the purpose of the said notification, the "gross amount charged" shall include the value of goods and materials supplied or provided or used by the provider of the commercial or industrial construction service for providing such service. It is apparent that the benefit of the said Notification is available in case the gross amount charged is inclusive of the value of goods and materials supplied or provided or used by the service provider. In this case, it is clear that the materials/goods are provided by the service receivers and the said service provider ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... same principle can be applied for the purpose of service tax unless the law provides for the same. It has to be noted that to treat the goods as deemed sale, constitution was amended. It is not clear from the records whether the appellants had included the cost of the material supplied or not while raising the bills and while paying the service tax, but the main reason for the problem is that it was not relevant for the revenue since they were required to pay service tax on the full value of the contracts including the cost of the pipes provided by the receiver. 32. On the basis of discussion above, we conclude that if the value of the pipes which are used for selling pipes (sic) is not included, the appellants would not be eligible for abatement under Notification No. 15/04-ST as amended. 33. Next submission was that there was no suppression and therefore, the extended period cannot be invoked. Dispute according to the appellant is pure question of interpretation at a nascent stage of imposition of a completely new levy, viz., service tax on pipeline laying. We have already reproduced chronological list of dates and events earlier in this order. The detailed discussion of wor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which the same have been paid. We also take note of the fact that the appellants do not want to make an issue out of it since the service receiver has taken the credit. 36. Under these circumstances, we feel that it would be sufficient if the appellants pay the interest payable on the amount of service tax which they have undertaken to pay. Penalties under various sections of Finance Act, 1994 in relation to this demand are set aside by invoking provisions of sections 73 and 80 of Finance Act, 1994. 37. The original adjudicating authority shall issue a notice duly revising the duty payable in terms of this order and other proposals and issue notice to the appellant. It is made clear that the notice would be as per the conclusions drawn in this order. After issue of notice and providing reasonable opportunity to the appellant to present their case, the original adjudicating authority may decide the matter afresh. It is made clear that the appellants would be free to exercise their option to pay service tax as per exemption notification or as per any other relevant provisions/notification applicable to them. 38. Impugned order is set aside and the matter remanded for fresh deci ..... X X X X Extracts X X X X X X X X Extracts X X X X
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