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TMI Blog2009 (1) TMI 443X X X X Extracts X X X X X X X X Extracts X X X X ..... n service component of a work contract Prior to 1.6.2007. Thus it is against the revenue. - ST/275 OF 2006 - M/1/09/C-II/CSTB & A/71/10/CSTB/C-II - Dated:- 14-1-2009 - P.G. CHACKO, JUDICIAL MEMBER (AS A THIRD MEMBER) MS. JYOTI BALASUNDARAM, VICE PRESIDENT A.K. SRIVASTAVA AND P. KARTHIKEYAN, TECHNICAL MEMBER AND ASHOK JINDAL, JUDICIAL MEMBER K.M. Mondal for the Appellant. Bharat Raichandani for the Respondent. ORDER Ms. Jyoti Balasundaram, Vice President - M/s. Indian Oiltanking Ltd. (hereinafter referred to as 'the assessees'), who are holders of service tax registration for providing three taxable services, viz. (i) storage and warehousing, (ii) port services, and (iii) consulting engineering services, filed a refund claim for Rs. 11,27,498 under the heading Commissioning and Installation for the months of September and October 2003 on the ground that lump sum turnkey works contract was entered into by them with M/s. Indian Oil Corporation Ltd., Gujarat Refinery, for constructing storage tank for offsite and utility for LAB project for lump sum contract for entire work of drawing, designing and procurement of materials and constr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ontract to Daelim Industrial Co. Ltd. for construction of a diesel hydro-desulphurisation plant and utilities/offsite at Gujarat Refineries. The contract was on lump sum turnkey basis and the lump sum price had an Indian rupee payment of approximately Rs. 184 crores. The contract involved residual process design, detailed engineering, procurement, supply, construction, fabrication, erection, installation, testing, commissioning and mechanical guarantee . The department issued a show-cause notice asking the assessee to pay service tax on residual process design and detailed engineering under the category of consulting engineering. This demand was contested by the assessee but the challenge was unsuccessful and, therefore, the matter was carried in appeal to the Tribunal which, after examining the terms and conditions of the contract, held that the assessee's contract with IOC was a works contract on turnkey basis and not a consultancy contract, and further held that a works contract could not be vivisected for a part of it to be subjected to service tax. The Special Leave Petition filed by the department against the decision was dismissed by the Apex Court as in 2004 (170) ELT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the decisions of the coordinate Benches of the Tribunal are not binding on the Tribunal. 4. The crux of the argument of the Revenue is that subsequent to the decision of the Apex Court in Builders' Association of India v. Union of India 1989 (2) SCC 645, which considered the 46th Amendment to the Constitution and came to the conclusion that State Governments could levy sales tax on the value of the goods involved in an indivisible works contract by the legal fiction created by the 46th Amendment, i.e., by the inclusion of clause (29A) of Article 366 of the Constitution, service tax can be levied on the value of service/labour in the case of an indivisible works contract after the 46th Amendment to the Constitution. However, as rightly contended by the respondents, the Apex Court's decision cited supra is not an authority for the proposition that sales tax can be levied by the States on the value of goods involved in a works contract prior to the 46th Amendment. In the above case, the Supreme Court was concerned with the constitutional validity of the 46th Amendment by which State legislature was empowered to levy service tax on certain transactions described in sub-clau ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... involved in the execution of a works contract. This fact has been noted by the Apex Court in para 32 of its judgment. The Apex Court held that a transfer of property in goods under clause (29A)(b) is deemed to be a sale of goods in case of execution of works contract by the person making the transfer and the purchase of those goods by the person to whom the transfer is made. In para 36 of the said judgment, the Apex Court found as under:- 36. ... But sales tax could not be levied when the contract in question was a single and indivisible works contract. After the 46th Amendment the works contract which was an indivisible one is by a legal fiction altered into a contract which is divisible into one for sale of goods and the other for supply of labour and services. After the 46th Amendment, it has become possible for the States to levy sales tax on the value of goods involved in a works contract in the same way in which the sales tax was leviable on the price of the goods and materials supplied in a building contract which had been entered into in two distinct and separate parts as stated above. It could not have been the contention of the revenue prior to the 46th Amendment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x on services involved in the execution of a works contract wherein transfer of property in goods involved in the execution thereof is leviable to VAT/sales tax. We also note that the Apex Court's decision in Builders' Association of India's case (supra) has been considered by the Tribunal in Rolls Royce Industries Power (I) Ltd. v. CCE [2007] 6 STT 506 (New Delhi - CESTAT), wherein the Tribunal specifically rejected the contention of the Revenue relying upon the 46th Amendment to the Constitution and held that the Apex Court's decision in Builders' Association of India cited (supra) has no application, as the deeming definition that existed in sales tax did not exist for the purpose of service tax. Further, in the case of CCE v. Larsen Toubro [2006] 4 STT 12 (Mum. - CESTAT), a categorical finding has been recorded by the Tribunal that the 46th Amendment to the Constitution has not made any difference to the decision of the Apex Court in the case of State of Punjab v. Associated Hotels of India Ltd. 1972 (1) SCC 472 which was relied upon in the case of Daelim, for the reason that it was mainly with respect to sales tax which introduced a deeming provision. Rel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) to hold that, subsequent to the 46th Amendment, the States would be empowered to levy sales tax on the material used in such contract. However, the above decision does not advance the case of the Revenue. The decision also held that sales tax could be levied on the material portion involved in the execution of a works contract only after the passing of the 46th Amendment. The ACC decision did not overrule the earlier decisions pre-46th Amendment. The decision of the Apex Court in Bharat Sanchar Nigam Ltd. v. Union of India [2006] 3 STT 245 relied upon by the Revenue, also does not come to the aid of the appellants - the Supreme Court held in para 47 of its judgment that the ratio of the decision in ACC would not be applicable in case of composite contracts. The Supreme Court noted the statements of objects and reasons for the introduction of the 46th Amendment at para 97 of its order and then held that the deeming fiction introduced by the 46th Amendment was to overcome the earlier decisions of the Apex Court regarding transactions relating to deemed sales only. 8. Works contract service has been introduced with effect from 1-6-2007. Therefore, service tax can be levied on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ervices as held by the adjudicating authority. In support of this submission, learned consultant relied upon CBEC Circular No. 49/11/2002-ST, dated 18-12-2002 wherein it has been clarified that the work of erection and commissioning of plant and machinery is one of providing technical assistance and, hence, covered under-the category of 'consulting engineering'. However, the above contention cannot be accepted for the reason that the circular relied upon has been overruled/modified by subsequent circular No. 79/9/04-ST dated 13-5-2004 clarifying that charges for erection, installation and commissioning are not covered under the category of 'consulting engineering services' and that commissioning or installation service will be separately taxable under the relevant entry and are not chargeable as 'consulting engineering services' and accordingly clarification issued vide earlier circular dated 18-12-2002 stands modified to this extent. The same view has been held by the Tribunal, namely that charges for erection, installation and commissioning are not covered under the category of 'consulting engineering services' for a period prior to 2003 in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nnot travel beyond the allegations contained in the show-cause notice. 17. I find that the basis of the controversy is not the classification or reclassification of the service, i.e., whether it is commissioning and installation service or consulting engineer's service. The whole controversy centres around the question as to whether an indivisible works contract could be vivisected and part of it subjected to tax. The refund claim is on the basis that its contract with IOCL is an indivisible works contract on turnkey basis and, hence, it cannot be vivisected and part of it subjected to tax. In support of this claim, the assessee has relied upon the decisions of the Tribunal in the case of Daelim Industrial Co. Ltd. (supra) and Larsen Toubro Ltd. cited (supra). In the case of Larsen Toubro Ltd., the Tribunal has followed its earlier decision in Daelim Industrial Co. Ltd., which in turn has relied upon the decision of the Hon'ble Apex Court in the case of the Associated Hotels of India Ltd. (supra) and thus the Tribunal has held that indivisible works contract cannot be vivisected and part of it subjected to tax. 18. At the time of hearing as also in his written sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 20. Considering his submissions. I find that in the case of Daelim Industrial Co. Ltd., the Tribunal has followed the ratio of the Apex Court's judgment in the case of Associated Hotels of India Ltd. (supra). In para 17 of this judgment, the Hon'ble Apex Court has held as follows: 17. The transaction between a hotelier and a visitor to his hotel is thus one essentially of service in the performance of which and as part of the amenities incidental to that service, the hotelier serves meals at stated hours. The Revenue, therefore, was not entitled to split up the transaction into two parts, one of service and the other of sale of food-stuffs and to split up also the bill charged by the hotelier as consisting of charges for lodging and charges of food-stuffs served to him with a view to bring the latter under the Act. 21. According to the learned Consultant for the Revenue, law has now undergone a complete change. He submitted that after the 46th Amendment to the Constitution of India by inserting clause (29A) to Article 366, indivisible works contract can be split up and part of it subjected to tax, be it sales tax or service tax or any other tax for that matter. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion the transfer of property in goods involved in a works contract was made liable to payment of sales tax that they are not governed by Article 286 while levying sales tax on sale of goods involved in a works contract? They cannot do so. When the law creates a legal fiction such fiction should be carried to its logical end. There should not be any hesitation in giving full effect to it. . . . 23. In the case of Associated Cement Companies Ltd.'s case (supra), as seen from the facts of the case, various importers imported drawings and designs as a part of contract for architectural services. One of the contentions raised by the learned counsel for the appellants was that in contract for supply of services, there is no sale of goods and as such, no Customs duty could be imposed on the intellectual property, which was obtained in the form of drawings and designs. In support of this contention, various decisions of the Hon'ble Apex Court relating to levy of sales tax which were rendered prior to 46th Amendment of the Constitution were relied upon. After considering those decisions, the Hon'ble Apex Court in para 23 held as follows: 23. . . .The Forty-sixth Amendmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e decision of the Larger Bench. I find that the issue referred to the Larger Bench was whether PSC girders manufactured at site by the appellants for the construction of bridge are marketable goods attracting central excise duty under tariff heading 6807.00 of the Central Excise Tariff Act, 1985. The Larger Bench held that PSC girders are marketable goods and hence excisable. But then a contention was raised on behalf of the appellants that even if the PSC girders are held to be marketable goods, no excise duty could be levied on the PSC girders for the reason that supply of PSC girders in the construction of bridge is a part of the works contract between the appellants and M/s. Konkan Railway Corporation Ltd. and hence the said works contract could not be split up into two parts to levy duty of excise on PSC girders. This contention of the appellants was rejected by the Larger Bench. Relevant portion of the Larger Bench decision from para 2 is reproduced below: 2..... The decision of the Tribunal in the case of B.E. Billimoria Company Private Limited [Order No. C-II/890-891/WZB/2008, dated 25th April, 2003] holding that PSC girders are not marketable is based upon the findin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e scope of the expression so that it may include within its scope the transfer, delivery or supply of goods that may take place under any of the transactions referred to in sub-clauses (a) to (f) of clause (29A) wherever such transfer, delivery or supply become subject to levy of sales tax. The Court held the expression includes a tax on the transfer of property in goods in the execution of a works contract also. In the light of this decision and having regard to the fact that period in dispute in the present case is subsequent to the 46th Amendment to the Constitution, we apply the ratio of the abovesaid decision to hold that, even though the contract between M/s. Konkan Railway Corporation Limited and the appellants in the present appeals was construction of bridges, excise duty is leviable on PSC girders involved in the execution of a works contract for construction of bridges as PSC girders which are cast at the casting yard and then transported to the site of the project, are marketable. The reliance by the Bench in the case of B.E. Billimoria Company Private Limited upon the upholding of the decision of Madras High Court in the case of Richardson and Cruddas Limited by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orks contract. 31. A specific heading may be carved out of another heading for various reasons. As for example, if the volume of trade of a particular commodity reaches a specific level, a separate heading may be carved out for it, from the earlier general heading, for statistical purposes and for policy decisions. It may also be done to remove any doubt, or as a measure of abundant caution, by the Legislature to affirm that the particular service or commodity is taxable. Thus, it cannot be said that just because a new heading has been created or carved out, the particular service or commodity was not taxable under any other heading earlier, even if it conformed to the description of the earlier heading. 32. It is common knowledge that the Central Excise Tariff, at one point of time, had a general heading, Tariff Item 68, to cover all goods, not elsewhere specified. Subsequently, some specific headings were created for certain commodities. This did not mean that the particular commodity was not taxable earlier under T.I. 68. 33. A similar issue had come up before the CESTAT in the case of Tata Tea Ltd. v. CCE 2004 (164) ELT 315 (Trib. - Delhi) in which it was held that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d refund of the service tax paid on the ground that its contract with IOCL was an indivisible works contract on turnkey basis and hence it could not be vivisected and part of it subjected to tax. I have already held that in view of the judgments of the Hon'ble Apex Court cited supra, indivisible works contract could be split up and part of it subjected to tax. I, therefore, hold that the respondent has correctly paid the service tax on 'installation or commissioning service' involved in the execution of its works contract with IOCL and hence its claim for refund is not admissible. 35. In the result, I set aside the impugned order passed by the Commissioner (Appeals) and allow the revenue's appeal. 36. Before parting, one more submission of the ld. Consultant for the revenue needs to be considered. At the hearing as also in his written submissions, he has urged that the matter may be referred to the Larger Bench for an appropriate decision. He emphasized that the Tribunal's decision in Daelim Industrial Co. Ltd.'s case (supra) is per incuriam and in two cases of Larsen Toubro Ltd.'s case (supra) the Hon'ble Apex Court has already admitted the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appeal is filed before this Court and the same is entertained, the judgment of the High Court or the Tribunal is in jeopardy. The subject-matter of the lis unless determined by the last Court, cannot be said to have attained finality. Grant of stay of operation of the judgment may not be of much relevance once this Court grants special leave and decides to hear the matter on merit. 38. I also find that in a similar case of works contract in the case of CCE v. BSBK (P.) Ltd. [2009] 18 STT 1 (New Delhi - CESTAT) the Principal Bench of the Hon'ble Tribunal has referred the matter to the Larger Bench to consider the correctness of the decision in Daelim case as it was of the prima facie view that the decision in Daelim case is not in accordance with law. Having regard to this and also considering the similar nature of the works contract in the present case, I am of the considered view that this case is also fit for reference to the Larger Bench. 39. The following points of difference of opinion are placed before the Hon'ble President for reference to the Larger Bench or to a Third Member for resolving the difference:- 1. Whether the Tribunal's decision in Daelim& ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... value was worked out by themselves. The learned Vice-President of the regular Bench which heard the case upheld the appellate Commissioner's order after holding that the works contract in question was not divisible into sale component and service component prior to 1-6-2007 for the purpose of levy of service tax on the service component under any of the pre-existing entries under section 65 of the Act. The learned Vice-President followed the view taken by the Tribunal in the cases of Daelim Industrial Co. Ltd. (supra), Larsen Toubro Ltd. (supra), Commissioner v. Larsen and Toubro Ltd. 2006 (4) STR 63, Diebold Systems (P.) Ltd. (supra). On the other hand, the learned Member (Technical) of the regular Bench considered the decision in the case of Daelim Industrial Co. Ltd. to be per incuriam inasmuch as it was rendered without taking note of the Hon'ble Supreme Court's decision in the cases of Builders' Association of India (supra) and Associated Cement Companies Ltd. (supra). The learned Member (Technical) also drew support from the Supreme Court's decision in Bharat Sanchar Nigam Ltd.'s case (supra). The regular Bench extensively referred to clause (29A) o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 39; Association v. Union of India [2009] 19 STT 408. In Diebold Systems case, it was held that, for the levy of service tax in respect of indivisible works contracts prior to 1-6-2007, there had to be statutory authority in the form of specific entry under section 65 of the Finance Act, 1994. In that case, by relying on rulings of the Apex Court, the Tribunal found that, prior to 1-6-2007, there was no taxable event for levy of service tax on an indivisible works contract. It was held that such a works contract which was introduced as a taxable service for the first time with effect from 1-6-2007 was not chargeable to service tax under any pre-existing entry under section 65 of the Finance Act, 1994. A similar view came to be taken by the Hon'ble High Court in the case of Indian National Shipowners' Association (supra), wherein the dispute involved entries (zzzy) and (zzzzj) under section 65(105) of the Act. The Hon'ble High Court found that that the entry (zzzy) which covered services provided to any person in relation to mining of mineral, oil or gas was introduced in June, 2007 and the other entry (zzzzj) was introduced later on with effect from 16-5-2008. The Hon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble. Creation of new entry is not by way of amending the earlier entry. It is not a carve out of the earlier entry. Therefore, the services rendered by the members of the 1st petitioner cannot be brought to tax under that entry. 42. As rightly pointed out by the learned counsel for the respondent, the view taken by this Tribunal in Diebold Systems' case (supra) came to be approved by the Hon'ble High Court. It goes without saying that the view taken by the Hon'ble High Court is binding on this Bench of the Tribunal. 43. It has been argued by the learned Special Consultant for the revenue that the Civil Appeals filed by the department against the Tribunal's decision in two similar cases of Larsen Toubro Limited, wherein the view taken in Daelim case was followed, were admitted by the Apex Court and, therefore, the finality and binding character of Daelim (supra) should be considered to be in jeopardy in terms of the Supreme Court's ruling in West Coast Paper Mills Ltd.'s case (supra). On the other hand, it has been pointed out by the learned counsel that the SLP filed by the department against the Tribunal's decision in Daelim case was dismissed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... engineers' service'. This demand was contested by the party. After examining the terms and conditions of the contract, the Tribunal found that assessee's contract with IOC was a works contracts on turnkey basis and not a consultancy contract. Further, it was held that a works contract could not be vivisected for a part of it to be subjected to taxation. In the result, the demand of service tax was set aside. The decision of the Tribunal was taken in appeal to the Supreme Court by the department, but their lordships dismissed the department's S.L.P. thus: We see no reason to interfere. The Special Leave Petition is dismissed. [2007 (5) STR J99 (S.C.) = 2004 (170) ELT A181]. The ratio of the decision in Daelim case was followed by this Tribunal in a series of cases, some of which, cited by counsel, have already been noted by us. We find that the Daelim ratio is applicable to the present case also inasmuch as, in the impugned orders, the Commissioner himself has found the works contracts to be indivisible. 8. Inherent in the decision of the Tribunal in Daelim case is a basic concept of taxation, which is the one recognized and declared by the Apex Court in the cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e only with effect from 1-6-2007. It is no defence for the revenue to say that ATMs are also equipments and, therefore, the works undertaken by the assessee for the benefit of banks were subject to service tax as 'service provided to a customer by a commissioning and installation agency in relation to commissioning or installation of plant, machinery or equipment'. This is because ATM-related services were introduced only on 1-5-2006 for the purpose of levy of service tax. Introduction of a new entry for the purpose of levy of tax presupposes that it was not covered by any of the pre-existing entries. In other words, in the ever-widening sphere of service tax, addition of an item to the list of taxable services is just an addition, and not a subtraction from a pre-existing entry. This reality was noted by this Tribunal in the case of Glaxo Smithkline Pharmaceuticals (supra). In that case, certain service rendered by the company was found to be in the category of Business Auxiliary Service as claimed by them and not Management Consultancy Service as claimed by the revenue. 'Business Auxiliary Service' was introduced in July 2003 when the other service was already ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... racts prior to 1-6-2007. In other words, during the period of dispute, the subject events were not taxable in the absence of the requisite charging provision. Charging provisions are to be found in the statute itself and, where there is none in the statute, they cannot be supplemented by Notifications. Notification No. 19/2003-S.T. relied on by the revenue can have no operation in respect, of any service as long as such service does not find a place in the list of taxable services under section 65 of the Finance Act, 1994. ATM-related services were introduced for the levy of service tax only with effect from 1-5-2006 and indivisible works contracts like the ones involved in the present case came to be chargeable to service tax only with effect from 1-6-2007. Thus the subject-matter of this case does not attract any of the taxable services for any period prior to 1-5-2006. Ld. SDR has heavily relied on the Apex Court's judgment in Kalyana Mandapam case. That decision was not in respect of indivisible works contracts and the same was in the nature of transaction between a mandap-keeper and his customer. We have not found any comparison between such transaction and the one between ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inding on co-ordinate Benches. 46. The second question is whether service tax could be levied on the service component of the works contract in this case. The works contract was executed long before 1-6-2007, during which period such contracts were not exigible to service tax. Works contract came to be taxable only with effect from 1-6-2007. The 46th Amendment to the Constitution was made with intent to enable the States to levy sales tax on the sale component of a works contract. It had a direct bearing on Entry 54 of State List of the VIIth Schedule to the Constitution. It has no such bearing either on Entry 97 (residuary entry) or on Entry 92C (service tax) of the Union List. The 46th Constitutional Amendment did not purport to enable the Central Excise authorities to levy any tax on the service component of a works contract. After considering the judgments of the Apex Court cited by both sides, I find that there is no direct decision in favour of the revenue for levy of service tax on the service component of a works contract prior to 1-6-2007. On the other hand, the judgment of the Hon'ble High Court in Indian National Shipowners' Association case (supra) is directl ..... X X X X Extracts X X X X X X X X Extracts X X X X
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