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TMI Blog2013 (8) TMI 18X X X X Extracts X X X X X X X X Extracts X X X X ..... .04.2003 261,84,14,735/- 3. ONGC/EIL-MNW Mumbai High North Water Injection cum compression platform project EIL/L&T/MNW/2002 13.09.2003 605,76,32,915/- 4. ONGC-N9&N10 Well Platform MR/OW/MM/N9&N10/WPP/05R/2002 10.10.2003 365,27,00,000/- 5. ONGC-9 Well Platform Project MR/OW/MM/9WPP/09/2003 02.04.2004 Euro 8,43,16,700 + Rs.514,19,30,000 6. Mangalore Refinery Pvt. Ltd. MRPL/PMG/Tender/2004/001/LOA 14.10.2004 267,02,87,0000 2.1 Examination of the contracts and LOA documents revealed that, the activities and services undertaken included the services of erection, commissioning, testing, pre-commissioning and performance guarantee test run and they formed the major part/value of the contract. Further in contract no. 2, service tax amounting to Rs.31,41,861/- was found included in the lump sum contract price. In contract no. 3, though the service tax included was shown as 'nil', it was mentioned that if there is any change by Union govt. with respect to applicability of service tax, the same shall be borne by ONGC. In contract no. 4, service tax @5% was included in the lump sum price of Rs.1,08,70,000/- for design and engineering service, and nil service tax was show ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Finance Act 1994 and interest on the said demand under section 75 ibid; c) Impose penalties under sections 76 and 77 of the said Finance Act read with rules 6(1)(ii) and 7 of Service Tax Rules, 1994 for default in payment of service tax and failure to furnish prescribed returns; and d) Impose penalty under section 78 for suppression and concealment of facts with an intent to evade payment of service tax. 2.4 The appellant contested the demand mainly on three grounds. The activity undertaken by the appellant is a works contract involving supply of goods and rendering of services. The said activity was brought under service tax net only with effect from June, 2007. Hence the appellant is not liable to pay any service tax on the said activity for the period prior to that. The entire demand is time barred as the notice has been issued invoking extended period of time and the appellant is not guilty of any suppression. In any case, the demand cannot be made on the entire value of the contract as the same involves supply of goods, on which the appellant has discharged the VAT/sales tax liability. 2.5 The notice was adjudicated vide the impugned order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Commissioner of Sales Tax 1985 60 STC 1(SC) held that charging provision, taxable person, rate of taxation and measure of taxation constitute the basic structure for taxation and if these are not available, levy does not exist in the eyes of law and will be fatal to its validity. 2) In respect of works contract, the Parliament created a charging section vide section 65(105) (zzzza) with effect from 01.06.2007 and the machinery provision by notification no. 29/2007 dated 22.05.2007. 3) It would be impossible to construe or interpret that prior to 01.06.2007, the charging section for works contract service in the present case could be 65(39a) read with 65(105)(zzd) and rendition of an indivisible works contract under section 65(105)(zzzza) are not one and the same. Section 65(105)(zzzza) defines work contract as 'a transaction involving both transfer of property in goods and a rendition of certain notified services'. Such a charging section and definition is conspicuous by its absence under section 65(39a) read with 65(105)(zzd). In no manner it is possible to interpret works contract service to be a part of the above provision. This will render the parli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons dated 18.10.2003, 3.11.2003, 20.11.2003, 28.11.2003, 16.12.2003 and 12.01.2004 with the department clearly brings into light the uniform and consistent position on the non-taxability on lump sum turn key contracts. The Tribunal in the appellant's own case [2004 (174) ELT 322 had held that lump sum turnkey projects cannot be vivisected and taxed. The Dy. Commissioner of Service Tax vide order dated 18.01.2005 after considering the indivisible works contract executed to M/s Chennai Petroleum Corporation cannot be vivisected and the said contract is also the subject matter of the present dispute and is one of the six contracts under dispute. The decision of the hon'ble Tribunal in the case of Jothi Ltd. and Indian Oil Tanking Ltd. had held that indivisible works contract cannot be subjected to levy prior to 18.12.2007 and 14.01.2009. The Larger Bench decision in the case of BSBK was delivered only on 06.05.2010. Since the entire dispute in the present case is well before 01.06.2007, the entire proceedings are barred by limitation. 6) The impugned order proceeds to demand service tax on the entire value of the lump sum turnkey contracts where major portion of the cont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in [2005 (182) ELT A 149 (SC)] and [2007 (5)STR J 98 (SC)]. Therefore, these decisions are in jeopardy as held in West Coast Paper Mills Ltd. [2004 (164) ELT 375]. d) Subsequent to the decision of the larger bench, this Tribunal in the case of Instrumentation ltd. [2011 (23)STR 221] and Alstom Project India Ltd. [2011 (23) STR 489] have held that service tax can be levied on the service portion of the works contract, if the service is taxable under section 65(105) of the Finance Act, 1994 and the question whether works contract is divisible or indivisible is irrelevant. In the light of the above decisions, the appellant has no case on merits. Hence the demand of service tax together with interest is sustainable in law. e) As regards limitation, the date of knowledge of the department is not the relevant date prescribed in sub-section 6 of section 73 of the Finance Act, 1994. One of the relevant dates prescribed is the date of filing of the periodical returns showing, inter alia, the particulars of the service tax paid. Therefore, the date of knowledge has no mandate under section 73 of the Finance Act. The hon'ble High court of Gujarat in the case of Ne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oods or in some other form) involved in the execution of a works contract; (c) a tax on the delivery of goods on hire-purchase or any system of payment by instalments; (d) a tax on the transfer of the right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration; (e) a tax on the supply of goods by any unincorporated association or body of persons to a member thereof for cash, deferred payment or other valuable consideration; (f) a tax on the supply, by way of or as part of any service or in any other manner whatsoever, of goods, being food or any other article for human consumption or any drink (whether or not intoxicating), where such supply or service, is for cash, deferred payment or other valuable consideration; and such transfer, delivery or supply of any goods shall be deemed to be a sale of those goods by the person making the transfer, delivery or supply and a purchase of those goods by the person to whom such transfer, delivery or sup ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ransferred. Yet by fiction of law, it is treated as a sale. Similarly the title to the goods under Clause (d) remains with the transferor who only transfers the right to use the goods to the purchaser. In other words, contrary to A.V. Meiyappan's decision a lease of a negative print of a picture would be a sale. Clause (e) covers cases which in law may not have amounted to sale because the member of an incorporated association would have in a sense begun both the supplier and the recipient of the supply of goods. Now such transactions are deemed sales. Clause (f) pertains to contracts which had been held not to amount to sale in State of Punjab v. M/s. Associated Hotels of India Ltd. (supra). That decision has by this clause been effectively legislatively invalidated. 42. All the clauses of Article 366(29A) serve to bring transactions where one or more of the essential ingredients of a sale as defined in the Sale of Goods Act, 1930 are absent, within the ambit of purchase and sales for the purposes of levy of sales tax. To this extent only is the principle enunciated in Gannon Dunkerly limited. The amendment especially allows specific composite contracts viz. works co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sale? Doctors, lawyers and other professionals render service in the course of which can it be said that there is a sale of goods when a doctor writes out and hands over a prescription or a lawyer drafts a document and delivers it to his/her client? Strictly speaking with the payment of fees, consideration does pass from the patient or client to the doctor or lawyer for the documents in both cases. 45. The reason why these services do not involve a sale for the purposes of Entry 54 of List II is, as we see it, for reasons ultimately attributable to the principles enunciated in Gannon Dunkerley's case, namely, if there is an instrument of contract which may be composite in form in any case other than the exceptions in Article 366(29-A), unless the transaction in truth represents two distinct and separate contracts and is discernible as such, then the State would not have the power to separate the agreement to sell from the agreement to render service, and impose tax on the sale. The test therefore for composite contracts other than those mentioned in Article 366 (29A) continues to be - did the parties have in mind or intend separate rights arising out of the sale of go ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s certainly depends on the facts and circumstances of each case and classification of the respective services. The Division Bench while dealing with the appeals shall have advantage to look into each case on its own factual matrix and legal back ground as well as respective pleadings. The circulars relied by the Interveners and Respondent were misplaced since the circulars deal with classification of services covered by cluster of services without dealing with the divisibility aspect of the contract. Reliance placed by interveners and Respondents on different citations made is not profitable for the various reasons described herein before and observations made in this order. The plea that because decision of Daelim's case has been followed in the past by different Benches of the Tribunal, that holds the field does not get sanction of law when different aspects of a commercial transaction are liable to tax under different legislations according to the fields of taxation assigned to States and Government of India. 10.1 Entire thrust of Revenue's submission that Constitution has permitted turnkey contract divisible for levy of sales tax by States has equal application un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... composite lump sum turnkey contract can be vivisected into supply of goods and supply of services for the purpose of levy of service tax provided the service(s) involved in transaction are taxable services as defined in section 65(105) of the Finance Act, 1994 and we hold accordingly. In fact the arguments placed herein were identical to those raised before the larger bench and the larger bench after considering all those decisions passed the judgment. Thus there is nothing new which has been raised before us which was not considered earlier. It is also worth mentioning herein that the appellant herein was an intervenor in the BSBK case decided by the larger bench. While passing the decision in the BSBK case, the larger bench considered the previous decisions of the Tribunal in the Jyoti Ltd. case, the appellant's own case [2006 (4)STR 63Tri mum and the hon'ble apex court decisions in the Daelim' s case. After considering all these decisions, it was held by the larger bench that the lump sum turnkey contract can be vivisected into supply of goods and supply of services. Therefore, the reliance placed by the appellant on those decisions does not help. ROM against the larger bench d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o bring the said activity under the category of "erection, commissioning and installation" service. However, the laying of pipes was not included in the said service prior to 30.05.2005 and, therefore, it was held that the activity would not come under erection, commissioning and installation service'. In the case before us, there is no such dispute, Therefore, the ratio of these decisions have no bearing. 5.2 We have also perused the contracts to see whether they are single lump sum non-separable contracts or not. The position that emerges are as follows:- I) The contract awarded by Chennai Petroleum Corporation Ltd. vide W.O No. 1027/W/110 dated 04.02.2002 is for Residual Process Design, Detailed engineering, Procurement, Supply, transportation, Storage, Fabrication, Construction, Installation, Testing, Pre-commissioning, commissioning, test runs of Naphtha Hydrotreater, catalytic reformer unit & hydrogen generation unit for the refinery of Chennai Petroleum Corporation. The Schedule of Prices shows that there are three components - 1) Residual process design and detailed engineering; 2) supply portion and 3) construction and installation portion. Separate values/p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... each of these 3 elements were as follows:- 1. Cost of material Rs.234,26,01,885 + $ 3,65,57,500 (for imported materials) 2. Cost of services Rs.86,87,13,505/- + $ 1,55,04,400 (for imported component) 3. Insurance cost Rs.31,76,71,040/- IV) The contract dated 10.10.2003 with ONGC was for surveys (pre-engineering, pre-construction/pre-installation and post-installation), design, engineering procurement, fabrication, anti-corrosion and weight coating, cathodic protection, load out, tie-down/sea fastening, tow-out/sail-out, installation, hook-up, testing and pre-commissioning, commissioning assistance for the facilities of ONGC. The price break up given in the said contract are as follows:- 1. Cost of materials Rs.90,24,00,000/- + Rs.97,81,00,000/- (for imported component) 2. Cost of services Rs.167,36,00,000/- 3. Cost of Insurance Rs.9,86,00,000/- V) The contract dated 2.4.2004 with ONGC was for supply of materials, services and insurance and the price break up was as follows:- 1. Materials Rs.414,60,51,000 + Euro 4,40,24,300 (for imported component) 2. Services (Pre-construction surveys, off-shore i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ding wirings or fittings therefor; or (b) plumbing, drain laying or other installations for transport of fluids; or (c) heating, ventilation or air-conditioning including related pipe work, duct work and sheet metal work; or (d) thermal insulation, sound insulation, fire proofing or water proofing; or (e) lift and escalator, fire escape staircases or travelators; or (f) such other similar services; With effect from 01.05.2006, sub-clause (i) of clause 39(a) was amended to read as, - (i) erection, commissioning or installation of plant, machinery, equipment or structures, whether pre-fabricated or otherwise. 5.3.1 Section 65(105)(zzd) defined the taxable service as "any service provided or to be provided to a customer, by a commissioning and installation agency in relation to erection, commissioning or installation". 5.3.2 Se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd sheet metal work, thermal insulation, sound insulation, fire proofing or water proofing, lift and escalator, fire escape staircases or elevators; or (b) construction of a new building or a civil structure or a part thereof, or of a pipeline or conduit, primarily for the purposes of commerce or industry; or (c) construction of a new residential complex or a part thereof; or (d) completion and finishing services, repair, alteration, renovation or restoration of, or similar services, in relation to (b) and (c); or (e) turnkey projects including engineering, procurement and construction or commissioning (EPC) projects; If one carefully compares the provisions of works contract relating to erection, commissioning and installation as defined in Explanation (ii)(a) to section 65(105)(zzzza) with the definition given in 65(39a), it can be seen that the wordings are identical. In other words, the scope of the service with respect to erection, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... whatever mode it may be made. It does not conceptually or otherwise includes the supply to services within the definition of sale and purchase of goods. This is particularly apparent from the following phrase contained in the said sub-article 'such transfer, delivery or supply of any goods shall be deemed to be a sale of those goods". In other words, the operative words of the said sub-article is supply of goods and it is only supply of food and drinks and other articles for human consumption that is deemed to be a sale or purchase of goods. 45. The concept of catering admittedly includes the concept of rendering service. The fact that tax on the sale of the goods involved in the said service can be levied does not mean that a service tax cannot be levied on the service aspect of catering.... 46. It is well settled that the measure of taxation cannot affect the nature of taxation and, therefore, the fact that service tax is levied as a percentage of the gross charges for catering cannot alter or affect the legislative competence of Parliament in the matter. ................................................................................... ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ax on the said service under section 65(105)(zzd) read with section 65(39a) of the Finance Act, 1994 is perfectly valid and sustainable in law and the contentions to the contrary have to be rejected. 5.3.5 The above view we have taken is also supported by the decision of the hon'ble Apex court in the case of Nagarjuna construction Co. Ltd. vs. Govt. of India 2012 (28)STR 561 (SC)]. In the said case, the appellant paid service tax under 3 categories, namely, 1) erection, commissioning or installation service under section 65(105)(zzd) read with section 65(39a); 2) commercial or industrial construction service under section 65(105)(zzq) read with section 65(25b) and 3) construction of residential complex service under section 65(105)(zzzh) read with section 65(30a). Service Tax was introduced on these services with effect from 01.07.2003, 10.09.2004 and 16.06.2005 respectively. The appellant paid service tax on 33% of the total value by claiming the benefit under notification no. 1/2006-St dated 01.03.2006. Subsequently, on 01.06.2007, all the above services were brought under 'works contract' service under section 65(105)(zzzza). A composition scheme for payment of service tax for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sue came up for consideration before the Advance Ruling Authority in the case of Harekrishna Developers [2008 (10) STR 341 (AAR)]. A question arose as to classification of construction of residential complex service, whether under section 65(105)(zzzh) as it stood prior to 01.06.2007 or under section 65(105)(zzzza) with effect from 01.06.2007 as works contract service. The authority after applying the provisions of section 65A relating to classification of taxable services held that the fact that classification under sub-clause (zzzh) will stand irrespective of the fact that the said service was brought within the ambit of sub -clause (zzzza). Though the decision of the Authority is not binding on us, it certainly has significant persuasive value. Accordingly, we completely reject the contention of the appellant that erection, commissioning and installation service rendered as part of works contract service cannot be levied to service tax prior to 01.06.2007 under section 65(105)(zzd). 5.4 The next issue for consideration is valuation of the services rendered for the purpose of computation of service tax demand. The ld. Counsel for the appellant submits that the department has inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d outright. As discussed in the preceding paras, the contract itself provided for separate values for the services provided and the goods supplied. If that is so, the department should not have raised the demand on the total value of the contract which included the value of the goods supplied. The notifications, namely, 12/2003-ST, 19/2003-ST and 1/2006-ST specifically provided for excluding the value of the goods supplied. The notifications once issued and placed before the parliament becomes part of the law/enactment itself and the power of levy has to be exercised taking into account the restrictions imposed by the notification. Thus the appellant is right in bona saying that the computation of service tax demand is patently wrong. Therefore, the matter needs to go back to the adjudicating authority for determination of the correct service tax liability after taking into account the abatements in value provided under the aforesaid notifications. The appellant is also directed to produce documentary evidences in support of their claim for such abatements and satisfaction of the conditions stipulated with regard to non-availment of CENVAT credit on the inputs and input services us ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ulting engineer's service. The Tribunal observed that the contract was a works contract on turnkey basis and not a consultancy contract. The price negotiated was a lump sum price. In those set of facts it was held that service tax demand is not sustainable. In the Larsen & Toubro Ltd. vs. CCE, Cochin case, the issue was whether design element of a works contract is liable to service tax or not and the said decision was rendered on the ground that the facts were identical to the Daelim case. In the present case before us, the contract is a divisible contract and separate prices have been negotiated and included for the supply of goods and the supply of services. Para 5.2 of this order refers. When the facts involved are different and distinguishable, reliance cannot be placed on such decisions for entertaining any bona fide belief. Further the contracts themselves included/contained provisions for collection of service tax and the appellants did collect service tax as part of the consideration received for rendering of the services. In view of this position, the plea of bona fide belief on the part of the appellant cannot be sustained at all. The appellant had got registered for "er ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... concept of knowledge by the departmental authority is entirely absent. Hence, if one imports such concept in sub-section (1) of section 11A of the Act or the proviso thereunder it would tantamount to rewriting the statutory provision and no canon of interpretation permits such an exercise by any Court. If it is not open to the superior court to either add or substitute words in a statute such right cannot be available to a statutory Tribunal. 17. The proviso cannot be read to mean that because there is knowledge the suppression which stands established disappears. Similarly the concept of reasonable period of limitation which is sought to be read into the provision by some of the orders of the Tribunal also cannot be permitted in law when the statute itself has provided for a fixed period of limitation. It is equally well settled that it is not open to the Court while reading a provision to either rewrite the period of limitation or curtail the prescribed period of limitation. A similar view had been taken by a Larger Bench of this Tribunal in the case of Usha Rectifier Corporation (I) Ltd. (supra). 5.5.4 It should also be noted that in service tax, the assessment o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... said contract. 6. In the light of the foregoing discussion, we hold as follows: 1) A works contract can be vivisected even prior to 01.06.2007 and the service portion discernible in the contract can be subjected to levy of service tax if the law provides for the same. In the present case, since the discernible service is "erection, installation and commissioning", the said activity is leviable to service tax under section 65(105)(zzd) read with section 65(39a)/65(28) as they stood at the relevant time prior to 01.06.2007. On or after 01.06.2007, the said service is leviable to service tax under works contract service as defined in section 65(105)(zzzza). 2) As regards valuation, service tax can be levied only on the consideration charged for the services provided. The value of goods supplied/sold cannot be included for the purpose of computation of service tax demand. The benefit of notification nos. 12/2003-ST, 19/2003-ST and 1/2006-ST has to be extended to the appellant subject to the appellant producing satisfactory documentary evidence for eligibility to the benefit of exemption. The appellant should also be given the benefit of tax exemption in res ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... k and sheet metal work; or (d) thermal insulation, sound insulation, fire proofing or water proofing; or (e) lift and escalator, fire escape staircases or travelators; or (f) such other similar services; Thus, from the plain reading of the provision of law quoted above, it is crystal clear that there is no mandate by the legislature to bifurcate the works contract or turnkey contract and tax the service element thereof. The section intends to tax only service contracts or contracts which are predominantly of service nature. (ii) That section 65(105)(zzzza) of the Finance Act, 1994 reads as follows:- (zzzza) to any person, by any other person in relation to the execution of a works contract, excluding works contract in respect of roads, airports, railways, transport terminals, bridges, tunnels and dams. Explanation. - For the purposes of this sub-clause, "works contract" means a contract wherein, - (i) trans ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ith all humility I find that the Larger Bench has only considered the enability provided by the 42 nd amendment of Constitution of India to vivisect the deemed sales of goods involved in the works contract for the purpose of levy of Sales tax. The Larger Bench have not considered the provisions of the Finance Act, 1994 as to the chargeability of service elements in composite works contract without there being clear provision for the same. Hence, the law laid down by the Larger Bench is doubted an needs reconsideration. Even in the State Sales Tax Acts, the definition of 'Sale' was amended pursuant to the 42 nd Amendment to Constitution of India, so as to bring to charge the deemed sale of goods. 7.2 That it further noticed that the Rules for the value of the service element, as contained in the composite works contract, were brought on the statute only w.e.f 01.06.2007, being rule 2A of the Service Tax (Determination of Value) Rules, 2006. Thus, provides details for determination of service potion in the execution of a work-contract. In absence of machinery provision in the statute to properly determine the turn-over on which alone the tax can be charged and collected, either unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 w.e.f. 1-6-2007. The 46th Amendment to the Constitution was made with intent to enable the States to levy sale 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 is directly against the Revenue and the same is binding on this Bench of the Tribunal. In the result, the second point of difference is al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ded period is concerned, I find that the process of enquiry by the Revenue authority had started since August, 2003 and several letters were exchanged during the year 2003-04 and also statements of the competent officials of the appellant were recorded by the Revenue. The appellant had provided all the requisitioned details. Copy of correspondence is on record. The appellant had taken its stand of not liable to service tax for the impugned demand on 18.10.2003. 8.2 It is not the case of Revenue that the appellant had not disclosed the transactions in the regular books of account maintained in the ordinary course of business. Rather in respect of contracts considered in the impugned order, the Revenue itself found that one of the composite contracts was not liable to taxation under Consulting Engineers Service. That show-cause notice has been issued only on 7.10.2008 i.e. after about four and half years from the stage of enquiry. Thus, in the facts of the case, no fraud, suppression of facts or contumacious conduct is found on part of the appellant and, hence, I hold that extended period of limitation is not attracted. It is also relevant to mention that after filing the reply to t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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