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TMI Blog2014 (8) TMI 741X X X X Extracts X X X X X X X X Extracts X X X X ..... ection job to be undertaken by SOKEO at the project site on free of charge basis. The Letter of intent makes it clear that designs system, engineering, procurement, manufacture, quality control, testing, packing and forwarding, deputation of supervisory engineer shall be the responsibility of CNAICO. Further the said Letter of intent states that certain equipments were to be procured locally and finally the equipment are to be installed at the site. It would thus be seen from the said Rule that clause (i) of sub-rule (1) provides that value of works contract service determined shall be equivalent to the gross amount charged for the works contract less the value of transfer of property in goods involved in the execution of the said works contract. We also note that the goods supplied by CNAICO have been cleared on payment of Customs duty after determining the value of such goods and therefore it should be possible to determine the value of transfer of property in goods involved in the execution of the said works contract and thereafter value of the service portion. The normal rate of service tax would be applicable on the value of service so determined. Penalty under Sections ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by second contract with SOKEO, the representative to SOKEO. Appellants' claim is that the first contract is for supply of equipment while the second contract is for erection and commissioning. In respect of first contract no service tax is paid and for the second contract SOKEO has paid service tax under erection and commissioning service. Revenue's case is that the total work is for design, engineering, manufacture, testing, supply of equipment, transportation, erection, commissioning etc. is therefore a turnkey project and it would appropriately be covered under the service works contract and the appellants are therefore liable to pay service tax under the works contract service on reverse charge basis for the amount paid by them to CNAICO. Revenue has raised the demand based upon composition scheme. 4. The learned advocate for the appellant's main argument is that initial letter of intent was only on expression of interest and has no legal force. The legal force is only in two agreements one with CNAICO and other with SOKEO. According to the learned advocate the first agreement is only for supply of goods and therefore no service tax is liable to be paid in respec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rvices in India and for the same SOKEO has paid service tax and learned advocate for the appellants further argued that the two contracts cannot be combined to make them liable to for works contract. The learned advocate for the appellants further stated that even if it is assumed that the two contracts forms together works contract still the department has issued the notice under Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007 and has asked them to pay 4% duty on the total amount of contract. The learned advocate for the appellants argued that the said Composition Scheme is an optional scheme and cannot be thrust upon them. They also submitted that Ministry of Finance vide Circular No. B-1/16/2007-TRU dated 22.5.2007 have clarified that service tax will be leviable only on the services portion provided in relation to execution of works contract. He further argued that even if the two contracts are considered as composite contract then they are required to pay service tax at the normal rate i.e. 10.3% on value of services as per Rule 2A of the Service Tax (Determination of Value) Rules, 2006. 6. Another contention of the learned advocate for the appell ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... commissioning are just ₹ 1.75 crores as against ₹ 59.75 crores for supply items and thus the service portion is less than 3% of the total cost. Composition Scheme envisaged service portion of 33% of the total cost as per the industry practice. 10. The learned A.R. submitted that the Supply Agreement dated 24.03.2009 is not an agreement for only sale of goods but includes service elements like deputing engineers for supervision of erection job, designing, testing, quality control etc. Further as per statement of shri T.K. Manna, General Manager dated 28.01.2010 it was stated that it is not possible to bifurcate the charges of design etc in the price. Thus as per their own admission it is not a divisible contract. Hence service tax has been demanded on the total receipt of 4.12% of the gross amount charged. It was also submitted that if any benefit of Notification No. 12/2003 is claimed by the appellant, the appellant has to produce documentary evidence like purchase invoice of CNAICO. It was also submitted that purchase invoices of the goods and materials issued to CANICO by M/s Nanjing Turbine Electric Machinery (Group) Co Ltd would be required and not on the sale ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... installation of electrical and electronic devices, plumbing, drain laying or other installations for transport of fluids, heating, ventilation or air-conditioning including related pipe work, duct work and 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; 13. It can be seen from the above definition that the works contract means a contract wherein transfer of goods involved in the execution of such contract is leviable to tax as sale of goods and such contract is for purpose of carrying out amongst others turnkey projects including engineering, procurement and construction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or offshore supply of equipments, materials, etc. are liable to tax in India under trie provisions of the Act and India-Japan tax treaty? 2. If the answer to (1) is in the affirmative in view of Explanation (a) to section (1)(i) of the Act and/or Article (1) read together with the protocol of the India-Japan tax treaty, to what extent are the amounts reasonably attributable to the operations carried out in India and accordingly taxable in India? 3. On the facts and circumstances of the case, whether the amounts received /receivable by the applicant from Petronet LNG for offshore services are chargeable to tax in India under the Act and/or the India-Japan tax treaty? 4. If the answer to (3) above is in the affirmative, to what extent would be amounts received/receivable for such services be chargeable to tax in India under the Act and/or the India-Japan tax treaty? 5. If the answer to (3) above in the affirmative, would be applicant be entitled to claim deduction for expenses incurred in computing the income from offshore services under the Act and/or the India - Japan treaty? 15. We also note that in the said judgment the Hon'ble Supreme Court ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce TAX (Determination of Value) Rules, 2006 provides for determination of value of services involved in execution of the project. The said Rule reads as under: 2A. Determination of value of services involved in the execution of a works contract.- (1) Subject to the provisions of section 67, the value of taxable service in relation to services involved in the execution of a works contract (hereinafter referred to as works contract service), referred to in sub-clause (zzzza) of clause (105) of section 65 of the Act, shall be determined by the service provider in the following manner :- (i) Value of works contract service determined shall be equivalent to the gross amount charged for the works contract less the value of transfer of property in goods involved in the execution of the said works contract. Explanation.- For the purposes of this rule,- (a) gross amount charged for the works contract shall not include Value Added Tax (VAT) or sales tax, as the case may be, paid, if any, on transfer of property in goods involved in the execution of the said works contract; (b) value of works contract service shall include, - (i) labour c ..... 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