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TMI Blog2017 (12) TMI 1444X X X X Extracts X X X X X X X X Extracts X X X X ..... 09 - - - Dated:- 11-12-2017 - S. Manikumar And R. Pongiappan, JJ. For the Appellant : Mr. A. P. Srinivas For the Respondents : Mr. N. Prasad (for R1) for Mr. N. Inbarajan JUDGMENT ( Order of the Court was delivered by S. Manikumar, J. ) Instant Civil Miscellaneous Appeal is filed against the order dated 30.04.2008, passed by the Customs, Excise, and Service Tax Appellate Tribunal, South Zonal Bench, Chennai in Final Order No.434/2008. 2. Short facts leading to the filing of the appeal are that M/s.Hindustan Construction Company Limited [HCCL], the 1st respondent/assessee herein, is engaged in Engineering Consultancy and had rendered service in that category to M/s.New Tirupur Area Development Corporation Limited [NTADCL]. According to the 1st respondent, as there was doubt about the applicability of the service tax to the construction contract executed on turnkey basis, they had applied for registration and paid the service tax to the tune of ₹ 2,84,16,809/- on 8.1.2004. Thereafter, the 1st respondent, obtained advice from the tax practitioners and having understood that self assessment and remittance of service tax was uncalled for, applied for re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .434 of 2008 dated 30.04.2008 held that the 1st respondent prepared engineering designs required for executing the project, and simultaneously carried out the execution of construction work, involved in the execution of the project. 9. CESTAT, Madras, accepted the submissions of the 1st respondent/assessee and held that the agreement which involved HCCL, undertaking the work of engineering design as well as construction of TWP and HCCL is a composite contract and therefore service tax is not payable. Against such finding, instant Civil Miscellaneous Appeal is filed by the revenue, on the following substantial questions of law. (i) Whether the Hon'ble Tribunal is correct to hold that M/s.HCCL did not render engineering consultancy to NTDCL after finding that the agreement involved HCCL undertaking work of engineering design as well as construction of TWP; (ii) Whether the tribunal is correct in holding that all the 3 contracts entered in to between the parties on the same date constitute a single turnkey contract and hence service tax is not leviable which view is against the definition of Consulting Engineering Service under Section 65(31) of the Finance Act, 1994 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the owner. 2.2 Notwithstanding anything contained int he Contracts, HCC shall carry out and complete all works necessary to establish a fully operational and complete Facility free from defects as detailed in the Contracts and HCC acknowledges from the Contracts shall together constitute a single turnkey contract that provide for the design, engineering. Construction, testing, commissioning and completion of the works (as defined in both the contracts) In the letter dated 20 January 2004 from New Tirupur Area Development Corporation Ltd., to M/s.Hindustan Construction Company Ltd., appellant was informed as follows: Therefore, NTADCL reiterates that both the Engineering Contract and Construction Contract, though executed separately are in fact a single contract and that the liability of HCC is to execute its portion on a turnkey basis taking both the contracts together. In view of the above, it is our opinion that the opinion of the Consultant that service tax is payable by HCC on the engineering services is not based on facts and contract and consequently NTADCL, rejects HCC's claim of service tax from the company. 4. Following the ratio of the jud ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ended for sale, wholly or partly, by a builder or any person authorized by the builder before, during or after construction (except in cases for which no sum is received from or on behalf of the prospective buyer by the builder or a person authorized by the builder before the grant of completion certificate by the authority competent to issue such certificate under any law for the time being in force) shall be deemed to be service provided by the builder to the buyer; Section 66. Charge of service tax There shall be levied a tax (hereinafter referred to as the service tax) at the rate of ten per cent. Of the value of the taxable services referred to in sub-clauses (a), (b), (c), (d), (e), (f), (g), (h), (i), (j), (k), (l), (m), (n), (o), (p), (q), (r), (s), (t), (u), (v), (w), (x), (y), (z), (za), (zb), (zc), (zd), (ze), (zf), (zg), (zh), (zi), (zj), (zk), (zl), (zm), (zn), (zo), (zq), (zr), (zs), (zt), (zu), (zv), (zw), (zx), (zy), (zz), (zza), (zzb), (zzc), (zzd), (zze), (zzf), (zzg), (zzh), (zzi), (zzj), (zzk), (zzl), (zzm), (zzn), (zzo), (zzp), (zzq), (zzr), (zzs), (zzt), (zzu), (zzv), (zzw), (zzx), and (zzy) of clause (105) of section 65 and collected in such manne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issioning or installation service; and (viii) interest on loans. Explanation 2. - Where the gross amount charged by a service provider is inclusive of service tax payable, the value of taxable service shall be such amount as with the addition of tax payable, is equal to the gross amount charged. 11. By the Finance Act, 2007, for the first time, Section 65 (105)( zzzza) set out to tax the following:- (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) Transfer of property in goods involved in the execution of such contract is leviable to tax as sale of goods, and ii) Such contract is for the purposes of carrying out,- a) Erection, commissioning or installation of plant, machinery, equipment or structures, whether pre-fabricated or otherwise, installation of electrical and electronic devices, plumbing, drain laying or other installations for transport of fluids, heating, ventilation or air-conditio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (b) value of works contract service shall include,- (i) labour charges for execution of the works; (ii) amount paid to a sub-contractor for labour and services; (iii) charges for planning, designing and architect's fees; (iv) charges for obtaining on hire or otherwise, machinery and tools used for the execution of the works contract; (v) cost of consumables such as water, electricity, fuel used in the execution of the works contract; (vi) cost of establishment of the contractor relatable to supply of labour and services; (vii) other similar expenses relatable to supply of labour and services; and (viii) profit earned by the service provider relatable to supply of labour and services; (c) where value added tax or sales tax has been paid or payable on the actual value of property in goods transferred in the execution of the works contract, then, such value adopted for the purposes of payment of value added tax or sales tax, shall be taken as the value of property in goods transferred in the execution of the said works contract for determination of the value of service portion in the execution of works contract under this clause. ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 93) 1 SCC 364. By the aforesaid judgment, the modalities of taxing composite indivisible works contracts was gone into. This Court said:- On behalf of the contractors, it has been urged that under a law imposing a tax on the transfer of property in goods involved in the execution of a works contract under Entry 54 of the State List read with Article 366(29-A)(b), the tax is imposed on the goods which are involved in the execution of a works contract and the measure for levying such a tax can only be the value of the goods so involved and the value of the works contract cannot be made the measure for levying the tax. The submission is further that the value of such goods would be the cost of acquisition of the goods by the contractor and, therefore, the measure for levy of tax can only be the cost at which the goods involved in the execution of a works contract were obtained by the contractor. On behalf of the States, it has been submitted that since the property in goods which are involved in the execution of a works contract passes only when the goods are incorporated in the works, the measure for the levy of the tax would be the value of the goods at the time of their inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h tax is leviable must exclude the charges which appertain to the contract for supply of labour and services. This would mean that labour charges for execution of works, [item No. (i)], amounts paid to a sub-contractor for labour and services [item No. (ii)], charges for planning, designing and architect's fees [item No. (iii)], charges for obtaining on hire or otherwise machinery and tools used in the execution of a works contract [item No. (iv)], and the cost of consumables such as water, electricity, fuel, etc. which are consumed in the process of execution of a works contract [itemNo. (v)] and other similar expenses for labour and services will have to be excluded as charges for supply of labour and services. The charges mentioned in item No. (vi) cannot, however, be excluded. The position of a contractor in relation to a transfer of property in goods in the execution of a works contract is not different from that of a dealer in goods who is liable to pay sales tax on the sale price charged by him from the customer for the goods sold. The said price includes the cost of bringing the goods to the place of sale. Similarly, for the purpose of ascertaining the value of goods wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch as water, electricity, fuel, etc. used in the execution of the works contract the property in which is not transferred in the course of execution of a works contract; and (f) cost of establishment of the contractor to the extent it is relatable to supply of labour and services; (g) other similar expenses relatable to supply of labour and services; (h) profit earned by the contractor to the extent it is relatable to supply of labour and services. The amounts deductible under these heads will have to be determined in the light of the facts of a particular case on the basis of the material produced by the contractor. Normally, the contractor will be in a position to furnish the necessary material to establish the expenses that were incurred under the aforesaid heads of deduction for labour and services. But there may be cases where the contractor has not maintained proper accounts or the accounts maintained by him are not found to be worthy of credence by the assessing authority. In that event, a question would arise as to how the deduction towards the aforesaid heads may be made. On behalf of the States, it has been urged that it would be permissible for t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the same goes for the profit that is earned by the contractor. These deductions are ordinarily to be made from the contractors accounts. However, if it is found that contractors have not maintained proper accounts, or their accounts are found to be not worthy of credence, it is left to the legislature to prescribe a formula on the basis of a fixed percentage of the value of the entire works contract as relatable to the labour and service element of it. This judgment, therefore, clearly and unmistakably holds that unless the splitting of an indivisible works contract is done taking into account the eight heads of deduction, the charge to tax that would be made would otherwise contain, apart from other things, the entire cost of establishment, other expenses, and profit earned by the contractor and would transgress into forbidden territory namely into such portion of such cost, expenses and profit as would be attributable in the works contract to the transfer of property in goods in such contract. This being the case, we feel that the learned counsel for the assessees are on firm ground when they state that the service tax charging section itself must lay down with specificity that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hole transaction cannot be assessed to sales tax. As was said in Larsen Toubro v. Union of India[(1993) 1 SCC 364] : (SCC p. 395, para 47) :- The cost of establishment of the contractor which is relatable to supply of labour and services cannot be included in the value of the goods involved in the execution of a contract and the cost of establishment which is relatable to supply of material involved in the execution of the works contract only can be included in the value of the goods. For the same reason the Centre cannot include the value of the SIM cards, if they are found ultimately to be goods, in the cost of the service. As was held by us in Gujarat Ambuja Cements Ltd. v. Union of India [(2005) 4 SCC 214] , SCC at p. 228, para 23:- This mutual exclusivity which has been reflected in Article 246(1) means that taxing entries must be construed so as to maintain exclusivity. Although generally speaking, a liberal interpretation must be given to taxing entries, this would not bring within its purview a tax on subject- matter which a fair reading of the entry does not cover. If in substance, the statute is not referable to a field given to the State, the court will ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e contract specifying 15% for fabrication and installation of elevators (lifts) and escalators, is self- contradictory, for once it is treated as a composite contract invoking labour and service, as a natural corollary, it would be works contract and not a contract for sale. To elaborate, the submission that the element of labour and service can be deducted from the total contract value without treating the composite contract as a works contract is absolutely fallacious. In fact, it is an innovative subterfuge. We are inclined to think so as it would be frustrating the constitutional provision and, accordingly, we unhesitatingly repel the same. (at para 60) 19. In Larsen Toubro Ltd. v. State of Karnataka, (2014) 1 SCC 708, this Court stated:- In our opinion, the term works contract in Article 366(29- A)(b) is amply wide and cannot be confined to a particular understanding of the term or to a particular form. The term encompasses a wide range and many varieties of contract. Parliament had such wide meaning of works contract in its view at the time of the Forty-sixth Amendment. The object of insertion of clause (29-A) in Article 366 was to enlarge the scope of the expres ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tute more than what is stated in the plain language. It is not the economic results sought to be obtained by making the provision which is relevant in interpreting a fiscal statute. Equally impermissible is an interpretation which does not follow from the plain, unambiguous language of the statute. Words cannot be added to or substituted so as to give a meaning to the statute which will serve the spirit and intention of the legislature. The statute should clearly and unambiguously convey the three components of the tax law i.e. the subject of the tax, the person who is liable to pay the tax and the rate at which the tax is to be paid. If there is any ambiguity regarding any of these ingredients in a taxation statute then there is no tax in law. Then it is for the legislature to do the needful in the matter. This construction, in our considered view, amounts to supplementing the charging section by including something which the provision does not state. The construction placed on the said provision does not flow from the plain language of the provision. The proviso requires the exempted property to be subjected to tax and for the purpose of valuing that property alone the valu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ws from the general arrangement of the provisions in the Income Tax Act, where under each head of income the charging provision is accompanied by a set of provisions for computing the income subject to that charge. The character of the computation provisions in each case bears a relationship to the nature of the charge. Thus the charging section and the computation provisions together constitute an integrated code. When there is a case to which the computation provisions cannot apply at all, it is evident that such a case was not intended to fall within the charging section. Otherwise one would be driven to conclude that while a certain income seems to fall within the charging section there is no scheme of computation for quantifying it. The legislative pattern discernible in the Act is against such a conclusion. It must be borne in mind that the legislative intent is presumed to run uniformly through the entire conspectus of provisions pertaining to each head of income. No doubt there is a qualitative difference between the charging provision and a computation provision. And ordinarily the operation of the charging provision cannot be affected by the construction of a particular c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the works contract is to include the eight elements laid down in the second Gannon Dunkerley case including apportionment of the cost of establishment, other expenses and profit earned by the service provider as is relatable only to supply of labour and services. And, where value is not determined having regard to the aforesaid parameters, (namely, in those cases where the books of account of the contractor are not looked into for any reason) by determining in different works contracts how much shall be the percentage of the total amount charged for the works contract, attributable to the service element in such contracts. It is this scheme and this scheme alone which complies with constitutional requirements in that it bifurcates a composite indivisible works contract and takes care to see that no element attributable to the property in goods transferred pursuant to such contract, enters into computation of service tax. 29. It is interesting to note that while introducing the concept of service tax on indivisible works contracts various exclusions are also made such as works contracts in respect of roads, airports, airways transport, bridges, tunnels, and dams. These infr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ., v. Abdul Khuddus reported in 2007 (15) SCC 261, the Hon'ble Supreme Court, at Paragraph 12, held that, we are unable to sustain the order of the High Court, which had set aside the findings of fact arrived at by the Special Court, which, in our view, were arrived at on consideration of the materials on record and which, by any stretch of imagination, cannot be said to be based on no evidence or surmises or conjectures and therefore, it was not open to the High Court, in the exercise of its writ jurisdiction, to set aside the findings of fact arrived at by the Special Court which were based on sound consideration of the materials on record. (iv) In Arulvelu v. State reported in 2009 (10) SCC 206, the Hon'ble Supreme Court, at Paragraph 29, explained what perverse means, 29. In Kuldeep Singh v. The Commissioner of Police, (1999) 2 SCC 10, the Court while dealing with the scope of Articles 32 and 226 of the Constitution observed as under: 9. Normally the High Court and this Court would not interfere with the findings of fact recorded at the domestic enquiry but if the finding of guilt is based on no evidence, it would be a perverse finding and w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n held by this Court long back in Triveni Rubber Plastics v. CCE, AIR 1994 SC 1341. Unless it is found that some relevant evidence has not been considered or that certain inadmissible material has been taken into consideration the finding cannot be said to be perverse. The legal position in this behalf has been recently reiterated in Arilvelu v. State, 2009 (10) SCC 206. The decision of the High Court cannot therefore be sustained. (vi) In S.R.Tiwari v. Union of India reported in 2013 (6) SCC 602, at Paragraph 30, the Hon'ble Supreme Court, held as follows: 30. The findings of fact recorded by a court can be held to be perverse if the findings have been arrived at by ignoring or excluding relevant material or by taking into consideration irrelevant/inadmissible material. The finding may also be said to be perverse if it is against the weight of evidence, or if the finding so outrageously defies logic as to suffer from the vice of irrationality. If a decision is arrived at on the basis of no evidence or thoroughly unreliable evidence and no reasonable person would act upon it, the order would be perverse. But if there is some evidence on record which is acceptable ..... X X X X Extracts X X X X X X X X Extracts X X X X
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