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TMI Blog2018 (7) TMI 1669X X X X Extracts X X X X X X X X Extracts X X X X ..... iginal for non-imposition of penalty under Section 76 of the Act and non-quantification of interest under Section 75 of the Act. 2.1 Briefly stated the facts of the case are that the appellant-assessee, consequent to award of the job/project as per tenders, had entered into agreements with their clients, namely, M/s Northern Coalfields Ltd., M/s Southern Coalfields Ltd., M/s Heavy Engineering Corporation Ltd. for supply of equipments and accessories and forworks and services. The Chart of equipments, accessories and construction materials supplied under the contract (s) is as under : 2.2 The appellant-assessee divided the job-project by entering into two separate agreements with each of the said client, one for supply of plant, machinery, equipments and the second agreement for works & services, namely, erection, installation and commissioning services. The appellant-assessee discharged service tax w.e.f. 01.04.2006 on the second set of agreements relating to erection, installation, and commissioning services by availing benefit of Notification No.19/2003- ST dated 21.08.2003 and Notification No.1/2006-ST dt.01.03.2006. Revenue issued show-cause notice denying the abatement avail ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction & Commissioning Service. He has submitted that pursuant to the said works & Service agreements not only the work of erection and Commissioning are executed, but also along with the said work, the Applicant/Appellant had supplied structural steel for erection and Commissioning of the plant and machinery. The supply of structural steel for erection & Commissioning work are clearly evident from the approved billing schedule between applicant and their clients. Also, applicable VAT has been paid on these structural steel indicating that these are sold and supplied to the clients during the course of erection and commissioning. Consequently, the allegation that the Works & Service agreements are pure service contracts and do not involve supply of materials is incorrect. It is his submission that as supply of goods and services are involved in the works and service agreements, consequently, they are entitled to abatement of 67% of the value of the services as on a simple reading of the said Notifications No. 19/2003 ST & 01/2006 ST it is clear that the said Notifications refers to "a contract for supplying the plant, machinery or equipment and commissioning or installation of the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e imposing penalty under Section 76 of the Finance Act, 1994 in view of the fact that the penalties under Sections 76 & 78 of the Act, are independed of each other, even though the transaction is one. For his submission, he relied upon the decision of the Hon'ble Kelara High Court in the case of Assistant Commissioner of Central Excise Vs. Krishna Poduval reported in 2006 (1) STR 185 (Ker.). 5. We have both sides and perused the appeal records. 6.1 The issue involved in these appeals is regarding leviability of service tax on the services rendered by their clients, which was obtained as EPC contracts and as per LOI between the appellant and their clients. We have perused the LOI with the agreement entered upon by the appellant. The total contract as per LOI has been devided into two parts which is as under : TOTAL CONTRACT SUPPLY PART WORKS & SERVICES Equipment & Accessories Construction Material Service Belt Conveyors Beltings Sampling Equipment Load Out Equipment Vibratory Feeder Dust Suppression Fans Ducting for Dust Suppression Fir Fighting Pumps & Piping Chutes & Liner Electric Hoist Manual Winch Lifting Tackles EOT Crane Service Lifts Belt Handling Equipm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ider to the recipient of service, from the service tax leviable thereon under Section 66 of the said Act, subject to condition that there is documentary proof specifically indicating the value of the said goods and materials : [Provided that the said exemption shall apply only in such cases where - (a) no credit of duty paid on such goods and materials sold, has been taken under the provisions of the Cenvat Crdit Rules, 2004 ; or (b) where such credit has been taken by the service provider on such goods and material, such service provider has paid the amount equal to such credit availed before the sale of such goods and materials.] 2. This Notification shall come into force on the 1st day of July, 2003." From the perusal of the above Notification, it is clear that the credit can be denied only on the non-fulfilment of conditions (a) & (b), which is not the case in the present appeal. Therefore, the appellant is entitled for abatement as contained in the Notification No.12/2003-ST, dated 20.06.2003. This substantiated from the fact that the appellant has paid the VAT on the portion of the materials sold and used in the erection and commissioning of the plant and machinery under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 the levy of service tax can only be on works contracts, and the measure of tax can only be on that portion of works contracts which contain a service element which is to be derived from the gross amount charged for the works contract less the value of property in goods transferred in the execution of the works contract. This not having been done by the Finance Act, 1994, it is clear that any charge to tax under the five heads in S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sage from Mahim Patram's case only referred to rules not being framed under the Central Act and not to rules not being framed at all. The conclusion therefore in paragraph 36(2) of the Delhi High Court judgment is wholly incorrect. Para 36(2) reads as follows :- "(2) Service tax can be levied on the service component of any contract involving service with sale of goods etc. Computation of service component is a matter of detail and not a matter relating to validity of imposition of service tax. It is procedural and a matter of calculation. Merely because no rules are framed for computation, it does not follow that no tax is leviable." [at para 36] 35. The aforesaid finding is in fact contrary to a long line of decisions which have held that where there is no machinery for assessment, the law being vague, it would [not] be open to the assessing authority to arbitrarily assess to tax the subject. Various judgments of this Court have been referred to in the following passages from Heinz India (P) Ltd. v. State of U.P., (2012) 5 SCC 443. This Court said :- "This Court has in a long line of decisions rendered from time to time, emphasised the importance of machinery provisions for as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amkrishna v. State of Bihar [AIR 1963 SC 1667] this Court was examining the constitutional validity of the Bihar Taxation on Passengers and Goods (Carried by Public Service Motor Vehicles) Act, 1961. Reiterating the view taken in K.T. Moopil Nair [AIR 1961 SC 552] this Court held that a statute is not beyond the pale of limitations prescribed by Articles 14 and 19 of the Constitution and that the test of reasonableness prescribed by Article 304(b) is justiciable. However, in cases where the statute was completely discriminatory or provides no procedural machinery for assessment and levy of tax or where it was confiscatory, the Court would be justified in striking it down as unconstitutional. In such cases the character of the material provisions of the impugned statute may be such as may justify the Court taking the view that in substance the taxing statute is a cloak adopted by the legislature for achieving its confiscatory purpose. In Jagannath Baksh Singh v. State of U.P. [AIR 1962 SC 1563] this Court was examining the constitutional validity of the U.P. Large Land Holdings Tax Act (31 of 1957). Dealing with the argument that the Act did not make a specific provision about the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the State against the judgment of the High Court striking down the enactment were on the above basis dismissed. Reference may also be made to Vishnu Dayal Mahendra Pal v. State of U.P. [(1974) 2 SCC 306] and D.G. Gose and Co. (Agents) (P) Ltd. v. State of Kerala [(1980) 2 SCC 410] where this Court held that sufficient guidance was available from the Preamble and other provisions of the Act. The members of the committee owe a duty to be conversant with the same and discharge their functions in accordance with the provisions of the Act and the Rules and that in cases where the machinery for determining annual value has been provided in the Act and the rules of the local authority, there is no reason or necessity of providing the same or similar provisions in the other Act or Rules. There is no gainsaying that a total absence of machinery provisions for assessment/recovery of the tax levied under an enactment, which has the effect of making the entire process of assessment and recovery of tax and adjudication of disputes relating thereto administrative in character, is open to challenge before a writ court in appropriate proceedings. Whether or not the enactment levying the tax make ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e works contract the value of property in goods transferred in the execution of a works contract." 6.5 Considering the above facts, we are of the view that the service tax is not leviable on the appellant prior to 01.06.2007 and therefore, the demand is only left for the period from 01.06.2007 to September, 2007. 6.6 We have also considered the Department's plea that the appellants have themselves registered with the Department w.e.f. 2004 and therefore, they are not entitled for the benefit under the Works Contracts Act in view of the above decision of the Hon'ble Supreme Court in the case of Larsen & Toubro Ltd. (supra). In this regard, we find that the decision of the Hon'ble Bombay High Court in the case of Sheth & Sura Engineering Pvt. Ltd. Vs. Union of India reported in 2018 (10) GSTL 239 (Bom.), wherein it has been held that the works contract cannot be vivisected into various components and cannot be taxed under different Act and therefore, erection, commissioning and installation service component of works contract service would not be liable to service tax as deemed was made prior to 01.06.2007. In this case, the appellant-assessee was found to be eligible for the refun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... materials, parts, etc. and the value of the services rendered have been mentioned and service tax has been sought to be levied at the prescribed rate of ten per cent (10%) on the differential amount. It is now stated before us that the aforesaid figures have been furnished by the assessee himself and, therefore, must be understood not to be authentic. This, indeed, is strange. No dispute has been raised with regard to the correctness of the said figures furnished by the assessee in the show cause notice issued to justify the stand now taken before this Court; at no point of time such a plea had been advanced. 13. Besides the above, the affidavit of the learned Commissioner, referred to above, proceeds on the basis that the appellant assessee is also liable to pay service tax on the remaining seventy per cent (70%) towards material costs in addition to the 30% of the retreading charges. This is clear from the following averments made in the said affidavit of the learned Commissioner : "The relevant bills showed that the Appellant had paid service tax only on the labour component after deducting 70% towards material cost on the gross tyre Retreading charges billed and received for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t would mean that the activities of the members of the 1st petitioner are covered by entry (zzzy) and entry (zzzzj). Such a result is difficult to comprehend because entry (zzzzj) is not a specie of what is covered by entry (zzzy). Introduction of new entry and inclusion of certain services in that entry would presuppose that there was no earlier entry covering the said services. Therefore, prior to introduction of entry (zzzzj), the services rendered by the members of the 1st petitioner were not taxable. 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." 6.10 As far as the Department's Appeal is concerned, the same is not sustainable in view of the fact that we have upheld the appeal of the appellant. 7. Accordingly, we hold that the contract covered by the second agreement is appropriately classifiable under the Work Contract Service under the Finance Act, 1994 and not under the Erection, Commissioning and Installation Service, and therefore not chargeable to service tax prior to 01.06.2007. However, for th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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