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TMI Blog2019 (7) TMI 330X X X X Extracts X X X X X X X X Extracts X X X X ..... hem - Hence the demand of cenvat against the Appellant is absolutely illegal. Valuation - inclusion of value of transformer which is not used/ consumed in providing service - HELD THAT:- Transformer was not used in execution of works contract but it itself was installed/ commissioned and hence there is no meaning of including the value of transformer in value of works contract service. The value of any material which is being used in providing the services can be included. The transformer is not used/ consumed in providing service so as to include its value in assessable value of Works contract. Further even assuming so prior to 06.07.2009, for the Works Contract (Composition Scheme for payment of Service Tax) Rules, 2007, there was no requirement of including the value of free issue of material used for carrying out the works contract. Appeal allowed - decided in favor of appellant. - Excise Appeal No. 10973 of 2014, Excise Appeal No.10959 of 2014, Service Tax Appeal No. 10971 of 2014, Service Tax Appeal No. 10972 of 2014, Service Tax Appeal No. 11200 of 2014 - A/ 11052-11056 /2019 - Dated:- 3-7-2019 - MEMBER (JUDICIAL), MR. RAMESH NAIR AND MEMBER (TECHNICAL), MR. R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rms of composition scheme for payment of service tax w.e.f 01.06.2007 and that the Appellant has suppressed the value of services by non inclusion of value of transformer. Also the credit of inputs used in manufacture of transformer is not available under composition scheme. He therefore vide impugned order confirmed the demand of cenvat and service tax along with equal amount of penalties and penalty on M/s Sunil Hitech Engineers, hence the present appeals. 2. Ld. Counsel Shri M.H. Patil T.C. Nair appearing for the Appellant submits that they were given separate contracts for supply of transformer as well as erection and commissioning of same. In purchase order also both the values are appearing separately. They have paid central excise duty on value of transformers and therefore are eligible for the credit being input. Under Works Contract (Composition Scheme for payment of service tax) Rules, 2007 as existed prior to 06.07.2009 there was no requirement of including the free issue material used for carrying out works contract. All supplies and erection were prior to 07.07.2009. That free issue materials were not includible for the composition scheme. He relies upon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erected/ commissioned by them. Hence the demand of cenvat against the Appellant is absolutely illegal. Further we find that Transformer was not used in execution of works contract but it itself was installed/ commissioned and hence there is no meaning of including the value of transformer in value of works contract service. The value of any material which is being used in providing the services can be included. The transformer is not used/ consumed in providing service so as to include its value in assessable value of Works contract. Further even assuming so prior to 06.07.2009, for the Works Contract (Composition Scheme for payment of Service Tax) Rules, 2007, there was no requirement of including the value of free issue of material used for carrying out the works contract. Our views are also based upon the CBEC Circular No. 150/1/2012 ST dated 08.02.2012 and Tribunal s order in case of Essar projects (India) Ltd. 2014 (33) STR 696 (TRI) wherein the Tribunal held as under: 2 . Brief facts of the case are that appellant entered into two contracts with M/s. Vadinar Power Company Limited and M/s. Essar Power Gujarat Limited. One of the contracts was for supply ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iability clause under clause 34 of construction contract but that defect liability is only for the defects or damages to the facility provided by the appellant. Shri V.K. Jain made us go through the definition of unit and facility given under relevant construction contract. It was thus argued that it is incorrect on the part of the adjudicating authority to hold that defect liability under the construction contract is used for rectifying the defect liability under the supply contract. 4 . Shri Jain also relied upon the C.B.E. C. Circular No. 150/1/2012-S.T., dated 8-2-2012 and argued that as per Para-3 of this Circular, the explanation to Rule 3(1) to the Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007 has been held to be made applicable with effect from and for contracts entered after 7-7-2009 and will not be applicable to the contracts entered prior to 7-7-2009 and accordingly, the gross amount does not include the value of free of cost supply goods by the service recipient. It was his case that as per the contract, the title of balance of plant is transferred to service recipient on receipt at site and it is not correct as h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se of determining taxable value of the service provided. It was further argued that even if two contracts are treated as one, still appellant s case will not be covered under the Explanation added with effect from 7-7-2009 in Rule 3(1) of the Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007. The adjudicating authority in Para 30 of the impugned order has held that appellant is responsible for installation of the whole facility under the construction contract by using the indigenous machinery procured by appellant and, therefore, both the contracts have to be considered as one. In this regard, it is observed that both, supply contract and construction contract have separate defects liability clauses under Clauses 18 and 34 of the respective contracts. Relevant clause 18.1 of the supply contract and 34.1 of construction contract are reproduced below :- Article 18 - Defects liability 18.1 - The owner shall have the right, but not the obligation, to instruct the Supplier, in writing to perform such additional supply or remedy any Defects or damage in the Balance of Plant or in the Supplier s Documents and any part thereof, as t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is applicable only for those contracts which are entered after 7-7-2009, has got some force. The clarification issued by C.B.E. C. under Circular No. 150/1/2012-S.T., dated 8-2-2012, in Para 3, has clarified as follows :- 3. The explanation appended to Rule 3(1) with effect from 7-7-2009, categorically says in the proviso that ...nothing contained in this Explanation shall apply to a works contract where the execution under the said contract has commenced or where any payment, except by way of credit or debit to any account, has been made in relation to the said contract on or before the 7th day of July, 2009. Where execution of works contract has commenced prior to 7-7-2009 or where any payment (except payment through credit or debit) has been made towards a works contract prior to 7-7-2009, then in those cases gross amount for the purpose of payment of Service Tax does not include the value of free of cost supplies. 9.1 It is clear from the above Circular issued by C.B.E. C. that where execution of works contract has commenced prior to 7-7-2009, in those cases gross amount, for the purpose of payment of Service Tax, will not includ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der. According to the learned Solicitor General, the price mentioned in the invoices was (or should have been) determined by taking into consideration the lumpsum of 15 million French Francs (nearly three crores of Rupees) paid by the respondents to the foreign collaborator under the agreement. It is on this basis Section 14(1)(a) was excluded and resort to Section 14(1)(b) of the Customs Act was sought to be justified by the revenue. In appreciating the above plea we have to bear in mind certain basic principles. The bargain between the respondents and the foreign collaborator is evidenced by written agreements, (dated 6-11-1979 6-3- 1980). There is no material nor was it suggested that the dealings between the parties are not at arm s length. No evidence is available to show that the payment of royalty to the collaborator induced any extra commercial obligation for the price of CKD packs, parts and components. Ordinarily the Court should proceed on the basis that the apparent tenor of the agreements reflect the real state of affairs. It is, no doubt, open to the revenue to allege and prove that the apparent is not the real and that the price for the sale of the CKD packs is not ..... X X X X Extracts X X X X X X X X Extracts X X X X
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