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TMI Blog2021 (11) TMI 18X X X X Extracts X X X X X X X X Extracts X X X X ..... ice includes cost of all works which are deemed to be performed, executed and supplied by the Supplier as stipulated in the Contract and assigned to various available heads and categories in the price schedule referred to by the authorized representative. A combined reading of clauses contained in the agreement/contract and along with the definitions and explanations given as per the dictionaries, it cannot be agreed upon with the submissions made by the authorized representative that the contract, under consideration is a divisible contract, which could have been vivisected to charge the service tax in respect of certain portion attributable to supervision undertaken by the foreign service provider as per the contract. Further the findings recorded by the Commissioner cannot be agreed upon, whereby he holds that the contract was not a turnkey contract incorporating all the activities specified in the contract as one complete whole. In case of SENTINEL ROLLING SHUTTERS ENGINEERING COMPANY PVT. LTD. VERSUS THE COMMISSIONER OF SALES TAX [ 1978 (9) TMI 157 - SUPREME COURT] wherein the Hon ble Supreme Court was considering whether it was possible to break-up one contract int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for recovery of interest on the aforesaid service tax of ₹ 3,17,18,820/- (Rs. Three Crores Seventeen Lacs Eighteen Thousand Eight Hundred Twenty only) from MRVC u/s Sec 75 of the Finance Act 1994. (d) I drop the demand to the extent of ₹ 18,83,876/- (Rupees Eighteen Lacs Eighty Three Thousand Eight Hundred Seventy Six only) in respect of service tax payable on reverse charge basis under Sec 66A, in respect of services received/ payment made prior to 18-4-2006. (e) I refrain from imposing any penalty on MRVC u/s 76, 77 78 of the Finance Act, 1994. (f) This order is issued without prejudice to any other action that may be taken against MRVC under the Finance Act 1994 or under the provisions of any other Act for the time being in force in India. 2.1 Appellant (M/s Mumbai Railway Vikas Corporation Ltd, a body corporate constituted by the State Government of Maharashtra Indian Railways (IR)) is Public Sector Undertaking under the Ministry of Railways. 2.2 Intelligence was gathered by DGCEI, Mumbai Zonal Unit which indicated that Appellant received various taxable services from different service providers located outside India. Since such service pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s stage of payment indicated. ii. Apart from the liability of ₹ 1.83 crores which they had already reported earlier, they also had fresh liability between April 2010 to July 2010 after taking into account this liability the Total Service Tax liability works out as ₹ 3,35,27,764/- iii. In order not to breach the provisions of law they had decided to discharge their Service Tax liability submitted Challans bearing nos 50041 dated 27.08.2010, 50006 dated 28.08.2010, 50007 dated 28.08.2010, 50067 dated 31.08.2010, 50081 dt 06.09.2010 evidencing payment of service tax of ₹ 3.35,27,764/- under reverse charge mechanism for Erection, Commissioning or installation service. iv. While one of the contractor i.e., Siemens Ltd, Navi Mumbai had discharged the service lax liability, the other partner, Siemens AG, Germany had not done so. 2.5 They submitted copies of Contract dt 18.12.2008 with Siemens, Austria Contract dt 27.04.2009 with SAS Sculfort, France. 2.6 After completion of investigations and scrutiny of the contracts, Additional Director Genera!, DGCEI, Mumbai Zonal Unit issued Show Cause Notice dated 13.10.2010 , seeking to classify the services r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en affirmed by Hon'ble Supreme Court reported in 2015 (39) S.T.R. 913 (S.C.). The Commissioner has not disputed that contract' is composite in nature i.e. involving both supply of goods as well as services and thereby falls under works contract. However he has held that the definition of 'works contract service' excludes the contract in respect of railways and hence the said service would primarily mean i.e. in the first place on account of exclusion clause in the definition itself go out of the scope of the 'works contract services' i.e., only such turnkey projects or EPC contracts not pertaining to railways could be considered to fall under the definition of 'works contract service'. The observations of the Commissioner are contrary to decision of Hon ble Karnataka High Court in case of BMR Corporation Limited reported in [2013 (29) S.T.R. 469 (Karnataka)], wherein it has been held that the contract entered into by M/s. Bangalore Metro Rail Corporation Limited in relation to the execution of the works contract' in respect of railways is not taxable u/s. 66 of the Finance Act, 1994. Tribunal has consistently held that once a particular ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... missioning, testing and trial of rakes in Mumbai has been done by the staff of Indian Railways and the Engineers of Foreign Service providers have merely done the supervision of the same. In the case of M/s LNV Technologies Pvt Ltd 2019 (2) TMI 212 CESTAT Chennai, it has been held that Supervision of erection and commissioning cannot be equated with civil work of erection and commissioning or installation of plant and machinery and when assessee has not done actual commissioning activity than service tax cannot be demanded. Without prejudice to the above, it is further submitted that only the operationalizing of installed plant, machinery or equipment is taxable as commissioning whereas in the present case activities of operationalizing has been done with respect to whole train and not of only installed items. In the present case, the train cannot be regarded as civil structure and therefore act of putting bogie part into the train may not be regarded as installation. Therefore, the activities done at Mumbai may not be regarded as commissioning, as Commissioning stage will commence only after installation which is not the case here. The activities done at Chennai and Mum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Bharat Yantra Nigam Ltd. 2014 (36) S.T.R. 554 (Tri.-Del.) Rajasthan Renewable Energy Corpn. Ltd. 2017 (51) S.T.R. 269 (Tri.-Del.) Best Undertaking [2007 (213) E.L.T. 202 (Tri -Mumbai) The demand for the period upto September 2009 is beyond the normal period and thus, demand amounting to ₹ 1,03,46,762/- is time barred. 3.2 Arguing for the revenue, learned authorized representative submits,- The issue involved in this case is taxability under reverse charge mechanism in respect of certain services provided to Appellants by the service providers located outside India not having office in India, when the contract of supply is a divisible contract due to the supply of goods and supply of service separately. Prima facie the case of Larsen Toubro Ltd [2015 (39) STR 913 (SC)] is that of an Indivisible Contract, whereas this subject matter is of a Divisible Contract for the following reasons As per para 2.0 (B) of the Contract there is a contract of supply of goods and services. Further at the same place 2.0(B) (iii) it is specifically stated that In addition to Commissioning of two prototype rates, supervision of commissioning on 12 rakes (12 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clearly state that Para 8 (a) (iv) of the Special Conditions of Contract which pertains to Commissioning (Supervision) ibid (para 71)... para 72 evinces that the consideration for commissioning, testing, service trials and supervision of commissioning, testing and service trials was undertaken under the supervision of foreign service provider's engineers consideration was paid in foreign currency. para 73, the table clearly elucidated that the Appellant vide their letter dated 14 09-2010 to DGCEI shown that the payments were made in foreign currency to the foreign service providers specifically on account of commissioning charges including testing of the dual voltage EMU) rakes at Chennai and Mumbai. para 74, the main activity of the foreign service provider was commissioning and testing was merely one of the activities under the umbrella of commissioning. para 90 and para 91 discusses about the role of Siemens AG, Germany has been described as service provider and not a manufacturer of trains. As per clauses of SCC and GCC page 140 of the contract ...ibid Going through the SCN, O1O, and case laws placed on record, the most important conditions of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the activities provided pursuant to the contract even after 01.06.2007 cannot be taxed under the work contract service. We find that in an identical situation, this Tribunal in the case of M.M. Constructions, Kiran Udyog (supra) has held that Service Tax demand cannot be fastened against the appellant under works contract service. The relevant paragraphs in the said decision are extracted herein below:- 9. Admittedly, in all the cases before us the contracts for providing services of erection, installation and supply of materials either to DMRC/Indian Railways are composite in nature. This fact is not in dispute. In such situation, it is clear that there can be no tax liability on such contracts prior to 1.6.2007, on which date the 4 ST/1010-1011,1024, 1023, 1118, 1119/2011 (DB) new tax entry Works Contract Service was introduced in the Finance Act, 1994. For the period post 1.6.2007, the services rendered to railways were excluded from the scope of the service tax liability under Works Contract Service . The exclusion is with reference to works contract in respect of, among other things, railways, bridges, etc. DMRC - Metro Rail Project is also excluded under the catego ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mercial or industrial construction service, construction of complex service, or erection, commissioning or installation service. Works contract is defined and enumerated to be a taxable service with effect from 1-6-2007 by insertion of Section 65(105)(zzzza) of the Finance Act, 1994. This service was defined as a service provided or to be provided to any person, by any other person in relation to the execution of a works contract, excluding works contract in respect of .... railways .. That the service provided by the appellant clearly fell within the ambit of works contract service as defined in Explanation (ii)(a) of Section 65(105)(zzzza) is not in dispute. However, since the works contract in respect of railways is excluded by the specific and unambiguous exclusionary clause in Section 65(105)(zzzza) of the Act, the reasoning and conclusion by the ld. Adjudicating authority that only works contracts pertaining to constructing of railway lines for railways is excluded is clearly erroneous and amounts to legislation rather than adjudication on a true, fair and good faith of interpretation of the provision. The reasoning in the impugned order is thus misconceived and invites i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5(105) which defines taxable service as any service provided . All the services referred to in the said subclauses are service contracts simpliciter without any other element in them, such as for example, a service contract which is a commissioning and installation, or erection, commissioning and installation contract. Further, under Section 67, as has been pointed out above, the value of a taxable service is the gross amount charged by the service provider for such service rendered by him. This would unmistakably show that what is referred to in the charging provision is the taxation of service contracts simpliciter and not composite works contracts, such as are contained on the facts of the present cases. It will also be noticed that no attempt to remove the non-service elements from the composite works contracts has been made by any of the aforesaid Sections by deducting from the gross value of the works contract the value of property in goods transferred in the execution of a works contract. 25 . In fact, by way of contrast, Section 67 post amendment (by the Finance Act, 2006) for the first time prescribes, in cases like the present, where the provision of service is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich service providers could opt to pay service tax at percentages ranging from 2 to 4 of the gross value of the works contract. 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 infrastructure projects have been excluded and continue to be excluded presumably because they are conceived in the national interest. If learned counsel for the revenue were right, each of these excluded works contracts could be taxed under the five sub-heads of Section 65(105) contained in the Finance Act, 1994. For example, a works contract involving the construction of a bridge or dam or tunnel would presumably fall within Section 65(105)(zzd) as a contract which relates to erection, commissioning or installation. It is clear that such contracts were never intended to be the subject matter of service tax. Yet, if learned counsel for the revenue is right, such contracts, not being exempt under the Finance Act, 1994, would fall within its tentacles, which was never the intention of Parliament. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s have to be made to arrive at the service element in the said contract. We find therefore that this judgment is wholly incorrect in its conclusion that the Finance Act, 1994 contains both the charge and machinery for levy and assessment of service tax on indivisible works contracts. 42 . It remains to consider the argument of Shri Radhakrishnan that post 1994 all indivisible works contracts would be contrary to public policy, being hit by Section 23 of the Indian Contract Act, and hit by Mcdowell s case. 43 . We need only state that in view of our finding that the said Finance Act lays down no charge or machinery to levy and assess service tax on indivisible composite works contracts, such argument must fail. This is also for the simple reason that there is no subterfuge in entering into composite works contracts containing elements both of transfer of property in goods as well as labour and services. 4.7 Authorized representative after referring to table on page 116 of the paper book, argued that from what has been stated in that table, the contract under consideration is not a composite contract, but a divisible contract. Therefore the case on hand is disting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Contract price in Words and Figures) (hereinafter called the Contract price ) and the supplier has agreed to such engagement upon and subject to the terms and conditions herein after appearing. Brief Particulars of the goods and services, which shall be supplied/ provided by the Supplier are as under. S No Brief Description of Goods and Services Quantity to be Supplied Total Price Delivery Terms EURO INR 1 Design, Development, Manufacture, Supply, Testing, Commissioning of Equipments as per Schedule A of RDSO s Specification No ELPS/SPEC/EMU /5-(ReV-4) OF August 2003 and Schedule of Requirement Breakup as per Price Schedule A Schedule I Goods Dual Voltage EMU Equipments) and Maintenance Spares (base ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under the Contract for the full and proper performance of its contractual obligations. c. The Goods means all of the equipment machinery and/ or other materials which the Supplier is required to supply to the purchaser under the Contract. d. The Services means those services ancillary to the supply of the Goods, such as transportation and insurance , and other incidental services such as installation, commissioning, provision of technical assistance training and other such obligations of the Supplier covered under the Contract. Appendix-4 SPECIAL CONDITIONS OF CONTRACT. 11. Payment (GCC Clause 16): 11.1 Substitute Clause 16.1 of the GCC by the following GCC 16.1 Payment shall be made in the currency or currencies, specified in the Contract in the following manner. GCC 16.1.1 I Payments:- (a) Stage 1 Payment 20% percent of the total value of the contract after Signing of Contract Submission of a bank guarantee for equivalent amount valid for 60 days beyond the expected date of supply of goods. B G for Stage 1 Payment shall be furnished by the bidder within 2 weeks of signing of contract. Where the Contract Price ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upply of goods and incidental services. The contract is not divisible as urged by the learned authorized representative. The contract price includes cost of all items included in the scope of work, technical specifications, specific requirements, drawings and/ or under any other heads of Contract Documents and to complete the subject work on turnkey basis, irrespective of whether all the items for Engineering, Supply and Erection are categorically listed out/ brought out elsewhere or not. The contract price includes cost of all works which are deemed to be performed, executed and supplied by the Supplier as stipulated in the Contract and assigned to various available heads and categories in the price schedule referred to by the authorized representative. 4.11 The terms used divisible contract and indivisible contract need to be further looked into, Merriam Webster defines the phrase divisible contract a contract containing agreements one of which can be separated from the other so that one part may be valid or enforceable although another is void or so that a right may accrue on one and not on another. Divisible contract. Merriam-Webster.com Dictionary, Merriam-W ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 25000 V AC equipment will be required to be fitted in suburban EMU trains. I also observe that in order to undertake the project they entered into an agreement dt 16-9-2005 with a joint venture of Siemens AG Germany Siemens Ltd, India for the design, development, manufacture, supply, testing commissioning of 25 KV AC / 1500 V DC, dual voltage microprocessor control IGBT based 3 phase propulsion system and equipments as per respective specification for broad gauge EMU rolling stock to be built at integral Coach Factory, Chennai, India . 67. I observe that the SCN dt 13-10-2010 alleged that the services received by the noticees from M/s Siemens AG Germany, pursuant to the aforesaid contract were covered under the category of erection, commissioning or installation that since the service provider, M/s Siemens AG Germany did not have any office or establishment in India, it was the responsibility of the noticees to discharge the service tax liability under Sec 66A of the FA 1994 on reverse charge mechanism, 69. I observe that the basis of the demand in the SCN is the agreement dt 16-9-2005. Furthermore, on going through the Annexure to the SCN which quantified the de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erform satisfactorily. In case any of the supplied equipment fails or malfunctions, supplier shall arrange its expeditious replacement under warranty obligations so that commissioning of the rakes is not delayed. Special tools, testing measuring instruments required for precommissioning testing of rakes at ICF commissioning, testing service trials in Mumbai shall also be supplied by the supplier. To the extent possible, the basis facilities like space, water electricity shall be supplied by IR free of charge within IR's premises. Testing commissioning charges shall be inclusive of the number of visits of supplier's engineers other requisites for testing commissioning. Supplier shall be responsible for arranging ticket, visa, permit, foreign exchange etc for his Engineers the purchase shall bear no responsibility in this regard except issuance of recommendatory letter(s) for arranging the visa. The supplier shall be responsible for paying taxes, if any, etc including income tax surcharge on income tax as applicable to his engineers and supervisors. 72. On going through the above stipulations, it is clear that the foreign service provi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the noticees were under the category of erection, commissioning or installation services. 78. On going through the reply of the noticees, I note that the contention of the noticees was that the services rendered by the foreign service providers was in the nature of Works Contract Services IWCS). i.e. turnkey project / EPC Contract which would primarily be covered under the category of WCS that WCS in r/o railways was specifically, excluded from the levy of ST. In this connection, I observe from opening clause of the definition ACS under Sec 05 (105) (zzzza) that the said Category of service means taxable services provided by to be provided to any person, by any other person in relation to the execution of works contract, excluding works contract in respect of roads, airports, railways, transport terminals, bridges, tunnels dams. Hence, I observe that the said service would primarily i.e., in the first place on account of the exclusion clause in the definition itself, go out of the scope of works contracts services, i.e., only such turnkey projects / EPC contracts not pertaining to railways could be considered to fall under the definition of ECS not vice versa. To elab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The Court observed that: The Revenue learned heavily on the provision in the contract that the delivery of the goods shall be ex-works and once the delivery of the goods is effected, no claim for rejection shall be entertained and relying on this provision, the Revenue contended that under the contract the rolling shutters were to be delivered by the assessee to the company ex-works, that is, at the works of the assessee and the property in the rolling shutters passed to the company as soon as they were delivered and hence it was a contract for sale. ... The true nature of the contract cannot depend on the mode of payment of the amount provided in the contract. The parties may provide by mutual agreement that the amount stipulated in the contract may be paid at different stages of the execution of the contract, but that cannot make the contract one for sale of goods if it is otherwise a contract for work and labour. ... The payment of the amount due under the contract may be spread over the entire period of the execution of the contract with a view either to put the manufacturer or contractor in possession of funds for the execution of the contract or to secure him against a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have been brought before us, there is a composite contract for the purchase and installation of the lift. The price quoted is a composite one for both. As has been held by the High Court of Bombay in Otis Elevator (supra), various technical aspects go into the installation of the lift. There has to be a safety device. In certain States, it is controlled by the legislative enactment and the rules. In certain States, it is not, but the fact remains that a lift is installed on certain norms and parameters keeping in view numerous factors. The installation requires considerable skill and experience. The labour and service element is obvious. What has been taken note of in Kone Elevators (supra) is that the company had brochures for various types of lifts and one is required to place order, regard being had to the building, and also make certain preparatory work. But it is not in dispute that the preparatory work has to be done taking into consideration as to how the lift is going to be attached to the building. The nature of the contracts clearly exposit that they are contracts for supply and installation of the lift where labour and service element is involved. Individually manufactur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecisions as follows: Daelim Industries reported [2003 (155) E.L.T. 457 (Tri.-Del)], affirmed at [2004 ( 170 ) E.L.T. A181] Larsen and Toubro Ltd. [2004 (174) E.L.T. 322 (T)] Rolls Royce Industrial Power (I) Ltd. [2004 (171) E.L.T. 189 (Tri.-Del.)] And the decisions referred by us in para 4.3 to 4.6, supra. 4.16 Authorized representative has argued that even following the decision of the Apex Court in case of L T the service tax should be levied in the present case under the category work contract services from 1st June 2007. The definition of Work Contract Service as introduced from 1st June 2007, read as follows: Section 65 (105) (zzzza) of Finance Act, 1994 Taxable Service means any service provided or to be provided 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) suc ..... X X X X Extracts X X X X X X X X Extracts X X X X
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