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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 ..... /- (Rs. Three Crores Seventeen Lacs Eighteen Thousand Eight Hundred Twenty only) u/s 73 (2) of the Finance Act 1994 & order MRVC to pay the same in terms of the provisions of Sec 66A read with Sec 68 of the Finance Act 1994, I proceed to appropriate the service tax already paid by MRVC to the above extent. (c) I order for recovery of interest on the aforesaid service tax of Rs. 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 Rs. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erever applicable. 2.4 Appellant vide their letter dated 20.09.2010 informed that i. They entered into a Contract with joint venture of Siemens AG, Germany & Siemens Ltd, Navi Mumbai. The responsibility of each of the joint venture partners was clearly defined & various stage of payment indicated. ii. Apart from the liability of Rs. 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 Rs. 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 Rs. 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 & ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... recision Engineering Pvt. Ltd 2010 (18) S.T.R. 545 (Kar.), held that the activities of Design development, design review, installation and commissioning and technology transfer undertaken are in the nature of work contract. This has been 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 in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... present case actual work has been done by the staff of Indian railway and not be foreign service provider. The said fact has also been admitted by the Commissioner in his Order in para 69 & 72, wherein he has held that the commissioning, 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 regarde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 49) S.T.R. 239 (Tri. -Del.) * Appellant is a Government Undertaking and therefore, there is no malafide intention to evade duty and thus, extended period is not invokable. The appellant relies on following judgments - * 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 Rs. 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 co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntioned. * In the OIO, the Learned AA has discussed threadbare vis a vis the SCN, facts on record and most importantly the clauses and the conditions of the contract (gen & special) which 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the appellant admittedly provide works contract service and the definition of works contract service specifically excludes railway from its purview for levy of Service Tax, 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". ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rks contracts involving rendition of services coupled with deemed supply of goods by accretion are not taxable services prior to 1-6-2007, either under commercial 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 r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 65(105) would refer only to service contracts simpliciter and not to composite works contracts. This is clear from the very language of Section 65(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, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd rules framed, but a Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007 was also notified in which 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 exem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provided and not the gross amount of the works contract as a whole from which various deductions 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 comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Plus INR- 4,460,433,344] (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 (based on Purchaser's Experience) Supplied from abroad 101 Sets (9 car EMU) Or 303 Motor Coaches - 162 DTC, 49,078,554 0 CIF Chennai or CIF Mumbai (whichever applicable) B Schedule 2 Goods Dual Voltage EMU Equipments) and Maintenance Spares (based on Purchaser's Experience) Supplied from wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... encies the payment shall be made and the Bank Guarantee shall be furnished in the same combination and in the same proportion of currencies The Stage 1 payment bank guarantee shall be at the Suppliers option in the form of Bank Guarantee from. * A Nationalized/ Scheduled bank in India or * A foreign bank operating in India under the approval of the Reserve Bank of India, or * A foreign bank located in any eligible country counter guaranteed by a Nationalized/ Scheduled bank in India The term " Scheduled Bank" ... The format of the bank guarantee.... (b) Stage II Payment for equipments 75% (seventy five percent) CIF/ EXW value of the relevant portion of the contract price for "set of Equipments" on inspection and proof of dispatch on submission of documents listed at para 4 below. (c) Stage III payment for equipments After satisfactory trials of the 2 prototype rakes, 5% CIF/ EXW value of the equipments shall be paid within 30 days of the submission of Bills along with requisite documents including commissioning certificate by IR. This will apply to all rake sets (9-set) of equipments. However, if the manufacture of these rakes is delayed beyond 12 months from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 25 Oct. 2021. Black Law Dictionary states divisible contract - "That which is susceptible of being divided. One which is in its nature and purposes susceptible of division and apportionment, having two or more parts in respect to matters and things contemplated and embraced by it, not necessarily dependent on each other nor intended by the parties so to be. Horseman v. Horseman, 43 Or. 83, 72 Pac. 698" (Black Law Dictionary, Henry Campbell Black, M A 1990) On page 985, of the Black's Law Dictionary (8th Edition, 2004) following is stated. severable contract: A contract that includes two or more promises each of which can be enforced separately, so that failure to perform one of the promises does not necessarily put the promisor in breach of the entire contract. - Also termed divisible contract; several contract. See SEVERABILITY CLAUSE. Cf. joint contract. [Cases: Contracts 137, 171. C.J.S. Contracts §§ 297, 349-354.] "A severable contract ... is one the consideration of which is, by its terms, susceptible of apportionment on either side, so as to correspond to the unascertained consideration on the other side, as a contract to pay a person the worth of his services ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aised primarily on the services listed in the Special Conditions of Contract in the said agreement, par 8 (a) (iii) therein which pertains to installation of equipments (supervision) and para 8 (a) (iv) which pertains to Commissioning (Supervision). Accordingly, I observe that para 8 (a) (iii) states as follows: "The equipment supplied by the supplier stall be listed on new EMU rakes by the start of ICF a Chennai. The supplier shall depute Engineers to supervise the installation at ICF of 12 rakes (12 car & 2 prototype 12-car rakes to ensure proper installation and pre-commissioning. Required drawings & installation instructions shall .... . Suppliers Engineers shall also ensure testing of EMU rakes fitted with supplied equipment .... The supplier shall also supply special tools, testing & measuring instruments required for installation of the equipments." 70. On going through the above clause it is clear that the foreign service provider was required to supervise the installation of the rakes at ICF to ensure proper installation & pre-commissioning. Furthermore, they were also required to ensure testing of the EMU rakes fitted with the supplied equipments at ICF. Hence, it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mmissioning, testing & service trials of twelve, 12-car EMU rakes manufactured from supplied equipments in Mumbai ... ... ..." I note that though it was stipulated that the commissioning, testing, trials of rakes in Mumbai shall be carried out by the staff of ICF. CR & WR, I note that the said activity was to be undertaken under the supervision of the foreign service provider's engineers for which consideration was paid in foreign exchange (Euros) by the noticees to the foreign service provider. 74. Though the noticees have elaborately sought to explain that the activity conducted by the foreign service providers was merely testing of the brakes of the train and other incidental services and & attempted to distinguish the said activity with that of the commissioning of the suburban train system in Mumbai, 1 observe that the clauses in the agreement as detailed above as well as the description of the scope of the work in the bills raised by the foreign service providers belies the claim of the noticees since the above documents clearly state the main activity of the foreign service providers was commissioning of the suburban train system (including testing). Thus, I believe tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se would not be taxable. In other words, it means that there was no question of considering the services received by the noticees, in the first place under the category of WCS at all, even if the same were in the nature of turnkey projects / EPC contracts, since the said service in relation to railways was prima facie, excluded. All the other subsequent clauses in the definition of WCS, whether the services were in the nature of turnkey projects / EPC contracts etc would come into play, if and only if the works contract did not pertain to roads, airports, railways, transport terminals, bridges, funnels & dams and not vice versa. Furthermore, the fact that the services would not be covered under WCS did not mean that the services could not be covered under any other category at all, if otherwise of exempt. In the instant case, I observe that during the material time, though the category of WCS excluded services in relation to railways, the said definition of WCS did not stipulate that services in relation to railways was not taxable / exempt. Consequently, on examination of the nature of the services rendered, it would necessarily mean that the said services were covered the suitabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ." 4.14 Commissioner has in para 87 of impugned order observed as follows: "87. The Noticees submitted that the activities done at Chennai & Mumbai were in the nature of testing & could not be treated as commissioning, that the real nature of the transaction had to be seen than the words used in the contract. I hold that this contention of the noticees is not acceptable since the services provided by Siemens AG, Germany were in accordance with the contract. The vouchers / invoices raised & payments made against such invoices were also in accordance with the contract. In the invoices also it was mentioned that the charges are for installation & commissioning. Therefore, the contention of the noticees that the services provided was of testing only cannot be accepted at later date. It is further observed that the decision of Supreme Court in State of Andhra Pradesh vs Kone Elevators India Ltd 2005 (181) ELT 156 SC relied upon by the noticees in support of their said contention has already been overruled in the case reported as 2014 (34) STR 641 SC/2014 (304) ELT 161 SC, therefore not helpful to them." Commissioner has stated that earlier decision rendered by the Apex Court as repor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ional terms, it is transfer either in goods or some other form. In fact, after the goods are assembled and installed with skill and labour at the site, it becomes a permanent fixture of the building. Involvement of the skill has been elaborately dealt with by the High Court of Bombay in Otis Elevator (supra) and the factual position is undisputable and irrespective of whether installation is regulated by statutory law or not, the result would be the same. We may hasten to add that this position is stated in respect of a composite contract which requires the contractor to install a lift in a building. It is necessary to state here that if there are two contracts, namely, purchase of the components of the lift from a dealer, it would be a contract for sale and similarly, if separate contract is entered into for installation, that would be a contract for labour and service. But, a pregnant one, once there is a composite contract for supply and installation, it has to be treated as a works contract, for it is not a sale of goods/chattel simpliciter. It is not chattel sold as chattel or, for that matter, a chattel being attached to another chattel. Therefore, it would not be appropriate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ectronic 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 f. commissioning (EPC) projects; The said definition do not state that the contracts, of railway do not fall within the scope of work contract service but state that the work contract services, in respect of railways, are excluded from taxable category as defined by the said section. The work contract has been defined by the explanation, and any contract which satisfies to the requirements specified therein will fall under ..... X X X X Extracts X X X X X X X X Extracts X X X X
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