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TMI Blog2022 (9) TMI 902X X X X Extracts X X X X X X X X Extracts X X X X ..... ract service became taxable w.e.f. 01.06.2007 and that any segment of works contract service was not taxable under a different category. The submission advanced by the Revenue that service tax was payable on the amount earmarked for drawing, design, etc., activities in a works contract under the category of consulting engineer service was repelled. Such being the position, it would not be necessary to examine the remaining contentions advanced by learned counsel for the appellant that the Off-shore services could not have been taxed in India or that the extended period of limitation could not have been invoked. The impugned order dated 31.01.2007 passed by the Commissioner cannot be sustained and is set aside - Appeal allowed - decided in favor of appellant. - SERVICE TAX APPEAL NO. 136 OF 2007 - FINAL ORDER No. 50871/2022 - Dated:- 19-9-2022 - MR. DILIP GUPTA, PRESIDENT AND MR. P.V. SUBBA RAO, MEMBER (TECHNICAL) Shri P.K. Sahu, Advocate for the Appellant Shri Ravi Kapoor, Authorised Representative of the Respondent ORDER The order dated 31.01.2007 passed by the Commissioner of Central Excise and Customs Raipur [ the Commissioner ] confirming the deman ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for Off- Shore Engineering and Technical Services. It would be useful to refer to certain essential facts. 8. The Tender Enquiry contained in the communication dated 04.02.2002 shows that BALCO was desirous of installing a captive power plant at its site and the relevant portion is reproduced below: Bharat Aluminium Company Limited (BALCO) has commenced Project works for enhancing the capacity of their Smelter and Alumina Complex at Balconagar, District Korba in the State of Chattisgarh. A Captive Power Plant (CPP) of 600 MW, comprising five units of 120 MW each, will also be installed along with the Smelter Expansion. Development Consultants Private Limited (DCPL) has been retained as Engineers for the CPP. Detailed specification for the CPP is enclosed, with a request for your most competitive bid. The specification is based on Engineering, Procurement and Construction (EPC) basis for the complete 600 MW CPP. (emphasis supplied) 9. Volume-I of the Bid Document submitted by the appellant contains, in clause 1, the Scope of Works. It shows that the appellant had offered bid for the EPC contract on turnkey basis. Clause 2 deals with Price. The relevant port ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the technical specifications of tender. The principal terms and conditions shall be as under: xxxxxxxxxx 5. Performance parameters: You shall establish the following unit wise performance on sustained basis as per clause No. 10 (Schedule) for each unit separately. For entire station the above shall be within 4 months of provisional acceptance certificated of fourth unit. S.No. Parameters Units Value 1. Guaranteed unit net electrical output MW/unit 123.994 2. Guaranteed Unit net heat rate with process steam Kcal/kWh 2453.44(*) 3. Guaranteed Net Station electrical MW 494.8 MW 4. Supply of Steam without affecting power output as mentioned above T/Hr 30T/Hr/boiler Total 120T/Hr i) 135 Kg/Sq.Cm g)- 20T/Boiler ii) 7 Kg/Sq.Cm g)- 10T/Boiler xxxxxxxxxx 7.1 Bank Guarantees All Bank Guarantees furnis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... D. On the basis of aforesaid representation, warranty and declaration the Owner/Purchaser has engaged the Guarantor to design, engineer, manufacture, supply, erect, commission and demonstrate the Performance Guarantees for the Facility on turnkey basis. E. For the sake of operational convenience, the Owner/Purchaser has concluded following 4 (four) separate contracts (hereinafter referred to as the Project Contracts ) directly with the Guarantor . In all the above mentioned Project Contracts the Guarantor is referred to as the Contractors or Suppliers and are hereinafter collectively referred to as the Project Contractors . (i) An Offshore Supply Contract for manufacture, procurement and supply of Plant and Equipment and other goods on CFR Indian Sea Port basis; (ii) An Offshore Engineering Technical Services Contract for design, engineering, project management, supervision and other technical services including demonstration of Performance Guarantees of the Facility outside India; (iii) An Onshore Supply Contract for manufacture, procurement and supply of Plant and Equipment and other goods on FOR Project Site basis; (iv) An Onshore Services Construction C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ence, and the Guarantee Agreement also states that for the sake of operational convenience four separate contracts (called the Project Contracts) had been executed. As the Guarantee Agreement provides that the termination of any Project Contract shall be deemed to the termination of the other Project Contracts, the appellant believed that the project contract for Off-shore Engineering and Technical Services could not have been considered as an independent contract for levy of service tax. 13. A show cause notice dated 26.05.2006 was, however, issued to the appellant proposing to levy service tax on Off-shore Engineering and Technical services by treating it as an independent contract. The appellant filed a reply reiterating that the Guarantee Agreement and the four project contracts constituted a single transaction of an EPC contract on a turnkey basis and no part of it could be subjected to service tax separately. The Commissioner, in the impugned order 31.01.2007, accepted the contention of the appellant that the Guarantee Agreement and the four project contracts are EPC contract on turnkey basis relating to the captive power project, but treated all the four contracts as sepa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (i) A composite EPC works contract on turnkey basis had been executed. Though five contracts may have been executed for the sake of convenience but as the Guarantee Agreement involving the four projects contains a cross fall breach condition, the four project contracts are integral part of a single works contract transaction. In support of this contention reliance has been placed on the following decisions: (a) BSES Ltd. (Now Reliance Energy Ltd.) versus Fenner India Ltd. and Another [Civil Appeal No. 955 of 2006, decided on 03.02.2006]; (b) Indure Limited and Another versus Commercial Tax Officer and Others [Civil Appeal No. 1123 of 2003, decided on 03.09.2006]; (c) Commissioner of C. Ex. Cus., Kerala versus Larsen Toubro Ltd. [2015 (39) S.T.R. 913 (S.C.)]; (d) Commr. of C. Ex. Customs, Vadodara versus Larsen Toubro Ltd. [2006 (4) S.T.R. 63 (Tri.-Mumbai)]; (e) C.C.E., Vadodara versus Ishikawajajima Harima Heavy Ind. Co. Ltd. [2009 (13) S.T.R. 650 (Tri.- Ahmd.)]; and (f) ABB Ltd. versus Commissioner of Service Tax, Bangalore [2010 (20) S.T.R. 610 (Tri.-Bang.)]; (ii) The activities for the Off-shore services relating to the Off-shore Engin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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) xxxxxxxxx (b) xxxxxxxxx (c) xxxxxxxxx (d) xxxxxxxxx (e) turnkey projects including engineering procurement and construction or commissioning (EPC) projects; (emphasis supplied) 19. It would, therefore, be seen that a works contract means a contract for the purpose of carrying out, amongst others, turnkey projects including EPC projects. The Commissioner did record a finding, after perusal of the five contracts, that the Guarantee Agreement for EPC contract on turnkey basis is the base contract for the other four contracts, but observed that since the scope of work in all these four contracts is different for different prices, the four contracts are independent of each other and, therefore, would individually be subjected to levy of service tax. 20. As noticed above, the Tender Enquiry shows that BALCO intended to have a captive power plant installed at its site and the specification was based on EPC basis. The Scope of Works, as mentioned in the Bid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... performance guarantees for the facility on turnkey basis. Clause E of the Guarantee Agreement specifically states that the four separate contracts called the Project Contract had been executed for the sake of operational convenience only. It has also been stated that the Guarantor undertakes that the Scope of Works under the Project Contract in the aggregate shall be deemed to be the whole works and that the termination of any of the Project Contracts shall be deemed to be termination of each of other project contracts. There was only a single performance Bank Guarantee for all the four project contracts and the terms of the contracts of all the contracts also show that the whole arrangement was an EPC contract for construction of a power plant on turnkey basis. The aforesaid cross fall breach condition in the Guarantee Agreement makes it clear that separate project contracts are integral parts of a single works contract transaction. 25. In this connection, it would be useful to refer to the decision of the Supreme Court in BSES. The appellant had been awarded a contract for a captive power plant. The appellant, in turn, awarded a part of that work to M/s. Fenner India Ltd. and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be cancelled. 28. In Larsen Tourbo, decided by the Tribunal, the appellant was awarded contract for residual process design, detailed engineering, procurement, supply, construction, fabrication, erection, installation, testing commissioning and mechanical guarantee of the plant. The lumpsum price for the turnkey project was divided as follows: Sr. No. Description Price Contract No. PROJ/SDU/DR/53 of PROJ/HDT/DR/54 of 1. Lump sum price for Residual Process Design and detailed Engineering Rs.9,00,90,000/- Rs. 8,31,60,000/- 2. Lump sum price for supply portion Rs. 51,54,16,100/- Rs. 54,64,00,000/- 3. Lump sum price for Construction installation portion Rs. 38,36,24,000/- Rs. 35,21,04,000/- 29. Service tax was demanded on the amount mentioned at Serial No. 1 under the category consulting engineer service. The Tribunal, relying on the decision of the Tribunal ..... X X X X Extracts X X X X X X X X Extracts X X X X
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