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TMI Blog2024 (7) TMI 70X X X X Extracts X X X X X X X X Extracts X X X X ..... e any separate consideration over and above the 5% charges for the consulting engineering service provided by them - Further, the Ld. Counsel has produced copy of Balance Sheets and Copy of VAT / CST Annual Returns filed in the State of Gujarat for the period under dispute showing that no sales in relation to such works contract have been accounted for in the books of accounts as per generally accepted accounting principles which were not disputed by the adjudicating authority. The department has failed to prove that anything in excess of 5% charges/fee was received by the appellant from the project authority. The appellant being a government body, the balance sheets, sales tax/ vat returns filed by them cannot be doubted upon unless specifically countered by the department and on the basis of those, it is seen that no transfer of property in goods has taken place from the appellant to the Project Authority. Though the appellant has been receiving payments from the Project Authority and paying to the contractors, the same can be considered to be merely a service provided by the appellant as an authorised agent of the Project Authority within the scope of their contractual obligatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n System. The appellant had been discharging service tax on a value comprising of 5% of total cost of the project received by them as fee/charges for providing Consulting engineering service . 3. On the basis of an intelligence, the Revenue conducted investigation against on the premise that is engaged in execution of various turnkey contracts classifiable as Works Contract Service but misclassifying the same as Consulting Engineering Service . It is contended by the department that service tax is payable on whole of the value of the project under the category of Works Contract Service and not merely on 5% of the value of the cost of the Project received by them is charges for providing Consulting Engineering Service , thus short paying the service tax thereon. On the basis of the investigation, a show cause notice dated 17.04.2013 was issued by the Commissioner, CE, Vadodra-1 alleging that the appellant has entered into contracts with their customers and agreed to execute Turnkey Projects which included Engineering, Procurement and Construction and Commissioning (EPC) projects; the appellant also transferred the goods through their contractors to Project Authorities; NDDB finalize ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... agreement, it was not merely a Consultant Engineering Services (CES) but was much beyond the limit of CES ; that though NDDB in some cases provide technical or consultancy advice and also their engineers' visits for supervision is limited to pre-defined schedule and in such cases their role was limited to consultant engineer service, whereas, in turnkey Agreement, the Scope of work includes all works/jobs and was either handled by NDDB themselves or through the contractors / consultants/ suppliers appointed by them and hence the scope of their work extended beyond the definition of Consultancy Engineering Service . The NDDB, after the completion of turnkey Project transferred the property/ goods on payment of VAT/ WCT to their clients i.e., Project Authority; that in view of this transfer of Property and from the activities undertaken by NDDB under Turnkey Agreement, which were beyond the scope of Consultancy Engineering Service, the Department entertained a view that the services rendered by NDDB were covered under the category of Works contract Service [WCS) defined in sub- clause (zzzza)(e) of Section 65(105) of the Finance Act, 1994 (herein after referred to as the Act) ame ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ring service by them. 3.4 The Ld. Commissioner, vide the combined impugned order dated 12.05.2016 has confirmed demands of Rs. 9,71,74,113 against for the period 2007-08 to 2011-12 (SCN dated 17.04.2013), Rs. 17,29,09,170/- for the period April 2012 to Sept. 2013 (SCN dated 19.05.2014) and Rs. 10,15,44,472/- for the period Oct. 2013 to March 2015 (SCN dated 20.10.2015). The appellant has preferred separate appeals in respect of the three show cause notices decided in the impugned order. As the issue involved is the same, we are taking all the three appeals collectively in this order. 3.5 The learned Adjudicating Authority in the impugned order-in-original has held that the NDDB was paying service tax declaring their activity under Consulting Engineer service' which was actually a service of works contract service'; that NDDB has executed Turnkey Project which was comprised of engineering, Procurement and Construction/ Commissioning (EPC) Projects. The terms contract between the NDDB and the Project Authority clearly reveals that the same was a works contract; that NDDB had purchased equipments, machinery etc. by issuing purchase orders to the suppliers/ contractors and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... approved estimated cost of the plant and equipment and civil work within 15 days of signing this agreement and NDDB was free to operate on these funds, necessary action for procurement of plant, equipment and inviting tenders was to be initiated by them only after the receipt of advance. The appellant maintained accounts of all expenditure incurred under different budget heads during the execution of the project; that, on completion of the project the NDDB had to furnish a certified copy of the said accounts duly audited by a firm of CA appointed by the NDDB with the approval of the Government of India; That upon signing the agreement with the Project Authority, on availability of advance funds, availability of site, receipt of approved drawings and specifications from the Project Authority, M/s. NDDB had to commence the execution of the project on TURNKEY basis. It has been held that the deemed sales of the goods viz. Cement, Reinforcement Steel, Plant, Machinery equipments and other material etc. had taken place from sub- contractor(s)/ supplier(s) of the authorized representative of turnkey project owner i.e. NDDB and also from IDMC, Anand a wholly owned subsidiary company of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cause notices dated 19.05.2014 20.10.2015 issued in the form of statements, it has been held that provisions of works contract as defined Section 65(105)(zzzza)(e) before 01.07.2012 and Section 65(B)(52) after 01.07.2012 were the same with respect to the issue in hand and the appellant had sufficient notice to the allegations made against him in the notices/statements. Therefore, the issue of show cause notice in the form of statements had not vitiated the proceedings arising out of these show cause notices. Accordingly, the impugned order has been passed confirming demands of Rs. 9,71,74,113 against the appellant for the period 2007-08 to 2011-12 (SCN dated 17.04.2013), Rs. 17,29,09,170/- for the period April 2012 to Sept. 2013 (SCN dated 19.05.2014) and Rs. 10,15,44,472/- for the period Oct. 2013 to March 2015 (SCN dated 20.10.2015) along with demanding interest under Section 75 and imposing penalties under Section 76 77 of the Act. 4. The Learned Advocate Shri Harish Bindumadhavan appearing on behalf of the appellant has assailed the show cause notices dated 19.05.2014 and 20.10.2015 covering the period October 2013 to March 2015 on the ground that those were in the form of stat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e provisions under which the earlier notice dated April 17, 2013 was issued have been made inapplicable from July 1, 2012 and therefore the grounds on which the statement has been issued cannot be treated as the same as in the earlier notices. 4.2 The consideration received by the appellant in relation to the consultancy provided by the appellant has already been subject to levy of service tax and has been specifically disclosed in the ST-3 returns which have been submitted with the Department from time to time. The appellant NDDB has been selected for the projects because it possesses expertise in the field of engineering. It has developed a proficiency in managing and providing a frame work for the execution of the agreement; that NDDB is only providing consultancy and there is no execution of works by NDDB; that the relevant clause in the contract reads as - And in consideration of the satisfactory performance of the tasks, duties, responsibilities and functions, aforesaid by the NDDB, the Project Authority shall pay to the NDDB a consultancy service fee at the rate of 5% (Five PERCENT) plus service tax as applicable from time to time, of the overall actual cost of the project. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lteration of any movable or immovable property. That NDDB has done neither of them; that Appellant does not effect any transfer of property in goods. NDDB is only appointing contractors and suppliers for execution of the project and supply of equipment and raw materials; that the supply of goods by contractor cannot be considered as supply by the appellant; even though the contracts with the contractors/ suppliers are issued by NDDB, they are on behalf of the Project Authority; that the definition does not intend to include in its ambit the transaction wherein the contractor directly and independently transfers the property in goods to customers; they just advise clients and on the basis of their advice clients procure goods; that NDDB is consulting engineer and in accordance with their expert advice, contractor independently transfers the property in goods to project authority; that neither the NDDB Act nor the agreements entered into with project authorities envisage NDDB to function or carry out the activities as defined in the term 'works contract' such as construction, erection, commissioning etc. These activities are performed by the contractors; that none of the clau ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s place between the contractor and Project Authority. The appellant is never in possession or in ownership of the goods/material involved in the execution of the works; he further stated that the copies of Balance Sheet/s for the period under dispute showing that no sales in relation to such works contract have been accounted for in the books of accounts as per generally accepted accounting principles; Copy of VAT / CST Annual Returns filed in the State of Gujarat to demonstrate that Appellant has not supplied any goods by way of sale for the execution of any work as defined in Section 65(105) of Finance Act 1994: that there is no direct/indirect involvement of the appellant in the execution of the turnkey agreement i.e. construction of plant or procurement of machinery etc. at any stage of the turnkey agreement; that the appellant is merely an intermediary in respect of technical issues and financial matters providing advice and monitoring the control processes and procedures; The work in relation to construction, installation and erection is solely performed by the contractor and not by the appellant; that the Department has chosen to merely rely on certain clauses in isolation o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... agreement which authorized such sub-contracting); and the incorporation of goods into the construction/ structures was by the sub-contractor and not by the appellant there is no rendition of Works Contract Service by such appellant, which is taxable under Section 65(105)(zzzza). It is further held by the bench that whereunder an agreement (whether termed as a works contract, turnkey or EPC project contract), the principal contractor, in terms of the agreement with the employer/ contractee assigns the works to a sub-contractor and the transfer of property in goods involved in the execution of such contract passes from the sub-contractor by accretion to or incorporation into the works, the principal contractor cannot be considered as having provided the taxable (works contract) service, enumerated and defined in Section 65(105)(zzzza). That, this decision has overruled the decision of Ramky Infrastructure relied upon by the department. He further, relied on the judgment of Supreme Court in the case of State of Andhra Pradesh v Larsen Toubro Limited (2008-TIOL-158-SC-VAT) where the Supreme Court observed that even if there is no privity of contract between the contractee and the sub- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... resources and good reputation; subcontractors, team of professionals consisting of architects, quantity surveyors, structural engineers, building services or mechanical and electrical contractors who would be appointed by M/s. Manyata Promoters Pvt. Ltd. on the basis of recommendation by the appellant for completion of the project. The term project is also defined under the said Agreement at Clause 2.9 which means the development of the scheduled property by putting up commercial development, software tech park, hardware tech park, entertainment centre, etc.. The fees for rendering the service prescribed under Clause 5.2.1 to be paid to the appellant is 5% of the expenditure incurred on the construction and development of the project; also the computation of the construction and development expenses are prescribed at Clause 5.2.3. of the agreement. Analysing the stipulations of the said Agreement dated 31.3.2005, it cannot be said that the arrangement between and M/s. Manyata Promoters Pvt. Ltd. for execution of the project as a whole; on the contrary, it reveals that appellant has been engaged to advise/assist M/s. Manyata Promoters Pvt. Ltd. in implementation and completion of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny proof or factual evidence to substantiate above point; he argued that the that the process of awarding the contracts by the appellant are subject to guidelines of Central Vigilance Commission ('CVC) and certain information / returns are statutorily prescribed which are periodically submitted with CVC giving the details of contractors, projects etc; accordingly, it can never be the case that the appellant can make undue favour to any person / contractor including its subsidiary IDMC Ltd. while awarding the contracts. This aspect clearly and strongly negates the allegation raised by the Respondent of repetitive business for subsidiary or cost savings within agreed price of project as every activity is subject to particular process / guidelines and not arbitrary one. 4.9 As alternate submissions, the learned advocate stated that the manner of calculation of demand under works contract was not correct as the demand has been worked out for the period 01.04.2013 to 31.03.2015 on the basis of abatement method, whereas the department has specially been provided CA certificates with respect to the value of goods used in the project. The value of service element therefore only needed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the appellant had a clear notice to the allegations made in the statements that the department seeks to classify and tax their impugned services under the category of works contract which had been issued for the period prior to 01.07.2012 and post 01.07.2012. Though definition of works contract has undergone some changes after 01.07.2012 but it has not affected the appellant s case and has not been able to show as to how the definition of works contract was different from the earlier definition with respect to allegations made in the statements and the earlier show cause notice. It is trite that when the appellant has clear notice to allegations made in the show cause notice, the show cause notice is not vitiated merely for the reason that some provisions of law have been erroneously quoted in the show cause notice. Thus, we hold that the notices issued in form of statements were valid show cause notices issued to the appellant. 7.1 Regarding the classification of the services provided by the appellant as to whether same qualify to be Work Contract service as contended by the department or Consulting Engineering Services as claimed by the appellant, we find that the scope of Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f suitable contractors having adequate financial resources and good reputation; subcontractors, team of professionals consisting of architects, quantity surveyors, structural engineers, building services or mechanical and electrical contractors who would be appointed by M/s. Manyata Promoters Pvt. Ltd. on the basis of recommendation by the appellant for completion of the project. The term project is also defined under the said Agreement at Clause 2.9 which means the development of the scheduled property by putting up commercial development, software tech park, hardware tech park, entertainment centre, etc.. The fees for rendering the service prescribed under Clause 5.2.1 to be paid to the appellant is 5% of the expenditure incurred on the construction and development of the project; also the computation of the construction and development expenses are prescribed at Clause 5.2.3. of the agreement. Analysing the stipulations of the said Agreement dated 31.3.2005, it cannot be said that the arrangement between the appellant and M/s. Manyata Promoters Pvt. Ltd. for execution of the project as a whole; on the contrary, it reveals that appellant has been engaged to advise/assist M/s. Man ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the name of the appellant. However, the appellant has refuted all these allegations and has stated that all the contracts were issued to Contractors/ suppliers and they have done the execution work for and on behalf of project authority. The role of the appellant was mere advisory to award contracts based on skill and technical knowledge it possesses as the project authority had no knowledge about such work. They appointed contractor specifically informing them that they are being appointed for the Project Authority and at the same time they entered into contracts in their name but whatever amount was paid to the contractor was only charged from the project authority and CA certified accounts of all payments were handed over to the project authority. They did not receive any separate consideration over and above the 5% charges for the consulting engineering service provided by them. The department has merely proceeded on assumptions and presumptions by stating that the appellant awarded contracts to maximise gains and that the process of awarding the contracts by the appellant are subject to guidelines of Central Vigilance Commission (CVC) and certain information / returns are sta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .O.N0. 18881 dated 22.12.2010 P.O. Value Rs. Rs.4,56,63,996.98 Where under they had charged only of value of work/ Service Charges and nothing other than it. It was further seen that to the said invoice/ RA bill the NDDB had also issued a Back-to Back/ corresponding statement dated 12.8.2011 (P.O. No. 01 dated 22.12.2010 P.O. value Rs.4,56,63,996.98) to the Project Authority charging there under:- (1) Value of work done. (2) Price of material viz. Cement, Reinforcement steel, and other Materials those were used in the Civil work carried out and charged under 2nd RA bill as above by M/S. Friends' Projects (P) Ltd; Kanpur and lessening other deductions. It is evident that the value of the subcontracted service and supply was paid by the NDDB. The facts of the case reveal that NDDB has undertaken to set up the dairy plant and the various types of responsibilities as stated in the foregoing paras to set up the plant lied with them. 7.3 We do not find that anything against the appellant can be inferred from the manner of issuing the above invoice in as much as it duly supports the appellant s contention that the amount which was charged from the Project Authority by the appellant fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in extending the benefit of abatement under the said Notification No. 01/2006-ST dated 01.03.2006 to the assessee for the period from April- 2012 to June-2012, in spite of the fact that he has concluded that the services provided in the impugned case falls under the category of 'Works Contract Services. Since we have already held in the preceding discussions that the service provided by the appellant M/s. NDDB does not fall under the category of Works Contract service and the services rendered by them is of the Consulting Engineering service, they have already discharged their service tax liability. The department s appeal is primarily for wrongful extension of abatement of Notification No. 1/2006-ST dated 01.03.2006 however, since we have already decided the matter that service tax has correctly been paid by the appellant M/s. NDDB and the work undertaken by them under the category of Works Contract service, the grounds of appeal in the department s appeal does not hold any water. Therefore, we set-aside the same as without any merit. 10. In view of the above, the appeals of the appellant M/s. National Dairy Development Board (NDDB) are allowed and the appeal filed by the Depa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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