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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. 2. National Dairy Development Board (herein after referred to as 'NDDB' or 'Appellant') is a statutory body corporate formed by an Act of Parliament namely the National Dairy Development Board Act, 1987 and its functions include promoting, planning and organizing Programs for the purpose of development of dairy and other agriculture-based industries on an intensive and nation-wide basis. The appellant is registered with Service Tax authorities vide registration No. AABCN2029CST008. The appellant had executed agreements with various customers under the category of 'Consulting engineering service' for designing, planning, promoting, developing, constructing, sponsoring and setting up of dairy industries and undertaking any other related promotional activity including the financing of the same. These agreements were executed for providing 'Consultancy Services/ Consulting Engineering Service' in relation to the execution of a project for creation of the Dairy Distribution 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alculated the taxable value and paid the service tax under the category of "Consultancy Engineering Service"; One such Agreement dated 28.11.2008 was entered into with M/s. Bhopal Sahakari Dugdha Sangh Maryadit Bhopal (hereinafter referred to as Project Authority or BSDSM) for Bhopal Dairy Expansion Project, i.e. BSDSM project, where on behalf of BSDSM, NDDB appointed 8 (eight) different contractors for civil work, supply of equipments, architecture etc.; as per terms and conditions, contractor had to issue bills inclusive of all taxes, in the name of Chief Executive Officer, BSDSM, Bhopal Dairy Plant, Habibgunj, Bhopal and bills to be submitted to Group Head (Purchase), NDDB, Anand for necessary payment thereof; this method was being followed by NDDB for all the contracts they had undertaken to execute. 3.2 It has been the contention of the Department that looking to the nature of jobs executed by NDDB viz. Engineering consultancy, procurement, commissioning and transfer of property under turnkey 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 al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order dated 12.09.2014, the matter was further remanded back by CESTAT Ahmedabad vide No. A/11577/2015 dated 28.10.2015 to decide the matter afresh with specific reference to the issue whether the impugned service was 'Consulting Engineering Service' or the 'Works Contract Service'. In the meantime, two more show cause notices dated 19.05.2014 and 20.10.2015 were issued to the appellants for the subsequent periods covering the same issue and the impugned order is a combined order adjudicating upon all the three show cause notices. The appellant had challenged the show cause notices on the preliminary grounds that the subsequent show cause notices dated 19.05.2014 & 20.10.2015 were in the form of statements of notice which were not valid as the provisions of law with respect to classification of services had changed with effect from 01.07.2012. On merits, the appellants had contested the allegations with respect to taxability under the category of 'Works contract Service' against the declared service of 'Consultancy engineering 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 peri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so to provide training to different categories of the persons/ staff of project Authority; upon completion of the erection work, NDDB shall commission and run the plant for 15 consecutive days in the presence of the representatives of the Project Authority; after completion of the trial runs the project authority should take over the plant and sign the handing over / taking over documents; that the handing over/ taking over documents to be submitted by the NDDB to the Project Authority will consist of a list showing the inventory of various machinery and equipment installed in the plant along with order copies, Audited statements of expenditure in respect of items/ material, which are used in erection or as consumables. It has further been mentioned in the impugned order that the NDDB was making payments directly to the concerned parties for Raw materials and consumables stores necessary for the commissioning and operation of the plant; that as per the contract Project authority had to pay NDDB an advance not less than 30% of the 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, ne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... C / Turnkey contracting in question leaves the NDDB to decide how it will meet the Project Authority's requirements within the agreed price with maximum profit. It is in the contractor's/ the NDDB's interest to meet the Project Authority's requirements at the minimum cost, thereby maximizing its own profit. Thus, NDDB stands to earn on three counts: (i) a consultancy service fee at the rate of 5% (Five PERCENT) of the overall actual cost of the project; (ii) repeat business for its subsidiary company M/S IDMC, Udyognagar, Gujarat, thereby reducing overhead costs, cost of designing the project etc. and other activities undertaken by IDMC as given in para 34.4; and (iii) As the project authority does not have any right / benefit of direct negotiation with the suppliers, any profit margin arising out of cost savings within the agreed cost of project. This playing by NDDB within the 'cost of project" clearly shows that it is transferring of property i.e. plant & machinery to the project authority.' With respect to challenge to the show 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 d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... od commencing from October 01, 2013 to March 31, 2015 (SCN dated 19.05.2014 & 20.10.2015) on the ground that the provision of law relating to the taxable services with reference to which the Statement has been issued under Section 73(1A) of the Act for the period after July 1, 2012 have been made inapplicable in view of Notification 20/2012-ST dated June 5, 2012 issued pursuant to the proviso to Section 65 of the Act as it stood prior to July 2012.The Statement has been issued under provisions of section 65 (105) of erstwhile Act alleging that the services provided by NDDB would merit classification under Works Contract Service' as defined under section 65(105)(zzzza) of the Act and therefore, taxable under sub-section (105)(zzzza) of section 65 of the erstwhile Act for the service provided during the period October, 2013 to March, 2015. Thus, it has been submitted that the Statement issued under Section 73(1A) is invalid for the reason that the condition precedent under the said provision for the issue of the same is not fulfilled. In the present case the provisions under which the earlier notice dated April 17, 2013 was issued have been made inapplicable from July 1, 2012 and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ily 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 commissioning (EPC) projects. Post to 01.07.2012 "works contract" means a contract wherein transfer of property in goods involved in the execution of such contract is leviable to tax as sale of goods and such contract is for the purpose of carrying out construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, alteration of any movable or immovable property or for carrying out any other similar activity or a part thereof in relation to such property;" 4.3 That, in both pre and post 01.07.2012, it was necessary that there should be transfer of property from the service provider besides executing work of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, alteration of any movable or immovable property. That NDDB has done neither of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ommissioning and initial operation. (viii) Manpower planning and training. (ix) Post-operation and management. (x) Trouble shooting and technical services, including establishing systems and procedures for an existing plant. Though the above list is not exhaustive, it illustrates the wide scope and nature of the services rendered by a consulting engineer. Accordingly he emphasized that the scope of 'consulting engineering service' is very vide and cannot be restricted in the narrow sense as held by the adjudicating authority; that all the services provided by the appellant were within the scope of consulting engineering service as per the circular; that the appellant after entering into the agreement with the contractors issues a purchase order to each contractor for execution of the works specified therein; that the appellant specifically states that the Bills should be in the name of the Project Authority under the specified agreement and even though the contractors issues the bills to NDDB, those are specifically mentioned to be to the account of the Project Authority; that In view of this, the transfer of property takes place between the contractor and Project Authorit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Project Authority may not issue any direct instruction to the supplier / manufacturer / erectors during the course of project; Any instruction / changes required may be discussed in the site meeting where the Project Authority's representatives would be present; that since the Project Authority does not have any significant experience in undertaking the civil work, the work is entrusted to the appellant for purpose of supervision, therefore, NDDB should provide assistance / instructions to the contractor in the presence of the representative of the Project Authority that simply by virtue of this clause, the appellant cannot be regarded as a contractor, undertaking the execution of any works contract. The learned advocate has relied upon judgment of Lanco Infratech Limited vs. CC, CE and ST, Hyderabad [2015 (38) STR 709 (Tri-LB) wherein the Larger Bench relying on State of A.P and Ors V. Larsen and Toubro and Ors. [2008 (17) VST 1 (SC) held that, even where an Appellant (Lanco) had entered into a turnkey/ EPC project agreement or other works contract but had subcontracted the whole or part of the works awarded (under terms of the agreement which authorized such sub-contracting); ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and implementing the agreement entered with M/s. Manyata Promoters Pvt. Ltd. reveals that the appellants are required to manage overall implementation of the project viz., the Software Technology Park for which the agreement had been entered between the appellant and M/s. Manyata Promoters Pvt. Ltd.. It states and reveals their obligation and function is implementation of the project and not execution of the project. On a close reading of few stipulations/clauses of the Agreement, in the said context of the recitals, we find that the appellants are required to supervise and coordinate all aspects of the development, use of reasonable means to see that the development is completed in accordance with plans and specifications, cash management of the project by providing cash flow charts and estimate charts to M/s. Manyata Promoters Pvt. Ltd., approach Municipality and any other authorities in obtaining approvals; and also they are responsible for certification at every stage of work commencing from the drawings, foundation, etc.. It is clear that the actual project is executed by appointment of suitable contractors having adequate financial resources and good reputation; subcontractor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... responsible for making payment to the contractor, have deducted the TDS while making payment to contractor in relation to execution of works contract, thus statutorily Appellant was liable to deduct TDS under income tax legislation and State specific VAT legislation. The compliance of the law in relation to deduction of tax at source under other legislations cannot be considered as a basis to suggest that Appellant is rendering works contract service to project authority. 4.8 He further refuted the findings of the impugned order-in-original that the present contract in dispute is a turnkey contract as the appellant would be able to earn on following counts: (i) Consultancy service fees (ii) Repeat business for its subsidiary IDMC (iii) Any cost saving in projects within agreed price. The earning on account of cost saving indicates that NDDB transfers the property in goods to project authority as baseless and a mere assumption without any substance. He argued that that this allegation raised by the Respondent indicates that the OIO lacks application of mind while deciding the classification of disputed services. The Respondent has not provided any proof or factual evidence to subst ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hand the Ld. Authorised representative of the department has re-iterated the findings in the order in original. He has emphasized that the contract has been titled as 'Turnkey Agreement'; the appellant had appointed sub-contractors and suppliers by making agreement in his name and was making payments to them; that the sub-contractors/ suppliers worked on behalf of the appellant whose role was that of the main contractor. The appellant had awarded contract to its own subsidiary IDMC for Design, Supply and Labour job for installation, testing and commissioning of Dairy and Allied equipment for cost cutting and maximizing gains. The appellant has handled almost each and every work from start to handing over the project. Hence the services provided by the appellant were nothing but 'Works Contract' only and whole of the cost of project was liable to service tax with admissible abatements. 6. We have gone through the rival arguments on the issue. 7. With respect to objection raised by the Ld. counsel of the appellant regarding the maintainability of the show cause notices dated 19.05.2014 & 20.10.2015 issued in the form of statements, we have a considered view that the appellant had a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich deal with the functions and obligations of the project manager in carrying out and implementing the agreement entered with M/s. Manyata Promoters Pvt. Ltd. reveals that the appellants are required to manage overall implementation of the project viz., the Software Technology Park for which the agreement had been entered between the appellant and M/s. Manyata Promoters Pvt. Ltd.. It states and reveals their obligation and function is implementation of the project and not execution of the project. On a close reading of few stipulations/clauses of the Agreement, in the said context of the recitals, we find that the Appellants are required to supervise and coordinate all aspects of the development, use of reasonable means to see that the development is completed in accordance with plans and specifications, cash management of the project by providing cash flow charts and estimate charts to M/s. Manyata Promoters Pvt. Ltd., approach Municipality and any other authorities in obtaining approvals; and also they are responsible for certification at every stage of work commencing from the drawings, foundation, etc.. It is clear that the actual project is executed by appointment of suitable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rendered to M/s. Manyata Promoters Pvt. Ltd. Besides, we find that the appellant had collected Service Tax as per Clause 5.2.1 of the Agreement in few instances from M/s. Manyata Promoters Pvt. Ltd. but not paid the same to the department. Thus, the Project Development Management Fee collected by the Appellant squarely fall under the category of 'Management Consultancy Service' and taxable service during the period under dispute. The claim of the Appellant that it becomes taxable only with effect from 01.06.2007 under the 'Management or Business Consultancy Service', in our view is not sustainable in view of the facts and circumstances of the case discussed as above.' The moot question to be decided is whether the appellant has transferred any property in the project to the project authority. In the impugned order it has averred that various suppliers of raw materials/equipment, sub- contractors who executed the works contract/ construction/ erection and installation etc. were acting on behalf of the appellant who performed as main contractor in as much as the appellant has issued tenders and entered into contract with these sub-contractors/ suppliers and the bills were issued in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ountered 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 obligations. No evidence has been brought on record of if any amount being received by the appellant from the project authority for payment to contractors/ suppliers was retained or appropriated by the appellant out of that. The appellant being a government body is subject to various statutory checks by the vigilance/ audits authorities and it cannot be assumed that anything not reflected in the books of account was actually accrued to them. We find that to buttress his arguments the OIO has relied upon one such sample invoice/2nd RA bill dated 28.09.2011 issued by M/s. Friends Project (P) Limited, Kanpur in this case which is discussed as under 'To Chief Executive officer, Bhopal Dairy Expansion Project Bhopal, A/c. Bhopal Expansion Project c/o NDD ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iled by party are allowed with consequential relief. 9. The department has filed appeal on the following grounds :- 'The benefit of exemption, equivalent to an amount in excess of the Service Tax calculated on a value of percentage specified in the corresponding entry in Column No (3) of Notification No. 01/2006-ST dated 01.03.2006, is available to the taxable services as described therein However in the column (3) of the Table viz. Description of taxable service, provided in the Notification No. 01/2006-ST dated 01.03.2006, there is no mention of the service category Works Contract Services', implying thereby that the benefit of exemption/abatement from payment of Service Tax under the category of Works Contract Services' is not available under the said Notification No. 01/2006-ST dated 01.03.2006. During the relevant period the valuation of taxable services of Works Contract Services was to be determined in terms of Rule 2A of Service Tax (Determination of Value) Rules, 2006. Thus, the Commissioner has failed to note that the benefit of exemption/abatement under the category of Works Contract Services' is not available under the Notification No. 01/2006-ST dated 01 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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