Custom, Excise & Service Tax Tribunal
M/S Lmp Precision Engineering Company ... vs C.C.E. & S.T. Daman on 7 April, 2017
In The Customs, Excise & Service Tax Appellate Tribunal West Zonal Bench At Ahmedabad ~~~~~ Appeal No : ST/10616/2014 (Arising out of OIO-DMN-EXCUS-000-COM-014-13-14 dated 28/11/2013 passed by Commissioner of Central Excise, Customs and Service Tax-DAMAN) M/s Lmp Precision Engineering Company Pvt Ltd : Appellant (s) Versus C.C.E. & S.T. Daman : Respondent (s)
Represented by:
For Appellant (s) : Shri H. G. Dharmadhikari, Advocate For Respondent (s): Shri Sameer Chitkara, Authorised Representative CORAM:
Dr. D. M. Misra, Honble Member (Judicial) Mr. Raju, Honble Member (Technical) Date of Hearing : 31.03.2017 Date of Decision: 07.04.2017 Order No. A/10744 / 2017 Per: Mr. Raju This appeal has been filed by M/s LMP Precision Engineering Company Pvt. Ltd. The appellants are engaged in the manufacture of excisable goods like Special Purpose Motor Vehicles, other than those principally designed for the transport persons or goods, and truck mounted drilling rigs of different capacities. The appellant also undertake to supply the spares to their clients like Chief Engineer, Minor Irrigation Department, U. P. It was seen from the contract with Chief Engineer, Minor Irrigation Department, U. P. that the appellant had entered into agreement for supply of rig machines. Clause 11 of the agreement provided as follows:-
Spares: The contractor guarantees the supply to the Purchaser of spare parts required by him for maintenance, operation and repairs of the Plants, Machines & equipments during their life-time, subject to availability of import license for only imported spare parts. Orders for spares, if required, shall be placed separately. The appellants were engaged in the purchasing these spares and supplying to their clients. The appellant had purchased spares valued at Rs. 6,54,13,601/- and sold/cleared the same to various departments of State Governments as well as private parties at Rs. 17,82,56,001/- against various contracts/purchase orders. The Revenue alleged that the appellant are engaged in providing the Business Auxiliary Service, namely Procurement of goods or services, which are inputs for the clients. The demand was raised on the entire value of Rs. 17,82,56,001/- and the same was confirmed by the Commissioner. Aggrieved by the said order, the appellants are before Tribunal.
2. Ld. Counsel for the appellant argued that they enter into different agreements with their clients to whom they supply rig machines. He produced an agreement with the Chief Engineer, Minor Irrigation Department, U. P. Lucknow, where they had supply for Direct Circulatory Rotary Rig Machines with operating equipments to Minor Irrigation Department. Clause 11 of the said agreement required them to ensure supply of spares parts required by their client for the life time of the machines. The said agreement also provided a clause pertaining to breach of contract, which read as follows:-
BREACH OF CONTRACT:- In case of non-performance in any form or shape of the covenants and conditions of this contract. Purchaser shall have power to annual rescind, cancel the contract and upon his notifying in writing to the manufacturer that he has so done, this contract shall absolutely determined and the amount deposited as security for due performance of this contract may be forfeited by him and upon his doing so shall become the property of the purchaser. He argued that they are other agreement like the one entered with office of the Executive Engineer, Agartala, Tripura in which there was no such condition regarding supplies spares.
2.1 Ld. Counsel further argued that this is a case of trading and no service tax involved therein. Ld. Counsel sought to rely on the decision of Tribunal in the case of Rama Marketing vs. Commissioner of Central Excise, Kolhapur 2015 (39) STR 475 (Tri.-Mumbai) to assert that the activity of Sole Selling Agent cannot be considered to be provision of Business Auxiliary Service. He argued that they were paying VAT on the entire value of the goods sold. He further argued that in terms of Notification No. 12/2003-ST they are entitled to deduction of the value of goods sold. He argued that the contention regarding the benefit of notification No. 12/2003-ST has not been dealt with in the impugned order.
2.2 He further argued that the service tax is leviable in view of the fact that they have paid VAT on the entire value of the transaction on which service tax has been demanded.
3. Ld. AR for the Revenue argued that the statement of service of procurement involved of procurement of goods is in the instant case, as the appellants have undertaken to ensure life time supply of spare to their clients. He relied on the decision of Tribunal in the case of Jain Marketing vs. Commissioner of Service Tax, Chennai 2011 (21) STR 532 (Tri.-Chennai) wherein following has been observed:-
3.?It cannot be disputed that the assessee is a commercial concern, which provides Business Auxiliary Services relating to procurement of goods (fabrics) which are inputs for the client M/s. Hasbro Clothing Pvt. Ltd. The proviso covers seven categories of business and the Notifications provisions set out that the exemption is not applicable to seven categories of the persons set out therein unless such seven categories provides any Business Auxiliary Service in respect of any activity specified in clause (a) to (d) of the main part of the Notification in relation to agriculture, printing, textile processing or education. The assessee herein being an individual, not falling within any of the seven categories set out in the provisions, is not required to establish that it is providing Business Auxiliary Services in respect of either procurement of goods or services, which are inputs for the client; production of goods on behalf of the client; provision of service on behalf of the client; or a service incidental or auxiliary to any activity specified above, in respect of the activity specified above in relation to agriculture, printing, textile processing or education.
4.?Since the appellant herein is an individual and procuring the goods for clients, which are inputs for his client, the assessee is covered by the first part of the Notification and we are not required to decide the applicability of the proviso of the Notification. The assessee is, therefore, entitled to benefit of the exemption under Notification No. 14/04. Hence, the demand of Service Tax, interest and penalty is unsustainable. Accordingly, we set aside the impugned order and allow the appeal.
4. We have considered the rival submission. We find that there is no doubt that the appellants are purchasing the spares from the various sources. The appellants are also clearing the said spares to their clients on payment of VAT of the entire value of the goods. In one contract produced before us they have given a guarantee to ensure life time supply of spares. However in other contracts there is no such guarantee. In those contracts, the appellants are under no obligation no supply spares. In the contracts where there is no such guarantee to ensure supply of spares it has to be treated as the pure sale transaction.
5. In the cases where the appellants are providing a guaranty to ensure the life time supply of spares there can be doubt regarding the element of service involved in the transaction. This is more so in view of the fact that there is a clause in the agreement which provides for penalties or compensation in the case of failure of the appellant to fulfil condition of agreement. However before we go into that aspect we find that the appellant have contended that even if it is held to be a taxable service, the same is exempt under Notification No. 12/2003-ST.
5.1 Notification No. 12/2003-ST as amended by Notification No. 12/2004-ST read as follows:-
In exercise of the powers conferred by section 93 of the Finance Act, 1994 (32 of 1994), the Central Government, being satisfied that it is necessary in the public interest so to do, hereby exempts so much of the value of all the taxable services, as is equal to the value of goods and materials sold by the service provider to the recipient of service, from the service tax leviable thereon under section (66) of the said Act, subject to condition that there is documentary proof specifically indicating the value of the said goods and materials.
Provided that the said exemption shall apply only in such cases where -
No credit of duty paid on such goods and?(a) materials sold, has been taken under the provisions of the Cenvat Credit Rules, 2004; or Where such credit has been taken by the?(b) service provider on such goods and materials, such service provider has paid the amount equal to such credit availed before the sale of such goods and materials..
The said notification provides that if during the provision of the services any goods are sold the value of such sales is excluded from the value of the services. Ld. Counsel has argued that in the instant case, the value on which service tax has been demanded is the same value at which the goods have been sold. Therefore, the entire value is exempt in terms of Notification No. 12/2003-S.T. In this regard, the CBEC Vide Circular No. B2/8/2004-TRU dated 10.09.2004 is clarified as follows:-
24. Restriction on availment of credits and exemptions towards goods sold, in cases where abatements are allowed :
In?24.1 cases of specified services, like tour operators, rent-a-cab, mandap-keeper providing catering services, erection, commissioning and installation etc., abatements are allowed to neutralize the cost of materials/goods supplied or used during the course of provision of service. These abatements were allowed when cross credit of excise duty and service tax was not available. Service tax like Cenvat is basically a value added tax which is operated through credit mechanism. It is being provided that in all such cases, the abatement would be conditional, subject to non-availment of input goods and capital goods credit under the new Cenvat Credit Rule, 2004 and also non availment of benefit under Notification No. 12/2003-S.T. (refer Notification No. 12/2004-S.T., dated 10-9-2004). The credit of input services would, however, be available.
24.2 No. 12/2003-S.T. provides that the value of goods and materials sold by the service provider during the course of providing service shall remain excluded from value of taxable service subject to production of documentary proof of value of such sale. It is being provided that benefit of abatement would not be available to any service provider availing this concession. Also, this concession would be subject to condition that either no CENVAT credit has been availed on such goods or if already availed, it is reversed prior to the sale of such goods. (refer Notification No. 12/2004-S.T., dated 10-9-2004).
6. We find that impugned order does not deal with the contention of appellant regarding availability of Notification No. 12/2003-ST. In respect of transactions where contracts create an obligation on the appellants to provide spares, we set-aside the impugned order and remand the case to Commissioner (Appeals) to answer the question regarding availability of Notification No. 12/2003-ST or otherwise. In respect of transactions where there is no such obligation in the contract, the demand is set-aside.
6. Appeal is disposed off in above terms.
(Order pronounced on 07.04.2017)
(D. M. Misra) (Raju)
Member (Judicial) Member (Technical)
G.Y.
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Appeal No. ST/10616/2014