Custom, Excise & Service Tax Tribunal
L M P Precision Engineering Co P Ltd vs Valsad on 15 May, 2024
CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL
WEST ZONAL BENCH AT AHMEDABAD
REGIONAL BENCH - COURT NO. 01
SERVICE TAX Appeal No. 10390 of 2016
[Arising Out Of OIO-VLD-ST-000-COM-0001-15-16 Dated- 03/12/2015 Passed By
Commissioner of Central Excise, Customs and Service Tax-Valsad]
L M P Precision Engineering Co P Ltd .....Appellant
Plot No. 2p And 3, Gidc Estate, Chikhli Road, Antalia,
Taluka : Gandevi, NAVSARI,GUJARAT
VERSUS
C.C.E & S.T.-Valsad .....Respondent
Third Floor, Adarashdham Building, Vapi-Daman Road, Vapi, Gujarat, Gujarat-396191 APPEARANCE:
Shri. Saurabh Dixit, Advocate for the Appellant Shri. Anoop Kumar Mudvel, Superintendent (AR) for the Respondent CORAM: HON'BLE MEMBER (JUDICIAL), MR. SOMESH ARORA HON'BLE MEMBER (TECHNICAL), MR. C.L. MAHAR FINAL ORDER NO. 11039 /2024_ DATE OF HEARING:09.05.2024 DATE OF DECISION:15.05.2024 SOMESH ARORA The short issue involved in the present appeal is whether the service tax is payable on the act of selling/supplying bought out goods(spares) by the Appellant for their buyers, while selling drilling rigs and ancillary equipment produced by them, and whether it amounts to rendering service under the category of "Business Auxiliary Service". For the previous period demand, this Tribunal vide final Order No. A/10744/2017 dated. 07.04.2017 had dropped the demand simpliciter towards sale of bought out spares to customers, where it was not mandatory to provide life-time spare supply and had remanded the proceedings back to the original authority to the limited extent of examining applicability of Noti.12/03-ST qua sale of spares to the
2|Page ST/10390/2016-DB customers, where the contract stipulated providing life-time supply of spares. That the said Notification No.12/03-ST is pari materia to Section 66D(e) of the Finance Act, 1994 read with Section 66B(44) of the said Act, which clearly states that any trading of goods and/or mere sale of goods is outside purview of "service" and even covered under Negative list, and no Service Tax can be demanded thereon. Whether the said spares had to be "traded" due to contractual compulsion or otherwise, so long as it is mere "trading" of goods, and on which admittedly VAT stands paid, no Service Tax thereon can be demanded at all. That the Adjudicating Authority in the remand proceedings dropped the demand vide OIO No. SUR-EXCUS-000- COM-006-20-21 dated. 31.08.2020 on all counts, by way of reasoned order and which was accepted by revenue department as well. That in the present appeal also that there were two kinds of contracts entered into with various customers (some of which are government entities). In one kind of contract, there is no mandate on the Appellant to supply lifetime spares to the customers and having sold drilling rigs/heavy engineering machinery to the customers, and the Appellant is not under any obligation to provide lifetime spares even on trading basis and the customers may or may not place any order on the Appellant in this regard. The second category of contracts is where the Appellant sells drilling rigs/heavy machinery mainly to government entities. In the said contract there are stipulations which provide that the Appellant is duty bound to supply spares till lifetime of the machine to the buyers and in case of any failure on part of the Appellant, there are penal clauses contained in the contract. This Tribunal for the previous period categorically held that there cannot be any demand of service tax in respect of contracts of the first category i.e. where there is no contractual stipulation to provide lifetime spares even on trading basis by the Appellant to the customers and in such cases, the sale of spares can never attract service tax. The Revenue Authorities have chosen not to appeal against this portion of the order. At that stage, it was submitted that
3|Page ST/10390/2016-DB the demand which pertains to such category of contracts wherein equipment was originally sold without any stipulation for providing lifetime spares supplies by the Appellant on trading basis to the customers, the same must be set-aside without any reservation. As regards the other category of contracts wherein at the time of selling original equipment, there is a stipulation that the Appellant has to provide lifetime supply of spares on (trading basis), it was stated by the appellant that the Tribunal did not record any conclusive finding in previous board of litigation and, simply stated that there can be a doubt regarding element of service involved in such transaction. The Tribunal did not go into all aspects and did not finally examine whether there can be a levy of service tax since another alternative submission viz. the transaction was exempt under notification no. 12/2003- ST was found favour with the Hon'ble Tribunal and even agreed with by the lower authority as well. On remand, the issue has still not been properly appreciated by the Appellant Authority and an adverse finding given ultimately.
2. Against the adverse findings on the aforesaid issue by the Commissioner (Appeals), appellant has filed the present appeal on various grounds which are part of the appeal memo and the synopsis provided by the advocate. The appellant seeks to rely upon various case law as follows:
M/s. Aalidhara Textool Engineers Pvt. Ltd 2022(12) TMI 11(CESTAT Ahm) M/s. Vishwanath Project Limited 2019(11)TMI 675- CESTAT Hyd JIVAN JYOT MOTORS PVT. LTD (2023) 11 Centax 119 (Tri.- Ahmd) HEWLETT PACKARD INDIA SALES PVT. LTD (2024) 15 Centax 356 (Tri.-Bang) INFINIUM MOTORS GUJ. PVT. LTD (2023) 11 Centax 245 (Tri.- Ahmd) Tanya Automobiles P. Ltd. 2016 (43) S.T.R. 155 (Tri. - All.) Samtech Industries 2015 (38) S.T.R. 240 (Tri. - Del.) Commissioner v. Samtech Industries - 2015 (38) S.T.R. J434 (All.
4|Page ST/10390/2016-DB Tyresoles India P. Ltd. 2019 (21) G.S.T.L. 476 (Kar) Safety Retreading Co. (P) Ltd. 2017 (48) S.T.R. 97 (S.C.) Wipro GE Medical Systems P. Ltd. 2009 (14) S.T.R. 43 (Tri. - Bang) Commissioner v. Wipro GE Medical Systems Pvt. Ltd.- 2012 (28) S.T.R. J44 (S.C.) Kiran Motors Ltd. 2009(16) STR 74 (Tri-Ahmd) FOXTEQ SERVICES INDIA PVT.LTD-2020 (34) G.S.T.L. 470 (Tri.
Chennai) Seva Automotive Pvt. Ltd. 2015(37) S.T.R. 747(Tri- Mumbai) M/s. MG Motors 2020(4) TMI 380-CESTAT New Delhi Modern Machinery 2019(5) TMI 718- CESTAT New Delhi 2.1 During the course of hearing, Learned Advocate took the Bench through various works contracts, as well as underlying conditions contained therein to emphasise that the goods were supplied on principal to principal basis. They were purchasing the same from the market and supplying by adding some margin to their customers and the goods were never supplied on commission basis so as to come under preview of the provision relating to 'Business Auxiliary Service' as were existing during the impugned period of January, 2011 to June, 2012. And even thereafter, it was still supply of goods only upto November, 2013 period. It was further pointed out by the appellant that at the time of sale of rigs, their existed conditions of providing spare parts by them to their purchaser be it Government supplies or otherwise with only difference that for Government supplies same was stipulated in works order to be supplied as per requisition of the customer throughout life period of existence of rigs. He also pointed out that there was no element of service and goods were discharging Purchase and Sales Tax/ (VAT) as was applicable. That such business practice exists in all industries having heavy technological component or obsolescence element including in computers, automobile, shipping, marine exploration etc. where components
5|Page ST/10390/2016-DB and spares are hard to get and offering supply of spares to the prospective buyer helps in capturing greater market with the customers. He accordingly asserted that the demand was based upon goods which were purchased and sold like any other goods with the margin of profit and had no element of service tax, as far as sale of needed spares was concerned. He seeks to place reliance on the decision of FOXTEQ SERVICES INDIA PVT.LTD as reported in 2020 (34) G.S.T.L. 470 (Tri. Chennai) wherein under somewhat similar circumstances supply of spares computer parts was not considered as 'Business Auxiliary Service'. His point of emphasise being that supply of spares as per warranty obligation under a contract cannot be considered as service. Specially when spares are getting charged for.
3. Learned AR on the other hand, places reliance on the findings of the impugned order and reiterates the same to emphasise that elements of supply is involved.
4. We have considered the above submissions. We find that in the instant case supplies were made on Principal to Principal' basis. There is nothing on record to show that any commission was being paid or the transaction were purely on commission basis without title to the goods undergoing a change like in case of intermediary services. These were purchased by the appellant in their name from the spare parts market and same were in turn sold of to their customers purely as obligatory facilitation measure without any charge for such facilitation. There was no existence of agency relationship between them and their buyer. A simple requisition by the customer of the spare parts as may be required by them and delivering the same by them was as per contractual requirement or warranty obligation by the appellant. It would not tend to bring the transaction within the ambit of 'Business Auxiliary Service'. As sale and purchase of goods was involved without any element of commission and the transaction was not on 'Principal to Agent' basis. The goods sold will not come within the ambit of service even in the post negative list period. We, therefore, hold that the impugned transactions
6|Page ST/10390/2016-DB were in the nature of sale and not within the ambit of any services, simply because the goods were supplied on 'Principal to Principal' basis, but as per pre-existing stipulation of facilitation at the time of sale of rigs to prospective customers.
5. Accordingly, we hold that the impugned order is liable to be set aside. Appeal is allowed with consequential relief.
(Pronounced in the open Court on 15.05.2024) (SOMESH ARORA) MEMBER (JUDICIAL) (C.L.MAHAR) MEMBER (TECHNICAL) Prachi