Custom, Excise & Service Tax Tribunal
Jaya Hume Pipes Pvt Ltd vs Guntur on 20 August, 2018
Appeal No. ST/1321/2010
CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL
REGIONAL BENCH AT HYDERABAD
Division Bench
Court - I
Appeal No. ST/1321/2010
(Arising out of Order-in-Original No. 10/2010 - S.Tax dated
22.03.2010 passed by Commissioner of Customs, Central Excise &
Service Tax, Guntur)
Jaya Hume Pipes Pvt. Ltd., .....Appellant(s)
Vs.
Commissioner of Customs, Central Excise
& Service Tax, Guntur .....Respondent(s)
Appearance Shri P. Venkata Prasad, Chartered Accountant for the Appellant. Shri Guna Ranjan, Superintendent (AR) for the Respondent. Coram:
Hon'ble Mr. M.V. RAVINDRAN, MEMBER (JUDICIAL) Hon'ble Mr. P. VENKATA SUBBA RAO, MEMBER (TECHNICAL) Date of Hearing: 20/08/2018 Date of Decision: 20/08/2018 FINAL ORDER No. A/31113/2018 [Order per: M.V. Ravindran] This appeal is directed against Order-in-Original No. 10/2010 - S.Tax dated 22.03.2010.
2. The relevant facts that arise for consideration, after filtering out of unnecessary details are, the appellant herein, was 1 Appeal No. ST/1321/2010 executing various contracts for the Andhra Pradesh State Irrigation Development Corporation Ltd., Panchayat Raj RWS, Public Health etc., on composite/Turnkey basis. The said organization had, apart from purchasing the pipes from the noticee, entrusted the work of erection, Commissioning and Installation of pipes for water supply. The scope of such work also includes earth work, laying, jointing, testing for raw water, pumping main, clear water transmission, construction of foot bridge, sump, pump house, supply, deliver and erection of pump sets and Transformers, supply, laying and testing of distribution system and maintenance for one year. A Show cause notice was issued to appellant for demand of service tax liability on the amounts received for this activity under taken by them during the period September, 2004 to July, 2009. The appellant contested the show cause notice on merits stating thereof that the activity under taken by them is laying of pipe line for irrigation projects and is not leviable for service tax and extended period cannot be invoked. The Adjudicating Authority after following due process of law, holding the services fall under erection, commissioning and installation services confirmed the demands raised along with interest and also imposed penalties.
3. Learned Chartered Accountant appearing on behalf of the appellant, draws our attention to the case records and submits that there is no dispute as to the fact that the agreement is for construction and commissioning on turnkey basis, lift irrigation 2 Appeal No. ST/1321/2010 scheme for Andhra Pradesh State Irrigation Development Corporation Limited (APSIDCL). In support of this, he submit, the show cause notice itself admitted this fact and also produces copy of an agreement between them and the said APSIDCL. It is his submission that the contract involved both supply , erection and commissioning material labour and it is classifiable under works contract services and the issue is now settled by the Apex Court in the case of CCE Vs. Larsen & Tourbo Ltd., [2015 (39) STR 913] and cannot be taxed prior to 01.06.2007; post 01.06.2007 also this activity in the show cause notice is sought to be taxed under erection commissioning and installation services hence it cannot be taxed as Larger Bench of Tribunal in the case of Lanco Infratech Limited Vs. CCE, Hyderabad [2015 (38) STR 709 (Tri-LB)] held so. He draws our attention to the said judgments. After the Larger Bench the Tribunal in the case of Shonan Siddhart (J.V) Vs. CCE [2017 (51) STR 64] on similar set of facts held that providing in laying of pipeline for irrigation scheme cannot be taxed under erection commissioning or installation services.
4. Learned Departmental Representative reiterates the findings of the lower authorities.
5. On careful consideration of submissions made by both sides and on perusal of records, it is noticed that the Adjudicating Authority in the impugned order has specifically recorded that the 3 Appeal No. ST/1321/2010 issue is whether during the period in question, the activities under taken by the appellant would get covered under erection commissioning and installation services or otherwise. He has held so by reading the contract entered by the appellant for APSIDCL which according to him are for supply of erection & commissioning of various irrigation schemes.
6. Since, it is undisputed that the activity under taken by the appellant is laying of pipeline for irrigation projects for the period involved under a composite contract and the show cause notice also demands service tax under erection, commissioning and installation charges, we find that the entire demand needs to be set aside as unsustainable. It is noted that similar issue came up before the Larger Bench of the Tribunal in the case of Lanco Infratech Limited (supra) and the Larger Bench after considering the various decisions and the provisions of Finance Act, 1994 in paragraph No. 7 formulated the following issues:
"7. In the above circumstances, we indicated that we would hear and dispose of issues which are common, excluding the issue whether works contract was a taxable service prior to 1-6-2007. All parties agreed to this course of action. On behalf of the several Counsel, five issues were identified for disposition by this Bench. Revenue does not demur. The issues presented for our consideration are:
Issues (A) Whether laying of pipelines for lift irrigation systems, transmission and distribution of drinking water or sewerage, undertaken for Government/Government undertakings should be classified under ECIS as erection, commission or installation of plant, machinery, equipment or structures, whether pre-fabricated or otherwise; or installation of plumbing, drain laying or other installations for transport of fluids, enumerated in Section 65(105)(zzd) and defined Section 65(39a), during 16-6-2005 to 31-
5-2007; or must be classified under CICS, as amounting to construction of 4 Appeal No. ST/1321/2010 pipeline or conduit; and if classifiable under the later provision, whether the activity is not taxable since it is not used or to be used, engaged or to be engaged primarily for industry or commerce?
(B) Whether construction of canals for irrigation purposes and laying of pipelines including as part of lift irrigation systems, undertaken for the Government/Government undertakings is liable to Service Tax under WCS as turnkey projects, including engineering, procurement and construction or commissioning projects under clause (e) of Explanation (ii) in the definition of WCS or is excluded from the ambit of WCS since it is in respect of a "Dam" and thus stands excluded from WCS, as defined? (C) Whether, turnkey projects, including engineering, procurement and construction or commissioning (EPC) projects specified in clause (e) is merely an enumeration of the mode of execution of taxable services specified in clauses (a) to (d) or is a wholly distinct taxable service and is exigible to Service Tax as an independent species of works contract service? (D) Whether, even if clause (e) in Explanation (ii) of WCS is considered a distinct and independent service, where construction of canals for irrigation purposes and laying of pipelines either as part of lift irrigation systems or for transport and distribution of water is undertaken for Government/Government undertakings, the same is more appropriately covered under clause (b) of WCS, i.e., construction of a new building or a civil structure or a part thereof, or of a pipeline or conduit, by applying principles of classification set out in Section 65A(2)(a) & (b) and thus fall outside the ambit of levy, since the activity is not primarily for the purpose of commerce or industry; or whether a contrary view that clause (e) being an independent entry, activities falling thereunder would be taxable even if the rendition of service thereby or thereunder, was not primarily for non- commercial or non-industrial purposes? and (E) Where execution of the whole or a part of the work is sub- contracted on back to back basis by the main contractor (which is a joint venture) to sub-contractors, in the absence of any transfer of property in goods involved in the execution of such works, from the main contractor to the Government/Government undertakings, whether levy of Service Tax in the hands of appellant (main contractor) is valid under WCS, in the light of the judgment in State of A.P. v. L & T Ltd. - 2008-TIOL-158-VAT-SC." After formulating the above issue in Larger Bench after analysing the issue and provisions thereof in paragraph No. 19 held as under:
"19. On the aforesaid analyses we hold [on issues (A), (B) & (C)] that construction of canals under a dam for transmission of water or sewerage; or construction of pipelines or conduits for conveyance of water for irrigation, domestic consumption or sewerage disposal even where executed as turnkey/EPC contracts; (i) would be classifiable under clause (b), Explanation (ii) of Section 65(105)(zzzza); (ii) construction of canals, pipelines or conduits for Government/Government undertakings for augmentation of irrigation, water supply or sewerage disposal would be for a non-commercial, non-industrial purpose or user and thus excluded in view of the exclusionary clause in clause (b) of WCS definition; and (iii) construction of canals, pipelines or conduits for transmission of water including by lift irrigation would be, when these works are conceived as integrated to a dam project, works contract "in respect of a dam" and thereby excluded from the purview of WCS."5
Appeal No. ST/1321/2010 Subsequently, in paragraph No. 21, the Bench held as under:
"21. In the light of the foregoing analyses, we record our conclusions on the several issues framed, as follows :
(a) Issue (A) : Laying of pipelines/conduits for lift irrigation systems for transmission of water or for sewerage disposal, undertaken for Government/Government undertakings and involving associated activities like trenching, soil preparation and filling, supporting masonry work, jointing of pipes, electro-mechanical works or pumping stations and like activity, is classifiable only under Commercial or Industrial Construction Service (CICS) for the period up to 1-6-2007 and not under Erection, Commissioning or Installation Service (ECIS);
(b) Issues (B), (C) and (D) :
(i) Construction of canals for irrigation or water supply; construction
or laying of pipelines/conduits for lift irrigation conceived and integrated into a dam project, must be classified as works contract "in respect of dam"
and is thus excluded from the scope of "Works Contract Service" defined in Section 65(105)(zzzza) of the Act, in view of the exclusionary clause in the provision;
(ii) Turnkey/EPC project contracts, enumerated in clause (e), Explanation (ii) in Section 65(105)(zzzza) of the Act is a descriptive and ex abundant cautela drafting methodology. In the light of the decision in Alstom Projects India Ltd., fortified by the Special Bench decision (dated 19-3-2015) in Larsen & Toubro Ltd. reference, a turnkey/EPC contract is taxable prior to 1-6-2007 as well. On and since 1-6-2007, turnkey/EPC contracts must be classified on the basis of the essential character of the service provided thereby, with the aid of classification guidelines set out in Section 65A(2) of the Act. Consequently, a turnkey/EPC contract must be classified under any of the clauses (a) to (d), Explanation (ii), Section 65(105)(zzzza). The bundled bouquet of services provided as turnkey/EPC contract, classifiable as Commercial or Industrial Construction Service (CICS) prior to 1-6-2007, would be classifiable under clause (b), Explanation (ii), Section 65(105)(zzzza) on and from 1-6-2007 and would not be exigible to Service Tax if the rendition of service thereby is primarily for non-commercial, non-industrial purpose, in view of the exclusionary clause in clause (b) of the definition of WCS.
This is the only possible and harmonious interpretation possible of the several clauses under Explanation (ii) of Section 65(105)(zzzza), a distinct taxable service defined with constituent elements thereof substantially drawn from elements of pre-existing taxable services like ECIS, CICS or COCS; and other services when bundled to amount to turnkey/EPC;
(iii) Construction of canals/pipelines/conduits to support irrigation, water supply or for sewerage disposal, when provided to Government/Government undertakings would be for non-commercial, non- industrial purposes, even when executed under turnkey/EPC contractual mode and would fall within the ambit of clause (b), Explanation (ii) of Section 65(105)(zzzza); and would consequently not be exigible to Service Tax, in view of the exclusion enacted in clause (b); and
(c) Issue (E) : Whereunder an agreement, whether termed as works contract, turnkey or EPC, the principal contractor, in terms of the agreement with the employer/contractee, assigns the works to a sub- 6
Appeal No. ST/1321/2010 contractor and the transfer of property in goods involved in the execution of such works passes on accretion to or incorporation into the works on the property belonging to the employer/contractee, the principal contractor cannot be considered to have provided the taxable (works contract) service enumerated and defined in Section 65(105)(zzzza) of the Act". The above reproduced Larger Bench ratio would squarely cover the issue in favour of the appellant in the case in hand. Accordingly, we hold that the entire demand which has been raised by the show cause notice is liable to be set aside and we do so.
7. We also find strong force in the contentions raised by the Learned Counsel that prior to 01.06.2007 the demand on the appellant cannot be sustained in view of the judgment of the Apex Court in the case of Larsen & Tourbo Ltd., as it is the fact that contracts which are awarded to the appellant are for erection & commissioning of various irrigation projects. That would mean that the entire contract is a works contract.
8. In view of the foregoing, we set aside the impugned order and allowed the appeal with consequential reliefs if any.
(Operative part of this order was pronounced in open court on conclusion of hearing) P. VENKATA SUBBA RAO M.V. RAVINDRAN MEMBER (TECHNICAL) MEMBER (JUDICIAL) Lakshmi....
7