Custom, Excise & Service Tax Tribunal
Commissioner Of Central Excise & St, ... vs M/S. Xerox India Limited on 13 March, 2018
CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL SCO 147-148, SECTOR 17-C, CHANDIGARH 160 017 COURT NO. I Appeal No. ST/376/2011-DB Date of Hearing : 04.12.2017 Date of Decision : 13.03.2018 [Arising out of Order-in-Appeal No. OIA-08-10-SJS-CST-ADJ-2010 dated 07.03.2011 and OIA-08-10-SJS-CST-ADJ-2010 dated 30.11.2010 passed by the Commissioner (Appeals) Central Excise & ST, Delhi] Commissioner of Central Excise & ST, LTU, Delhi : Appellant vs. M/s. Xerox India Limited : Respondent
AND Appeal No. ST/1041/2011-DB M/s. Xerox India Limited : Appellant vs. Commissioner of Central Excise & ST, LTU, Delhi : Respondent Appearance:
Shri G.M. Sharma, A.R. for the Revenue(s) Shri B.L. Narsimhan, Advocate for the Assessee(s) CORAM:
Honble Mr. Ashok Jindal, Member (Judicial) Honble Mr. Devender Singh, Member (Technical) Final Order No. 61306-61307/2018 Per : Ashok Jindal Both sides are in appeal against the impugned orders.
2. The brief facts of the case are that M/s. Xerox India Limited (Xerox for short) is engaged in the business of manufacture/ import and sale of photocopiers, printers, scanners, fax machines, MFDs, etc., their parts and accessories and are providing the service of maintenance of the said products. The appellant undertook the service activities of Maintenance and Repairs as per the contract of Full Service maintenance Agreements (FSMA), Spares and Service Agreements (SSMA), Volume Based Service Agreements (VBSA) and Annual Maintenance Contracts (AMC). For the above said agreements, M/s. Xerox charged service tax on the standard percentage of labour deduction allowed under State Sales Tax/ VAT provisions and depositing the same. Apart from the above activity, M/s. Xerox were also engaged in the activity of agreements namely, Document Management Services/ Solutions Agreements (DMSA) entered with various clients. As per the said agreements, M/s. Xerox were required to provide service to their clients along with paper, envelopes and ink. The said service was classifiable under Business Support Service and on the said service, the appellant was paying service tax under the contract value, after deducting certain percentage towards material consumption and worked out based on actual value of material supplied and consumed under these contracts. An audit was conducted in 2007 and the show cause notices were issued to M/s. Xerox alleging that the deductions claimed by M/s. Xerox from the gross value received under the aforementioned service contracts is not permissible and they are liable to pay service tax on the gross amount received from the customers. The show cause notices were adjudicated, the adjudicating authority dropped the demand for Maintenance and Repair services and Business Support Service/ Business Auxiliary Service, for the period July 2003 to December 2006 and July 2003 to April 2006, respectively, as time-barred. He also dropped demand under Business Auxiliary Service. Both sides are in appeal against the impugned order. M/s. Xerox is in appeal against the order of confirming demands and imposing penalties whereas, Revenue is in appeal against the part of impugned order wherein certain demands have been dropped by the adjudicating authority, hence these appeals.
3. As both the appeals are arising out of a common order, therefore both the appeals are taken up for disposal by a common order.
4. Ld. Counsel appearing on behalf of M/s. Xerox submitted that M/s. Xerox has correctly discharged service tax liability on Maintenance and Repair Services as maintenance contract executed by the appellant involve both, material and labour and is liable to Works Contract Tax under Sales Tax/ VAT provisions of respective States and the Honble Apex Court has examined the contract in question, reported in Xerox Modicorp vs. State of Karnataka (2005) 7 SCC 380 wherein it was held that supply of material in the FSMA contract are to be sale as it amounts to transfer of property. As per State Sales Tax/VAT provisions prescribed a standard percentage deduction towards labour portion of the said contract and it require payment of Works Contract Tax on the balance portion of the consideration. M/s. Xerox was availing said standard abatement under Sales Tax/ VAT provisions and paying Works Contract Tax on the balance portion towards materials involved in the execution of maintenance contracts. For the remaining part i.e. labour portion of FSMA and SSMA contracts M/s. Xerox was paying service tax under the category of Maintenance and Repair services. He further submitted that the adjudicating authority fell in error by denying the benefit of Notification No. 12/2003-ST on the ground that M/s. Xerox has been paying service tax on presumptive value used as per VAT laws which is incorrect as per law. He also relied on the decision in the case of Wipro GE Medical Systems Limited vs. CST 2009 (24) STR 43 (Tri. Bang.) to say that if sales tax is paid on material portion then service tax cannot be levied on the same portion again. The said order stands affirmed by the Honble Apex Court reported as 2012 (28) STR J-44 (SC). He also relied on the decision in the case of Hindustan Aeronautics Limited vs. CST 2010 (17) STR 81 (Tri. Bang.). He further relied on the decision of Safety Retreading Company Pvt. Limited vs. CCE 3027 (48) ELT 97 (SC). He submits that the adjudicating authority has held that M/s. Xerox has paid VAT using presumptive value of goods and the same presumptive value cannot be used for the purpose of payment of service tax as it is only applicable in cases of VAT. It is his submission that the adjudicating authority has held that presumptive value under VAT provisions cannot be extended to service tax provisions as both work on different spheres and State does not have competence to legislate in service tax matters. He submitted that in the case of Wipro GE Medical Systems Limited (supra) the Tribunal held that when the assessee paid VAT on an approximate value of 70% of the contract then service tax cannot be charged beyond 30% of the contract value. Therefore, he submits that the impugned order, to that account, is to be set-aside. He further submitted that the adjudicating authority did not allow M/s. Xerox to take abatement of the actual value of material of Business Auxiliary Service/ 'Business Support Service' when it is proved that it is higher than the value of abatement availed by M/s. Xerox since VAT has been paid on the presumptive value only. Moreover, ld. adjudicating authority also did not allow M/s. Xerox to take the abatement of the presumptive value for the purpose of Maintenance and Repair services. He further submitted that M/s. Xerox has correctly discharged service tax on the labour portion in respect of Maintenance and Repair services.
5. Ld. Counsel further submitted that M/s. Xerox has correctly discharged the service tax liability for Xerox Global Services (XGS for short) under 'Business Support Service'. No separate findings with regard to XGS contract has been given in the show cause notice to deny the benefits of exemption notification and has given the same findings as given with regard to SSMA and FSMA contracts, that as M/s. Xerox is using a presumptive value to discharge its VAT liability, the same value cannot be used to discharge service tax liability. As the said findings are factually incorrect as the percentage of material consumption for each type of XGS contracts mentioned above was worked out based on actual value of material supplied and consumed under those contracts. It is his submission that M/s. Xerox was paying service tax on pre-determined portion of click charges received from the customers for performing the required copying or printing activity which was attributable to service / labour and was paying VAT/ Sales Tax on the balance portion attributable to materials. He submits that in view of the above, M/s. Xerox has correctly discharged its liability under XGS contracts and demands under the said category are not sustainable. In alternate, he submits that the actual value of the material supplied during the said contracts is higher than the value claimed as abatement.
Ld. Counsel strongly argued that the contracts under Maintenance and Repair services and Business Support Service are Works Contract and cannot be vivisected therefore, M/s. Xerox is not liable to pay service tax at all under the category Maintenance and Repair services and Business Support Service/ Business Auxiliary Services. He submits that these are the composite work contracts involving both material and labour and cannot be vivisected to find the service part to subject to service tax under Maintenance and Repair services. He relied upon the decision in the case of Xerox Modicorp Limited (supra) and CCE vs. Daelim Industrial Company 2004 (170) ELT A181(SC). He also relied on the decision of CCE vs. Balaji Tirupati Enterprise 2013 (32) STR 530 (All.) to say that the goods which are deemed to be sold in the execution of works contract shall not enter the purview of the levy of service tax. He also relied on the decision in the case of Technocrate Transformers vs. CCE, Kanpur 2015 (39) STR 996 (Tri. Del.) and Larsen & Toubro Limited 2015 (39) STR 913 (S.C.). He further submitted that the activities of the appellant are not covered under the scope of Works Contract Service defined under Section 65 (105) (zzzza) of the Act till the period 01.07.2012 since as per the definition, works contract shall be for one of the specified purpose. He further submitted that the demands for the period Sept. 2006 covered in the show cause notice dated 27.02.2008 is time barred as the M/s. Xerox was duly filing ST-3 returns and department was in knowledge of its activities. He also submits that M/s. Xerox was under bonafide belief as it had discharged sales tax/ VAT liability on the value of materials and goods involved in the execution of the said maintenance and XGS contracts, there was no further liability of service tax on the same amount. He also relied on the decision of Parul Associates Interiors Pvt. Limited vs. CST, Bangalore 2016 (46) STR 373 (Tri. Bang.). He further submits that demand of interest and penalty are also not sustainable on merits. Therefore, it is his prayer that the impugned order qua demanding service tax along with interest and imposing penalty on M/s. Xerox are to be set-aside.
6. With regard to Revenues appeal, he submits that M/s. Xerox has correctly classified XGS under 'Business Support Service' therefore, no liability arises for 'Business Support Service' rendered prior to May 2006. It is his submission that XGS contract involves only printing of bills/ invoices for their client and M/s. Xerox is not providing billing service to their clients and is only concerned with printing of bills which is not classifiable under Business Auxiliary Service. He relied on the Departments letter No. 334/4/2006-TRU dated 22.02.2006 which clarifies that the outsourced business activities fall under Business Support Service. He also relied on the decisions in Atlas Documentary Facilitators Company (P) Limited vs. CST, Mumbai 2017 (50) STR 22 (Tri. Mumbai.), CCE, Visakhapatnam vs. Phoenix IT Solutions Limited 2014 (35) STR 314 (A.P.) and Gandhi & Gandhi Chartered Accountants vs. CCE, Hyderabad 2010 (17) STR 25 (Tri. Bang.) affirmed by Honble Apex Court 2011 (23) STR J94 (S.C.) to submit that mere printing services are classifiable under 'Business Support Service'. He further submitted that 'Business Support Service' has been made taxable from May 2006, therefore demand under 'Business Support Service' is not sustainable. The Revenue in the show cause notice dated 27.02.2008 and 16.06.2008 did not dispute the classification of XGS. However, in show cause notice dated 22.10.2008 the issue of classification was raised and the Revenue took a contrary stand on the issue of classification and therefore, the objections in appeal regarding the classification is apparently baseless. To support his contention he relied on the decision in the case of Royal Western India Turf Club Limited vs. CST, Mumbai 2015 (38) STR 811 (Tri. Mumbai.). Without prejudice, his submission is that the printing services under Business Auxiliary Service was exempted under Notification No. 14/2004-ST dated 10.09.2004 therefore, the activities of the appellant is not taxable even if classified under Business Auxiliary Service. He also submits that the show cause notice dated 22.10.2008 is barred by limitation as it covered the period from July 2003 to December 2006.
7. On the other hand, ld. AR opposed the contention of the ld. Counsel and supported the impugned order qua confirming demands. He argued the matter at length that M/s. Xerox is engaged in the activity of providing printing solutions to the customers and it included pre-printing of the bills. Pre-printing involved printing of standard images such as customers logo, advertisements and other information. The printing of final variable data was done on pre-printed paper. The supply of plain paper or pre-printed paper for printing the final bills was part of XGS. The final printing of bills with variable data supplied by the customer on the pre-printed paper or on the plain paper was also being done under XGS. The other activities involved were copying, scanning and faxing. Some post printing activities were also undertaken M/s. Xerox, such activities, inter-alia, included sorting, stuffing, perforation etc. The consideration charged under these agreements were varied from agreement to agreement depending upon factor like ownership of the equipment on which printing was done, supply of paper, xerographic supplies involved in printing etc. Therefore, the said activity is covered under BAS under Section 65 (19) of Finance Act, 1994 with effect from 01.07.2003 and in that circumstance, the ld. Commissioner has fell in error to hold that activities undertaken by M/s. Xerox does not qualify as Business Auxiliary Service. To support his contention he relied on the decision in the case of Ricoh India Limited vs. CCE, Delhi 2011 (21) STR 68 (Tri. Del.) to say that in that case, this Tribunal directed the assessee to make the pre-deposit. Therefore, he submits that the impugned order qua dropping demand against M/s. Xerox be set-aside.
8. Heard the parties and considered the submissions. On careful consideration of the submissions made by both sides, we find that following issues emerges for our consideration:-
(a) Whether the activity undertaken by M/s. Xerox for various contracts for Maintenance and Repairs do qualify as Maintenance or Repair Service, or not?
(b) Whether the service namely, XGS shall qualify under 'Business Support Service' or Business Auxiliary Service or under Works Contract service?
(c) Whether the activity undertaken by M/s. Xerox are properly classifiable under Works Contract or not?
(d) Whether interest can be demanded and penalty can be imposed against M/s. Xerox.
9. (a) Whether the activity undertaken by M/s. Xerox for various contracts for Maintenance and Repairs do qualify as Maintenance or Repair Service, or not? It is a fact that appellant is engaged in the activity of Maintenance and Repair of equipments supplied by them under various contracts. M/s. Xerox is required to replace the parts and accessories at the time of repair or maintenance and the Honble Apex Court has examined the contract of M/s. Xerox and held that these contracts i.e. FSMA, SSMA, AMC etc. are Works Contracts and M/s. Xerox is liable to pay VAT/Sales Tax on the material portion of the said contract, as per various State VAT Act. Therefore, as it has been held by the Honble Apex Court these are the Works Contracts and M/s. Xerox is paying VAT on the portion of materials supplied, therefore in the light of the decision in the case of Wipro GE Medical Systems Limited (supra) M/s. Xerox is liable to pay service tax only on Labour Portion. In the said case, it Tribunal observed as under:-
8.?On a very careful consideration of the fact, we find that there is no dispute with regard to the leviability of service tax on the maintenance and repair services. The main point of dispute is with regard to the valuation. However, Section 67 of the Finance Act clearly provides for the abatement of the value of the goods sold in the course of the carrying out of the service. The point is whether the goods are actually sold. According to the department, the contract is only for the maintenance and repair. Therefore, it cannot be said that the spare parts were sold. This view is not correct. The chartered accountant has actually given a certificate with regard to the consumption of materials. It is also not denied that in the course of the maintenance no material was used. In several decisions it has been held that service tax cannot be levied on that portion of the value on which sales tax has been charged. This position has been elaborately dealt with in the decision of the Shilpa Colour Lab case decided by this Bench and cited supra. This view has been affirmed in many decisions. Once, the sales tax has been paid on the materials, then on the same service tax also cannot be charged. In fact, the appellants had relied on the decision of the Honble Karnataka High Court which has been upheld by the Honble Supreme Court. In the Modi Xerox case it has been clearly held that in the Annual Maintenance Contract, the replacement of spares etc. would be considered as sale. Even in the present case, on 70% of the value sales tax has been paid and this has been accepted by the Government of Karnataka. This fact also cannot be ignored. Moreover, Notification No. 12/2003 dated 20-6-2003 clearly provides for exempting the value of the materials sold during the provision of the service. Whenever, any service is provided if in the course of the provision of the service certain materials are used they will definitely be considered as sale. This is clearly covered by the Constitutional Article 366 (29) (B) cited by the learned Advocate. We do not agree with the learned Commissioner that the said Constitutional provision has no application here. The Maintenance and Repair Contract entered by the appellant with their customers has been recognized as Works Contract by the Government of Karnataka and the registration has been obtained for payment of sales tax. When that is the case, it cannot be said that the spare parts received by the clients of the appellant have not been sold to them. We hold that in any Annual Maintenance Contract the spare parts etc. which have been used in the course of the maintenance service are definitely to be considered as sold and when sales tax has been paid on the value of such goods, simultaneously one cannot charge them to the service tax. In view of these clear legal provisions, there is absolutely no justification for levy of service tax beyond 30% of the value of the total contract. We would like to state that the data provided by the appellant shows that the adoption of 30% of the value of the contract towards value of services rendered appears to be reasonable in the light of the payment of sales tax on the 70% value which has also been accepted. Therefore, this valuation cannot be said to be arbitrary. In these circumstances, we do not find any merit in the impugned orders. Since, the demand of duty is not sustainable the demand of interest, penalty etc. also are not justified. Hence, we allow the appeals with consequential relief. The said order was affirmed by the Honble Apex Court reported as 2012 (28) STR J44 (SC).
10. (b) Whether the service namely, XGS shall qualify under 'Business Support Service' or Business Auxiliary Service or under Works Contract service?
We find that the Revenue sought to classify the said services under the category of Business Auxiliary Service. For better appreciation of the Business Auxiliary Service, we need to see the definition:-
With effect from 01.07.2003 - the "Business Auxiliary Service" means any service in relation to, -
(i) promotion or marketing or sale of goods produced or provided by or belonging to the client; or
(ii) promotion or marketing of service provided by the client; or
(iii) any customer care service provided on behalf of the client; or
(iv) any incidental or auxiliary support service such as billing, collection and recovery of cheques, accounts and remittance, evaluation of prospective customer and public relations services.
Section 65 (19) was amended with effect from 10th September 2004. The new version of the Section is as under;
Business Auxiliary Service means any service in relation to,
(i) promotion or marketing or sale of goods produced or provided by or belonging to the client; or
(ii) promotion or marketing of service provided by the client; or
(iii) any customer care service provided on behalf of the client; or
(iv) procurement of goods or services, which are inputs for the client; or
(v) provision of service on behalf of the client; or
(vi) a service incidental or auxiliary to any activity specified in sub-clauses (i) to (vi), such as billing, issue or collection or recovery of cheques, payments, maintenance of accounts and remittance, inventory management, evaluation or development of prospective customer or vendor, public relation services, management or supervision. The case of the Revenue is that the activity undertaken by M/s. Xerox is covered Clause (iv) of the definition prior to 10.09.2004, any incidental or auxiliary support service such as billing, collection and recovery of cheques, accounts and remittance, evaluation of prospective customer and public relations services. The main emphasis is on the billing and therefore, it is better to examine one of such activity undertaken by M/s. Xerox is covered under Billing or not. The said issue has been examined by the Hon'ble Andhra Pradesh High Court in the case of Phoenix IT Solutions Limited (supra), wherein the facts of the case are as under:-
3.?The respondent-assessee is engaged in providing various services to electricity companies and electricity departments including M/s. Andhra Pradesh Electricity and Power Distribution Company Limited (APEPDCL) of Srikakulam, Vizianagarm, Visakhapatnam, Rajamundry, Kakinada, Eluru, Narsapuram and Bhimavaram and has entered into an agreement with the APEPDCL, Visakhapatnam, inter alia, for spot billing, maintaining accounts and Software development and implementation and maintenance. Similar agreements with electricity Departments of the Govt. of Orissa were entered into by the respondent-assessee.
4.?On a perception that the appellant was engaged in providing services under the category of Business Auxiliary Services (BAS) without obtaining Registration with the Department for payment of Service Tax and was not discharging their Service Tax liability, a show cause notice dated 5-6-2007 was issued demanding Service Tax of Rs. 74,28,063/- under the proviso to Section 73(1) of the Finance Act, 1994, along with interest under Section 75 and proposing penalties under Sections 76, 77 and 78 of the Finance Act, 1994. Eventually by the order dated 9-6-2008 the Commissioner confirmed the demand along with interest and imposed penalty. Aggrieved, the respondent-assessee preferred an appeal before the CESTAT. After examining the issue, the Hon'ble High Court observed as under:-
5.?By the order impugned, the Tribunal held inter alia that the billing and accounting work executed by the assessee is taxable under Support Service of Business or Commerce and not as BAS. In Para 17 of its order, the Tribunal held that the agreement between the assessee and Northern Orissa for spot billing activity also has a similar provision as the agreement with the Electricity Distribution Companies in Andhra Pradesh; that in all these cases billing and accounting is not done on behalf of electricity companies/departments but is for them; there is no interaction/communication with the customers; meter readings are required to be provided by the electricity department and these are to be entered into computer and data generated. The Tribunal reasoned that according to the definition Support Service of Business or Commerce [defined in Section 65(104c) of the Finance Act, 1994], service provided in relation to the business or commerce, including accounting and processing of transaction is covered. The Tribunal concluded on analysis of the agreements between the respondent-assessee and the Distribution Companies that billing is a transaction and when the meter reading is provided, the meter reading is entered and the bills are generated and that activity is correctly classifiable under the SSBC.
6.?Section 65(104c) of the Finance Act, 1994 defines Support Service of business or commerce to mean services provided in relation to business or commerce including inter alia accounting and processing of transactions, infrastructural support services and other transaction processing. In view of the definition of the expression Support Service of business or commerce under Section 65(104c) of the Act, we are satisfied that the interpretation of the provision and application of the said provision to the transactions of the respondent-assessee is a fair view of the provision and calls for no interference. Section 65(104c) of the Act has been brought within the Service Tax net as Support Service of business or commerce, by the Finance Act, 2006 with effect from 1-5-2006. The transaction in question relates to the period 1-7-2003 to 30-9-2006. In the circumstances the Tribunal has rightly held that these transactions of the respondent-assessee, since they fall within support service of business or commerce are not liable to the charge of Service Tax for the period anterior to the incorporation of clause (104c) in Section 65 of the Finance Act, 1994 i.e., prior to 1-5-2006.
11. The reliance placed by the ld. AR in the case of Ricoh India Limited (supra) have no relevance to the facts of the case as the ld. AR has relied on the interim order passed by this Tribunal and the same is not binding while deciding the issue finally as it was a prima facie view of the Court. Further, we find that the appellant is engaged in the activity of printing of bill and not Billing. Therefore, the said printing of bill is altogether a different activity from the billing and cannot be termed as Billing. In that circumstances, we hold that the services in question do not qualify under the category Business Auxiliary Service. Therefore, the Revenues appeal deserves no merits hence, the same is dismissed.
12. Point (c) - Whether the activities undertaken by M/s. Xerox under various contracts of Maintenance and Repair Service and Business Support Service are properly classifiable under Works Contract or not?
The said issue has been examined by the Honble Apex Court in the case of Larsen & Toubro Limited (supra) wherein it has been held that prior to 01 June 2007, if the services have been provided along with material and the value of material supplied cannot be vivisected, in that circumstance, the appropriate classification of the service shall be Works Contract service and the same was not taxable prior to 01.06.2007. Therefore, for the period prior to 01.06.2007, no demand is sustainable under the category of Maintenance and Repair Service/ Business Support Service/ Business Auxiliary Service for the activity undertaken by M/s. Xerox as the services of Business Support Service and Maintenance and Repair along with material and the agreement cannot vivisect the amount of material supplied by M/s. Xerox.
13. As we have hold that the activity undertaken by M/s. Xerox under various contracts, therefore for the period post 01.06.2007, the Maintenance and Repair and XGS services are under Works Contract, whether the services under Works Contract is taxable or not?
We find that for the first time Section 65 (105) (zzzza) set-out to tax the service as Works Contract service for levy of service tax on the works executed along with the material and the said condition is enumerated hereunder:-
11.?By the Finance Act, 2007, for the first time, Section 65(105)(zzzza) set out to tax the following :-
(zzzza)?to any person, by any other person in relation to the execution of a works contract, excluding works contract in respect of roads, airports, railways, transport terminals, bridges, tunnels and dams.
Explanation : For the purposes of this sub-clause, works contract means a contract wherein, -
(i)?Transfer of property in goods involved in the execution of such contract is leviable to tax as sale of goods, and
(ii)?Such contract is for the purposes of carrying out, -
(a)?Erection, commissioning or installation of plant, machinery, equipment or structures, whether pre-fabricated or otherwise, installation of electrical and electronic devices, plumbing, drain laying or other installations for transport of fluids, heating, ventilation or air-conditioning including related pipe work, duct work and sheet metal work, thermal insulation, sound insulation, fire proofing or water proofing, lift and escalator, fire escape staircases or elevators; or
(b)?Construction of a new building or a civil structure or a part thereof, or of a pipeline or conduit, primarily 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;
12.?Section 67 of the Finance Act, 1994 was amended to read as follows :-
Valuation of taxable services for charging Service tax. -
(1)?Subject to the provisions of this Chapter, service tax chargeable on any taxable service with reference to its value shall,
(i)?in a case where the provision of service is for a consideration in money, be the gross amount charged by the service provider for such service provided or to be provided by him;
(ii)?in a case where the provision of service is for a consideration not wholly or partly consisting of money, be such amount in money, with the addition of service tax charged, is equivalent to the consideration;
(iii)?in a case where the provision of service is for a consideration which is not ascertainable, be the amount as may be determined in the prescribed manner. The Honble Apex Court further examined which service is liable to be taxed under Section 65 (105) (zzzza) of the Act and observed as under:-
24.?A close look at the Finance Act, 1994 would show that the five taxable services referred to in the charging Section 65(105) would refer only to service contracts simpliciter and not to composite works contracts. This is clear from the very language of Section 65(105) which defines taxable service as any service provided. All the services referred to in the said sub-clauses are service contracts simpliciter without any other element in them, such as for example, a service contract which is a commissioning and installation, or erection, commissioning and installation contract. Further, under Section 67, as has been pointed out above, the value of a taxable service is the gross amount charged by the service provider for such service rendered by him. This would unmistakably show that what is referred to in the charging provision is the taxation of service contracts simpliciter and not composite works contracts, such as are contained on the facts of the present cases. It will also be noticed that no attempt to remove the non-service elements from the composite works contracts has been made by any of the aforesaid Sections by deducting from the gross value of the works contract the value of property in goods transferred in the execution of a works contrat.
25.?In fact, by way of contrast, Section 67 post amendment (by the Finance Act, 2006) for the first time prescribes, in cases like the present, where the provision of service is for a consideration which is not ascertainable, to be the amount as may be determined in the prescribed manner.
26.?We have already seen that Rule 2(A) framed pursuant to this power has followed the second Gannon Dunkerley case in segregating the service component of a works contract from the goods component. It begins by working downwards from the gross amount charged for the entire works contract and minusing from it the value of the property in goods transferred in the execution of such works contract. This is done by adopting the value that is adopted for the purpose of payment of VAT. The rule goes on to say that the service component of the works contract is to include the eight elements laid down in the second Gannon Dunkerley case including apportionment of the cost of establishment, other expenses and profit earned by the service provider as is relatable only to supply of labour and services. And, where value is not determined having regard to the aforesaid parameters, (namely, in those cases where the books of account of the contractor are not looked into for any reason) by determining in different works contracts how much shall be the percentage of the total amount charged for the works contract, attributable to the service element in such contracts. It is this scheme and this scheme alone which complies with constitutional requirements in that it bifurcates a composite indivisible works contract and takes care to see that no element attributable to the property in goods transferred pursuant to such contract, enters into computation of service tax. We have gone through the observations made by the Honble Apex Court and the definition of Works Contract Service. The activities undertaken by M/s. Xerox under various contracts in question for Maintenance and Repair and XGS i.e. 'Business Support Service'/Business Auxiliary Service do not qualify as taxable service under Works Contract service, under Section 65 (105) (zzzza) of Finance Act, 1994, during the period.
As the activities undertaken by M/s. Xerox under various contracts in question, is in nature of Works Contract i.e. the service has been provide along with material and value of the material cannot be vivisected and therefore, prior to 01.06.2007 M/s. Xerox is not liable to pay service at all. For the period post 01.06.2007, as M/s. Xerox is providing services in question along with material but the same is not covered under Works Contract as per Section 65 (105) (zzzza) of the Finance Act, 1994. Therefore, M/s. Xerox is not liable to pay service tax under the category of Maintenance and Repair service/ 'Business Support Service'/Business Auxiliary Service.
14. In view of the above analysis, we do not find any merit in the impugned order demanding service tax from M/s. Xerox under the category of Maintenance and Repair Services/ Business Support Service. Therefore, the impugned order qua demanding service tax is set-aside. As no demand is sustainable on M/s. Xerox therefore demand of interest and penalties are also set-aside.
In result, appeal filed by M/s. Xerox is allowed and the appeal filed by Revenue is dismissed.
(Order pronounced in the court on 13.03.2018) Devender Singh Member (Technical) Ashok Jindal Member (Judicial) KL 18 Appeal Nos. ST/376/2011, ST/1041/2011-DB