Custom, Excise & Service Tax Tribunal
Rehman Khan Tobacco Enterprises Pvt Ltd vs Guntur on 27 February, 2026
(1)
ST/30432/2023
CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL
REGIONAL BENCH AT HYDERABAD
Division Bench - Court No. - I
Service Tax Appeal No. 30432 of 2023
(Arising out of Order-in-Original No. GUN-EXCUS-000-COM-023-16-17-ST dt.18.10.2016
passed by Commissioner of Central Excise & Service Tax, Guntur)
Rehman Khan Tobacco
Enterprises Pvt Ltd ......Appellant
D.No.6-4-98, 4/2, Arundelpet,
Guntur, Andhra Pradesh - 522 002
VERSUS
Commissioner of Central Excise &
Service Tax, Guntur
PB No.331, CR Building, Kannavarithota,
......Respondent
Guntur, Andhra Pradesh - 522 004 Appearance None for the Appellant.
Shri A. Rangadham, AR for the Respondent.
Coram: HON'BLE MR. A.K. JYOTISHI, MEMBER (TECHNICAL) HON'BLE MR. ANGAD PRASAD, MEMBER (JUDICIAL) FINAL ORDER No. A/30125/2026 Date of Hearing: 09.12.2025 Date of Decision: 27.02.2026 [Order per: A.K. JYOTISHI] M/s Rehman Khan Tobacco Enterprises Pvt Ltd (hereinafter referred to as the appellant) are in appeal against OIO dt.18.10.2016, whereby, service tax amount of Rs.1,45,48,159/- has been confirmed along with equal penalty (Impugned Order). The issue is regarding non-payment of service tax under the category of 'Erection, Commissioning & Installation Service' (ECIS) on Reverse Charge Mechanism (RCM) during the period 2010-11 to 2013-14.
2. The brief facts of the case are that the appellants are engaged in certain activities of tobacco packing and exporting, for which they have a factory. It was noticed by the department that they had remitted foreign currency towards the payment of cost of machinery and charges for erecting, commissioning and installation during the years 2010-11 to 2013- (2) ST/30432/2023
14. On further enquiry, it was noticed that these payments were made to service providers of countries other than India, who have no office situated in India and hence, the cost and charges of installation of imported machinery were leviable to service tax under RCM in view of the provisions under Taxation of Services (Provided from Outside India and Received in India) Rules, 2006. Since, admittedly, the machines were imported by them, which got installed by the foreign supplier in their factory premises and certain amounts were paid towards these activities, they were leviable to service tax under RCM. The department computed the service tax liability based on the information furnished by the appellant. The Adjudicating Authority has mainly taken a stand that since they have made specific payment towards erection, commissioning and installation charges of imported machinery and therefore, the said service, when provided from abroad, would attract service tax under RCM.
3. Learned Advocate for the appellant has mainly contested that the said levy is bad in law as the foreign supplier of the machinery, who was the actual manufacturer of equipment, was also under an obligation for installation of machinery in India at the appellant's place and therefore, the said company cannot be considered as agency providing service falling under section 65(105)(zzd) and therefore, the said provision of service cannot be covered within the taxable service. He further submitted that since the entire import has taken place under EPCG licenses and entire value of machinery and equipment paid to foreign supplier including installation cost was already considered for calculating Customs Duty for the purpose of fixing the export obligation under EPCG and therefore, it would not attract service tax. He has relied on the judgments passed by Coordinate Bench at Ahmedabad in the case of Rahil Air Bubbles Pvt Ltd Vs CCE & ST, Rajkot [Final Order No. A/11894/2019 dt.17.09.2019 (Tri-Ahm)] and in the case of CCE & ST, Silvasa Vs Aaldihra Textool Engineers Pvt Ltd [Final Order No. A/11744-11745/2022 dt.28.11.2022]. It was also submitted that tax has been demanded by artificially bifurcating the total invoice value of the machinery, which includes cost of installation by applying the same Notification No.19/2003-ST dt.21.03.2003 levying tax on the 33% of the total invoice value. He has also contested the invocation of extended period on the ground of bonafide belief that they were not liable to service tax on the value of installation charges, which is part of total invoice value on (3) ST/30432/2023 purchase of imported machinery and equipment and that is why the appellant had not registered and also not declared the cost of import, installation charges, etc., in the ST3 return. He has relied on various judgments of the Hon'ble Supreme Court, as under.
a) Tamil Nadu Housing Board Vs CCE [1995 (74) ELT 9]
b) Anand Nishikawa Co Ltd Vs CCE, Meerut [2005 (188) ELT 149]
c) Uniworth Textiles Ltd Vs CCE, Raipur [2013 (288) ELT 161]
d) Cosmic Dye Chemical Vs CCE, Bombay [1995 (75) ELT 721]
4. On the other hand, learned AR has reiterated the findings of the adjudicating authority.
5. Heard both sides and perused the records.
6. We find that the short question for determination is whether the foreign supplier of machinery has also provided ECIS to the appellant and therefore, the appellant is required to pay service tax under RCM or otherwise. Before we examine this issue, we have perused the sample invoices issued by foreign suppliers. We find that the invoices are on CIF basis and a consolidated amount has been raised on the appellant. The description in the invoices shows 'One Lot Tobacco Processing Machinery and Equipment, Export Packing and Shipment, Installation and Supervision and Commissioning for 10 Ton/Hr, 5-Stage Multi Separator Threshing and Separating Line per Quotation No.10966 R5 Dated 14 Sept 2009, Layout Drawing No.Q10966, Rev.3 Dated 12 August 2009'. Similarly, in respect of most of the invoices covered in this demand, a consolidated payment has been asked for by the supplier. We also note that the service tax demand has been made out based on the information furnished by the appellants themselves, wherein, admittedly, invoice-wise gross payment has been taken into consideration. This has been worked out for the years 2010-11 up to 2013-14. Incidentally, there is neither any transaction nor any demand for the year 2013-14 as per the annexure to SCN. This amount of foreign exchange was converted into INR to work out the total taxable value year- wise and thereafter, on the said taxable value, an abatement of 67% was allowed by the department to work out the service tax payable.
7. We, therefore, find that admittedly a consolidated amount has been charged by the foreign supplier, which included even their obligation for (4) ST/30432/2023 installation and commissioning. We also note that the department has not worked out the leviability based on segregating the cost of equipment from the total amount paid to the foreign supplier in order to arrive at the service portion i.e., EBC component. This is apparently because the said value could not have been segregated in view of the consolidated value charged by the foreign supplier and paid by the appellant. Therefore, while the foreign suppliers have admittedly undertaken installation and commissioning etc., there is no direct evidence to prove that any amount has been specifically paid for this service. Therefore, we find there is force in the contention that these foreign suppliers were under contractual obligation to even install and erect the said machinery supplied by them and they were not acting as erection and commissioning agency.
8. At this juncture, it is also important to note the definition of ECIS under section 65(015)(zzd), where for the period prior to 01.07.2012, the taxable service meant a service provided by a commissioning and installation agency in relation to ECIS. In this case, the foreign supplier can never be considered as commissioning and installation agency in the sense which is normally understood. It is not a case that separate arm of that foreign supplier, who was engaged only in erection and commissioning activities and there was a separate contract with them to do the said activity, is involved in the present appeal. Therefore, on this ground also, the activity could not have been covered under the category of ECIS for the period prior to 01.07.2012. Even for the period beyond 01.07.2012, unless there is clear flow of consideration for a particular activity, the said activity cannot be brought under the ambit of service tax. We do not find that any separate nexus exists between the activity relating to ECIS and the amount paid exclusively for the said purpose. Thus, we hold that in this case, consolidated payment covering various activities including supply of machinery and obligation to install the said machinery in the premises of the appellant could not be considered as an activity in which a part of the contract is vivisected to charge service tax separately under the category of ECIS for the period prior to 01.07.2012 and post 01.07.2012 as an activity chargeable to service tax read with Rule 2(d)(i)(G) of the Service Tax (Second Amendment) Rules, 2012.
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9. We also note that the entire value has been subjected to customs duty as per the clarification issued by M/s M Sherif & Sons Pvt Ltd, Customs House Agent, vide letter dt.12.12.2023. It was clarified that they had verified the attached statement consisting the details of import of machinery and equipment from foreign countries by the appellant for the purpose of identifying the value of invoices adopted for the purpose of customs duty assessment at the relevant point of time and confirmed that invoice value mentioned in the statement, which includes cost of installation and commissioning of the machinery, is considered for the purpose of customs duty against EPCG. Therefore, on this count also, once the duty has been paid or considered for assessment, then the same cannot be separately vivisected again to make a part of it leviable to service tax. The statement, in respect of which clarification has been given, is the same statement, which has been considered in the SCN for levying service tax after allowing 67% abatement.
10. We also note that though the appellant has submitted few letters issued in 2019, wherein, some of the foreign suppliers have clarified after a gap of almost 9 years that they had received the payment in respect of their supplies and they have given a breakup of machinery value and installation charges, supervision charges, commissioning charges, however, we do not find it relevant, inasmuch as, this aspect was neither taken on record by either side nor this substantiates nor contradicts the submission that a consolidated payment has been made without indicating any breakup at the time of import. If at the instance of the buyer, the supplier has given the breakup of cost, it is their internal accountal system, which would have bifurcated the total amount received by them but no such bifurcations were available or apparent at the time of issuance of invoices and no such evidence is on record that breakup of installation, erection and commissioning charges were separately negotiated or agreed upon in any contract between the foreign buyers and the appellant while supplying the machinery.
11. We have also perused relied upon case laws. In the case of Rahil Air Bubbles Pvt Ltd Vs CCE & ST, Rajkot (supra), where the issue was more or less similar to the present appeal, the Coordinate Bench at Ahmedabad, relying on various judgments, came to the conclusion that the entire (6) ST/30432/2023 transaction is that of purchase of bubble wrap machine and the appellants have discharged customs duty considering the total value of machine shown in the invoice and hence the appeal was allowed in favour of the appellant. The relevant para is cited below.
"4. We have carefully considered the submission made by both sides and perused the records. We find that the entire transaction is of purchase of imported bubble wrap machines. The appellants have discharged custom duty considering the total value of machine shown in the invoice. There is no separate charge for service such are erection and installation of such machinery. On the total value of the invoice, Custom duty was paid. The erection and installation is incidental to the sale/supply of the machine. Therefore, the entire transaction is of sale and purchase of the machine and, hence, no service is involved. Therefore, no Service Tax can be demanded. This issue is squarely covered by the Tribunal judgment in the case of Bhavik Terryab (supra) wherein the Tribunal has passed the following order.
"5. We have heard both sides and perused the appeal records. We note that there is a certificate issued by the jurisdictional Superintendent of Central Excise on 07.07.2006 in connection with the appellant's obligation under the ECCG Scheme indicating the installation of 2 of the machines prior to 18.04.2006. Similarly, there are certain indications, based on the correspondence entered into by the appellant with the supplier of machines, that the supplier appears to have had an establishment in India during the material time. Further, the contract for importation of this machinery is, admittedly, a composite one for lump-sum payment which included installation and erection of the machine at the appellant‟s premises. The customs duty on the whole value is claimed to have been discharged by the appellant. In such situation we ST/186/2012-ST [DB] find that the question of subjecting a portion of the invoice value for service tax purpose is not sustainable. In this connection, we refer to the decision of the Tribunal in Allengers Medical Systems Ltd. vs. C.C.E., Chandigarh -2009 (14) STR 235 (Tri.-Del.) and Alidhara Texspin Engineers vs. Commissioner of Central Excise & Customs, Vapi - 2010 (20) STR 315 (Tri.-Ahmd.)
6. The Tribunal, though dealing with manufactured item held that if the contract is all inclusive lump-sum without any separate split up for erection and commissioning and excise duty was discharged on the whole value, there is no liability to service tax on the part of the value.
7. We find, prima-facie, the split up of value for service tax purpose, when the whole value has been subjected to customs duty towards import of goods, is not sustainable. However, the basic facts like contract and the invoices alongwith the other issues raised by the appellant is to be examined afresh by the original authority. We also note that composite non-vivisectable contracts are not liable to service tax under the category of „works contract service‟ prior to 01.06.2007 as held by the Hon‟ble Supreme Court in Larsen & Tubro Ltd. 2015 (39) STR 913 (SC).
8. Considering the need for verifying all the factual details and nonconsideration of facts placed by the appellant at the 5 ST/186/2012-ST [DB] time of original decision, we find it fit and proper to remand the case to the original authority for a fresh (7) ST/30432/2023 decision. Since the matter is remanded, all other issues are kept open including the question of time bar raised by the appellant. Accordingly, the appeal is allowed by way of remand."
From the above judgment, which is relied upon various decisions of this Tribunal where it was held that in case of import of machine including the erection and installation, it is not permissible to artificially bifurcate the service value from the total value. Accordingly, no Service Tax can be demanded for such import. Being an identical issue and the facts involving in the present case, it is squarely covered by the judgment of Bhavik Terryab (supra). Following the ratio of the said decision, we set aside the impugned order and allow the appeal."
12. In the case of CCE & ST, Silvasa Vs Aaldihra Textool Engineers Pvt Ltd (supra), after examining various judgments and decisions, again the Tribunal did not agree with the contention of the department and dismissed the appeal filed by them. In this case, though in the context of Central Excise, the issue was whether service tax is leviable on the activity of ECIS of such machinery by supplier of the machinery or otherwise. It was noted that the respondent was under obligation to manufacture, pack, transport, erect and deliver the machinery at buyer's site and they have discharged excise duty on the total invoice value including erection, commissioning and installation of such machinery. Therefore, we find that the ratio of these judgments is also applicable in the present factual matrix.
13. On the issue of limitation, we find that the department has only contended that they had not taken the registration nor filed any return despite providing taxable service and also took into account the fact that they had averred that they were not aware of the service tax liability on the amount paid for installation charges as an admittance that they were liable but not paid the same even when appraised to them. In other words, the department felt that they were aware about the liability to pay service tax but avoided the payment of the same with an intention to evade permanently. We find that the appellants were having bonafide belief in view of the fact that they were paying consolidated amount and were apparently under the impression that since the customs duty or the assessment has taken place considering the entire invoice value, and therefore, there was no liability to pay service tax on them separately. The presumption of the department that they were aware is not born out of the fact when the department itself said that they were made aware about their liability. The only ground of the department appears that despite them being made aware, they did not pay and avoided payment with an intent to evade (8) ST/30432/2023 payment of duty. It is also obvious that once a person has got reasonable belief that he is not required to pay any service tax, based on certain valid and verifiable reason, and especially when there is no contrary evidence clearly establishing that there was deliberate and intentional attempt to evade payment of duty by them on erection and commissioning charges, extended period cannot be invoked. We find that the case laws cited, supra, in this regard, are relevant. We, therefore, find that in the facts of the case, the department could not have invoked extended period and therefore, the demand is patently time barred on this count also. Therefore, on this count also, impugned order is not sustainable. Thus, the impugned order is not sustainable, both on merit as well as on limitation.
14. Accordingly, the appeal is allowed.
(Pronounced in the Open Court on 27.02.2026) (A.K. JYOTISHI) MEMBER (TECHNICAL) (ANGAD PRASAD) MEMBER (JUDICIAL) Veda