Custom, Excise & Service Tax Tribunal
Devendra Machines vs Daman on 1 October, 2024
Customs, Excise & Service Tax Appellate Tribunal
West Zonal Bench at Ahmedabad
REGIONAL BENCH-COURT NO. 3
Service Tax Appeal No. 11490 of 2017 - DB
(Arising out of OIO-DMN-EXCUS-000-COM-002-17-18 dated 09/05/2017 passed by
Commissioner ( Appeals ) Commissioner of Central Excise, Customs and Service Tax-VAPI)
Devendra Machines ........Appellant
Plot No.767/1-1, & 768/1, Village - Dabhel,
Somnath, Nani Daman
DAMAN, GUJARAT
VERSUS
Commissioner of C.E. & S.T.-Daman ......Respondent
3RD FLOOR...ADARSH DHAM BUILDING, VAPI-DAMAN ROAD, VAPI
OPP.VAPI TOWN POLICE STATION,
VAPI, GUJARAT-396191
WITH
Service Tax Appeal No. 12437 of 2018 - DB
(Arising out of OIA-CCESA-SRT-APPEALS-PS-841-2017-1 8dated 20/03/2018 passed by
Commissioner ( Appeals ) Commissioner of Central Excise, Customs and Service Tax-
SURAT-I)
Devendra Machines ........Appellant
Plot No. 767/1-1 & 768/1, Village-dabhel,
Somnath, Nani Daman,
DAMAN,DAMAN (UT)
VERSUS
Commissioner of C.E. & S.T.-Daman ......Respondent
3RD FLOOR...ADARSH DHAM BUILDING, VAPI-DAMAN ROAD, VAPI
OPP.VAPI TOWN POLICE STATION,
VAPI, GUJARAT-396191
APPEARANCE:
Shri Stevin Mathew, Advocate appeared for the Appellant
Shri Mihir G Rayka, Additional Commissioner (AR) appeared for the Respondent
CORAM: HON'BLE MEMBER (JUDICIAL), MR. RAMESH NAIR
HON'BLE MEMBER (TECHNICAL), MR. C L MAHAR
Final Order No. 12294-12295/2024
DATE OF HEARING: 09.09.2024
DATE OF DECISION: 01.10.2024
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RAMESH NAIR
The brief facts of the case are as under:-
1.1 Appellants are engaged in the manufacture of Draw Texturizing
Machines falling under Chapter sub-heading No.84440010 and accordingly
obtained Central Excise registration bearing no. AAACH5825KSD010 from
the jurisdictional Central Excise Authority. The Machines were completely
manufactured as per the orders of the customers and the same were being
cleared from the factory of the Appellants in portions / dismantled condition
as these machines are very large and bulky and could not be transported in
fully assembled condition. The machines were more than 20 meters long and
could not be cleared and transported in one truck. Thus, different portions of
machine were cleared in different trucks / consignments, which together
constitute one complete machine. The Appellants discharged the applicable
Central Excise Duty on the Manufacture and sale of the said Machines;
Appellant did not recover any other charges from their customers, the same
is evident from the Invoices annexed to the Appeal.
1.2 In terms of Trade Notice No. MP/29/83 dated 23.03.83, the Appellant
was intimating the C. Ex. Department that they will be clearing the machines
in staggered manner and also undertook to pay entire duty on clearance of
first part of the Machine from the factory. Appellant submits that in some of
the contracts, erection charges have also been said to be inclusive in the
price of machine and in those cases also the Appellants were paying Central
Excise duty on the entire price of the machine, as quoted in the contract,
and except for the said price of machine, no other charge / consideration
was received by the Appellants. The perusal of contract in whole, clearly
demonstrates that the contract is for sales supply of "Draw Texturizing
Machines" and not for anything else. The Appellant has been following said
procedure since starting of their Factory.
1.3 When the manufacturing unit of the Appellants started their
manufacturing before clearing of the first consignment on 17.09.2011, by a
letter dated 08.09.2011 addressed to the Assistant Commissioner C. Excise
citing trade notice No. MP/29/83 dated 23.03.83.It was intimated to the C.
Ex. Department that the Appellant will be clearing the machines in staggered
manner and also undertook to pay entire duty on clearance of first part of
the Machine from the factory.
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1.4 In these circumstances, the Respondents issued a Show Cause Notice
dated 29.02.2016 and 30.05.2017demanding Service Tax of
Rs.4,74,34,273/- and Rs.7,25,000/- respectively under the category of
"Erection, Commissioning and Installation Service", solely on the basis that
some of the contracts/purchase orders for supplying Texturizing Machines
were showing the price of Machine as inclusive of erection charges. The SCN
dated 29.02.2016 invoked the extended period of limitation and the Show
Cause Notice dated 30.05.2017 was for the subsequent normal period.
Appellants denied the charges and replied to the said Notices and tendered
documents in support of their contention.
1.5 The Show Cause Notice dated 29.02.2016 was adjudicated by the
Commissioner C.Ex& St. Daman vide his Order in Original No. DMN-EXCUS-
000-COM-002-17-18 dated 09.05.2017, Service Tax amounting to Rs.
4,74,34,273/- was confirmed. Likewise, SCN dated 30.05.2017 was
adjudicated by the Superintendent and Appeal therein was decided by the
Commissioner (Appeal). The said OIO dated 30.05.2017 is challenged vide
Appeal no.ST/11490/2013 and the OIA dated 20.03.2018 is challenged vide
Appeal No.ST/ 12437/2018.
2. Shri Stevin Mathew, Ld. Counsel appearing on behalf of the appellant
submits that the appellant is exclusively involved in manufacturing of Draw
Texturizing Machines and paying excise duty on the total value of the
machine and no extra amount is charged either separately towards the
goods or any service. As regard erection, installation of the machine at the
customer‟s site, it is for the reason that since the entire machine cannot be
cleared in one consignment, the same are cleared in parts and therefore, as
a condition of sale, it is their obligation to assemble, erection andinstal the
machinery at the customer‟s place which is incidental or ancillary activity to
the manufacture and sale of the machine. He referred to Section 2(f) of the
Central Excise Act,1944and submits that sending of supervisors for
supervising of assembling of machine at the customer‟s premises will
squarely fall under the sub clause (i) of Section 2(f) as the process of
assembling complete machine at the machine purchaser‟s premises will be
incidental or ancillary to the completion of a manufactured product i.e. draw
texturizing machine, manufactured and cleared by the appellants. He
submits that the Ld. Adjudicating Authority wrongly relied upon the
judgment in the Prag Bosimi Synthetics Ltd., for the reason that the
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contention of the Ld. Adjudicating Authority with reference to the contract of
the appellant that the contract is clear that it does not only supply or sale of
machine but also the service portion therein towards installation, erection
and commissioning at the factory premises of the customer.
2.1 He submits that Ld. Adjudicating Authority failed to appreciate terms
of the contracts in proper perspective. In fact, the contract is clear that the
said contract is sale of machine as detailed in the order. Further, the very
same contract discusses the fact that the all the requirements would be
provided by the buyers including labour and machine operators. He submits
that in some of the contracts, there is mention of erection charges but the
same is included in the price of the machine. Therefore, there is no provision
for separate service and to attract the service tax. He submits that in most
of the contracts, no erection charges is mentioned in the purchase order/
contract even then, the same were included for the purpose of demanding
service tax. Therefore, the Adjudicating Authority has erred in demanding
service tax on all the supplies whether the contract mentioned erection
charges or otherwise. He submits that the reliance placed by the
Adjudicating Authority on the judgment of the Kone Elevators 2014 (304)
ELT 161 SC, is not at all applicable in the facts and circumstances of the
present case.
2.2 He submits that in terms of Section 66B of the Finance Act, 1944, the
service tax is leviable on the value of all services except for those specified
in negative list. Therefore, for charging service tax, rendering of service for
value is a must. It is undisputed position in the case at hand that no
amount/ fees/ consideration was charged by the appellant for the alleged
service rendered by them. Without prejudice to the above submission, even
if the allegations are presumed to be true the same would apply only to
those cases where the contract contemplates erection charges. The service
tax demand cannot be made applicable in a blanket manner on all the
consignments. He further submits that even if it is assumed that some
service was rendered by the appellant in accordance with the narration of
the respondent, the same was rendered at the premises of buyers of the
machines which is beyond territorial jurisdiction of the respondents. The
concerned Commissionerate‟s having jurisdiction over the buyer‟s premises
would only be vested with the jurisdiction to demand service tax against
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alleged services rendered there. That being the case the demand raised by
the respondent is not sustainable for want of jurisdiction.
2.3 He further submits that the Adjudicating Authority has wrongly
invoked the extended period of limitation on the observation that appellants
had failed to declare the erection, installation and commissioning charges
and by way of willful mis-statement and suppression with intent to evade
payment of service tax. The Ld. Adjudicating Authority failed to appreciate
that the question before him was to whether the department was justified in
invoking the extended period of limitation for the purpose of issuing the
subject show cause notice. The Ld. Commissioner failed to appreciate that
before first clearance from their factory they had informed jurisdictional
division office about clearance of machine in part which in other words
implies that machines will be assembled at buyer‟s premises. He submits
that a mere making sweeping statement that appellants suppressed the fact
with intent to evade payment of service tax does not per se justify
invocation of the extended period of limitation. The appellant being a
bonafide assessee had discharged the central excise liability on the entire
value of the machine. Thus, no willful misstatement or suppression of fact
can be attributed to the appellant.In support of his submission, he placed
reliance on the following judgments:-
Alidhara Texspin Engineers 2010 (20) STR 315 (Tri-Ambd)
Essae Teraoka Ltd. 2022 (65) GSTL 466 (Tri Bang)
Wagad Infraprojects Pvt. Ltd. 2022 (59) GSTL 95 (Tri- Ahmd.)
Allengers Medical Systems Ltd. 2009 (14) STR 235 (Tri-Del)
Commr C.Ex Indore Vs Sharma & Associates 2017 (51) STR 289 (Tri.
Del)
3. Shri Mihir G Rayka, Learned Additional Commissioner (AR) appearing
on behalf of the Revenue reiterates the findings of the impugned order. He
submits that since, the appellant has not only sold the machinery but have
also undertaken the activity of erection, installation and commissioning.
Therefore, the entire contract is a composite contract and accordingly, the
same falls under the purview of service. Therefore, the demand was rightly
confirmed by the adjudicating authority for which he prayed to uphold
impugned order and dismiss the appeal.
4. We have carefully considered the submissions made by both the sides
and perused the records. We find that there is no dispute in the facts that
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the appellant have manufactured and sold Draw Texturizing Machines and
the same was cleared in part as it was not practically possible to transport
the entire machine in one truck. When any machine or equipment cannot be
cleared duly assembled in one truck, the department has prescribed the
procedure under Trade Notice No.MP/29/83 dated 23.03.83 for removal of
such machineries. The appellant have scrupulously followed such procedure
and intimation to that effect was also given to the jurisdictional department
of Central Excise vide a letter dated 08.09.2011. Since, the machinery could
not be cleared in one truck and the same was cleared in piecemeal in
different trucks. It is obvious that the appellant is under obligation to do the
final assembling and erection, installation of the same machine at buyer‟s
premises. The contract with the buyer is undisputedly for the sale of
machine and no service involved. In some of the contract, erection activity
also mentioned however, no separate erection charges was provided in the
contract nor the same was paid by the buyer and recovered by the
appellant. In this fact the entire transaction of manufacture and sale of the
machine is the transaction of sale of excisable goods. It is also undisputed
that on the entire value towards the sale of the machine, the appellant have
paid the excise duty, no separate charge was made in any single case
towards any service charges. Therefore, the entire value is subject to excise
duty towards the sale of the goods. As per Section 65 B (44), the definition
of „Service‟ exclude the transaction of sale. Therefore, for the period post
01.07.2012 the sale of goods does not fall under the activity of service. For
the ready reference, the definition of service provided under Section 65 B
(44) is reproduced below:-
"(44) "service" means any activity carried out by a person for another for
consideration, and includes a declared service, but shall not include--
(a) an activity which constitutes merely,--
(i) a transfer of title in goods or immovable property, by way of sale, gift
or in any other manner; or
(ii) such transfer, delivery or supply of any goods which is deemed to be a
sale within the meaning of clause (29A) of Article 366 of the Constitution, or
(iii) a transaction in money or actionable claim;
(b) a provision of service by an employee to the employer in the course of
or in relation to his employment;
(c) fees taken in any Court or tribunal established under any law for the
time being in force.
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Explanation 1. -- For the removal of doubts, it is hereby declared that
nothing contained in this clause shall apply to,--
(A) the functions performed by the Members of Parliament, Members of
State Legislative, Members of Panchayats, Members of Municipalities and
Members of other local authorities who receive any consideration in
performing the functions of that office as such member; or
(B) the duties performed by any person who holds any post in
pursuance of the provisions of the Constitution in that capacity; or
(C) the duties performed by any person as a Chairperson or a Member
or a Director in a body established by the Central Government or State
Governments or local authority and who is not deemed as an employee
before the commencement of this section.
Explanation 2. - For the purposes of this clause, the expression
"transaction in money or actionable claim" shall not include --
(i) any activity relating to use of money or its conversion by cash or by any
other mode, from one form, currency or denomination, to another form,
currency or denomination for which a separate consideration is charged;
(ii) any activity carried out, for a consideration, in relation to, or for
facilitation of, a transaction in money or actionable claim, including the
activity carried out --
[(a) by a lottery distributor or selling agent on behalf of the State
Government, in relation to promotion, marketing, organising, selling of
lottery or facilitating in organising lottery of any kind, in any other manner,
in accordance with the provisions of the Lotteries (Regulation) Act, 1998;].
(b) by a foreman of chit fund for conducting or organising a chit in any
manner.;]
Explanation 3. -- For the purposes of this Chapter,--
(a) an unincorporated association or a body of persons, as the case may be,
and a member thereof shall be treated as distinct persons;
(b) an establishment of a person in the taxable territory and any of his
other establishment in a non-taxable territory shall be treated as
establishments of distinct persons.
Explanation 4. -- A person carrying on a business through a branch or
agency or representational office in any territory shall be treated as having
an establishment in that territory;
4.1 From the above definition of „Service‟ as per clause „a‟ of 65 B (44)
the sale of goods is categorically excluded from the definition of „Service‟.
We further find that having observed above that the so called erection is
part of sale of goods and no separate consideration is provided for any
service. No service tax can be demanded. For demanding service tax,one of
the important criteria is that the consideration has to exist in the course of
service. In the present case, the entire value of machine is consideration
towards the sale of machine on which admittedly excise duty has been paid.
Therefore, no consideration left out which can be said as service charge.
Therefore, for this reason also in absence of any consideration towards the
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service, no service tax demand is sustainable. We find that the legislature
made a provision for service and taxability thereon, keeping in mind that
whichever activities are other than manufacture and sale of goods only those
activities can be subject to service tax. Therefore, in the present case entire
activity of the appellant is of manufacture and sale of goods, no service exist
to be charged service tax thereon. For making it further clear the transaction
in the present case, we scanned below a sample invoice of the appellant:-
4.2 From the above invoice it can be seen that the assessable value
towards manufacture and sale of Draw Texturizing Machines is
Rs.1,39,84,000/- on which the excise duties have been charged and paid.
From the show cause notice, as per Annexure A to show cause notice for the
purpose of charging service tax against the aforesaid invoice, the same
value i.e. Rs.1,39,84,000/- was taken, this shows that assessable value for
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the purpose of excise duty on which excise duty was paid, the same was
again taken for charging service tax which is absolutely illegal and without
authority of law. We further find that as regard the valuation of the excisable
goods, the CBEC‟s had issued circular No. 643/34/2002-CX dated
01.07.2002 due to some doubts raised under new Central Excise Valuation
Rules brought into effect from 01.07.2000 and at Entry No.10 of the table
appended to the said circular clarified as under:-
10. Should If the final product is not excisable, the question
erection,installation of including these charges in the assessable value
and commissioning of the product does not arise. As for example,
charges be included in since a Steel Plant, as a whole, is an immovable
the assessable value? property and therefore not excisable, no duty
would be payable on the cost of erection,
installation and commissioning of the steel plant.
Similarly, if a machine is cleared from a factory
on payment of appropriate duty and later on
taken to the premises of the buyer for
installation/erection and commissioning into an
immovable property, no further duty would be
payable. On the other hand if parts/components
of a generator are brought to a site and the
generator erected/installed and commissioned at
the site then, the generator being an excisable
commodity, the cost of erection, installation and
commissioning charges would be included in its
assessable value. In other words if the
expenditure on erection, installation and
commissioning has been incurred to bring into
existence any excisable goods, these charges
would be included in the assessable value of the
goods. If these costs are incurred to bring into
existence some immovable property, they will not
be included in the assessable value of such
resultant property. [Refer Board's 37B Order
No. 58/1/2002-CX., dt. 15-1-2002]
4.3 From the above clarification, it can be seen that in respect of any
excisable goods cleared on payment of duty and erected and installed at
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customer‟s site even if, there is some charges for erection and installation
separately charged, the same shall be included in the assessable value of
excisable goods for the purpose of charging excise duty. The present case of
the appellant is on better footing that there is no separate charges for
erection. Therefore, there is no question of existence of any charges towards
erection of excisable goods. Therefore, in view of the clarification there is no
doubt that in case of manufacture and sale of excisable goods and erection
and installation thereof the total value is subject to Central Excise duty.
Hence, consequently, no service tax can be demanded on such activity. This
issue has been considered in various judgments, some of the judgments are
referred below:-
a) Alidhara Texspin Engineers 2010 (20) STR 315 (Tri-Ambd)
"8. We have considered the submissions made by both the sides and have
gone through the impugned order. Some of the undisputed facts in the
present case are that, appellants are primarily and mainly engaged in the
manufacture of textile machinery. A contract entered into by them with their
buyers for a lump sum amount and the sale price is inclusive of installation
and commissioning charges. It is also not disputed that appellants have paid
the Central Excise duty on the complete value and have not claimed any
deduction on account of installation and commissioning charges. In fact, no
segregated amount stands arrived at in the contract towards the installation
or commissioning charges. This is also undisputed that the appellants have
availed the services of sub-contractors in respect of erection, installation and
commissioning and such sub-contractors have paid service tax on the same
which subsequently stands reimbursed by the appellant.
9. In view of the factual back drop, we may now refer to the definition of
erection, commissioning and installation, as available in Section 65 (39a) of
the Finance Act, 1994 :-
(I) From 10-9-2004 to 15-6-2005
"erection, commissioning or installation" means any service provided by a
commissioning and installation agency in relation to erection, commissioning
or installation of plant, machinery or equipment;‟
(II) From 16-6-2005
"erection, commissioning or installation" means any service provided by a
commissioning and installation agency, in relation to, -
(i) erection, Commissioning or installation of plant, machinery or equipment;
or
(ii) installation of -
(a) electrical and electronic devises, including wirings or fittings therefore;
or
(b) plumbing, drain laying or other installations for transport of fluids; or
(c) heating, ventilation or air-conditioning including related pipe work,
duct work and sheet metal work; or
(d) thermal insulation, sound insulation, fire proofing or water proofing; or
(e) lift and escalator, fire escape staircases or travelators; or
(f) such other similar services;
(III) From 1-5-2006
"erection, commissioning or installation" means any service provided by a
commissioning and installation agency, in relation to‟ -
(i) erection, commissioning or installation of plant, machinery, equipment or
structures whether pre-fabricated or otherwise; or
(ii) Installation of -
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(a) electrical and electronic devices, including wirings or fittings therefore;
or
(b) plumbing, drain laying or other installations for transport of fluids; or
(c) heating, ventilation or air-conditioning including related pipe work,
duct work and sheet metal work, or
(d) thermal insulation sound insulation fire proofing or water proofing
(e) lift and escalator fire escape staircases or traveators; or
(f) such other similar services.
As is seen from the above, the one of the ingredients of the definition is that
services must be provided by commissioning and installation agency.
Admittedly, the appellant is not an agency engaged in providing services of
Installation, erection and commissioning etc. They are essentially a
manufacturing unit engaged in the manufacture of textile machinery, which
is undertaken to be supplied to their customer in a fully commissioned state.
10. Tribunal in the case of Allengers Medical Systems Limited v.
Commissioner of Central Excise, Chandigarh - 2009 (14) S.T.R. 235 (Tri.-
Del.) in an identical set of facts and circumstances has observed that where
the assessee is paying Central Excise duty on the manufacture and sale of
medical equipments on the total value recovered by them from their
customers and where the activities of erection, commissioning and
installation of equipments is a part of sale of excisable goods and where
there is no separate charging for erection and commissioning of equipments,
levy of service tax on such activities cannot be held to be proper and legal.
The Tribunal held that activity of installation, erection and commissioning
was incidental to the deliver of goods to the customers and as such, no
service tax can be confirmed against the appellants.
11. Learned advocate has also drawn our attention to the decision of the
Hon‟ble High Court of Madhya Pradesh in the case of Maa Sharda Wine
Traders v. UOI - 2009 (15) S.T.R. 3 (M.P.), the question placed before the
Hon‟ble High Court was as to whether bottling of liquor amounts to
manufacture of liquor or only packaging so as to attract service tax. The
Hon‟ble High Court observed that whether activity amount to manufacture or
not it is incumbant to take note of any process which is incidental or ancillary
to the completion of the final product, whether the final product is excisable
or not. The Court further observed that the definition of manufacture as
contained in Section 2(14) of the 1915 Act, is an inclusive definition which
covers every process whether incidental or artificial by which the intoxicant is
produced or prepared. By taking note of the precedent decisions, it was
observed that the manufacture process dose not necessarily mean that it has
to be excisable goods but would include any process which is incidental or
ancillary to the completion of manufactured product. As such, the Hon‟ble
High Court observed that the process of manufacture as defined under
Section 2(14) of the 1915 Act falls within the ambit and sweep of the Section
2(f) (1) of Central Excise Act, 1944 and therefore, there can be no levy of
service tax on the manufacturer in view of the clear postulate under Section
65(76b) of the Finance Act, 2005. Though the above judgment was given in
the different facts and circumstances but we find that observations made by
the Hon‟ble High Court fully covers the legal issue in the present case.
12. Similarly in the case of CCE, Vapi v. Alidhara Textool Engineers Pvt.
Limited - 2009 (14) S.T.R. 305 (T) = 2009 (239) E.L.T. 334 (Tri. - Ahmd.) it
was observed as under :-
"4.1 In this case erection and commissioning charges have been
included in the cost of the machines sold. The appellants have selected
the agency to do this work and once the purchaser enters into an
agreement for supply of the machine including the erection and
commissioning charges, the responsibility for erection and
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commissioning is of the manufacturer. Therefore what is happening in
this case is that the supplier of the machine is not only selling the
machine but is also providing the service of erection and
commissioning. Once erection and commissioning cost is included, in
the transaction value the natural conclusion that would emerge is that
the processes undertaken in the buyer‟s premises are actually
incidental to manufacturing activity undertaken in the manufacturer‟s
premises. What has been sold in this case is the complete machine
duly erected and commissioned‟ and operational. The incidental
process of erection and commissioning being incidental to
manufacture, has to be treated as continuation of the earlier process
which started in the manufacturer‟s premises. In this case even
though the position of the machine in CKD condition gets transferred
to the buyer when it is removed from the factory as per the contract,
the question to be examined is whether such a service is related
directly or indirectly to the manufacture of their goods in question. As
already mentioned by me earlier, the process of erection and
commissioning at the buyer‟s premises is incidental to the
manufacture of the machine and therefore the erection and
commissioning services provided also can be said to be in relation to
the manufacture, since the process in this case is complete only after
the erection and commissioning takes place."
The above observation made by the Tribunal, even though the issue involved
was availment of Cenvat credit of service tax paid by them on erection and
commissioning services, supports the appellant‟s case.
13. The Tribunal judgment in the case of Neo Structo Construction Limited -
Order No. A/338-339/WZB/AHD/2010 dated 18-3-2010 [2010 (19) S.T.R.
361 (T)] was also produced before us in support of the contention that where
the activities amounts to manufacture and excise duty is being paid on the
entire contract value, no liability to pay service tax arises. Operative part of
the said order is reproduced below :-
"27. From the above discussion, it is clear that the activity undertaken
by the appellant is covered under Section 2(f) of Central Excise Act as
manufacturing activity. Hence the appellants are not liable to pay the
service tax on the activities undertaken by them. Hence the impugned
order does not hold any merit on this issue. The same is set-aside and
the appeal filed by M/s. Neo Structo Construction Limited is allowed."
14. Ratio of all the above decisions is to the effect that where an activity so
Integrarely related and connected with the manufacturing activity and the
purchase orders are for the complete plant ind machineries, duty
commissioned, without showing any segregated amount recovered for
erection and commissioning and where the entire contract value is taken as
an assessable value for the purpose of payment of excise duty, no service
tax is liable to be paid by the assessee. The decision of the Tribunal in the
case of Lincoln Helios (India) Limited relied upon by the Commissioner in his
impugned order laying to the contrary, cannot be followed inasmuch as the
same stands rendered by a Single Member Bench in contradiction to the
Divisional Bench judgment available in the case of Allengers Medical Systems
Limited (referred supra). Further the said judgment in the case of Lincoln
Helios (India) Limited was rendered in the year 2006 whereas the Allengers
Medical Systems judgment stands passed in the year 2009, which stands
passed after considering the Hon‟ble Supreme Court judgment in the case of
State of Andhra Pradesh v. Kone Elevators (India) Limited - 2005 (181)
E.L.T. 156 (S.C.), as also Tribunal decision in the case of Idea Mobile
Communications Limited v. Commissioner - 2006 (4) S.T.R. 132 (Tribunal).
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15. In view of our above discussions, we hold that appellants were not liable
to pay any service tax. Accordingly, the impugned order confirming the
demand and imposing penalties upon them is set-aside and appeal is allowed
with consequential relief. Inasmuch as we have allowed the appeal on mere,
the issue of demand being barred by limitation is only of academic interest
and its not being gone into."
b) Essae Teraoka Ltd. 2022 (65) GSTL 466 (Tri Bang)
"5. On perusal of the case records, we find that the appellant had not
separately charged, billed or received any amount from the customers
towards installation charges for installing the weighing machine at the
customer site. Since on the entire value of excisable goods, the appellant had
discharged the Central Excise duty liability in terms of Section 4 of the
Central Excise Act, 1944 and had not claimed any deduction, exclusion,
abatement towards installation charges, they cannot be taxed under the
provisions of Section 65(39) ibid, considering the appellant as a service
provider. It is an admitted fact on record that on the entire value including
installation of the machine, the Central Excise duty had been paid by the
appellant and retained by the Government under such heads of account, the
appellant cannot be burdened with the service tax liability, upon
consideration of the fact that they had provided the taxable service of
installation and commissioning to their customers. Further, it is not the case
of department that over and above the transaction value determined by the
appellant, any other amount towards installation or commissioning had been
charged by the appellant. Thus, there was no consideration the provision of
any service and hence, no service tax liability can be fastened on the
appellant.
6. In the case of Alidhara Texspin Engineers (supra), the Tribunal has
held that when the assessee was primarily and mainly engaged in the
manufacture of textile machinery and the contract was entered by them with
the customers for a lumpsum amount and the price was inclusive of
installation and commissioning charges and when the assessee had paid
central excise duty on the complete value and not claimed any deduction on
account of installation/commissioning charges, the question of demanding
service tax on ad hoc value of installation/commissioning charges was
untenable in law. It was also held that the assessee was a manufacturer of
excisable goods and was not an agency engaged in providing service of
installation/commissioning. Further in the case of Allengers Medical Systems
Ltd. (supra), it has been held by the Tribunal that where the assessee is
paying Central Excise duty on manufacture and sale of goods on the total
value recovered by them from customers, simply providing the service of
erection/commissioning, which is a part of excisable goods, cannot be termed
as provision of service and accordingly, levy of service on such activities
cannot be sustained. In an identical case, in the matter of Alidhara Textool
Engineers Pvt. Ltd. (supra), it has also been held by the Tribunal that the
process of erection and commissioning at the byers premises is incidental to
the manufacture of the machine and therefore, the erection and
commissioning services provided can also be said to be in relation to the
manufacture and not a service, in order to fall within the purview of service
tax net.
7. In view of the foregoing discussions and analysis and more
specifically, the judgments relied upon by the Learned Advocate for the
appellant, we are of the view that the issue arising out of the present dispute
is no more open for any debate. Therefore, the impugned order cannot be
sustained for judicial scrutiny. Accordingly, the impugned orders are set
aside and appeals are allowed in favour of the appellants."
14 ST/11490/2017,
ST/12437/2018-DB
c) Wagad Infraprojects Pvt. Ltd. 2022 (59) GSTL 95 (Tri- Ahmd.)
"11. We have carefully considered the submissions made by both the
sides and perused the record. The entire case of the department is based
only on the contract between the supplier of RMC i.e. appellant and buyer of
RMC. As per the contract, the entire transaction is of Works Contract.
However, the appellant is mainly engaged in the manufacture of Ready Mix
Concrete and selling the same to various buyers. As per the nature of
product, it is necessary to supply RMC in a specialized container and after
reaching at the customer‟s site RMC is delivered by carrying out the process
of pouring, pumping and laying of concrete at the customer‟s place. The RMC
cannot be unloaded at a particular place and thereafter shifted the same to
the particular place at site. Due to peculiar nature of RMC, it is unavoidable
to deliver at particular place where the RMC is required to be laid-down. It is
also the fact that appellant being manufacturer of RMC, paying excise duty
not only on the value of the goods but also on the value of service of
pumping, laying of concrete and the same is included in the sale value.
Therefore, no value is escaped from payment of excise duty. Accordingly, the
entire activity right from the manufacturing of RMC and delivery at the site of
the customer is excisable activity. Merely because the contract says that it is
works contract, the actual nature of transaction cannot be overlooked. The
appellant is treating the transaction of Works Contract in terms of VAT Act
only. However, there is a specific definition of Works Contract in the Finance
Act, 1994 which reads as under :-
"(54) "works contract" means a contract wherein transfer of property
in goods involved in the execution of such contract is leviable to tax as
sale of goods and such contract is for the purpose of carrying out
construction, erection, commissioning, installation, completion, fitting
out, repair, maintenance, renovation, alteration of any movable or
immovable property or for carrying out any other similar activity or a
part thereof in relation to such property;"
12. From the above definition, it is clear that manufacturing activity of
RMC cannot be covered under Works Contract by any stretch of imagination.
Therefore, even though there is contract of Works Contract basically for the
purpose of VAT Act, cannot be applied in the present transaction of
manufacture and sale of goods in terms of Section 2(f) of Central Excise Act,
1944. The department has very much accepted the activity of the appellant
as manufacturing and collected the excise duty on the entire value of RMC
which includes the pumping and laying of RMC at site. Therefore, the
department cannot take two stands, in one hand manufacturer for
demanding excise duty and on the same activity, on the other hand
demanding service tax under Works Contract. In various judgments this
issue has been considered time and again. Some of the judgments are cited
below :-
(1) GMK Concrete Mixing Pvt. Limited v. Commissioner of Service Tax -
2012 (25) S.T.R. 357 (Tri. - Del.)
"5. Record does not reveal involvement of any taxable service aspectin
the entire supply of RMC. Rather the contract appears to be a sales
contract instead of a service contract. In absence of cogent evidence to the
15 ST/11490/2017,
ST/12437/2018-DB
effect of providing taxable service, primary and dominant object of the
contract throws light that contract between the parties was to supply
Ready Mix Concrete (RMC) but not to provide any taxable service. Finance
Act, 1994 not being a law relating to commodity taxation but services are
declared to be taxable under this law, the adjudication made under
mistake of fact and law fails."
The above decision of the Tribunal was upheld by the Hon‟ble Supreme
Court, reported at - Commissioner v. GMK Concrete Mixing Pvt. Limited -
2015 (38) S.T.R. J113 (S.C.).
(2) Vikram Ready Mix Concrete (P) Limited v. Commissioner of Service
Tax
"Both sides agreed that the short issue involved in the present appeal is as
to whether supply of ready mix concrete and carrying out the ancillary and
incidental activities of pouring, pumping and laying of concrete would call
for service tax liability or not.
Tribunal in the case of 2. GMK Concrete Mixing Pvt. Ltd. v. CST, Delhi
reported in 2012(25) S.T.R. 357 (Tri. - Del.) has held that the entire
exercise is sale of ready mix concrete and there is no service element
involved so as to create service tax liability against the assessee.
By following the said decision, we set aside 3. the impugned order and
allow the appeal with consequential relief to the appellant."
The above decision of the Tribunal was also upheld by the Hon‟ble
Supreme Court, reported at - Vikram Ready Mix Concrete (P) Limited v.
Commissioner of S.T., Delhi - 2016 (42) S.T.R. J282 (Supreme Court)
(3) ACC Limited v. State of Karnataka - [2012] 52 VST 129 (Kar.) -
In this case, the assessee wanted to avoid pumping charges as part of
sale transaction of RMC. The Hon‟ble High Court of Karnataka held as
under :-
"In the instant case, the facts are not in dispute. The assessee is a
manufacturer of ready mix concrete. The said ready mix concrete is
manufactured with its ingredients like jelly, cement, sand, etc., and in order
to avoid hardening of the RMC after certain period of time due to exposure to
moisture, chemicals are added to keep the RMC in a liquefied stature till its
delivery to the customers depending upon the distance the vehicle carrying
RMC is to reach the customer‟s place. If the RMC is hardened it becomes
unusable. As is clear from the material on record, the assessee transports
the RMC from the manufacturing place to the customer‟s site. Therefore, in
the case of RMC, transportation charges invariably forms part of the sale
consideration. After it reaches the site of the customer, the RMC is to be
delivered to the customer. The choice of taking the delivery is given to the
customer. He has the option of getting the entire RMC dumped at the site
from the lorry or he has also been provided an option to get the RMC to a
particular place such as roof top or any floor. Therefore, the RMC is delivered
by pumping the RMC from the lorry to the specified place by the customer.
All expenses incurred till the delivery constitutes sale price. In order to
deliver the RMC at the specified place, if the assessee uses the pump, then
the charges collected by the assessee from the customer as pumping charges
form part of the sale price. If the RMC is not delivered through pumping,
then the charges is not collected from the customer and it will not form part
of the sale price. Therefore, the sale transaction of the RMC gets completed
only when it is delivered at the point where it is finally put to use. All
16 ST/11490/2017,
ST/12437/2018-DB
expenses incurred till such stage, if such delivery includes the service of
pumping then the pumping charges are also included in the pre-sale
expenses and hence, form part of the taxable turnover.
In a contract of this nature, there is no dual role played by the assessee. He
is not pumping the RMC for and on behalf of the customer. He has to pump
the RMC to the specified place as shown by the customer in order to deliver
the RMC. Therefore, even if the pumping charges are collected separately as
is clear from the invoice produced before us, or as per terms of the contract,
still the said pumping charges invariably form part of the sale transaction
which facilitates the delivery of the goods and it would form part of pre-sale
expenses. In the aforesaid judgment of the apex court, there were two
contracts one is manufacturing fanta and coco-cola and the assessee was
delivering those products at his site. The customer had an option to transport
those goods from the site of the manufacture to his site, either by using his
own transportation or by using the transportation facility provided by the
assessee. The transportation provided by the assessee is including taking
delivery of the goods from the manufacturing place to the customer‟s site,
which contract is conspicuously missing in this case.
The assessee at no point of time will take delivery of RMC from the customer
and then pumps it to the specified place at the site. Therefore, the ratio of
the judgment has no application to the facts of this case. Having regard to
the totality of the circumstances, the terms of the contract, the intention of
the parties, it is clear that the sale of the product, viz., RMC and transporting
it from the manufacturing place up to the customer‟s site and pumping it to
the place where the customer specifies, the pumping charges become part of
the sale transaction. In that view of the matter, we do not see any merit in
this appeal. Hence we pass the following :
ORDER
The petitions are accordingly dismissed. The impugned order passed by the Tribunal, is hereby confirmed."
13. In view of the above judgments, it is clear that as per nature of product of RMC, every manufacturer who needs to supply RMC to the customer, apart from manufacturing, transportation, pumping and laying of concrete is inevitable for delivery of RMC. Therefore, all the activities, particularly when the value of such activities are integral part of the assessable value, which is determined in terms of Section 4 of Central Excise Act, 1944. The activities cannot be vivisected for the purpose of charging service tax on the same activity which is part and parcel of manufacturing activity. In view of this settled position, merely because the contract showing as Works Contract, the physical nature of transaction cannot be overlooked.
14. As per above view, which is clearly supported by various judgments reproduced above, we are of the clear view that the activity of the appellant is predominantly of manufacture and sale of goods. Accordingly, the same cannot be charged with service tax under Works Contract service.
15. The appellant have made alternate submissions about quantification of demand inasmuch as the impugned order confirmed the demand on the 60% of the value of contract whereas, as per Rule 2A(i), the value of goods 17 ST/11490/2017, ST/12437/2018-DB should be adopted and only service portion should be charged for service tax. The relevant Rule 2A(i) is reproduced below :-
"2A. Determination of value of service portion in the execution of a works contract. - Subject to the provisions of section 67, the value of service portion in the execution of a works contract , referred to in clause (h) of section 66E of the Act, shall be determined in the following manner, namely :-
Value of service portion in the execution of a works contract (i) shall be equivalent to the gross amount charged for the works contract less the value of property in goods transferred in the execution of the said works contract."
In view of the above rule, for the purpose of determination of value, we find that the value of goods needs to be deducted from the gross value charged by the appellant. As per the facts, it is clear that there is clear identification of value of goods and charges for pumping and laying of RMC which is ranging from Rs. 200 to Rs. 300. In this position, the department should have taken the service portion for calculating the service tax. Accordingly, the service tax was wrongly calculated to the above extent.
16.It was also the submission of the appellant that alternatively the Revenue should have calculated the service tax only on 40% of the gross value by allowing abatement of 60%, in terms of Rule 2A(ii). The said rule is reproduced below :-
"2A(ii)Where the value has not been determined under clause (i), the person liable to pay tax on the service portion involved in the execution of the works contract shall determine the service tax payable in the following manner, namely :-
(A) in case of works contracts entered into for execution of original works, service tax shall be payable on forty per cent of the total amount charged for the works contract;
(B) in case of works contract entered into for maintenance or repair or reconditioning or restoration or servicing of any goods, service tax shall be payable on seventy per cent of the total amount charged for the works contract;
(C) in case of other works contracts, not covered under sub-clauses (A) and (B), including maintenance, repair, completion and finishing services such as glazing, plastering, floor and wall tiling, installation of electrical fittings of an immovable property, service tax shall be payable on sixty per cent. of the total amount charged for the works contract;"
17. From the above Rule, we find that firstly, in the facts of the present case, the value should be in terms of Rule 2A(i). Therefore even by any stretch of imagination Rule 2A(ii) is applicable, in such cases the value should be determined as per clause (A) of Rule 2A(ii). Accordingly, the value at the most should have been arrived at by allowing 60% abatement and only 40% of the gross value should be chargeable to service tax. Therefore, the calculation of service tax is incorrect.
18. The appellant also made submissions on time-bar. We find that the appellant admittedly paid the excise duty on the entire transaction and this excise duty paid by the appellant was charged and collected by the Revenue. 18 ST/11490/2017, ST/12437/2018-DB Therefore, the entire activity of manufacture, supply and manner of delivery of goods is very much on record. Accordingly, no suppression or misdeclaration can be attributed to the appellant for invoking extended period of demand. Accordingly, the demand for longer period in the show cause notice dated 3-5-2016 is not sustainable on the ground of limitation also.
19. As per our above discussion and findings, we are of the clear view that activity of the appellant is entirely of excisable activity. Therefore, the same will not fall under Works Contract service in terms of Finance Act, 1994. Accordingly, the demand of service tax raised under Works Contract service is clearly not sustainable. Therefore, the impugned order is set aside, appeal is allowed with consequential relief, if any, in accordance with law."
d) Allengers Medical Systems Ltd. 2009 (14) STR 235 (Tri-Del) "4. After hearing both the sides and on perusal of the record, it is seen that the representative of the appellants in his statement dated 13th October, 2005 stated that OBDI contained the total cost of equipment including the cost of machine and value of optional services such as erection and commissioning of machines and equipment sold by them. In reply to show cause notice, the appellants contended that they had been paying duty on the total invoice value of medical equipment charged from the customers, which establishes the activity of installation, commissioning or erection had been considered as part of sale. On perusal of the copy of the Central Excise invoice and the Annexure VI to the show cause notice, we find that the demand of tax was determined on the basis of Central Excise invoice value, as taxable value. It is also noticed that for some periods, taxable value has been taken as 33% of invoice value in terms of the Notification No. 19/2003- S.T. dated 21-8-2003 as amended. In some cases, total invoice value has been taken as taxable value since the appellant was availing Cenvat credit of invoice and benefit under Notification No. 19/03-S.T. dated 21st August, 2003 cannot be availed. The learned Advocate submits that in only one case, they charged commissioning and installation charges separately in the purchase order wherein they paid service tax. The main contention of the learned Advocate is that they have paid the Central Excise duty on the invoice value and the demand of tax on the said value is not sustainable.
5. We find force in the submission of the learned Advocate. It is seen that the appellants paid the Central Excise duty on the manufacture and sale of medical equipments as is evident from the invoice. The appellant is not contesting the levy of Central Excise duty. It appears that the activity of erection, commissioning and installation of equipments are part of sale of excisable goods and Central Excise duty was paid thereon. There is no material placed by the Revenue that the appellants charged separately for erection and commissioning of equipments. In this context, the levy of service tax on such activity like erection, commissioning and installation is not proper and legal. The learned DR contended that the OBDI indicates contract for erection and installation of the medical equipments at the customer premises. We are unable to accept the contention of the learned DR. We are of the view that whether the activity is service or sale would be determined on the basis of examination of the contract between the parties and evidences.
6. The Hon‟ble Supreme Court in the case of Kone Elevators (I) Pvt. Ltd. (supra) held that the substance and terms of contract, customs or trade and 19 ST/11490/2017, ST/12437/2018-DB circumstances/facts of each case are to be looked into in this aspect. In the said case, the Hon‟ble Supreme court held that if the main object of contract is transfer of finished goods, it is contract of sale. If the main object is work and labour and property passing by accessories during the process of work to the movable property of customer, it is works-contract. The relevant portion of the decision of the Hon‟ble Supreme court in the case of Kone Elevators (I) Ltd. supra is reproduced below :
"It can be treated as well settled that there is no standard formula by which one can distinguish a „contract for sale‟ from a „works contract‟. The question is largely one of fact depending upon the terms of the contract including the nature of the obligations to be discharged there under and the surrounding circumstances. If the intention is to transfer for a price a chattel in which the transferee had no previous properly, then the contract is a contact for sale. Ultimately, the true effect of an accretion made pursuant to a contract has to be judged not by artificial rules but from the intention of the parties to the contract. In a „contract of sale‟, the main object is the transfer of property and delivery of possession of the property, whereas the main object in a „contract for work‟ is not the transfer of the property but is one for work and labour. Another test often to be applied to is: when and how the property of the dealer in such a transaction passes to be customer is it by transfer at the time of delivery of the finished article as a chattel or by accession during the procession of work on fusion to the movable property of the customer? If it is the former, it is a sale if it the latter, it is a „works contract‟. Therefore, in judging whether the contract is for a sale or for work and labour, the essence of the contract or the reality of the transaction as a whole has to be taken into consideration. The pre-dominant object of the contract the circumstances of the case and the custom of the trade provides a guide in deciding whether transaction is a sale or a works contract. Essentially, the question is of interpretation of the contract. It is settled law that the substance and not the form of the contract is material in determining the nature of transaction. No definite rule can be formulated to determine the question as to whether a particular given contract is a contract for sale of goods or is a works contract. Ultimately, the terms of a given contract would be determinative of the nature of the transaction, whether it is a sale or a works contract. Therefore, this question has to be ascertained on facts of each case, on proper construction of terms and conditions of the contract between the parties."
7. In the present case, the appellants manufactured and hold the medical equipment. It is revealed from the record that the activity of installation, erection and commissioning are incidental to delivery of goods to the customers. Therefore, there is no reason for levy of service tax on the installation and commissioning of medical equipment.
8. The learned DR relied upon the decisions of the Hon‟ble Supreme Court which are not applicable in the present case.
(a) In the case of Moriroku UT India (P) Ltd. (supra), it has been held that liability under excise law is event based irrespective of whether the goods are sold or captively consumed.
(b) In the case of N.M. Goel & Co. (supra), it has been held that in order to be sale and levy of duty, not only the property in the goods should pass from the contractor to the Government, but they should be independent contract, separate and distinct, apart from mere passing of the property.
(c) In the case of Imagic Creative Pvt. Ltd. (supra), the issue is whether the service provider paying service tax is liable to Sales Tax/VAT which are mutually exclusive. It has been held that having regard to the respective parameters on service tax and the sales tax as envisaged in a composite contract, from an indivisible contract levy would be determined. 20 ST/11490/2017, ST/12437/2018-DB
9. We find that in the instant case, the appellant engaged on business of manufacturer and sale of medical equipment and no separate contract for erection and installation of the medical equipments. The erection and installation charges are covered in the value of the medical equipments and the central excise duty was discharged thereon. So, the case laws relied upon by the learned DR are not applicable herein.
10. In view of the above discussion, we find that the demand of tax and penalties are not sustainable. Accordingly the impugned order is set aside. The appeal is allowed with consequential relief."
e) Commr C.Ex Indore Vs Sharma & Associates 2017 (51) STR 289 (Tri. Del) "8. We have gone through the entire purchase order and the various clauses to which our attention stands drawn. There is no clause directly on the issue, requiring the assessee to do the installation and commissioning of the Fire Hydrant System. The various clauses are only to the effect that after the delivery of the goods, the respondent has to depute competent technical people for assembly, erection and commissioning and if the assessee is not available during the commissioning, etc., there is a penalty clause.
9. Learned Advocate explains that inasmuch as the goods supplied by them are of technical nature, the assistance of the supplier was sought for installing the same. The various clauses referred to by the learned DR only refers to the presence of the assessee‟s technical persons, during the course of erection and commissioning. There is no direct clause in the purchase order requiring the assessee to do the erection and commissioning and no separate consideration for the same stand paid.
Alternatively learned Advocate has submitted that in terms of Notification No. 12/2003, dated 20th June, 2003, the value of the goods supplied during the course of providing any service has to be deducted from the value of the services, if any. The total consideration received by them from the service recipient is to the tune of Rs. 25,76,925/- and the total value of the material/goods sold, in terms of the invoice raised by them is also to the tune of Rs. 25,76,925/-. As such, the value of the services, if any, is nil and in the absence of any consideration received for the value of services allegedly provided by them, no service tax can be confirmed.
10. We, find that the Tribunal in the case of Allengers Medical Systems Ltd. v. CCE, Chandigarh reported in 2009 (14) S.T.R. 235 (Tri.-Del.) has observed that where a person sells the goods and erection, commissioning and installation of the said sold equipments is treated as a part of the sale of excisable goods and when there is no evidence to show charging of paid amounts for erection and commissioning, such activities have to be held as incidental to delivery of goods to the customers. Admittedly in the present case, the appellant has paid sales tax on the entire value of the goods sold by them and the invoice raised by them also reveals only the sale of goods. As already observed, in the purchase order also the reference is only to supply of goods and no part of the contract, requires the assessee to undertake the job of erection and commissioning, etc. No value of the said services stand separately mentioned in the purchase order. 21 ST/11490/2017, ST/12437/2018-DB
11. We also find favour in the assessee‟s contention that in terms of Notification No. 12/2003-S.T., the value of the goods has to be taken out for the purpose of arriving at the value of services, if any. If the entire value of the goods stands taken out from the total contract value, nothing survives for the services, alleged to be supplied by the assessee. As such, we find no infirmity in the views adopted by Commissioner (Appeals), requiring any interference by the Tribunal. Accordingly the appeal filed by the Revenue is rejected."
4.4 In view of the above judgments, it can be seen that the identical facts are involved in the present case as well as the judgments cited above. Therefore, the ratio of the above judgment is directly applicable to the facts of the present case. As regard the grounds taken by the appellant regarding invocation of extended period and confirmation of demand thereunder, we find that it is fact on record that the appellant are registered with Central Excise department, discharging excise duty and filing the periodical return. The appellant were not charging any amount towards service the total value of the goods and so called erection are billed for manufacture and sale of the machine. As regard the supply in piecemeal machine, the appellant have intimated to the department as per the Trade Notice No.MP/29/83 dated 23.03.83. It was also disclosed that since, the machines are supplied in piecemeal, the same will be assembled and erected at customer‟s site. Therefore, there is absolutely no suppression of fact with intent to evade the payment of duty. Accordingly, the extended period for demand was wrongly invoked. Hence, the demand for extended period is clearly time barred and the same is not sustainable apart from the merit of the case.
5. As per our above discussions and findings, the impugned orders are not sustainable. Hence, the same is set aside and appeals are allowed with consequential relief.
(Pronounced in the open court on 01.10.2024) (RAMESH NAIR) MEMBER (JUDICIAL) (C L MAHAR) MEMBER (TECHNICAL) Bharvi