Custom, Excise & Service Tax Tribunal
International Metro Civil Contractors vs Service Tax - Delhi on 17 September, 2018
IN THE CUSTOMS, EXCISE & SERVICE TAX APPELLATE
TRIBUNAL,
WEST BLOCK NO.2, R.K. PURAM, NEW DELHI-110066
BENCH-DB
COURT - IV
Service Tax Appeal No. ST/54822/2014 [DB]
[Arising out of Order-in-Original No. DEL-SVTAX-ADJ-COM-79-
2014-15 dated 28/05/2014 passed by the Commissioner,
Service Tax, Delhi]
International Metro Civil Contractors ...Appellant
Vs.
C.S.T.-Service Tax - Delhi ... Respondent
Present for the Appellant : Mr. Vishal Kumar & Ms. Kritika Kapoor, Advocates Present for the Respondent: Mr. Vivek Pandey & Mr. Amresh Jain, DRs Coram: HON'BLE MR. C.L. MAHAR, MEMBER (TECHNICAL) HON'BLE MRS. RACHNA GUPTA, MEMBER (JUDICIAL) Date of Hearing : 21.08.2018 Pronounced on : 17.09.2018 FINAL ORDER NO. 52978/2018 PER: RACHNA GUPTA The facts in brief for the present Appeal are that the appellant M/s International Metro Civil Contractors (IMCC) is a joint venture company of five different companies namely DYCKERHOFF and WIDMANNAG, L&T Ltd., Samsung Corporation, Shimizu Corporation and IRCON International Limited. The said joint venture has been constituted for a special purpose of execution of Metro Corridor Contract 2 ST/54822/2014 [DB] "Design and Construct Contract MC1B" for metro corridor between ISBT Station (excluded) and Central Secretariat Station (included). The appellant were awarded a contract from Delhi Metro Rail Corporation Limited (DMRC) for design of rail based mass rapid transport system by procuring the design, execution and completion and remedying any defects in the works of civil engineering contraction, mechanical and electrical installation of the station (including tunnel ventilation and station area conditioning and ventilation) and tunnel infrastructure and buildings. On an information, Department observed that appellants are engaged in erection and commissioning of mechanical and electrical installation, tunnel ventilation and station air conditioning and ventilation. Hence, Department alleged that the appellant were involved in evasion of service tax in relation to the said contracts with DMRC by not discharging their liability for providing services as that of erection, commissioning and installation. Resultantly, a Show Cause Notice No. 4392 dated 23.10.2009 was served upon them raising a demand of Rs. 10,63,35,945/- along with appropriate interest and the proportionate penalties under Sections 76, 77 and 78 of the Finance Act, 1994 (The Act). The said demand was confirmed vide the Order under challenge with the imposition of interest and such penalties as mentioned therein. Being aggrieved is the present Appeal. 3
ST/54822/2014 [DB]
2. We have heard Mr. Vishal Kumar and Miss Kritika, Ld. Advocates for the appellant and Mr. Vivek Pandey, Ld. DR for the Department.
3. It is submitted on the part of the appellant that the activity of the appellants was exclusively related to construction of metro corridor in as such they were entitled for service tax exemption under the category of Construction Services as per Circular No. 80/2004 dated 17.09.2004. It is also impressed upon that construction of tunnels and underground stations though amounts to construction but the construction of Railways are excluded from the taxability of Construction Services. Above all, they were advised by DMRC itself about no liability of theirs towards service tax which is why they did not even opt of getting themselves registered. The Ld. Counsel has also impressed upon that the scope of work is covered under one and only contract between the DMRC and the appellant dated 03.04.2001 for design and construction of rail based MRTS. The contract is impressed upon as a total turnkey contract for the underground metro corridor between ISBT Station and Central Secretariat in New Delhi. In addition, it is submitted that the main services provided by the appellant is alleged as that of erection, commissioning and installation but as is apparent from the contract that all other work than erection, commissioning and installation were also agreed to be executed by the appellant 4 ST/54822/2014 [DB] including as that of design and even manufacture. The supply of material for the purpose was also to be done by the appellants. Hence, the services provided by the appellant are rather classifiable under Work Contract Service which came into service tax net only w.e.f. 01.07.2007. Ld. Counsel has relied upon Commissioner of Central Excise & Customs, Kerala Vs. Larsen & Toubro Ltd. 2015 (39) S.T.R. 913 (S.C.) to impress upon that prior the introduction of concept of work contracts, what was taxable was service contract simpliciter. Composite Works Contracts which could not be vivisected to segregate service element could not be made liable for service tax prior 01.07.2007. The Order under challenge is alleged to have failed to appreciate the said important fact. While so ignoring the Adjudicating Authority below is alleged to have committed a grave error. Order is accordingly prayed to be set aside and the Appeal is prayed to be allowed.
4. Ld. DR while justifying the Order has held that the services provided by the appellants squarely fall under the definition of Erection, Commission or Installation Service as defined under Section 65(105) 28 of the Act. The said services are taxable since 01.07.2003. Impugned period of dispute is April 2004 to September 2005. Resultantly, there is no infirmity confirming the demand for rendering the said services. It is further impressed upon that vide the impugned 5 ST/54822/2014 [DB] Show Cause Notice, the construction of station building or other civil structures has not been taken as a part it is only that portion of one work contract which is related to installation and commissioning that has been incorporated and the demand in accordance thereof has rightly been invoked and confirmed denying all the allegations and the grounds of Appeal. Ld. DR has prayed for the Appeal to be allowed.
5. After hearing both the parties we are of the opinion as follows:-
The demand as has been confirmed against the appellant is confirmed for providing Erection, Commissioning or Installation Services defined under Section 65(39a) taxable under Section 65(105) (zzd) of the Finance Act, 1994 (the Act). Whereas the appellant's case is that the services provided by the appellant are of the nature of work contracts as defined and taxable under Section 65(105) (zzzza) of the Act. The moot question therefore is about adjudicating the nature of services rendered by the appellants. For the purpose, the following definitions would be relevant:
""Erection, Commissioning or Installation" (65) 39a 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 -
6
ST/54822/2014 [DB]
(a) electrical and electronic devices, including
wirings or fittings therefor; 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; "
"This service is taxable under Section 65(105) zzd: [to any person], by a commissioning and installation agency in relation to erection, commission or installation;"
"Work contract definition and taxability for work contract is mentioned in Section 65(105) zzzza to mean as follows: 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 7 ST/54822/2014 [DB] 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;"
6. The bare perusal of the above definitions makes it clear that the Erection, Commissioning or Installation is one of the activity for the impugned contract which is composite in nature, i.e. having other services, in addition, to be simultaneously provided for. A close look at Finance Act, 1994 would show that the five taxable services referred to in the charging Section 65(105) would refer only to service contract simpliciter and not to the composite work 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 contract simpliciters without any other element in them. Further, under Section 67 of the Act, the value of taxable service is the gross amount charged by the service provider for such service 8 ST/54822/2014 [DB] rendered by him. This would unmistakably show that what is referred to in the charging provision is the taxation of service contract simpliciter without having any element of property in goods to be simultaneously transferred i.e. the provision is not for composite work contracts. It will also be noticed that no attempt to remove the non-service element from the composite work contracts has been made by any of the aforesaid Sections by deducting from the gross value of work contract the value of property in goods transferred in the execution of a work contract. The Hon'ble Apex Court in the case Larsen & Toubro Ltd. Vs. State of Karnataka 2014 (1) SCC 708 has held as follows:
"In our opinion the term "works contract" in Article 366(29-A) (b) is amply wide and cannot be confined to a particular understanding of the term or to a particular form. The term encompasses a wide range and many varieties of contract Parliament had such wide meaning of "works contract" in its view at the time of the forty sixth amendment. The object of insertion of clause (29-A) in Article 366 was to enlarge the scope of the expression "tax on sale or purchase of goods" and overcome Gannon Dunkerley (1) [State of Madras vs. Gannon Dunkerley and Co. (Madras) Ltd., AIR 1958 SC 560: 1959 SCR 379]. Seen thus, even if in a contract, besides the obligations of supply of goods and materials and performance of labour and services, some additional obligations are imposed such contract does not cease to be works contract. The additional obligations in the contract would not alter the nature of contract so long as the contract provides for a contract for works and satisfies the primary description of works contract. Once the characteristics or elements of works 9 ST/54822/2014 [DB] contract are satisfied in a contract then irrespective of additional obligations such contract would be covered by the term "works contract". Nothing in Article 366(29-A)
(b) limits the term "works contract" to contract for labour and service only. The Ld. Advocate General for Maharashtra was right in his submission that the term "works contract" cannot be confined to a contract to provide labour and services but is a contract for undertaking or brining into existence some "works".
We are also in agreement with the submission of Mr. K.N. Bhat that the term "works contract" in Article 366(29-A)(b) takes within its fold all genre of works contract and is not restricted to one specie of contract to provide for labour and services alone. Parliament had all genre of works contract in view when clause (29-A) was inserted in Article 366."
7. In the case before us, there is a contract (Design and Construct Contract) by Delhi Metro Rail Corporation in favour of the appellants for the design and construction of a rail based mass rapid transport system by procuring the design, execution and completion and remedying any defect in the works of civil engineering, construction, mechanical and electrical installations of the stations (including tunnel ventilation and station air conditioning and ventilation) and tunnel infrastructure and buildings. The perusal of contract shows that it was the obligation of appellants only to supply/provide all equipments, materials, labour and other facilities requisite for and incidental to the successful completion of the works and in carrying out all duties and 10 ST/54822/2014 [DB] obligations imposed by the contract documents. Further perusal makes it clear that valuation of the cost of works was agreed to be the total cost for the work carried out by the appellants. These perusal from the contract of the appellant makes it clear that the scope of work is not confined merely to erection, commissioning or installation. It is also apparent that the nature of contract is such that erection, commissioning and installation part cannot be severed from rest of the contractual responsibility. This perusal makes it clear that the contract is composite in nature rather being the contract for service simpliciter.
8. The taxability of composite contracts was brought into tax net w.e.f. 01.06.2007 itself under the category of rendering services of work contract taxable under Section 65(105) zzzza of the Act. The Hon'ble Supreme Court in the case Commissioner of Central Excise, Kerala Vs. L&T Limited 2015 (39) S.T.R. 913(S.C.) has clearly held that prior to 01.06.2007, whereafter the Finance Act, 2007 expressly made composite contracts/ work contracts liable to service tax, the Act had levied service tax only on contracts for service simpliciter. There was no provision for taxing composite indivisible work contracts. Service Tax (Determination of Value) Rules, 2006, Rule 2A thereof also bifurcates the contract so that no element attributable to property in goods transferred pursuant to such contract, enters 11 ST/54822/2014 [DB] into computation of service tax. It becomes absolutely clear that prior 01.06.2007, there was no provision for taxing the work contracts service. The period herein is w.e.f. April 2004 to September 2005. Hence, the services in hand cannot be held taxable as service simpliciter of Erection, Commissioning or Installation. The Adjudicating Authority below is held to have ignored the decision of Hon'ble Apex Court in L&T (supra) case. Despite acknowledging the composite nature of the contract in hand, the Commissioner is opined to have committed an error while confirming the demand under erection, commissioning and installation. For this reason, the Order under challenge is opined to be erroneous.
9. Seeing from another angle that the services provided by the appellant is the construction of rapid rail corridor which stands excluded otherwise from the tax ambit even of the works contract service. Though it is the case of the Department that the exemption is for railways and the metro corridor do not classify to be called as railways for it being a commercial concern. But this ground has already been adjudicated by Hon'ble Apex Court in the case Jagjeet Cotton Textile Mills Vs. Chief Commercial Superintendent 1998 (5) S.C.C. (126) wherein the Hon'ble Apex Court has held that Delhi Metro Rail is a Government railway as defined in Indian Railway Act. Since Railway also is meant to run on commercial basis, DMRC cannot be distinguished from being 12 ST/54822/2014 [DB] called as railways merely on the ground that it involves a commercial angle. This decision has been followed by Hon'ble Delhi High Court as well in the case of DMRC itself titled as DMRC Vs. Municipal Corporation of Delhi 2008 (103) DRJ
369. Hon'ble High Court Karnataka in the case DMRC Vs. Ministry of Finance 2013 (6) T.M.I. 78 has also held that work contract services in respect of railways are excluded under Clause 1 of 65(105) zzzza of the Act i.e. such contracts will fall outside the definition of taxable service and consequently no tax shall be leviable under Section 66 of the Act on the value of such services. This Tribunal in the case M/s IRCON International Ltd. Vs. C.S.T. Delhi 2017 (4) T.M.I. 1086 (Tri.-Del.) [IRCON is one of the company constituting the joint venture i.e. the appellant] has held a composite work contracts irrespective include the category of service of erection, commissioning and installation irrespective that the said service is taxable since 01.07.2003 but since the services rendered is classified as works contract and the work contract in respect of railways is excluded from the tax liability as per the statutory definition itself, no question of levy of any service tax on such contract arises. It was also clarified that it is a well settled legal position that metro work is nothing but railways work.
10. Now, coming to the final aspect of Show Cause Notice being barred by time, it is observed that the period in hand is 13 ST/54822/2014 [DB] w.e.f. April 2004 to September 2005. The Show Cause Notice was issued on 23.10.2009. The same is beyond the normal period of one year as mentioned in Section 73 of the Act. To invoke the extended period as mentioned in the proviso thereof, heavy burden lies upon the Department to prove the alleged wilful suppression. The law has by now been settled that a mere sweeping statement that the assessee has suppressed the fact without mention of any conscience act on part of assessee about fraud or collusion or wilful mis- statement or suppression of facts or contravention of any of provisions of law that too with intent to evade service tax is not sufficient to take the benefit of this proviso. The same is only a vague assertion which is highly insufficient to invoke the extended period of limitation, as was held by the Hon'ble High Court of Kolkata in the case Simplex Infrastructure Ltd. Vs. Commissioner Service Tax, Kolkata 2016 (42) S.T.R. 634 Kolkata. It was also clarified in this case that mere mechanical reproduction of language of proviso of the Section 73 (1) of the Finance Act, 1994 does not per se justify invocation of extended period of limitation. The Order under challenge is absolutely silent about any positive act on part of the appellant which may entitle the Department to invoke the extended period of limitation. Resultantly, we are of the opinion that the Show Cause Notice in this case is otherwise barred by limitation.
14
ST/54822/2014 [DB]
11. In view of the entire above discussion, we hereby hold that the Adjudicating Authority below has failed to appreciate the settled law with respect to the taxability of work contracts to be in existence since 01.06.2007, despite acknowledging the contract in hand as that of composite work contract. The authority has been silent about the issue of limitation. There is also a failure for extending the benefit of exclusion clause in work contract definition for the work of construction of railways. As a consequence thereof, we hereby set aside the Order under challenge. Appeal accordingly stands allowed.
[Pronounced in the open Court on 17.09.2018] (C.L. MAHAR) (RACHNA GUPTA) MEMBER (TECHNICAL) MEMBER (JUDICIAL) D.J.