Customs, Excise and Gold Tribunal - Tamil Nadu
Diebold Systems (P) Ltd. vs Commissioner Of Service Tax on 28 November, 2007
Equivalent citations: [2008]12STJ352(CESTAT-CHENNAI), 2008[9]S.T.R.546, [2008]12STT346
ORDER P.G. Chacko, Member (J)
1. M/s. Diebold Systems (P) Ltd. (hereinafter referred to as 'the assessee') were awarded by various banks the contract of supply, installation and commissioning of Automated Teller Machines (ATMs, for short) and, accordingly, they executed the contracts as turnkey projects and received their charges from the banks. On 33% of the gross amounts so charged and collected by the assessee from the banks from July 2003 to April 2006, the department sought to levy service tax by treating the assessee as "commissioning and installation agency" and the work undertaken by them as ''commissioning or installation" as defined under Clause (28) of Section 65 of the Finance Act, 1994. Show-cause notice dated 14.2.2005 was issued for this purpose, invoking the extended period of limitation under the proviso to Section 73 of the Finance Act, 1994. This notice also demanded interest on tax under Section 75 of the Finance Act, 1994. It also proposed to impose penalties on the assessees under Sections 76, 77 & 78 of the said Act. All these demands/proposals were contested by the assessee in their reply to the SCN. In adjudication of the dispute, the Commissioner confirmed the entire demand of Service Tax (with interest thereon) against the assessee but dropped the proposal to impose penalties on them. The assessee's appeal No. S/126/06 is against this demand of service tax and the Revenue's appeal No. S/130/06 is against the non-imposition of penalties.
2. A similar SCN was issued on 21.10.2005 to the assessee demanding service tax (Rs. 4,59,69,068/-) under Section 73 of the Finance Act, 1994 for the subsequent period upto 31.7.2005 along with interest under Section 75 of the Act. This notice also proposed penalties on the assessee under Sections 76 & 77 of the said Act. These demands/proposals were also contested by the assessee in the same way as in their reply to the earlier SCN. The adjudicating authority confirmed the demand of tax to the extent of Rs. 4,20,21,266/- against the assessee after giving them the "cum-tax" benefit from 10.9.2004 in terms of the Explanation to Section 67 of the Finance Act, 1994. The authority also demanded interest on tax under Section 75. It also imposed a penalty under Section 76 of the Act. The assessee's appeal No. S/149/06 is directed against this decision of the Commissioner.
3. Yet another SCN dated 17.10.2006 was also issued to the assessee for the period August 2005 to April 2006 raising similar demand of service tax with interest and penalties on them, which was also contested. Appeal No. S/74/2007 is against the order passed by the Commission in adjudication of the said SCN.
4. Heard both sides. The assessee's case as presented by their counsel is as follows:
The works contracts executed by the assessee were indivisible and could not be vivisected into sale of goods and rendition of service for levy of service tax on the latter. The relevant purchase orders placed on the assessee by the banks clearly indicated that those were placed for the purchase of ATMs and installation and commissioning thereof as a turnkey project. The installation and commissioning of the ATMs were only incidental to the sale of the machines and did not constitute an independent activity. The assessee paid sales tax on the entire invoice amount collected from the banks. The invoice did not separately charge for the activity of installation and commissioning of ATM on account of the indivisible character of the works contract. In the case of Daelim Industrial Co. Ltd. v. CCE Vadodara , this Tribunal had held that an indivisible works contract could not be vivisected to subject a part thereof to service tax. A Special Leave Petition filed by the department against that decision was dismissed by the Supreme Court [vide 2004 (171) ELT A181]. The ratio of the decision in Daelim case was also followed by the Tribunal in numerous later cases viz. Larsen and Toubro Ltd. v. CCE Cochin , CCE Noida v. Flex Engineering Ltd. 2006 (1) S.T.R 208 (Tri.-Del), Petrofac International Ltd. v. CCE Cochin 2006 (2) S.T.R 39 (Tri.-Bang.), Emerson Process Management Power and Water Solution Inc. v. CCE Kanpur 2006 (3) S.T.R 508 (Tri.-Del.), CCE Vadodara v. Larson and Toubro Ltd. 2006 (4) S.T.R 63 (Tri.-Mumbai), Turbotech Precision Engg. Pvt. Ltd. v. CCE Bangalore 2006 (3) S.T.R 765 (Tri.-Bang.) etc. Similarly, the ratio of the decision in Daelim case is applicable to the present case also.
In order to interpret a contract as to whether it pertains to sale of goods or rendition of service, the essence of the contract has to be taken into account. The predominant object of the contracts between the assessee and the banks was sale of ATMs and not rendering of installation/commissioning service and, therefore, as per the ratio of the Supreme Court's decision in State of Andhra Pradesh v. Kore Elevators (India) Ltd. , it has to be held that the incidental activity of installation and commissioning of ATMs is not chargeable to service tax in addition to levy of sales tax on the subject matter of the works contracts.
The assessee has already discharged sales tax liability on the entire consideration received by them from banks and, therefore, any levy of service tax on the incidental activity of installation and commissioning of ATMs would be contrary to the ratio of the apex court's judgment in BSNL v. UOI 2006 (2) S.T.R 161 (SC).
As per the definition of 'taxable service' under Sub-clause (zzd) of Clause (105) of Section 65 of the Finance Act, 1994, any service, to be taxed, should be one provided to a "customer" by a commissioning/installation agency in relation to commissioning and installation. As the expression "customer" has not been defined in the Finance Act, 1994, its meaning has to be taken from dictionaries and, accordingly, for the levy of service tax on a service defined under Section 65(105)(zzd), it must be established that the service was rendered to a different person called "customer". In the instant case, the installation and commissioning of ATMs were undertaken prior to transfer of the property in the goods to the banks. Such transfer took place only at the time when the installation certificate of the assessee was accepted by the bank. Any activity like installation and commissioning of ATM undertaken by the assessee prior to that point of time cannot be treated as a service rendered to the bank. The time of passing of property in the goods from the assessee to the bank has to be ascertained with reference to Section 19 of the Sale of Goods Act, 1930.
Services in relation to ATMs became taxable only w.e.f. 1.5.2006 with the introduction of Clauses 9(a) & 9(b) and Sub-clause (zzzk) in Clause (105) under Section 65 of the Finance Act, 1994. Prior to that date, no service provided in relation to ATMs was eligible to service tax. Therefore, the demand raised on the assessee in respect of the works contracts relating to ATMs, executed by them during the period of dispute (July 2003 to July 2005), cannot be sustained in law. In this connection, the assessee has claimed support from the Tribunal's decision in Widia GMBH v. CCE Bangalore 2006 (4) S.T.R. 309 (Tri.-Bang.). After 1.5.2006, the assessee has obtained Registration with the department in respect of ATM-related services. In any case, 'works contracts' have become chargeable to service tax under the Finance Act, 1994 only w.e.f. 1.6.2007 and, therefore, the demand of service tax in respect of the works contracts executed by the assessee during the period of dispute will not be sustainable in law. In other words, there was no charging provision prior to 1.5.2006 in respect of ATM-related services and prior to 1.6.2007 in respect of indivisible works contracts. The impugned decision of the Commissioner amounts to supplementing something which the charging section did not provide. The taxing statute should clearly and unambiguously lay down three components viz. the subject of the tax, the person who is liable to pay the tax and the rate at which the tax is to be paid. If there is any ambiguity regarding any of these ingredients, then there is no tax in law as ruled by the apex court in Mathuram Agrawal v. State of Madhya Pradesh (1999) 8 SCC 667. In the instant case, even the first ingredient did not exist during the period of dispute inasmuch as it was only on 1.5.2006 that ATM-related services became taxable and it was only from 1.6.2007 that indivisible works contracts could be charged to service tax.
The assessee did not act as a 'commissioning or installation agency' of the banks. They were engaged in the sale of ATMs only. The commissioning and installation of ATMs were only incidental to such sale. Therefore, the assessee cannot be regarded as a 'commissioning or installation agency' within the meaning of this expression defined under Section 65(29) and, consequently, they cannot be burdened with service tax liability.
Without prejudice to the above submissions, the assessee has also a grievance that the benefit of Notification No. 25/2004-ST dated 10.9.2004 was not given by the Commissioner. They have a further case that the consideration received by them from the banks ought to have been treated as "cum-tax" for the period prior to 10.9.2004 also. In this connection, they have relied on Trade Notice No. 20/02 dt. 23.5.2002 of the Delhi Commissionerate.
The assessee has also challenged the demand of tax on the ground of limitation. They were registered with the department since 2003 in the category of "maintenance or repair services" and had been filing periodic returns and, therefore, the department was aware of their business activities. In the circumstances, the allegations of suppression, omission, failure etc. with reference to Section 73 of the Finance Act, 1994 are not tenable and, consequently, the extended period of limitation under the said provision is not invocable. Case law has been cited in this context also.
5. The case of the Revenue as pleaded by ld. SDR is as follows:
ATM is an equipment within the meaning of this expression used in the definition of "commissioning or installation" under Clause (28) of Section 65 of Finance Act, 1994 and, therefore, the service provided by the assessee to the banks in relation to commissioning or installation of ATMs during the period of dispute was chargeable to service tax in terms of Sub-clause (zzd) of Clause (105) of Section 65 ibid. After the 46th amendment to the Constitution of India, when Clause (29A) was inserted in Article 366, it was open to the department to vivisect a works contract for the purpose of levy of service tax on the service component of the contract. It was to achieve this object that Notification No. 19/2003-ST dated 21.8.2003 was issued by the Central Government under Section 93 of the Finance Act, 1994. Accordingly, service tax was leviable on 33% of the gross amount charged by a commissioning and installation agency from its customer under a contract for supplying plant, machinery or equipment and commissioning or installation of such plant, machinery or equipment, subject to certain conditions. The above Notification read with Section 66 of the Finance Act, 1994 read with Sub-clause (zzd) of Clause (105) of Section 65 of the said Act is the charging provision for levy of service tax on the service rendered by the assessee to the banks during the material period. Hence it cannot be said that service tax was demanded from the assessee for the said period without any charging provision.
The relationship between the assessee and the banks is comparable to that between a mandap-keeper and his customer and, therefore, the decision of the Hon'ble Supreme Court in Tamil Nadu Kalyana Mandapam Assn. v. UOI is applicable to the present case. Notification No. 21/97-ST dt. 26.6.97 issued under Section 93 of the Finance Act, 1994, which was considered by the apex court in the said case, is similar to Notification No. 19/03-ST relied on by the Revenue in the present case. It exempted 40% of the gross amount charged by a mandap-keeper from his client for the use of the mandap and the connected facilities including catering services, from payment of service tax. The apex court held that the transaction between the mandap-keeper and his customer was not in the nature of sale or hire-purchase of goods but essentially in the nature of service and, accordingly, the levy of service tax on the service rendered by the mandap-keeper to his customer in terms of Section 65(41)(p) of the Finance Act, 1994 read with Section 66 of the Act and Notification No. 21/97-ST was upheld.
Ld.SDR has also claimed support from the Tribunal's decision in CCE Raipur v. BSBK P. Ltd. 2007 (5) S.T.R 124 (Tri-Del.), wherein a turnkey project was found to be divisible and, accordingly, demand of service tax on the service component (consulting engineers' service) was sustained. He has also made an endeavour to show that Daelim case is distinguishable on facts from the present case. SDR has also reiterated the findings of the Commissioner.
6. In his rejoinder, ld. counsel has pointed out that the works contract involved in BSBK case was factually divisible while the one involved in Daelim case was indivisible. The indivisibility of the contract considered in Daelim case was noted and distinguished by the Tribunal in BSBK case. The apex court's decision in Kalyana Mandapam case was not on any works contract. None of the questions of law (vide para 32 of the judgment) considered by the court had anything to do with Notification No. 21/97-ST ibid. For a given subject matter, sales tax and service tax are mutually exclusive as held in BSNL case and, therefore, where sales tax was paid on the gross amount collected by the assessee from the banks, there could be no demand of service tax on the same amount or any part thereof. The department registered the assessee w.e.f. 1.5.2006 in the category of ATM-related services, which were introduced for the first time on 1.5.2006. Introduction of ATM-related services for levy of service tax w.e.f. 1.5.2006 would mean that such services were not classifiable in any pre-existing category of taxable services. In this connection, ld. counsel has relied on the Tribunal's decision in Glaxo Smithkline Pharmaceuticals Ltd. v. CCE Mumbai 2006 (3) S.T.R. 711 (Tri.-Mumbai) as also the decision in Widia GMBH case (supra).
7. We have given careful consideration to the submissions of both sides. We note that, in the impugned orders, learned Commissioner himself found the works contracts to be indivisible. He, however, took the view that, by virtue of Notification No. 19/2003-ST dt. 21.8.2003, service tax could be levied on indivisible works contracts for the period of dispute. This view has been assailed by the assessee on valid grounds. Admittedly, indivisible works contracts came to be exigible to service tax for the first time w.e.f 1.6.2007 only. Prior to that date, such contracts could not be vivisected for the purpose of levy of service tax on the service component. The indivisibility of works contracts for a period prior to 1.6.2007 was declared by this Tribunal in Daelim case, wherein the company had obtained a contract from M/s. Indian Oil Corporation Ltd. for construction a diesel hydro-desulphurization plant. That contract was on turnkey basis, for which IOC paid a lump sum of about Rs. 185 crores to the assessee. The contract involved residual process design, detailed engineering, procurement, supply, construction, fabrication, erection, installation, testing, commissioning and mechanical guarantee. The department, in a SCN, asked the assessee to pay service tax on residual process design and detailed engineering in the category of 'consulting engineers' service'. This demand was contested by the party. After examining the terms and conditions of the contract, the Tribunal found that assessee's contract with IOC was a works contracts on turnkey basis and not a consultancy contract. Further, it was held that a works contract could not be vivisected for a part of it to be subjected to taxation. In the result, the demand of service tax was set aside. The decision of the Tribunal was taken in appeal to the Supreme Court by the department, but their lordships dismissed the department's S.L.P. thus: "We see no reason to interfere. The Special Leave Petition is dismissed." . The ratio of the decision in Daelim case was followed by this Tribunal in a series of cases, some of which, cited by counsel, have already been noted by us. We find that the Daelim ratio is applicable to the present case also inasmuch as, in the impugned orders, the Commissioner himself has found the works contracts to be indivisible.
8. Inherent in the decision of the Tribunal in Daelim case is a basic concept of taxation, which is the one recognized and declared by the apex court in the case of Govind Saran Ganga Saran v. Commissioner of Sales Tax and Ors. [1985] 60 STC 1 and reads thus:
The components which enter into the concept of a tax are well known. The first is the character of the imposition known by its nature which prescribes the taxable event attracting the levy, the second is a clear indication of the person on whom the levy is imposed, and who is obliged to pay the tax, the third is the rate at which the tax is imposed, and the fourth is the measure or value to which the rate will be applied for computing the tax liability. If those components are not clearly and definitely ascertainable, it is difficult to say that the levy exists in point of law. Any uncertainty or vagueness in the legislative scheme defining any of those components of the levy will be fatal to its validity.
It was held more or less to the same effect by the apex court in Mathuram Agrawal's case thus:
...The intention of the legislature in a taxation statute is to be gathered from the language of the provisions particularly where the language is plain and unambiguous. In a taxing Act it is not possible to assume any intention of governing purpose of the statute more than what is stated in the plain language. It is not the economic results sought to be obtained by making the provision which is relevant in interpreting a fiscal statute. Equally impermissible is an interpretation which does not follow from the plain, unambiguous language of the statute. Words cannot be added to or substituted so as to give a meaning to the statute which will serve the spirit and intention of the legislature. The statute should clearly and unambiguously convey the three components of the tax law i.e. the subject of the tax, the person who is liable to pay the tax and the rate at which the tax is to be paid. If there is any ambiguity regarding any of these ingredients in a taxation statute then there is no tax in law. Then it is for the legislature to do the needful in the matter.
The very first requisite for levy of service tax from the assessee in respect of the works contracts executed by them during the period of dispute is lacking in the present case i.e. the taxable event. Indivisible works contracts like the ones executed by the assessee for the benefit of banks during the said period were not exigible to service tax during that period. Such events became taxable only w.e.f. 1.6.2007. It is no defence for the Revenue to say that ATMs are also equipments and, therefore, the works undertaken by the assessee for the benefit of banks were subject to service tax as 'service provided to a customer by a commissioning and installation agency in relation to commissioning or installation of plant, machinery or equipment'. This is because ATM-related services were introduced only on 1.5.2006 for the purpose of levy of service tax. Introduction of a new entry for the purpose of levy of tax presupposes that it was not covered by any of the pre-existing entries. In other words, in the ever-widening sphere of service tax, addition of an item to the list of taxable services is just an addition, and not a subtraction from a pre-existing entry. This reality was noted by this Tribunal in the case of Glaxo Smithkline Pharmaceuticals (supra). In that case, certain service rendered by the company was found to be in the category of "Business Auxiliary Service" as claimed by them and not "Management Consultancy Service" as claimed by the Revenue. 'Business Auxiliary Service' was introduced in July 2003 when the other service was already on the statute book. After noting that the definition of "Management Consultancy Service" remained the same even after introduction of 'Business Auxiliary Service' as a taxable service, the Tribunal rejected the Revenue's plea that the service provided by the assessee could still be taxed as "Management Consultancy Service" for the period prior to July 2003. In the present case, the assessee is also supported by the decision in Widia GMBH case. That company had transferred technology to another company for manufacture of certain tools and parts thereof and had received consideration there for during 1993-99. The department sought to levy service tax on the amount received by the assessee from their technical collaborators, in the category of "Consulting Engineers' Service". The demand was contested by the assessee by submitting that the technology transfer fell within the ambit of "Scientific and Technical Consultancy Service" which was introduced on 16.7.2001 only. This contention was accepted by the Tribunal and it was held that, for the period 1993-99, "Scientific and Technical Consultancy Service" would not be taxable as "Consulting Engineers' Service". In other words, a service classifiable as "Scientific and Technical Consultancy Service" was held not to be taxed as "Consulting Engineers' Service" for a period prior to 16.7.2001.
9. The law of taxation does not accept ambiguity. As held by the apex court in the cases of Govind Saran Ganga Saran (supra), and Mathuram Agrawal (supra), a taxing statute must clearly and unambiguously lay down the charging provision specifying the taxable event, the person liable to pay the tax and the rate at which he should pay. The taxing event in the instant case is the execution of turnkey projects involving sale of ATMs to banks coupled with the incidental activities of installation, commissioning etc. These projects were executed by the assessee in terms of the purchase orders placed on them by the banks concerned. The payments for these works were made by the banks against invoices raised by the assessee, wherein the gross value was mentioned without segregation of price of ATM, installation/commissioning and other charges. The lower authority found these projects to be indivisible. These facts are enough for us to hold that there could be no levy of service tax on the above works contracts prior to 1.6.2007. In other words, during the period of dispute, the subject events were not taxable in the absence of the requisite charging provision. Charging provisions are to be found in the statute itself and, where there is none in the statute, they cannot be supplemented by Notifications. Notification No. 19/2003-ST relied on by the Revenue can have no operation in respect of any service as long as such service does not find a place in the list of taxable services under Section 65 of the Finance Act, 1994. ATM-related services were introduced for the levy of service tax only w.e.f 1.5.2006 and indivisible works contracts like the ones involved in the present case came to be chargeable to service tax only w.e.f. 1.6.2007. Thus the subject matter of this case does not attract any of the taxable services for any period prior to 1.5.2006. Ld. SDR has heavily relied on the apex court's judgment in Kalyana Mandapam case. That decision was not in respect of indivisible works contracts and the same was in the nature of transaction between a mandap-keeper and his customer. We have not found any comparison between such transaction and the one between the assessee and the banks concerned. Again, the above decision of the apex court is not an authority on the proposition that service tax could be levied in respect of indivisible works contracts on the strength of a Notification issued under Section 93 of the Finance Act, 1994 in the absence of charging provision in the said Act. It is true that, with the insertion of Clause (29A) in Article 366 of the Constitution, sales tax could be levied in respect of indivisible works contracts. But, for the levy of service tax in respect of such contracts prior to 1.6.2007, no statutory authority has been cited by SDR.
10. Apart from their case on merits, we have also found a strong case for the assessee against the impugned demand of tax, on the strength of the Commissioner's own findings having a bearing on the assessee's plea of limitation. Ld. Commissioner acknowledged the fact that the assessee had a bona fide doubt as to whether their activity attracted service tax or not. On this basis, he dropped the proposal to impose penalties on the party under Sections 76 & 78 of the Finance Act, 1994. We observe that, if the assessee's doubt was bona fide as found by ld. Commissioner, no malafides can be attributed to them and they cannot be held to have suppressed anything before the department with intent to evade payment of service tax. In such a situation, there is force in the assessee's submission that the larger period of limitation was not invocable against them.
In the result, the assessee's appeals succeed on all counts and the same are allowed. The impugned orders, to the extent they are against the assessee, stand set aside. In view of our decision on appeal No. S/126/06 of the assessee, we dismiss the Revenue's appeal.
(Operative part of the order was pronounced in open court on 28.11.2007)