Custom, Excise & Service Tax Tribunal
Yes vs Represented By : Shri P.M. Dave, ... on 3 June, 2010
CUSTOMS EXCISE & SERVICE TAX APPELLATE TRIBUNAL, West Zonal Bench, Ahmedabad Appeal No. : ST/33 of 2008 Arising out of : OIO No. 1/Dem.-ST/Vapi 2008 dated 09.1.2008 Passed by : Commissioner of Central Excise & Cus. Vapi For approval and signature : Hon'ble Mrs. Archana Wadhwa, Member (Judicial) Honble Mr. B.S.V. Murthy, Member (Technical) 1 Whether Press Reporter may be allowed to see the Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982? No 2 Whether it should be released under Rule 27 of CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not? Yes 3 Whether their Lordships wish to see the fair copy of the Order? Seen 4 Whether Order is to be circulated to the Departmental authorities? Yes Appellant (s) : M/s. Alidhara Texspin Engineers Represented by : Shri P.M. Dave, Advocate Respondent (s) : Commissioner of Central Excise & Cus. VAPI
Represented by : Shri J.S. Negi, SDR CORAM :
Hon'ble Mrs. Archana Wadhwa, Member (Judicial) Honble Mr. B.S.V. Murthy, Member (Technical) Date of Hearing : 03.06.2010 Date of Decision : 24.08.2010 ORDER No. _____________ /WZB/AHD/2010 Per : Mrs. Archana Wadhwa;
As per facts on record the appellant is engaged in the manufacture of textile machineries falling under Chapter 84 of Central Excise Tariff Act, 1985. They entered into a contract with their customers for supply of textile machinery and the sale price quoted by them was inclusive of Installation and Commissioning charges. By taking the entire contract value as the assessable value of the machinery, Central Excise duty was paid by them.
2. As a result of audit objection, it was noticed that the purchase orders/ sales contracts of the buyers were inclusive of Erection, Installation and Commissioning of the textile machinery manufactured by them and as such, the appellant was required to pay the service tax under the category of Erection, Commissioning and Installation charges.
3. Accordingly, the appellants were asked to provide the charges recovered by them from their customers for the services provided in respect of Erection, Installation and commissioning. The appellants vide their letter dated 12.7.2005 submitted that since their sale price is inclusive of Erection and Commissioning charges and they are not charging the said charges separately and the amount of said charges could not be reported separately.
4. The appellants were served with show cause notice dated 30.3.2007 proposing to recover the service tax and Education Cess Rs. 8,13,41,574/- on the entire gross value charged by them from their customers for the manufacture, supply and Erection of textile machinery during the period 02.9.2003 to 31.512.2006. The notice also proposed to confirm interest and impose penalty upon the appellants under the provisions of Section 76, 77 and 78 of the Finance Act, 1994. Extended period was invoked by alleging suppression with an intent to evade payment of service tax, inasmuch as the appellant did not disclose the information as regards collection of charges for the Erection, Installation and Commissioning services and did not file any ST-3 returns with the department. The said show cause notices stands culminated into an order passed by Commissioner vide which he has confirmed the demand, as proposed in the notice along with confirmation of interest. In addition, penalty of identical amount stands imposed under Section 78 of Finance Act, 1994 along with imposition of penalties under Section 76 and 77 of the Act.
5. Learned advocate Shri P.M. Dave, appearing on behalf of the appellants submits that the contract entered into by them with their buyers was a composite contract for selling and supplying textile machines in fully installed, commissioned and in operational condition; the processes undertaken at the buyers premises i.e. Erection and Commissioning of the machine was actually incidental with the manufacturing activity and as such, the same have to be treated as continuation of manufacturing process. The excise duty was admittedly paid on the entire contract value/ transaction value of the machine inclusive of Installation and Commissioning and as such, the same has to be treated as a part of manufacture process and no separate service tax can be recovered from the appellants. He submitted that there was no separate contract for Erection and Commissioning of the goods manufactured by them. For the above proposition he relied upon various decisions of the Tribunal which we shall be discussing shortly. He also submitted that Commissioner has confirmed the service tax on the entire gross value charged by them from their customers, as if the same was for Erection and Installation of the goods. He also clarified that Commissioner has accepted that they have engaged sub-contractors for the purpose of Erection and Installation, who had charged service charges from them and the said sub-contracts has paid the service tax on the said service charges, which is ultimately reimbursed by the appellants. As such, he submits that the impugned order is against the settled position in law by the various pronouncements of the Tribunal as also by the Hon'ble High Court.
6. He also submits that if the appellants would have chosen to claim deduction of Installation and Erection charges from the assessable value of the machinery for the purposes of payment of Central Excise duty and would have chosen to pay service tax on the said amount, the actual amount of duty paid by them would have been lower by an amount of Rs. 3.60 Lakhs approximately. Having paid the excise duty on the entire value, the appellant do not stand benefited.
7. As against the above arguments of learned advocate, learned SDR appearing for the Revenue reiterates the reasoning adopted by the Commissioner in his impugned order by drawing out attention to the definition of Erection, Commissioning and Installation services. Learned DR submits that the appellants are duly covered by the same and having undertaken the said services at the buyers premises they are liable to pay duty. Learned DR has also drawn our attention to the judgment of the Tribunal in the case of Lincoln Helios (India) Limited vs. Commissioner of Central Excise (Appeals) Bangalore 2006 (1) STR 302 (Tri. Bang.) wherein under the similar circumstances the appellants liability to pay service tax on the installation and commissioning activities were upheld. Learned DR further submits that inasmuch as the appellants failed to give segregated amount collected for the purpose of erection and installation, the Commissioner was left with no alternative but to confirm the service tax on the entire gross amount charged by the appellants. He also supports the impugned order of the Commissioner for invocation of longer period of limitation.
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 01.5.2006 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
(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; or
(e) lift and escalator, fire escape staircases or travelators; 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 vs. Commissioner of Central Excise, Chandigard 2009 (14) STR 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 vs. UOI 2009 (15) STR 3 (MP). The question placed before the Honble High Court was as to whether bottling of liquor amounts to manufacture of liquor or only packaging so as to attract service tax. The Honble High Court observed that whether activity amounts to manufacture or not, it is incumbent 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 Honble High Court observed that the process of manufacture is 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 Honble High Court fully covers the legal issue in the present case.
12. Similarly in the case of CCE Vapi vs. Alidhara Textool Engineers Pvt. Limited 2009 (239) ELT 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 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 buyers premises are actually incidental to manufacturing activity undertaken in the manufacturers 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 manufacturers 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 buyers 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 appellants 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 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 integrately related and connected with the manufacturing activity and the purchase orders are for the complete plant and machineries, duly 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 vs. Kone Elevators (India) Limited 2005 (181) ELT 156 (SC), as also Tribunal decision in the case of Idea Mobile Communication Limited vs. Commissioner 2006 (4) STR 132 (Tribunal).
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 merits, the issue of demand being barred by limitation is only of academic interest and is not being gone into.
(Pronounced in the Court on 24.08.2010)
(B.S.V. Murthy) (Archana Wadhwa)
Member (Technical) Member (Judicial)
KL
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