Customs, Excise and Gold Tribunal - Ahmedabad
Jyoti Limited, Shri Suresh Singhal And ... vs Cce on 31 July, 2007
Equivalent citations: [2008]12STT317
ORDER M. Veeraiyan, Member (T)
1. These appeals are against the order of Commissioner No. 1/Demand-STC/Revision/Commr-I/ 03, dt.28.11.03, passed in revision against the Order-in-original No. D/STC/15/2001, dt.10.4.02, passed by Dy. Commissioner (Service Tax) Vadodara.
2. Heard both sides.
3. The relevant facts, in brief, are as follows:
a) The appellant company is engaged in the manufacture of mechanical, engineering and electrical goods falling under Chapters 84 and 85 of Central Excise Tariff Act, 1985.
b) In respect of certain buyers, the appellant merely sold their products. In respect of certain buyers, at their request, the appellant has undertaken, at the customer's site, certain activities like construction, civil works including installation, erection and commissioning of machinery to the specific requirements of the customers. In such cases, they collected amounts billed variedly as charges towards erection, testing and calibrations, installation and commissioning, construction activities etc. In respect of some other buyers, they procured some accessories and miscellaneous goods from other manufacturers or open market and in such cases collected the price from their customers for supply of the said bought out items.
c) They have, thus, collected a sum of Rs. 36,95,14,983/-towards post clearing activities relating to the period July 97 to December 2000.
d) A show cause notice dt.4.6.01 was issued, proposing demand of duty of Rs. 1,84,75,749/- and proposing imposition of penalty under various sections on appellant company and Ors.
e) The original authority by his order dt.10.4.02, inter alia, held
i) that the appellant company not only supplied their own manufactured goods, equipments to the buyers, but also supplied the bought out parts, equipments procured by the appellant from open market or from other manufacturers;
ii) They go to the site of the buyer for erection, installation and commissioning; that the appellant company undertakes calibration, testing, repair etc. of the components and accessories of the machinery and equipments supplied by them. The appellant undertakes erection, installation of machinery and equipments produced and sold by them as part of the execution of the job.
iii) The testing services rendered by them are a part of the manufacturing activity. There is no consultancy involved in such actual performance of work by way of installation, erection as they are part and parcel of manufacturing activity.
Therefore, he held that they under take these activities at the site of the customers as part of the contract and they do not render advice or consultation or technical assistance and therefore they cannot be held to be rendering services of consulting engineers.
f) The Commissioner took up the order for review and held the follows:
i) that the definition of consulting engineers is very wide as seen by the use of words like "directly or indirectly" as well as "any advice, consultancy or technical assistance" in the definition.
ii) that the commercial recognition of the assessee as a manufacturer and not as consulting engineer is very vague concept and unacceptable. They have the expertise and necessary skills to execute the successful commissioning of plant. Therefore the customers have awarded the comprehensive contract of installation and commissioning of plant and machineries to the assessee.
iii) All the activities as erection, civil works, testing etc. are being carried out in connection with machineries which are manufactured by them.
iv) the assessee has not hired any external Engineering Consultant for the execution of the work and has employed his won professionally qualified engineers for the same. This in itself proved their competence and rendering of services of the nature of "advice", "consultancy" or "technical assistance" while executing the work contract.
v) He also relied on CBEC vide Circular No. 43/5/97-TRU dt.2.7.97 which has clarified the scope of services of consulting engineers. It clarified that the said service includes one or more of the following category.
Feasibility study Pre-designed services/project report Basic design engineering Detailed engineering Procurement Construction supervision and project management Supervision of commissioning and initial operation Man power planning and training Post-operation and management Trouble shooting and Technical services, including establishing systems and procedures for an existing plant.
g) Commissioner confirmed the duty amounting to Rs. 1,84,75,749/-and imposed penalty of Rs. 3,69,51,498/ under Section 78 and also penalties under Sections 76 and 77. He also imposed penalties of Rs. 5 lakhs each on Shri Suresh Gandhi, General Manager (Finance) and Shri Suresh Singhal, Company Secretary of the appellant company.
4. The learned advocate submits that they have entered into a turnkey contract with the customer and such contract cannot be vivisected and part of the activities covered by the contract subjected to levy of the service tax. In support of his contention, he relied on as many as ten decisions of the Tribunal.
5. The learned DR reiterates the findings of the Commissioner. He also relies on the decision of the Tribunal in case of CCE Raipur v. BSBK Pvt. Ltd. as reported in 2007 (5) STR 124 (Tri-Del.), and submits that in cases where separate bills in respect of designing, and engineering etc are raised, turn-key project contract is divisible and bills in respect of designing and engineering can be charged to tax under a category of consulting engineering.
6. We have carefully considered the submissions. In the instant case, admittedly, the appellant company manufactured several mechanical, electrical and engineering goods and they are sold as such in some cases without undertaking any post clearance activity at the customer's site. They are claiming that they are undertaking post clearance activities only in respect of certain customers who are insisting on such activities be undertaken by them; that the appellant helped them in procuring certain accessories; that appellant helped the customer in activities like installation, commissioning at the customer's premises. In other words, it was claimed that very same products are sold to some of their customers and no post clearance support is being given by them. In the light of this, the claim that the activities at the customer's site are part of the manufacturing activity of the equipment supplied by them can not be held to be correct.
7. Ten decisions relied upon by the appellant are being listed chronologically so as to appreciate the developments in the case laws on the above subject.
1. Order dt.4/5.6.03 Daelim Industrial Co. Ltd. v. CCE Vadodara
2. Order dt.20.11.03 2006(3)STR 223 (Tri-Del.) Larsen and Toubro Ltd. v. CCE Cochin
3. Order dt.29.4.05 2006(1)STR 164 (Tri-Del.) CCE Bhopal v. Shapoorji Pollanji and Co. Ltd.
4. Order dt.6.7.05 2006(1)STR 208 (Tri-Del.) CCE Noida v. Flex Engineering Ltd.
5. Order dt.5.10.05 2006(2)STR 39 (Tri-Bang.) Petrofac International Ltd. v. CCE(A)Cochin
6. Order dt.10.1.06 2006(3)STR 508 (Tri-Del.) Emerson Process Management Power and Water Solution Inc. v. CCE Kanpur
7. Order dt.8.2.06 2006(3)STR 168 (Tri-Del.) CCE Raipur v. Beekay Engg. Corporation
8. Order dt.21.3.06 2006(4)STR 63 (Tri-Mumbai) CCE Vadodara v. Larsen and Toubro Ltd.
9. Order dt.15.6.06 2006(3)STR 765 (Tri-Bang.) Turbotech Precision Engg. P. Ltd. v. CCE Bangalore-II
10. Order dt.9.10.06 2007(5)STR 353 (Tri-Bang.) Blue Star Ltd. v. CCE Hyderabad-II
8. In case of Daelim Industrial Co. Ltd., the contract was for construction, erection, and installation of desulphurization plant on payment of lump sum price. Primary objective of the contract was construction of desulphurization plant. The clause of contract left no doubt that the contract was Works contract on turn-key basis and not a consultancy contract.
9. In the case of Larsen and Toubro Ltd., the issue involved was in relation to the execution of engineering project on Works contract terms and it was held that the design element of these contracts cannot be vivisected and charged to Service Tax as consulting engineering.
10. In the case of Shapoorji Pollanji and Co. Ltd., it was held that the charges for design and detailed engineering of commissioning of plant cannot be separated and charged to service tax under the head Consulting Engineering, when the firm executed a turnkey project of 'Multiserve Line 600 BPM Coca Cola Bottling Plant' for M/s Hindustan Coca Cola Bottling North West Pvt. Ltd.
11. In the case of Flex Engineering Ltd., it was held that design, drawing involved in whole process was incidental, essential to the execution of the Works contract. The drawings were made for their purpose in the execution of Works Contract. Therefore, even if the Works contract include elements of engineering consultancy that the contract cannot be vivisected and part of it subjected to tax as engineering consultancy.
12. In the case of Petrofac International Ltd., it dealt with contract work in terms of turnkey project, it involved sale of goods and not contract for work on labour.
13. In the case of Emerson Process Management Power and Water Solution Inc., the agreement indicated that the project was integrated and in the nature of turnkey project and therefore the design element of works contract was not to be subjected to service tax by vivisecting the contract.
14. In the case of Beekay Engg. Corpn., the Single Member Bench of the Tribunal held that the contract by the assessee was comprehensive contract and only for the convenience purpose, the assessee raised the bills separately for design, engineering and erection and labour charges.
15. In the case of Larsen and Toubro Ltd., it dealt with the contract essentially for transaction of solvent deweaxing and de-oiling contract and for construction of Hydrotreater, Amine Treating Unit etc. It has been held that detailed engineering was only incidental without which the contract could not have been completed.
16. In case of Turbotech Precision Engg. P. Ltd., it dealt with contract for supply of turbo power pack works contract consisting of many activities.
17. In case of Blue Star Ltd. he dealt with the cases of consolidated deal for supply, installation, and commissioning of air conditioning system. It has been held that it is a case of works contract and cannot be vivisected.
18. The facts of the present case are clearly distinguishable from the facts of the above mentioned cases. Here, it is not a case of setting up of a plant. The activities undertaken by the appellant at the customer's site are not shown to be part of the indivisible works contract on a turnkey basis. The very fact that only some of the buyers are availing the services of the appellant company indicates that these activities cannot be considered as integral to setting up of a project on turnkey basis. Therefore, they stand as certain additional/optional services given to certain buyers/customers. The activities undertaken by them at the customers end can not be treated as part of any manufacturing activity but only as services rendered by them.
19. In such a situation, the ratio of Tribunal's decision in case of M/s BSBK (P) Ltd. relied upon by the learned SDR will be applicable as the facts in the said case more akin to the facts the present case. The relevant portion of the findings from the said order is reproduced below:
5. Referring to the memorandum of Association of the respondent, the learned authorized representative brought out the fact that the main objects of the company included the work as engineers, designers etc. He also distinguished the ratio of the decision in Daelim Industrial Co. Ltd. (supra) by stating that "vivisect" of the contract entered into by the respondent was carried out by the department in that case but in the subject case, the contract itself is a "divisible contract" which has isolated the charges in respect of services from those for supplies of goods etc. In view of this, it was pleaded 'that the Daelim judgment would not be applicable in the respondent's case and service charges on the basis of clear quantification of value made as available becomes payable.
6. After hearing the learned authorized representative and pursuing the record, it becomes clear that the respondent had been rendering the taxable service of consulting engineer for the following reason:
6.1 A perusal of invoice dated 21-6-1997 indicates separate description in respect of "designing and engineering" showing the exact amount charged for the services rendered by the respondent. In the same manner invoices dated 25-4-1997, 23-6-1997 and 1-7-1997 all indicate the specific charges for the said services.
6.2 The letter dated 7-2-1996 from Bhilai Steel Plant addressed to the respondent accepting the tender for design, engineering etc. show a clear cut break-up in respect of the total contract price and the services rendered by the respondent in respect of design, engineering, drawings and documentations. Thus, a contract price of Rs. 23,17,000/- out of the total contract price of Rs. 3,66,82,000/- has been worked out and spelt out in no unclear terms. In the same letter, it has also been stipulated that the total price was inclusive of "all taxes and duties of divisible contract basis as per agreed terms and conditions".
6.3 Referring to the Black's Law Dictionary, the term "divisible contract" whose synonym is "sever able contract" is defined as under:
Severable contract - A contract that includes two or more promises each of which can be enforced separately, so that failure to perform one of the promises does not necessarily put the promisor in breach of the entire contract. Also termed divisible contract; severable contract.
6.4 It is also noted that the services such as pre-designed services/ project report, basic design engineering and detailed design engineering are all covered under the category of "taxable service" rendered by the consulting engineers vide Commissioner of Central Excise, New Delhi Trade Notice No. 54-C.E. (Service Tax)/97, dated 4-7-1997. It has also been clarified in the said trade notice that in case the services are rendered to the prime consultant, the levy of service tax does not fall on the sub-consultant. Further, the intention to include the "designing and drawing work" as services in turn-key project is also evident from CBEC Circular dated 18-12-2002.
6.5 The turn-key project contract entered into by the respondent is "divisible" as stated in the very letter of acceptance of tender dated 7-2-1996. In the impugned order the learned Commissioner (Appeals) has made the following observations:
As held by CESTAT in the case of M/s. Daelim Industrial Co. Ltd. (supra) and also in the case of M/s. L and T (supra) the work contract cannot be vivisected to select those activities which comprise taxable services.
In the subject case the contract itself is "divisible" and no surgery to isolate the Siamese twin of services/goods has taken place. Further the expression "Vivisect" used profusely by both the sides has turned out quizzical, as Concise Oxford Dictionary defines the term "vivisect" to mean "to perform vivisection on" and the word "vivisection" turns out to mean "dissection or other painful treatment of living animals for the purposes of scientific research and unduly detailed or ruthless criticism". We revive here what Oliver Wendell Holmes once said about a word such as "Vivisect": "A word is not a crystal, transparent and unchanged, it is the skin of the living thought and may vary greatly in colour and content, according to the circumstances and the time in which it is used". Therefore, even considering the word "vivisect" to mean "dissect", we find the 'divisible' nature of the contract in the appellant's case has prevented any more "dissection" possibility, thus distinguishable from the Daelim situation.
7. In view of the above finding, we fail to find any reason - both logically and etymologically to agree with the reasoning of the learned (Commissioner (Appeals) in holding that the services rendered by the respondent are not in taxable category.
20. In view of the above, the appeal of the appellant company in so far as it relates to demand of duty and interest is concerned the same deserves to be rejected.
21. The penalty of Rs. 3,69,51,498/- under Section 78 is very harsh and deserves reduction and accordingly reduced to Rs. 1,84,75,749/- which is equal to the duty evaded. The penalties imposed under other sections on the appellant company are not interfered with.
However, as regards the penalties imposed on other appellants, no specific role on their part leading to the evasion has been brought out.
Therefore, the penalties are not imposable on them. Therefore, their appeals deserve to be allowed.
22 In view of the above, the appeals are disposed of as follows:
a) The demand of duty and interest is upheld.
b) The penalty on the appellant company under Section 78 is reduced to Rs. 1,84,75,749/-.
c) The appeals by Shri Suresh Singhal and Shri Suresh Gandhi are allowed.
(Pronounced in Court on____________) Archana Wadhwa, Member (J)
23. I have gone through the order proposed by learned brother and record a separate order as I am not in agreement with the same. As detailed facts have already been narrated in the order proposed by learned brother, I do not repeat the same to avoid redundancy.
24. It is seen that the appellant is a company, primarily engaged in the manufacture of various mechanical engineering and electrical goods. Apart from selling the goods to independent buyers, they also undertake turnkey projects with some of their customers, which apart from sale of their various goods manufactured by them also requires the appellants to undertake the detailed design, installation, erection and commissioning of the plant. The core question required to be decided in the present appeal is as to whether the appellant can be taxed to service tax in respect of a part of remuneration so received by them towards erection, installation and commissioning of the plant under the heading of "consulting engineering services".
25. Section 65(18) of Chapter V of the Finance Act, 1944, defines the "Consulting Engineers" as professionally qualified engineers or an engineering firm, which either directly or indirectly renders an advice, consultancy or technical assistance in any manner to a client in one or more disciplines of engineering. The taxable service rendered by a consulting engineer means any service provided to a client or a consulting engineering in relation to advice, consultancy, technical assistance in any manner in one or more disciplines of engineering. As such, it is clear from the above definition that the "service" liable for tax is that there must be an advice, consultancy or technical assistance by a professionally qualified engineer or an engineering firm. As such, essentially the person liable to be taxed under the said category should be professionally qualified engineer. Admittedly, in the present case, appellants are manufacturer of goods, who also in some cases, undertakes the installation and erection of the goods so manufactured by them at the buyers premises, they are not an engineering firm engaged in consultancy, but undertake the entire project in respect of the goods manufactured by them, which has to be held as integral part of sale of their goods. The appellant is a body corporate engaged in the manufacture of the goods and cannot be said to be covered by expression "professionally qualified engineers", neither as engineering firm engaged in providing or rendering any advice, consultancy or technical assistance.
26. As is further seen that such engineering firm should be rendering any advice, consultancy or technical assistance to a client to make them liable to service tax. To render advice means to give opinion or to make a recommendation regarding decision or course of conduct. Consulting means seek information or advice from a person or to take counsel. Person consulted is a consultant and hence consultancy means rendering professional advice or service. Similarly, 'technical assistance' means providing assistance on the basis of special skill and knowledge. Where a person himself undertakes a job on contract basis for installation, erection and commissioning of machine, services are in the nature of execution of jobs and not in the nature of advice, consultancy or technical assistance. As observed by the original adjudicating authority, the word 'technical assistance' is preceded by the words 'advice' and (consultancy'. Principle regarding interpretation of words has been laid down by Hon'ble Supreme Court in the case of Rohit Pulp and Paper Mills Ltd. and case of State v. Hospital Mazdoor Sabha 1960 2 SCR 886.
27. It is evident that the meaning of the words 'technical assistance', thus is required to be judged from the words 'advice' and 'consultancy'. Both these words mean "to give opinion on any subject". It does not include actual performance of any work. The execution of the work is not included under the words, 'advice', 'consultancy' or 'technical assistance'. Thus, the amounts realized towards execution of work will not be covered under Service Tax.
28. Further, in projects, the Consultants give advice, technical assistance as well as supply of machinery and executing the work. The supply of machinery is a SALE TRANSACTION and is not covered under services levy to tax. Execution of work is mainly covered under the category of civil contractor and is excluded from service tax. The important aspect that has to be born in mind is that the taxable service will cover only services relevant to the three specified areas, viz. advice, consultancy and technical assistance. If the consulting engineer renders in addition any other service also, such service will not be treated as 'taxable service'. If an engineer undertakes the actual construction work, the services rendered in connection with the actual construction work will not be advice, consultancy or technical assistance on which there is levy of service tax. As such, I am of the view that the Dy. Commissioner has rightly interpreted the definition of 'consulting engineer' which would not include firms which are engaged in the actual execution of the works in any engineering skill. A mere contract to erect, install and commission any machinery is not leviable to service tax as it is an engineering contract executed by a contractor and not by a consulting engineer. Similarly, engineering goods manufactured on tailor-made basis, which would also include installation and erection of the same would not be covered by the scope of consulting engineer. Undoubtedly, same kind of service would be involved in tailor-made projects in as much as the projects would be complete handling after the goods manufactured are installed, erected and the entire plant commissioned, otherwise, the goods so received by the buyer would be of no use to them. In the instant case, the appellants are also undertaking the construction activities as required for necessary installation of machines and for commissioning of the plant. It is they who are undertaking the job themselves and are being paid by their buyer. As such, having undertaken the contract themselves for full execution of work, the appellants cannot be permitted to be in the place of an adviser or a consultant. The said activities undertaken by them are admittedly a part of their job of manufacturing such goods and undertaking the complete project of their buyer and are related activities to the sale transactions. Taking an example from daily life, a person can buy an air-conditioner from the market and get it installed by an electrician in his house or he may contract with the seller of the air-conditioner to install the same in his house window, in which case, the charges would be definitely higher being inclusive of the installation of the air-conditioner. Can it be said in such a situation that the seller of the air-conditioner has also provided engineering consultancy services leviable to service tax. A clear answer to the above question is "NO".
29. I would also like to reproduce one paragraph from the order of the Dy. Commissioner with approval.
'Advice' and 'Consultancy' mean to "give opinion on any subject". Such advice and consultancy are generally understood to be optional in nature and has no statutory force. It is upto the client to accept the advice, consultancy or not. It is in this sense, one has to examine whether the activity or erection, commissioning, installation, construction, etc. as undertaken by M/s Jyoti Ltd. for sale of their manufactured goods will come under the purview of advice, consultancy or technical assistance. M/s Jyoti Ltd. are in fact, doing these activities as a part and parcel of production and clearance of their excisable goods. These activities are in the nature of execution of job by themselves. They do not give any opinion to the buyers. Buyers place the order for the excisable goods and M/s Jyoti Ltd. sell them at a price. No advice or opinion is sought for by the buyers, nor it is given by M/s Jyoti Ltd. Similarly, assistance means it is for the purpose of achieving a particular aim or result. M/s Jyoti Ltd., themselves are engaged in the activities of erection, commissioning, installation, supervision, construction etc. for their own manufactured goods. They do not assist so far as achieving of the aim or result for buyers. What is involved between the buyer and M/s Jyoti Ltd. in such cases, is only 'sale transaction' and M/s Jyoti Ltd., execute the job themselves. It is manifestly clear that manufacturers of machines provide some after sale services e.g. installation, erection and commissioning of machines, repairs and maintenance. These activities, services are in the nature of execution of job; it involves actual performance of work. It certainly does not involve giving advice or opinion or assistance to the buyers. The execution of work is not covered under "services". Service Tax is leviable on the services, rendered to a client for 'advice', 'consultancy', and 'technical assistance'. It is not levied on sale and purchase. Sale transaction is not leviable to service tax.
30. I further find that the Dy. Commissioner in his impugned order has covered or dealt with in detail various services i.e. testing service, erection of plant, procurement of material and provision and construction activities separately and has come to a clear finding that same cannot be held to be as consulting engineering service covered under the provisions of service tax, which I reproduce in brief.
Testing Service:
The notice has been proposed to pay service tax on it. Sample invoices, raised by M/s Jyoti Ltd., for collection of payments on Testing services, as submitted by the notice are examined. The noticee undertakes calibration, testing, repairs etc. of the components and accessories of the machinery and equipment supplied by them on payment of Central Excise duty. The noticee undertakes these job of testing, calibration, etc. fee of charge during warranty and guarantee period and on payment beyond it. This illustrates that activity of testing services, etc. is a concomitant and essential job of manufacture of machinery/equipments. A manufacturer is required to carry out such testing service as a part of manufacturing activity. It does not involve any service of 'advice', 'consultancy' or 'technical assistance'. Rather, testing service forms an integral part of 'sale transaction' of manufactured goods. And naturally, without testing, supply of machinery and their erection, commissioning is not complete.
Erection of Plant:
The notice, M/s Jyoti Ltd. are engaged in production and clearance of mechanical/engineering and electrical goods to various buyers. They undertake installation, erection of such goods at the site of the buyers. Workmen, engineers and other employees of M/s Jyoti Ltd., themselves carry out such erection. Erection/installation of such machinery and equipments produced and cleared by the manufacturer themselves are nothing but execution of job and such actual performance of work is a part and parcel of manufacturing activity. It does not involve any advice, consultancy or technical assistance to buyers. The employees, engineers, workmen themselves undertake and execute such job. So services as covered under 'Consulting Engineer' are not rendered to the buyers and no levy of Service Tax is justified.
Procurement:
As mentioned in foregoing paras, while installing, erection and commissioning of the machines and equipments manufactured by themselves in their factory, the notice also installs, supplies some bought out parts, equipments procured by them from open market and other manufacturers. These bought out items purchased by the noticee are installed at the buyers' site. What is supplied as bought out items are GOODS and they involve 'sale transaction' or 'dealing' in goods, 'supply' of goods. Such purchase and sale of goods, dealing in bought out goods and supplying to the buyers is not "procurement", because it does not contain advising or consulting the buyer as to how to procure and from where to procure certain goods, for project, specifications, etc. To say the least, value of bought out goods, items/equipments etc. as purchased by the noticee, from the open market, or others and supplied/ installed at the buyers' site is by no stretch of imagination, services containing consultancy, advice or technical assistance. They cannot form taxable value of services. Further, provisions of service tax lay down that all the SERVICES rendered within the scope of the term engineering attract service tax PROVIDED THEY ARE RENDERED IN THE CAPACITY OF A CONSULTING ENGINEER. It means that any execution of a job, actual performance of work done by manufacturing does not have any ingredient of services provided as consulting engineer.
In case of any project, supply of goods (machinery/ equipment) and execution of work (erection, commissioning, installation, etc.) are SALE TRANSACTIONS. Advice, consultancy or technical assistance are not the ingredients. Procurement that Consultant Engineer render advice, opinion, assistance and consultancy to the Clients for locating proper sources of machinery, equipments/parts on the behalf of the clients and procuring on their behalf. Purchase and sale of equipments/parts by the noticee, installing them at the buyers' site along with own manufactured goods by manufacturers themselves on their own discretion or by direction, suggestion and at the instance of the buyers is not procurement services, rendering advice, consultancy to clients. It may thus be seen that suggestion/direction flows from the buyers to the seller in such cases, not the other way round. When materials, equipments/parts are bought by the manufacturer at the instance of the buyer, there is no advice or opinion from seller to buyer. Thus, charges leveled in SCN for inclusion of value of materials and so called services of procurement are not sustainable.
Many a times M/s Jyoti Ltd. is found to have supplied only these bought-out items whose make, specification, standards etc. are clearly specified by the buyers. Jyoti Ltd. do not give any drawings or designs for these bought out equipments; nor do their engineers/employees inspect the particular equipments at the suppliers' end. It is not brought out by the Show cause notice that M/s Jyoti Ltd. have provided any advice or guidance to the buyers for procurement nor they are found to have any say in choosing the suppliers.
Supervision and Construction Activities:
M/s Jyoti Ltd. are found to be engaged in not only supplying their own manufactured mechanical/engineering and electrical goods, equipments to the buyers, but also they go to the site of the buyers for erection, installation, commissioning, etc. In the course of such activities, they undertake civil construction activities as well as a part of erection and installation. They construct the civil foundation, buildings, sheds, etc. as per the design of the buyers and on these civil constructions and foundations, erection of machineries take place. It is not alleged in the SCN nor any evidence forth coming to contend that M/s Jyoti Ltd. are doing such civil construction as Civil Engineering work appurtenant and essential for projects. Designs and drawings are also stated to have been specified in the tenders floated by the buyers and civil work, foundation are laid accordingly. It does not leave any scope for any advice or guidance or assistance from M/s Jyoti Ltd. They do not provide any consultancy to buyers in the matter of such civil construction. Whatever civil work is carried out is required for erection/ installation for their own manufactured machines/equipments and thus become part and parcel of sale transaction. There is no service of advice, consultancy or technical assistance provided. Documents, tenders, invoices/bills also reveal the said fact.
I am in agreement with the above reasoning adopted by Dy. Commissioner while dropping the proceedings against the appellant. In addition, I also find that various decisions of the Tribunal as discussed in the order proposed by my learned brother are at all four corners with the facts of the instant case and are required to be followed. The Tribunal's decision in case of Daelim Industrial Co. Ltd. v. CCE Vadodara as , stands confirmed by the Hon'ble Supreme Court when the appeal filed by the Revenue was dismissed as . As such, I am of the view that the impugned order is required to be set aside and order of the Dy. Commissioner is required to be restored.
31. In respect of two other appeals, I agree with the learned Member (Technical) that their appeals are required to be allowed by setting aside the penalty imposed upon them.
DIFFERENCE OF OPINION Whether the demand of duty confirmed against the appellant is required to be upheld along with interest and the penalty be reduced as indicated by learned Member (Technical) in respect of M/s Jyoti Limited or their appeal along with the appeals of other two appellants be allowed as held by Member (Judicial).
S.S. Kang, Vice President
32. Heard both sides.
33. Following difference of opinion is referred to the 3rd Member:
Whether the demand of duty confirmed against the appellants is required to be upheld along with interest and the penalty be reduced as indicated by learned Member (Technical) in respect of M/s. Jyoti Limited or their appeal along with the appeals of other two appellants be allowed as held by Member (Judicial).
34. The appellants filed this appeal against order-in-appeal whereby demand of service tax was confirmed on the ground that the appellants provided the service of consulting engineer. The contention of the appellants is that they entered into work contract with their customer. The work contract is for design, manufacture, 'testing, supply, erection, commissioning, trial run and operation of electrical, electromechanical and hydro mechanical, including design construction as well as civil work on turn-key basis. The contention is that the lump sum amount was agreed by the customer and the terms of payment were as per the progress of the work. The contention is that, it is a composite contract for procurement, supply, installation, testing and commissioning. The appellant has relied upon the decision of the Tribunal in the case of Daelim Industrial Co. Ltd. v. CCE, Vadodara as reported at and submit that the SLP filed by the Revenue was dismissed by the Hon'ble Supreme Court as reported at .
35. The Revenue has relied upon the decision of the tribunal in the case of CCE, Raipur v. BSBK P. Ltd. as reported at 2007 (5) STR 124 (Tri.-Del.) to submit that the turn-key project contract entered into by assessee is divisible, therefore, the assessee is liable to pay service tax as consulting engineer in respect of service tax provided as consulting engineer.
36. I have gone through the contract. The contract is one for design, manufacture, supply, storing, erection, testing and commissioning of complete electro-mechanical equipment on turn-key basis. The terms and conditions of payment were as per the progress of work. I find that the ratio of the decision in the case of CCE, Raipur v. BSBL P. Ltd. (supra), relied upon by the revenue is not applicable in the facts of the present case as in the case of BSBK P. Ltd., as per contract there was a separate consideration for design and engineering showing the exact charge for service rendered by the assessee. In the present case there is no such separate consideration.
37. The Tribunal in the case of Daelim Industrial Co. Ltd. (supra) while interpreting the terms of the contract which is for design, engineering, procurement, supply, construction, fabrication, erection, testing, installation and commissioning held that service provided under such contracts is not liable for service tax as consulting engineer. I further find that the service of erection and commissioning has commenced under the service tax from the year 2003 whereas the work contract came under service tax net in the year 2007. The period in dispute is from July, 1997 to December, 2007. In view of the above discussion I find that the appellants are not liable to pay the service tax as consulting engineer in view of the decision of the Tribunal in the case of Daelim Industrial Co. Ltd. (supra). The impugned order is set aside and the appeals are allowed. The matter be placed before the regular Bench for pronouncement of majority decision.
FINAL ORDER In view of the majority decision, the impugned order is set aside and all the appeals are allowed with consequential relief.