Custom, Excise & Service Tax Tribunal
Ub Engineering Ltd vs Commissioner Of Central Excise, Pune ... on 13 November, 2014
IN THE CUSTOMS EXCISE & SERVICE TAX APPELLATE TRIBUNAL
WEST ZONAL BENCH AT MUMBAI
Application No.
ST/S/92855/14
- Mum
in
Appeal No.
ST/85387/14
-Mum
(Arising out Order-in-Original No. PUN-EXCUS-003-COM-019-13-14 dated 31.10.2013 passed by the Commissioner of CCE, Pune III)
For approval and signature:
Honble Mr. Ashok Jindal, Member (Judicial)
Honble Mr. P.S. Pruthi, Member (Technical)
1. Whether Press Reporters may be allowed to see No
the Order for publication as per Rule 27 of the
CESTAT (Procedure) Rules, 1982?
2. Whether it should be released under Rule 27 of the Yes CESTAT (Procedure) Rules, 1982 for publication
in any authoritative report or not?
3. Whether Their Lordships wish to see the fair copy Yes
of the Order?
4. Whether Order is to be circulated to the Departmental Yes
authorities?
UB Engineering Ltd.
Appellant
Vs.
Commissioner of Central Excise, Pune III
Respondent
Appearance:
Shri M.H. Patil, Advocate for the appellant Shri D. Nagvenkar, Addl.Comm. (AR) for the respondent CORAM:
Honble Mr. Ashok Jindal, Member (Judicial) Honble Mr. P.S. Pruthi, Member (Technical) Date of hearing : 08/10/2014 Date of decision : 13/11/2014 O R D E R No:..
Per: P.S. Pruthi The appeal is against the impugned order dated 03.10.2013 passed by the Commissioner confirming the service tax demand of `1,80,10,453/- along with interest under Section 75 of the Finance Act, 1994 and penalties under Section 77 and 78 of the Act.
2. The facts of the case are that the appellant are engaged in providing services namely Works Contract Services [WCS], Erection, Commissioning and Installation [ECI]. They provided services to three customers in respect of whom the demands were raised as indicated below:-
Sr. No. Name of the customer to whom service provided Period of dispute Amount of Service Tax demanded. (Rs.)
1.
M/s. Air Liquide North India Pvt. Ltd.
[project No. J-504] March 2008 to March 2010 85,30,942/-
2. M/s. MCC PTA India Corporation Pvt. Ltd.
[project No. J-501] June 2007 to February 2010 41,98,889/-
3. M/s. SAIL ISSCO Steel Plant [project No. J-529] August 2009 to March 2012 52,80,622/-
Total 1,80,10,453/-
2.1. In the case of M/s. Air Liquide North India Pvt. Ltd., the allegation is that after paying service tax under ECI service on full value at full rate of 12.36%, they later changed the classification to WCS service which is not permissible as per Rule 3(3) of Composition Scheme and paid service tax only on abated value of 33% of the gross amount received, under Notification No. 1/06-ST. It was also alleged that the abatement cannot be availed as the appellant had availed input service credit of `2,69,580/- on input services. In respect of second and third customers namely, M/s. MCC PTA India Corporation Pvt. Ltd. & M/s. SAIL ISSCO Steel Plant, the allegation was that the contracts undertaken are specifically covered under ECI and hence are not classifiable under WCS service as done by the appellant. Further, the contracts stipulate the supply and installation components of the total services rendered but tax is paid only on the supply part, that too after availing abatement of 67% under Notification 1/06. It was alleged that the appellants violated the condition of the Notification by availing Cenvat credit of `20,48,970/- and `15,55,107/- respectively on input services which is not permissible. Extended time period was invoked for part of the demands. Consequently, demand of duty was confirmed along with interest and penalties were imposed under Sections 77 & 78.
3. Heard both sides and considered the written submissions.
4. The ld. counsel Mr. M.H. Patil contended that as far as M/s. Air Liquide North India Pvt. Ltd. contract is concerned, they never changed the classification. After paying service tax during January to March 2008 under ECI on full value at full rate of 12.36%, on the objection of their customer they started availing benefit of Notification 1/2006 from April to 2008 onwards as they were eligible for abatement because of supply of materials also. The value charged to M/s. Air Liquide North India Pvt. Ltd. included supply element as well as service element. As regards availment of credit, he stated that they reversed the amount of input credit of `2,69,580/- and therefore, benefit of Notification 1/06 cannot be denied, relying on the following judgements.
a) B.G.Shirke Technology 2012 (27) STR 366 (T)
b) Khyati Tours & Travels - 2011 (24) STR 456 (T)
c) Ramkrishna Travels 2010 (17) STR 487 (T) 4.1. As regards the other two contracts, he placed evidence to show that the contracts involved substantial amount of supply of material and therefore, the service cannot be termed as ECI as held by the Commissioner. He contended that even for undertaking the activity of erection/installation alone, there is also supply of materials even though the activity is termed as erection/installation. He placed on record evidence to show payment of VAT under works contract as well as their letter showing option to avail under WCS composition scheme. Ld. counsel justified his contention that in case of Works Contracts entered into prior to the introduction of WCS w.e.f. 01.06.2007 but where first payment is made after 1.06.2007, service tax is payable under WCS on basis of CBEC instructions and judgements as under:-
1. Circular No. 98/1/2008-ST dtd. 4.1.2008 . [reference code 097.03/4-1-08]
2. Circular No. 128/10/2010-ST dtd. 24.08.2010 . [Para 3& 4]
3. Nagarjuna Construction Company Ltd. 2010 (19) STR 321 (A.P.) . [para 21]
4. -do- Upheld by Supreme Court 2012 (28) STR 561 (SC) ..[Para 27] 4.2. He also relied on the case of Gammon India Ltd. reported in 2014-TIOL-1344-CESTAT-MUM allowing benefit of Works Contract Service Scheme even if two separate Orders were placed for supply and service component. He also stated that as per CBEC Circular No. BI/16/2007-TRU dtd. 22.5.2007, the contracts which are treated as Works Contract for the purpose of levy of VAT shall also be treated as Works Contract for the purpose of levy of service tax.
4.3. Lastly, his contention is that under these two contracts they had only availed credit of service tax on input services which is not barred under Rule 3(2) of the Works Contract Composition Scheme. The bar is only on availment of credit on inputs.
4.4. Regarding time bar the ld. counsel stated that as far as M/s. Air Liquide North India Pvt. Ltd. is concerned, the payment of service tax under ECI is evident from ST-3 returns. Similarly, payment of service tax under WCS composition scheme pertaining to the contracts of MCC PTA and SAIL is also reflected in the ST-3 returns. According to him, in any case, wrong classification of a service cannot be considered as suppression or misdeclaration as held by the Tribunal in Indian Institute of Chemical Technology 2010 (17) STR 420 (T) as upheld by the Hon'ble AP High Court in 2012 (26) STR 97 (AP). Further, he argued that simply because the documents are not statutory required to be submitted with ST-3 returns cannot lead to the conclusion that extended period is invocable.
5. The ld. AR argued that as Cenvat was availed in the case of M/s. Air Liquide North India Pvt. Ltd. the benefit of Notification 1/2006 cannot be availed. Regarding the contract pertaining to MCC PTA he emphasised that the contract is not a composite contract as separate work order values and payment terms are provided for supply and installation. Installation portion being clearly distinct, the same can be classified under ECI Service only, and being a purely service activity, there is no scope for availment of abatement on the materials portion and service tax on 12.36% is payable on the entire installation portion of the contract. He also contended that as Cenvat of `20,48,970/- has been availed, therefore, benefit of abatement under Notification 1/06 is not available. He also reiterated the finding of the Commissioner that as the installation value of supply is much more than the sale value of supply, the pre-dominance and essential character of the service is ECI and not WCS service.
5.1. Regarding the third contract pertaining to SAIL, the ld. ARs contention again is that the pre-dominance and essential character of the service is ECI and not WCS Service because the materials such as nuts, bolts etc. are clearly incidental in nature. As Cenvat credit of `15,55,107/- has been availed on materials, the composite scheme or abatement is not admissible.
5.2. On invocation of extended time period, the argument of revenue is that there was misclassification and hence extended time period is invocable. Further, that as documents are not required to be submitted under self-assessment, department does not know the details of the activities and service involved.
6. We have carefully heard both sides and considered the submissions.
7. Service tax has been demanded in respect of three contracts undertaken by the appellants. We will take up the matter, contract wise. In the first contract, i.e. M/s. Air Liquide North India Pvt. Ltd., we find that revenue has not been able to justify why abatement of 67% under Notification 1/06 should not be made available for the period April 2008 onwards. Merely because the benefit of Notification could not be availed earlier is no justification to deny the same for the later period. Revenue has not examined the facts properly. The appellants have nowhere stated that they opted for the WCS scheme. Table under para 22F of the show-cause notice clearly shows that the appellant continued to pay service tax under ECI service after taking abatement of 67% from April onwards. The appellant never changed the classification to WCS service. This is only an assumption made by the revenue without any basis. The appellants have been able to show in detail how the ECI service undertaken by them involved supply of materials and equipments relating to foundation and fabrication and erection of structural items. They have placed on record a certificate issued by DGM showing that the work executed comprise of materials, interalia, such as SS and MS pipes. They also produced certificate evidencing payment of Works Contract Tax to excise and taxation officer, Haryana and Invoices evidencing payment of works contract tax at 4% on entire value and service tax at 12.33% on the abated value of 33% of invoice value under Notification 1/2006. The bills of quantities showing supply as well as selling of cement, concrete, brick work, steel bars etc. were also placed on record.
7.1. Revenue has raised an objection that Cenvat credit of `2,69,580 was availed on input services and this is not permissible for availing abatement under Notification 1/06. In this matter there are several judgements of the Tribunal such as Khyati Tours & Travels (supra), B.G.Shirke Technology (supra) and Ramkrishna Travels (supra) which have relied on the Supreme Court judgment in the case of Chandrapur Magnet Wires 1996 (81) ELT 3 all holding that once the credit has been reversed the benefit of Notification would be available. It would also a travesty of justice if service tax of `85 lakhs approx. is demanded only because a small amount of credit was first taken and thereafter reversed. In view of the above, we hold that the demand of service tax is not sustainable.
8. The argument in the remaining two contracts pertaining to MSS PTA & SAIL are identical and therefore, we may give a common finding. The main allegation is that the contract is a separate work order for supply and therefore, the appellant cannot take benefit of the WCS service. According to the revenue, the activity i.e. installation activity is purely a service activity and the supply of material items are only incidental in nature. The argument is based on a wrong premise. In the case of MCC PTA we find from the records that there has been substantial supply of materials in the installation contract. There is supply of consumables, bus ducks, HT power cables, heavy duty GI pipes etc. to name a few. A certificate from the consulting engineering indicates that the work involves electrical supply as well as installation. The appellants have submitted running bills showing substantial payment of service tax on entire value including material supplied.
8.1. Similarly, in the case of SAIL, the appellant have shown that in the scope of work for the contract they have supplied grounding material, binding material, pumps, valves, welding material, structural material (angles, channels, plates etc. to name a few. The contract agreement with SAIL under article 4.1 defines the scope as work supplies and services. The same article indicates supply by the contractor of all erection material, all enabling works for e.g. temporary roads, temporary drains etc. Ld. counsel also showed documents titled package- erection of BOF & CCP Equipment which shows that various technological equipment which is also being supplied such as hot metal handling facility, scrap handling equipment, block material charging system, water gas cooling, ventilation system etc. Invoices are placed on record to show payment of service tax on value including material supplied. In view of the above details, it is not understood how revenue has come to say that material supplied is incidental. In any case, there is no provision in law which defines the incidence of material supplied in a works contract. A coordinate bench has decided the matter in the case of Gammon India Ltd. 2014-TIOL-1344-CESTAT-MUM as below.
7. Having seen the definitions of Works Contract and Erection, Commission and Installation Services, we proceed to analyze the facts with reference to statutory provisions. Service tax is levied under Section 66 of the Finance Act. The condition [clause (i) under explanation to Section 65(105(zzzza)] to be fulfilled for classifying a service under Works contract is that the transfer of property in goods involved in the execution of such contract is leviable to tax as sale of goods. Therefore, firstly, there must transfer of property in goods involved and secondly such transfer of property is leviable to tax as sale of goods.
7.1 Let us take the first aspect i.e. transfer of property in goods. The appellants contention appears to be that merely because they have entered into a separate contract for supply of transmission towers (goods or materials) it cannot be concluded that the Service contract cannot be termed as a Works contract on its own footing. We note that there is no denying the fact that in the said Service contract, substantial amount of material has been used which is Cement, Steel, Bolts, Paints etc. It is also a fact that in many Works contracts, which involve making of foundations and fixing of structures thereon, material, is an essential component of such works. The photographs placed on record by the appellant depicting use of material, especially steel, is illustrative. The appellants have from their records shown that almost 31% of the contract value is represented by material value.
7.2 The Commissioner in his order has highlighted the fact that the materials get consumed in the process of erection and installation and therefore there is no sale of goods. In our view, this is not correct presentation of facts regarding use of material. We find that, in most cases of Works contract involving structures, important component materials such as Cement and Steel can only be used in the manner depicted in the photographs. That is to say, these materials such as steel also remain present in the structure although they may remain embedded and not visible after the structure is completed. This does not mean that there is no sale of goods/materials. Going by the Revenues reasoning, no such structure can be said to have arisen as a result of execution of a Works contract. Such reasoning goes against the very definition of Works contract. Thus the use of the word consumed, by Revenue, in the present context, is inappropriate and misconceived and we do not agree with Revenue. It is also observed in para 40 of the adjudication order No. 04/ST/2010/C dt.30.03.2010 (Appeal No.ST/437/2010) that pure labour services, where there is no transfer of property, would be covered under erection, installation and commissioning service. The assumption appears to be that in the said Service contract entered into by appellants with Power Grid Corporation of India Ltd., there is no transfer of property in goods. This assumption is based on incorrect appreciation of facts. The records shown by appellants indicate that a significant percentage of the total contract work under the Service Contract involves material component. Therefore we hold that there is transfer of property in goods involved in the execution of the Service Contract.
7.3. Coming to the next aspect, whether the transfer of property is leviable to tax as sale of goods, we note that the appellants pay Sales Tax/Vat on the transfer of property in the goods involved in execution of the Service contract. Copies of VAT returns have also been placed on record. Therefore, the second aspect that goods in the Service Contract are leviable to tax as sale of goods, is also fulfilled. 8.2. The contention of the appellant is supported by CBEC Circular B1/16/2007-TRU dt. 22.5.2007which states that :
9.8 Presently, erection, commissioning or installation service [section 65(105)(zzd)], commercial or industrial construction service [section 65(105)(zzq)] and construction of complex service [section 65(105)(zzzh)] are separate taxable services.
9.9 Various trade and industry associations have raised?apprehension in respect of classification of a contract either under the newly introduced works contract service or under erection, commissioning or installation and commercial or residential construction services.
9.10 Contracts which are treated as works contract for the? purpose of levy of VAT/sales tax shall also be treated as works contract for the purpose of levy of service tax. This is clear from the definition under Section 65(105)(zzzza). .Emphasis supplied In this case the goods involved as part of Service Contract are subjected to payment of Sales Tax/VAT. In respect of both contracts, the appellant have submitted documents evidencing payment of works contract tax under the West Bengal Value Added Tax Act, 2003. Thus, appellants case is supported by the Board Circular. Therefore we are of the view that the Service contract entered into by the appellants are covered under Works contract category.
8.3. We observe that Works Contract Service came into force vide Section 65(105)(zzzza) w.e.f. 01.06.2007. The appellants have rightly relied on the Board circular no. 98/1/08-ST dated 04.01.2008 to contend that both the contracts in question came into force after 1.06.2007 and therefore they are eligible to work under the WCS service. Further, they also correctly relied on Board circular no. 128/10/2010-ST dated 24.08.2010 to say that they are eligible for the Works Contract Composition Scheme if they have opted for it after 01.06.2007 and no service tax was paid till that date.
8.4. The contention of the ld. AR is that in both contracts the appellants had availed Cenvat credit. In the written submissions, ld. AR referred to para 37 of the Order-in-Original to say that the Cenvat credit was availed on materials. Therefore, according to him, neither Composition Scheme nor abatement is admissible. We have already held above that the appellants are eligible to work under the WCS service. Therefore, the question of abatement under Notification 1/2006 is not relevant. As far as eligibility to the Composition Scheme is concerned we find that three elements are required to be fulfilled for eligibility to Composition Scheme, namely:-
(i) There must be transfer of property in goods involved in the execution of such contract.
(ii) The provider of the service must not have taken Cenvat Credit on the inputs.
(iii) The provider of the service must exercise such option to avail the Composition Scheme.
Out of the above conditions, it is noted that there is no doubt that the first and last elements have already been met. The third element is that the provider of the service must not have taken credit on the inputs. We find from the Order-in-Original para 36 & 37 that the Adjudicating Authority has clearly mentioned that the appellant have availed input service credit amounting to `2048970 and `1555107 respectively. Therefore, the statement of ld. AR in the written submissions that the Cenvat credit has been availed on materials is not a correct statement. The Composition Scheme as mentioned above only requires that the provider of service must not have taken Cenvat credit on inputs. Therefore, there is no reason to deny the option of Composition Scheme to the appellant.
8.5. In view of the above, we hold that the demand of service tax in respect of contracts relating to the MCC PTA and SAIL is not sustainable. Although the issue stands decided above on merits, we may also go into the aspect of time bar. We find from the Adjudication order that no suppression is made out. In the case of M/s. Air Liquide North India Pvt. Ltd., we have already held that the service tax was correctly paid under ECI service and the calculation of duty clearly indicates that service tax was paid at the full rate of 12.36% on the abated value and there is no suppression of facts. In the case of other contracts also, the extended time period is sought to be invoked only for the reason that the service has been wrongly classified under WCS service instead of ECI service. We have already held that the service has been correctly classified under WCS. In any case, it has been held in various judicial pronouncements that wrong classification cannot lead to the conclusion of suppression of facts etc. when no mensrea established. The Adjudicating Authority has also wrongly come to the conclusion that availment of input service credit will debar the appellant from the benefit of Notification 1/06. In the present case, this benefit of Notification has not been availed; rather option of Composition Scheme has been availed which does not bar the availment of Cenvat credit on input service.
9. The appeal is disposed of in the above terms and impugned order is set aside. Stay application is also disposed of.
(Pronounced in Court on .) (Ashok Jindal) (P.S. Pruthi) Member (Judicial) Member (Technical) //SR 16