Custom, Excise & Service Tax Tribunal
Corrtech International Pvt Ltd vs Service Tax - Ahmedabad on 3 April, 2024
Customs, Excise & Service Tax Appellate Tribunal
West Zonal Bench At Ahmedabad
REGIONAL BENCH-COURT NO. 3
Service Tax Appeal No. 12078 of 2013- DB
(Arising out of OIO-STC/09-10/COMMR/AHD/2013 dated 07/03/2013 passed by
Commissioner of Service Tax-SERVICE TAX - AHMEDABAD)
Corrtech International Pvt Ltd ........Appellant
22, Second Floor, Dhara Centre,
Vijay Char Rasta, Navrangpura,
Ahmedabad, Gujarat
VERSUS
C.S.T.-Service Tax - Ahmedabad ......Respondent
7 Th Floor, Central Excise Bhawan, Nr. Polytechnic Central Excise Bhavan, Ambawadi, Ahmedabad, Gujarat- 380015 WITH Service Tax Appeal No. 11245 of 2016- DB (Arising out of OIO-AHM-SVTAX-000-COM-027-15-16 dated 17/03/2016 passed by Commissioner of Service Tax-SERVICE TAX - AHMEDABAD) Corrtech International Pvt Ltd ........Appellant 22, Second Floor, Dhara Centre, Vijay Char Rasta, Navrangpura, Ahmedabad, Gujarat VERSUS C.S.T.-Service Tax - Ahmedabad ......Respondent 7 Th Floor, Central Excise Bhawan, Nr. Polytechnic Central Excise Bhavan, Ambawadi, Ahmedabad, Gujarat- 380015 APPEARANCE:
Shri Jigar Shah & Shri Amber Kumrawat, Advocate appeared for the Appellant Shri Mihir G Rayka, Addl. Commissioner (AR) for the Respondent CORAM: HON'BLE MEMBER (JUDICIAL), MR. RAMESH NAIR HON'BLE MEMBER (TECHNICAL), MR. C.L.MAHAR Final Order No. 10757-10758/2024 DATE OF HEARING: 10.01.2024 DATE OF DECISION: 03.04.2024 RAMESH NAIR The present two appeals having numbers ST/12078/2013 and ST/11245/2016 are being heard together as the issues involved are common and only the period of dispute is different. More particularly the details of both the appeals are as under:
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ST/11245/2016 -DB
Sr. Appeal Nos. SCNs Period of Amount
No. dispute
01 ST/12078/2013 STC/4- April 2006 to Rs.8,27,00,775/-
86/O&A/11-12 March 2011
dated
21.10.2011
STC/4- FY 2011-12 Rs.82,04,833/-
42/O&A/12-13
dated
20.10.2012
02 ST/11245/2016 STC/4- April 2012 to Rs.2,26,75,162/-
60/O&A/2013-14 September
2013
1.1 The first show cause notice dated 21.10.2011 mentioned in the above table is the detailed show cause notice after examination of the statements recorded during the course of investigation and inquiry and documents supplied by the Appellants from time to time. The other two show cause notices were in fact, statements under the provisions of Section 73(1A) of the Finance Act, 1994. In other words, the subsequent two show cause notices did not allege anything in addition to first show cause notice dated 21.10.2011.
1.2 The brief facts of the case are that appellant is inter alia engaged in providing taxable services in category of erection, commissioning and installation Services, consulting engineer service, Commercial or Industrial Commercial Service, maintenance and repair service and goods transport agency service. The Appellant is engaged in pipeline construction business for oil gas pipeline projects wherein it provides all the services in relation to construction of pipelines.
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1.3 The Appellant also provide temporary/ permanent cathodic protection system for cross country pipelines, tank bottoms, petro chemical plants, fertilizer plants, jetties and other offshore structures. The Appellant has entered into agreement/ contract with various companies/service recipients like Punj Lloyd, ONGC, GAIL etc. to undertake work related to design survey, supply, installation, testing, commissioning and construction of pipeline and cathodic protection system. The contracts entered into between the Appellant and the Service Recipients can be divided into two parts i.e. supply of material and Installation and other services for completion of the project. The contract entered into between the Appellant and the service recipients provides bifurcation of the lump sum amount wherein the value of the material sold to the service recipient is separated from the value of the installation services provided by the Appellant.
1.4 The materials supplied during the contract are either directly procured by the Appellant from the manufactures or they are directly consigned at the site of the service recipients wherein the Appellant is the customer and the service recipients are consignee. When the goods reach at the site, a lorry receipt is issued to service recipients by the transport company and upon acknowledgment of such receipt, the possession of the materials is handed over to the service recipients. The second part of the project focusses on the installation services along with other services provided by the Appellant using the materials provided by the service recipients. Apart from the materials provided by the service recipients, there are other materials/ consumables that are consumed during the installation of pipeline and subsequently, become part of the structure.
These materials do not form part of the sale value of the materials sold to
4|Page ST/12078/2013 ST/11245/2016 -DB the service recipients but, are included in the value of installation services itself.
1.5 An audit was carried out at the premises of the Appellant wherein it was observed by the officers that the figures shown by the Appellant in its ST-3 returns were less than the figures shown in the Books of Accounts and accordingly, a conclusion was drawn that the Appellant has short paid the service tax. Therefore, detailed investigation was conducted by DGCEI and various documents were withdrawn from the appellant. Thereafter, on completion of the investigation show cause notice dated 21.10.2011 was issued, for the period 2006-07 to 2010-11 demanding Service Tax of Rs.
8,27,00,775/- under the category of 'Commercial or Industrial Construction Service' and it was also proposed to demand consequential interest and penalties. Thereafter, for the period 2011-12, the department had issued a statement dated 20.10.2012 with reference to the show cause notice dated 21.10.2011 demanding service tax of Rs. 82,04,833/-.
1.6 On the identical issue, another statement of demand involving Service Tax of Rs. 2,26,75,162/-. was issued SCN (statement) dated 19.09.2014.
The said show cause notices alleged that the appellant had entered in to composite contract with the service recipient and therefore, should have paid service tax on the entire value of the contract. However, the appellant with intention to evade tax had artificially bifurcated the supply and service components of the contract.
1.7 The department further alleged that the appellant had wrongly availed Cenvat credit in violation of the condition prescribed under Notification No. 12/2003-ST and that in terms of the aforesaid notification,
5|Page ST/12078/2013 ST/11245/2016 -DB the appellant was not allowed to transfer Cenvat credit to the service recipient. The department also relied on the RA bills issued by the appellant wherein it had charged 2% Income Tax from the service recipients, on the total value of the contract whereas the total was bifurcated while paying service tax so that the appellant could evade tax liability.
1.8 The show cause notices dated 21.10.2011 and 20.10.2012 were adjudicated by order-in-original dated 03.04.2013 whereby the demand of Rs. 8,27,00,775/- and 82,04,833/- respectively were confirmed along with interest and penalties under Section 76 and 77 of the Act classifying the service under category of 'commercial or industrial construction services'.
However, as regard the show cause notice dated 19.09.2014 despite the same was issued as statement for demand relying fully on first show cause notice dated 21.10.2011, the demand was confirmed under the category of 'works contract service' for an amount of Rs. 2,26,75,162/- Therefore, the present appeals filed by the appellant.
2. Shri Jigar Shah, Learned Counsel with Shri Amber Kumrawat, Advocate appearing on behalf of the appellant at the outset submits that the appellant have scrupulously complied with the condition of Notification No. 12/2003-ST dated 26.06.2003. Accordingly, they are legally entitled for the exemption on the value of the goods sold by the appellant as a service provider to their service recipient. In the fact, that the appellant have sold the goods to the service recipient and on which no Cenvat credit was availed by the appellant as service provider. Therefore, the conditions of the Notifications were complied with. He heavily relied upon this Tribunal's decision in the case of Laxmi Engineering P. Vs. CST, 2023 (4) TMI 348- CESTAT Ahmedabad.
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2.1 He further submits that there is no dispute that the appellant has disclosed the value of goods in the contract separately and the invoices were raised for sale of the goods. However, the appellant had already discharged VAT on the said goods. Therefore, the question of paying the Service Tax does not arise at all. In support he placed reliance on the following judgments:-
Shilpa Colour Lab v. CCE, 2007 (5) STR 423 (T) [Affirmed by the Hon'ble Supreme Court in 2009 (14) STR J163 (SC)] Sobha Developers Ltd. v. CCE & ST, Bangalore, 2010 (19) STR 75 (Tri.- Bang.) [Affirmed by the Hon'ble Supreme Court in 2017 (49) STR J26 (SC)] NJ Devani Builders Pvt. Ltd. v. Commissioner of Service Tax, 2010 (17) STR 437 (T) 2.3 He further submits that it is a settled law that when supply of goods/material is amount to sale, no service tax is leviable. In support he placed reliance on the following judgments:-
Bharat Sanchar Nigam V. Union of India, 2006 (3) SCC 1 Builder's Association V. Union of India- (1989) 2 SCC 645 CCE Vs. BSBK, 2010 (18) STR- 555 (Tri-LB) Imagic Creative Pvt. Ltd. V. CCT, 2008 (9) STR 337 (SC) Gujarat Ambuja Cements Ltd. Vs. Union of India, (2005) 4 SCC 214. BSNL V. UOI 2006 (2) STR 161 (SC) Idea Mobile Communications LTD. V. CCE Trivandrum, 2006-TIOL- 857-CESTAT-BANG 2.4 He further submits that the adjudicating authority has confirmed the demand mainly on the ground that since the material shown as sale of goods was consumed while providing the service. Therefore, the same cannot be allowed to be excluded from the service portion. He submits that
7|Page ST/12078/2013 ST/11245/2016 -DB this aspects has been clarified by the Board by CBC clarification dated 07.04.2004 which clearly states that material consumed by the service provider shall be entitled for exemption under Notification No. 12/2003-ST dated 20.06.2003.
2.5 He further submits that Learned Commissioner has wrongly placed reliance of Circular No. 87/05/2006-ST dated 06.11.2006 which is contradictory of objects of 2006 Notification wherein it has been clarified that if documentary proof for sale of material is produced levy of Service tax is exempted to the extent of the value of the material sold by the service provider.
2.6 Without prejudice, he also submits that service tax is levied on gross amount charge for the service provided by the service provider. In the present case, as per the contract there is a bifurcation of provision of service and sale of goods. Therefore, the gross value of the service alone shall be taxable. He placed reliance on the Board Circular 65/14/2003-ST dated 05.11.2003. He also placed reliance on the following judgments:-
Rolex Logistic Private Limited, 2009 (13) STR 147 Intercontinental Consultant & Technocrats Pvt. Ltd. V. CCE 2013 (29) (Del.) 2.7 He further submits that the adjudicating authority has wrongly interpreted the contract, the supply of material and construction/ installation components of the contract cannot be rate together and construed as a single contract when bifurcation of total amount is provided in the contract. In support he placed reliance on the following judgments:-
Himachal Pradesh V. Associated Hotels of Inida Ltd. 1972 (29) STC
474.
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Commissioner of Sales Tax V. Walchandnagar Industries, (1985) 58 STC 89 (Bom) Power Grid Corporation of India Limited V. ACIT, 2006 (7) TMI 262-
ITAT Hyedrabad-B CCE Vs. BSBK, 2010 (18) STR 555 (T) Larsen & Toubro V. CST, 2013 (8) TMI 18- CESTAT Mumbai 2.8 He further submits that Learned Commissioner gave the finding that the appellant has availed the benefit of both the exemption under notification and the Cenvat credit by transferring the same to the service recipient. This finding is clearly erroneous because the appellant had only availed the benefit of the exemption and had not availed any Cenvat credit on the material sold to the recipient. The appellant has availed the credit on the materials that were consumed during the installation of the services, on which it had already discharge the service tax. Therefore the finding of the Commissioner in this regard is absolutely incorrect. This aspect was also considered by this Tribunal in the case of Laxmi Engineering (Supra). He also reiterates the decision of NJ Devani Builders Pvt. Ltd. (supra).
2.9 Without prejudice, he further submits that even if it is presumed without admitting that the appellant is liable to pay service tax on the value of both contracts under composition scheme that the appellant would have opted for composition scheme. The appellant would have discharged its service tax liability in terms of the provision of Rule 2A of Service Tax Valuation Rules, 2007, which provides for discharging service tax liability only on the value of the services on full rate.
2.10 It is further submitted without prejudice to the above that demand was raised under the category of 'commercial or industrial construction service' whereas as per the proposal of the department to include the cost
9|Page ST/12078/2013 ST/11245/2016 -DB of material then the service under consideration is appropriately classifiable under the category of 'works contract service'. On this ground itself, the demand under 'Commercial or industrial construction service' will not sustain. He placed reliance on the following judgments:-
Prime Developers V. CCE & ST, 2023 TIOL 884 CESTAT AHM M/s. Shanti Builders V. CST 2023 TIOL 730 CESTAT AHD. Real Value Promoters Pvt. Ltd. V. CGST & CE, Chennai, 2018 TIOL 2867 CESTAT MAD.
2.11 He further submits that the learned Commissioner has wrongly relied the provision of income tax to calculate the service tax liability by holding that since the appellant had deducted TDS on the whole value of the contract it should also have discharged the service tax on the entire value of the contract. He submits that the provision of income tax cannot be made applicable for computation of service tax liability since the same is computed in terms of Finance Act, 1994.
2.12 He also submits that there is a serious computation error in the show cause notice in as much as the demand should have been raised for the value of Rs. 21,67,41,146/- and not on total value of Rs. 70,16,81,697/-.
He submits that Rs. 6,79,14,661/- of the total value pertains to the contracts that were exclusively entered for trading sales without any service components in it whereas Rs. 41,70,25,890/- is the value on which no Cenvat credit was passed on to the service recipient. The remaining value of Rs. 21,67,41,146/-, the Cenvat credit taken on the sale of material was passed on to the service recipients and computation of demand should have been to the extent of this value only. The adjudicating Authority also not considered the cum- duty value aspect as held in the case of Shri Chakra Tyers 1999 (108) ELT 361.
10 | P a g e ST/12078/2013 ST/11245/2016 -DB 2.13 He submits that the demand for extended period is also not sustainable on ground of time bar, because the entire activity conducted by the appellant was in knowledge in the department. The department had conducted its first audit in the year 2006-07 and again in 2008-09. The audits were also conducted by CERA and DGCEI in 2008-09 and 2010-11, respectively. However, the show cause notice was issued on 21.10.2011 and 20.10.2012. In view of this, the show cause notices were time barred.
2.14 He submits that since the demand itself is not sustained and there was no mala fide on the part of the appellant, no penalty is imposable. He further submits that as regard the Order-In-Original dated 17.03.2016 which is the subject matter of Appeal No. ST/11245/2016, though the said order was passed in SCN (statement) dated 19.09.2014 which has adopted the entire detail given in the show cause notice 21.10.2011 but the adjudicating authority confirmed the demand under head of 'works contract service' despite the fact that the demands in the main show cause notice dated 21.10.2011 was raised proposing classification of service under the category of 'commercial or industrial construction service'. Therefore, in this case the order clearly travelled beyond scope of show cause notice.
3. On the other hand Shri Mihir G Rayka, Learned Addl. Commissioner (AR) appearing on behalf of the revenue reiterates the finding of the impugned order.
4. We have carefully considered the submissions made by both the sides and perused the records.
4.1 First we deal with arguments advanced by the Appellants that the value of materials sold under the supply contract cannot be subject to 11 | P a g e ST/12078/2013 ST/11245/2016 -DB service tax. We find that the issue is no longer res integra and decided under the identical circumstances in case of Laxmi Engineering Pvt. Ltd.
reported in 2023 (4) TMI 348- CESTAT AHMEDABAD wherein this Tribunal held as under:
"5.2 After appreciating the above facts and going through the contracts and documentary evidences in the form of invoices, Balance sheet and Profit and Loss account, VAT return and detailed work sheet showing bifurcation of supply of goods and service portion separately submitted by the Appellant before us, we find that the contracts entered into by the appellants with their customers also gave the break-up of value of service portion and supply of material/goods portion. The Appellant as per the contract raise the bills and also account for the transaction in their books of account. On service portion they have paid the Service tax and on material supply portion paid the VAT/CST as applicable. We find that there is no dispute about the factual aspects. Admittedly, the contract showed the cost of each and every item separately. In terms of Notification No. 12/2003-S.T., dated 20-6-2003, the value of the goods and materials sold by the service provider to the recipient of services stand exempted from the service tax leviable therein, subject to the condition that there is documentary proof specifically indicating the value of the said goods and materials. Admittedly, the value of the goods and materials, which are required to be used forproviding service stand separately disclosed in the agreement/contract as also separately mentioned in the invoices raised by the appellants and their books of account. Appellants have paid the VAT on the supply of goods, in such case it has to be held that the same were sold to the customers and the service tax cannot be demanded from the appellant on the value of the said goods.
5.3 The Learned Commissioner, in fact accepts the above proposition of law, but does not extend the benefit to the appellants on the ground that Notification No. 12/2013-ST provide a condition for non- availment of Cenvat Credit. Appellant following a practice wherein they procured goods by placing order to manufacturers, such manufacturer supply their goods under invoice by indicating the name of the Appellant as the 'Buyer' and the name of the service recipient as the 'Consignee'. Based on these invoices, service recipients were availing
12 | P a g e ST/12078/2013 ST/11245/2016 -DB cenvat credit of duty paid on the goods and such Cenvat availment would amount to breach of the restrictions provided in this regard under Notification No. 12/2003-ST. In order to appreciate the said controversy, it would be necessary to reproduce the relevant portion of the said Notification, which reads as under :-
"Notification No. 12/2003-S.T., dated 20-6-2003. - In exercise of the powers conferred by Section 93 of the Finance Act, 1994 (32 of 1994), the Central Government, being satisfied that it is necessary in the public interest so to do, hereby exempts so much of the value of all the taxable services, as is equal to the value of goods and materialssold by the service provider to the recipient of service, from the service taxleviable thereon under Section 66 of the said Act, subject to condition that there is documentary proof specifically indicating the value of the said goods and materials.
Provided that the said exemption shall apply only in such cases where -
a. no credit of duty paid on such goods and materials sold, has been taken under the provisions of the Cenvat Credit Rules, 2004; or b. where such credit has been taken by the service provider on such goods and materials, such service provider has paid the amount equal to such credit availed before the sale of such goods and materials."
Upon perusal of the same, we find that the benefit is available only subject to satisfaction of conditions specified therein above Notification No. 12/2003-S.T., dated 20-6-2003 provides for excluding the value of goods and materials sold by the assessee to the recipient of service for the purpose of computation of Service Tax liability. This notification applies to all the services including "erection, commissioning and installation services" rendered by the appellant herein. If that be so, benefit of notification cannot be denied to the assessee and has to be allowed, if the assessee has fulfilled the terms and conditions of the notification. The above notification provide the condition that no credit of duty paid on such goods and materials sold has been taken under Cenvat Credit Rules, 2004; or when such Cenvat credit has been taken by the service provider on such goods and materials, he has paid an 13 | P a g e ST/12078/2013 ST/11245/2016 -DB amount equal to such credit availed before the sale of such goods and material. In this regard, we are in agreement with the Appellant's view that above Notification restricted for availment of Cenvat Credit to Service provider only, the said Notification nowhere imposed the condition related to non- availment of cenvat credit to service recipient. Therefore, the benefit of exemption under Notification No. 12/2003-S.T. cannot be denied to Appellant.
4. In the present case, we also find that the Tribunal vide Order No. A/10865/2014 dated 23.04.2014 while remanding the matter in para 3 observed as under:
"3. On perusal of the records, we find that the issue involved in this case is regarding service tax liability on the appellant under the category of erection, installation and maintenance Service on the contracts which were executed by them with different parties. It is the claim of the assessee before the adjudicating authority as well as before us that they had billed separately for the materials and for the services. It is also the claim that the Service Tax liability on the services rendered was discharged and VAT was discharged on the supply of portion. Learned Counsel brings to our notice the findings recorded in para 6.4.1 to 6.4.4, we find that the adjudicating authority has recorded that the appellant has made this plea, came to conclusion against the appellant only on the ground that they had not produced any evidence in support of such claim. From the voluminous record which is produced before us, we find that appellant has, in fact, produced records. Basically, the issue needs to be verified from the factual matrix. Hence, instead of going into the merit of the case, we deem it fit to remand the matter back to the adjudicating authority to reconsider the issue afresh by going into all the claims by the appellant as regards discharge of VAT on supply portion and discharge on service tax on the service portion. We make it clear that we have not recorded any findings on the merits of the case and are leaving all the issue open. We also direct the appellant not to seek the refund of the amount already deposited during the proceedings."
However without verifying the factual position whether appellant paid the VAT on supply portion and service tax on service portion Learned Commissioner has decided the impugned matter which is legally not correct and against the remand direction of Tribunal. 14 | P a g e ST/12078/2013 ST/11245/2016 -DB
5. Further, from the documentary evidence produced by the Appellant before us we find that the appellant have paid sales tax as also VAT on the material used in providing the said service by them. The ratio of the various decisions of the Tribunal are to the effect that where the salestax and VAT stands paid on the material it has to be held that the goods were sold by the assessee. In such a scenario, the value of the same, cannot be added in the value of taxable service. Reference in this regards is made to the following decisions :-
WIPRO G.E. MEDICAL SYSTEMS PVT. LTD. V. CST,
BANGALORE - 2009(14) S.T.R. 43 (TRI.-BANG.)
DISPALLA HOTELS LTD. V. CCE, VISAKHAPATNAM -
2010 (18) S.T.R. 75 (TRI.-BANG.)
LSG SKY CHEFS (INDIA) PVT. LTD. V. CST,
BANGALORE - 2010 (18) S.T.R. 37 (TRI.-BANG.)
IMAGIC CREATIVE PVT. LTD. V. CCT - 2008 (9) S.T.R.
337 (S.C.)
DELUX COLOUR LAB PVT. LTD. V. CCE, JAIPUR - 2009
(13) S.T.R. 605 (TRI.-DEL.)
PLA TYRE WORKS V. CST, TRICHY - 2009 (14) S.T.R.
32 (TRI.-CHENNAI).
5.6 In several decisions it has been held that service tax cannot be levied on that portion of the value representing the sale of the goods on which sales tax has been charged.
This position has been elaborately dealt with in the decision of the Shilpa Colour Lab v. CCE, Calicut reported in 2007 (5) S.T.R. 423 (T) supra. This view has been affirmed in many decisions. Once, the sales tax has been paid on the materials, then on the same, service tax also cannot be charged. At this stage, we also take note of the Board's Circular No. 96/7/2007-S.T., dated 23-8-2007 laying down that the value of spare parts sold by a service provider is not required to be taken into consideration if the same are subjected to levy of sales tax and VAT and there is clear evidence to show the sale of the same. Circular further goes on to say that the fact of payment of VAT/sales tax on a transaction value indicates that the said transaction is treated as sale of goods. Keeping in view the Board circular as also the precedent 15 | P a g e ST/12078/2013 ST/11245/2016 -DB decisions of the Tribunal, we hold that the appellant are not liable to pay service tax on the value of supply of goods/ material.
4.2 We further find that the identical issue was dealt with by Hon'ble Supreme Court in case of Safety Retreading Co. Pvt. Ltd. reported in 2017 (48) STR 97 (SC) wherein Hon'ble Supreme Court was also considering the same Notification No. 12/2003-ST dated 20.06.2003 as in the present case and held as under:
"10. The exigibility of the component of the gross turnover of the assessee to service tax in respect of which the assessee had paid taxes under the local Act whereunder it was registered as a Works Contractor, would no longer be in doubt in view of the clear provisions of Section 67 of the Finance Act, 1994, as amended, which deals with the valuation of taxable services for charging service tax and specifically excludes the costs of parts or other material, if any, sold (deemed sale) to the customer while providing maintenance or repair service. This, in fact, is what is provided by the Notification dated 20th June, 2003 and CBEC Circular dated 7th April, 2004, extracted above, subject, however, to the condition that adequate and satisfactory proof in this regard is forthcoming from the assessee. On the very face of the language used in Section 67 of the Finance Act, 1994 we cannot subscribe to the view held by the Majority in the Appellate Tribunal that in a contract of the kind under consideration there is no sale or deemed sale of the parts or other materials used in the execution of the contract of repairs and maintenance. The finding of the Appellate Tribunal that it is the entire of the gross value of the service rendered that is liable to service tax, in our considered view, does not lay down the correct proposition of law which, according to us, is that an assessee is liable to pay tax only on the service component which under the State Act has been quantified at 30%.
11. An argument has been advanced by Ms. Pinky Anand, learned Additional Solicitor General that there is no evidence forthcoming from the side of the assessee that the value of the goods or the parts used in the contract and sold to the customer amounts to seventy per cent (70%) of the value of the service rendered which is the taxable component under the State Act. The aforesaid argument overlooks 16 | P a g e ST/12078/2013 ST/11245/2016 -DB certain basic features of the case, namely, the undisputed assessment of the assessee under the local Act; the case projected by the Department itself in the show cause notice; and thirdly the affidavit filed before this Court by one S. Subramanian, Commissioner of Central Excise, Salem.
12. No dispute has been raised with regard to the assessment of the appellant on its turnover under the local/State Act, insofar as payment of Value Added Tax on that component (70%) is concerned. A reading of the show cause notice dated 24th January, 2008 would go to show that the entire thrust of the Department's case is the alleged liability of the appellant-assessee to pay service tax on the gross value. In the aforesaid show cause notice, the details of the value of the goods, raw materials, parts, etc. and the value of the services rendered have been mentioned and service tax has been sought to be levied at the prescribed rate of ten per cent (10%) on the differential amount. It is now stated before us that the aforesaid figures have been furnished by the assessee himself and, therefore, must be understood not to be authentic. This, indeed, is strange. No dispute has been raised with regard to the correctness of the said figures furnished by the assessee in the show cause notice issued to justify the stand now taken before this Court; at no point of time such a plea had been advanced.
13. Besides the above, the affidavit of the learned Commissioner, referred to above, proceeds on the basis that the appellant assessee is also liable to pay service tax on the remaining seventy per cent (70%) towards material costs in addition to the 30% of the retreading charges. This is clear from the following averments made in the said affidavit of the learned Commissioner :
"The relevant bills showed that the Appellant had paid service tax only on the labour component after deducting 70% towards material cost on the gross tyre Retreading charges billed and received for the period from 16-6-2005. In short, they have paid service tax only on the 30% of the tyre Retreading charges received from the customers, by conveniently omitting 70% of the consideration received towards Retreading charges to avoid tax burden.
17 | P a g e ST/12078/2013 ST/11245/2016 -DB The verification of invoices of the Appellant for the period from Jan.- 2007 to March-2007, the officers noticed that the Appellant have shown material cost, patch cost and misc. charges i.e. Labour charges separately in their invoices. However, on the follow-up action the customers of the Appellant revealed that they have neither purchased nor received raw materials intended for Retreading and they had paid only the Retreading charges for carrying out the Retreading activity."
The invoices which the appellant assessee has also brought on record by way of illustration show the break up of the gross value received. There is again no contest to the same. Leaving aside the question that the case now projected, with regard to lack of proof of incurring of expenses on goods and materials which has been transferred to the recipient of the service provided, appears to be an afterthought, even on examination of the same on merits we have found it to be wholly unsustainable.
4.3 Therefore, we hold that the value of materials supplied under the supply of materials contract on which VAT/ Sales tax is undisputedly paid by the Appellants and not disputed by the revenue cannot be added to the value of services.
4.4 During the course of hearing of the matter, the counsel of the Appellants have also raised the classification of the services. It is pertinent to note that from April 2006 to June 2012 the activities of the Appellants have been classified under the taxable category of commercial or industrial construction services and for the period on or after 01.07.2012 it is classified as "works contract services". The Appellants have argued that if the case of the revenue is that the materials is consumed by the Appellants and therefore its value should be included in the value of services then proper classification for the period on or after 01.06.2007 (the date on which works contract services introduced to the service tax net) should be under the taxable category of works contract services. 18 | P a g e ST/12078/2013 ST/11245/2016 -DB 4.5 We find force in the argument advanced by the Appellants. In support of our finding we rely on the observations made by Hon'ble Supreme Court in case of Larsen & Toubro Ltd. reported in 2015 (39) STR 913 (SC) wherein Hon'ble Supreme Court has held as under:
"17. We find that the assessees are correct in their submission that a works contract is a separate species of contract distinct from contracts for services simpliciter recognized by the world of commerce and law as such, and has to be taxed separately as such. In Gannon Dunkerley, 1959 SCR 379, this Court recognized works contracts as a separate species of contract as follows :-
"To avoid misconception, it must be stated that the above conclusion has reference to works contracts, which are entire and indivisible, as the contracts of the respondents have been held by the learned Judges of the Court below to be. The several forms which such kinds of contracts can assume are set out in Hudson on Building Contracts, at p. 165. It is possible that the parties might enter into distinct and separate contracts, one for the transfer of materials for money consideration, and the other for payment of remuneration for services and for work done. In such a case, there are really two agreements, though there is a single instrument embodying them, and the power of the State to separate the agreement to sell, from the agreement to do work and render service and to impose a tax thereon cannot be questioned, and will stand untouched by the present judgment." (at page 427)
18. Similarly, in Kone Elevator India (P) Ltd. v. State of T.N. - (2014) 7 SCC 1 = 2014 (34) S.T.R. 641 (S.C.) = 2014 (304) E.L.T. 3 (S.C.), this Court held :-
"Coming to the stand and stance of the State of Haryana, as put forth by Mr. Mishra, the same suffers from two basic fallacies, first, the supply and installation of lift treating it as a contract for sale on the basis of the overwhelming component test, because there is a stipulation in the contract that the customer is obliged to undertake the work of civil construction and the bulk of the material used in construction belongs to the manufacturer, is not correct, as the subsequent discussion would show; and second, the Notification dated 17-5-2010 issued by the Government of Haryana, Excise and Taxation 19 | P a g e ST/12078/2013 ST/11245/2016 -DB Department, whereby certain rules of the Haryana Value Added Tax Rules, 2003 have been amended and a table has been annexed providing for "Percentages for Works Contract and Job Works" under the heading "Labour, service and other like charges as percentage of total value of the contract" specifying 15% for fabrication and installation of elevators (lifts) and escalators, is self-contradictory, for once it is treated as a composite contract invoking labour and service, as a natural corollary, it would be works contract and not a contract for sale. To elaborate, the submission that the element of labour and service can be deducted from the total contract value without treating the composite contract as a works contract is absolutely fallacious. In fact, it is an innovative subterfuge. We are inclined to think so as it would be frustrating the constitutional provision and, accordingly, we unhesitatingly repel the same." (at para 60)
19. In Larsen & Toubro Ltd. v. State of Karnataka, (2014) 1 SCC 708 = 2014 (34) S.T.R. 481 (S.C.) = 2014 (303) E.L.T. 3 (S.C.), this Court stated :-
"In our opinion, the term "works contract" in Article 366(29- A)(b) is amply wide and cannot be confined to a particular understanding of the term or to a particular form. The term encompasses a wide range and many varieties of contract.
Parliament had such wide meaning of "works contract" in its view at the time of the Forty-sixth Amendment. The object of insertion of clause (29-A) in Article 366 was to enlarge the scope of the expression "tax on sale or purchase of goods" and overcome Gannon Dunkerley (1) [State of Madras v. Gannon Dunkerley and Co. (Madras) Ltd., AIR 1958 SC 560 : 1959 SCR 379]. Seen thus, even if in a contract, besides the obligations of supply of goods and materials and performance of labour and services, some additional obligations are imposed, such contract does not cease to be works contract. The additional obligations in the contract would not alter the nature of contract so long as the contract provides for a contract for works and satisfies the primary description of works contract. Once the characteristics or elements of works contract are satisfied in a contract then irrespective of additional obligations, such contract would be covered by the term "works contract". Nothing in Article 366(29-A)(b) limits the term "works contract" to contract for labour and service only. The learned Advocate General for Maharashtra was right in his submission that the term "works contract" cannot be confined to a contract to provide labour and 20 | P a g e ST/12078/2013 ST/11245/2016 -DB services but is a contract for undertaking or bringing into existence some "works". We are also in agreement with the submission of Mr. K.N. Bhat that the term "works contract" in Article 366(29-A)(b) takes within its fold all genre of works contract and is not restricted to one specie of contract to provide for labour and services alone. Parliament had all genre of works contract in view when clause (29- A) was inserted in Article 366." (at para 72)
20. We also find that the assessees' argument that there is no charge to tax of works contracts in the Finance Act, 1994 is correct in view of what has been stated above."
4.6 Further, we find that Ld. Commissioner has also accepted that the activities of the Appellants is correctly classifiable as "works contract"
services for the period prior to 01.07.2012. We find that Ld. Commissioner in his Order in Original having number AHM-SVTAX-000-027-2015-16 dated 17.03.2016 (Appeal No. ST/11245/2016) in Para 15.5 has observed as under:
15.5 The aforesaid factual and legal position make it abundantly clear that the classification of service under "works contract service"
or "commercial or industrial construction services" cannot be left to the choice, or likes or dislikes of their clients nor could it be done as per their whims and fancies. Thus, if a particular service has been rendered by the said assessee pursuant to a works contract executed with the service recipient and if such service involved transfer of materials or property, then the same would be classified as "works contract service". Similarly, even if rendition of a particular service was in pursuance of a works contract, if such service involved only labour charges or service portion, then the same would be classified as 'commercial or industrial construction service', as the case may be. As already mentioned above, these legal provisions which govern appropriate classification of services would find way while deciding the disputes regarding eligibility of Cenvat credit by the service recipients and includability material value towards the taxable value, etc. as involved in this case. However, I find that the said assessee has all along been arguing that their services are classifiable as 21 | P a g e ST/12078/2013 ST/11245/2016 -DB "works contract services", and hence I find no dispute with regard to the actual classification of services."
4.7 Thus, it is clear from the above findings of Ld. Commissioner that he has agreed to the fact that the activities of the Appellants can be classified as "works contract services". If that is the case then in the present show cause notices the classification of the services has been adopted by the revenue under the category of "commercial or industrial construction services" for the period up to 30.06.2012 and therefore, the demand of service tax is liable to be set aside on this ground also.
4.8 We also find force in the arguments of the Ld. Counsel for the Appellants that if the activity is falling under the taxable category of "works contract services" and if the demand is raised under the taxable category of "commercial or industrial construction services" then demand is not sustainable. For this we rely on the decision of this Tribunal in case of Real Value Promotors Pvt. Ltd. reported in 2018 (9) TMI 1149 - CESTAT Chennai.
4.9 Further we find that even for the period on or after 01.07.2012 the value of material cannot be included in the value of taxable services even if the services of the Appellants is classifiable as works contract services. The Appellants have rightly claimed that the value of materials is separately available in the present case on which local VAT or sales tax is paid and invoices are available for the same. We find that the issue also stands covered in favour of the Appellants as decided by this Tribunal in case of 22 | P a g e ST/12078/2013 ST/11245/2016 -DB Kalpataru Power Transmission Ltd. reported in 2021 (48) GSTL 354 (Tri.-Ahmd) wherein it is held as under:
2.2 From the above it was observed that the respondent may have entered into different contracts but they happen to be only one "Works Contract"
wherein, the work assigned was supply installation and commissioning of towers Transmission lines. Further, it was also observed that the reference of invitation to bid for the package was given in supply portion and erection portion both the contracts had emanated from the single bid which was later divided into two contracts namely, 'Supply Portion and Erection Portion' the general terms and conditions are almost common in 24 contracts entered into by the respondent with EDAs, it was further contended with various EDAs work floated tender erection of Transmission towers and lines. The respondents were filling this tender and successfully qualified on financial grounds. It was observed that those contracts were bifurcated in 2 portion namely, Supply Portion and Erection Portion for their convenience only the respondent manufactured parts of the Transmission Towers and the other parts of the towers as required to be supplied were taken to the sites by the respondent and the erection activity was carried at predetermined sites. The scrutiny of the ST-3 return indicated that the assessee had classified their activities under Works Contract Services and were paying the service tax under (Composition Scheme for Payment of Service Tax) Rules, 2007 (for the projects entered by them) prior to 7-7-2009. Scrutiny of documents submitted by the respondent further revealed that while calculating gross value they were not including value of supply portion and were not paying service tax on portion of Supply Contract. The revenue contended that since the respondent paying the service tax under Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007 value of the material supplied and used for erection of the Transmission Towers needs to be included in the gross value of services and service tax payable on the total value, thus by not including the value of manufactured goods supplied by the respondent, they have short paid service tax accordingly, Show Cause Notice No. V ST/15-02/Off/OA/2012 was issued. The adjudicating authority vide impugned order vacated the proceeding initiated against the respondent in the aforesaid Show Cause Notice.
6. We have heard both sides and perused the records. The issue involved in the present case is that whether the value of materials supplied by the respondent under a separate material supply contract with EDAs is required to be included in the gross value of Works Contract Service or
23 | P a g e ST/12078/2013 ST/11245/2016 -DB otherwise. As per the facts prevailing on records and argued by both the sides there is no dispute that there is separate contract for supply of goods/Sale of goods and contract for services namely erection, installation and commissioning of transmission line at site. The contention of the department in the appeal is that even though there are two contracts but it is a composite work undertaken by the respondent that is erection, installation and commissioning of transmission line therefore, it should be construed as one single contract. Consequently, the value of both the contract should be clubbed and considered for the purpose of payment of service tax under Works Contract Service. The respondent in respect of the relevant contracts discharging the service tax in terms of Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007. The said composition scheme rules amended with effect from 7-7-2009 therefore, it is necessary to refer to the said rules pre and post its amendment.
(A.4) Rule 3 of Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007 pre-amendment read as under :
3.(1) Notwithstanding anything contained in Section 67 of the Act and Rule 2A of the Service (Determination of Value) Rules, 2006, the person liable to pay Service Tax in relation to Works Contract Service shall have the option to discharge his service tax liability on the Works Contract Service provided or to be provided, instead of paying service tax at the rate specified in Section 66 of the Act, by paying an amount equivalent to two percent of the gross amount charged for the Works Contract.
Explanation. - For the purposes of this rule, gross amount charged for the works contract shall not include Value Added Tax (VAT) or Sales tax, as the case may be, paid on transfer of property in goods involved in the execution of the said works contract.
(A.5) The above Explanation to Rule 3 of Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007 was amended as under :-
Explanation :- For the purposes of this sub-rule, gross amount charged for the Works Contract shall be the sum, -
(a) Including -
(i) The value of the goods used in or in relation to the
execution of the works contract, whether supplied under any other contract for a consideration or otherwise; and
24 | P a g e ST/12078/2013 ST/11245/2016 -DB
(ii) The value of all the services that are required to be provided for the execution of the works contract;
(b) Excluding -
(i) The Value Added Tax or Sales Tax as the case may be
paid on transfer of property in goods involved; and
(ii) The cost of machinery and tools used in the execution of the said works contract except for the charges for obtaining them on hire :
Provided that nothing contained in this Explanation shall apply to a works contract, where the execution under the said contract has commenced or where any payment, except by way of credit or debit to any account has been made in relation to the said contract on or before the 7th Day of July, 2009,".
6.1 From the perusal of Explanation to Rule 3 of Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007 it is clear that the above amendment in Rule 3 (Explanation to Rule 3) would not be applied to any works contract where the execution under the said contract has commenced or where any payment has been made in relation to the said contract on or before 7-7-2009.
6.2 The Central Board of Excise and Customs vide Circular D.O.F No. 334/13/2009-TRU, dated 6-7-2009 has clarified the above change and statutory provision as under :-
"5. Amendments in Rules (pertaining to service taxpayers):
5.1 Changes in the Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007 : These rules provide a simplified procedure for working out the tax liability by the service providers providing works contract service. Instead of working out the service element from the value of works contract and paying service tax at full rate (i.e. 10%) the service provider is allowed to pay 4% on the 'gross amount charged' for the works contract. The reason for prescribing the lower rate under the scheme is that the service provider need not bifurcate the gross value of works contract. It was expected that the gross value should be shown to include the total value of materials as well as services used in providing the taxable services. However, it has been reported that in certain cases, the taxpayers are not including the full value of the goods required for execution of works contract for
25 | P a g e ST/12078/2013 ST/11245/2016 -DB working out 4 service tax liability under the Composition Scheme by either excluding the value of goods received free of cost from their client or splitting the contract into a sale contract (for a portion of goods required to execute the works contract) and works contract (for only a portion of the total value of goods and the labor charges), thus reducing the value of works contract for the purposes of calculating service tax. In order to plug this loophole, the Explanation appearing in sub-rule (3) is being amended to provide that the composition scheme would be available only to such works contracts where the gross value of works contract includes the value of all goods used in or in relation to the execution of works contract whether received free of cost or for consideration under any other contract. This condition would not apply to those works contracts, where either the execution of works contract has already started or any payment (whether in part or in full) has been made on or before the date of the amendment, i.e. 7-7-2009, from which the said amendment becomes effective (refer notification No. 23/2009-S.T., dated 7-7-2009)."
6.3 The CBEC once again clarified on the said amended Rule 3 of Works Contract Rules, 2007 vide Circular No. 150/1/2012-S.T., dated 8-2-2012 as under :-
"Subject : Meaning of the expression 'gross amount' appearing in Rule 3(1) of the Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007, as it stood prior to 7th day of July, 2009 - regarding.
Reference has been received from a field formation seeking clarification as to whether 'gross amount', for the purpose of payment of service tax under the Works Contract Composition Scheme, included the value of free of cost supplies, for the period prior to 7-7-2009.
2. The issue has been examined. The meaning of the expression 'gross amount' appearing in Rule 3(1) of the Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007, is qualified by the Explanation inserted in the said Rule with effect from 7- 7-2009. Since the Explanation inserted in Rule 3(1) with effect from 7-7- 2009 is clarificatory and prospective in nature, inclusion of value of free- of-cost supplies of goods and services in or in relation to the execution of Works Contract [mentioned in the Explanation to Rule 3(1)(a)(i) and
(ii)] in the 'gross amount' for the purpose of payment of service tax on works contract under the composition scheme, is a legal requirement, 26 | P a g e ST/12078/2013 ST/11245/2016 -DB only with effect from 7-7-2009 when the Explanation became a part of Rule 3(1).
3. The Explanation appended to Rule 3(1) with effect from 7-7- 2009, categorically says in the proviso that "...nothing contained in this Explanation shall apply to a works contract where the execution under the said contract has commenced or where any payment, except by way of credit or debit to any account, has been made in relation to the said contract on or before the 7th day of July, 2009." Where execution of works contract has commenced prior to 7-7-2009 or where any payment (except payment through credit or debit) has been made towards a works contract prior to 7-7-2009, then in those cases 'gross amount' for the purpose of payment of service tax does not include the value of free of cost supplies.
4. The above clarification may be communicated to the field formations and service tax assessees through Trade Notice/Public Notice. Hindi version to follow."
6.4 As per the clear provision under the amended Rule 3 reads with amended Explanation and two circular clarifying provision of the said amendment, it is clear that any contract which is executed or payment thereagainst (except the way of credit/debit) made prior to 7-7-2009, the value of goods supplied under the separate contract cannot be included in the gross value of Works Contract Service. As per the undisputed fact and also finding given by the Learned Commissioner in the impugned order execution of 24 contracts have been commenced prior to 7-7-2009 therefore, the contention of inclusion of value of goods in the gross amount charged for the works contract as provided under Explanation (a)(1) is not applicable. It is pertinent to note that prior to 7-7-2009 there was no clear provision irrespective of separate contract for supply of goods/supply of service value of both to be clubbed to arrive at gross amount charged for Works Contracts. Therefore, admittedly there are two separate contracts one for supply of goods and other for supply of services prior to 7-7-2009. The contract value of supply of goods cannot be included in the gross value of works contract service.
6.5 As regard the contention of the revenue that the respondent have executed one composite works contract irrespective of having two separate contract one for supply of goods and other for supply of services, it should be treated as one contract and value of both the contract should be taken together for arriving at gross value of the works contract. 27 | P a g e ST/12078/2013 ST/11245/2016 -DB 6.6 We find that there is a clear terms and conditions between the respondent and the service recipient i.e. EDAs that separate contract has to be entered into, one for manufacture and sale of goods and other is works contract service of erection, installation and commissioning of transmission line. All the service recipient i.e. EDAs are government organization and it cannot be imagined that the government organization will enter into this malpractices to evade service tax by bifurcating the one composite contract into two. It is a fact on records that as regard the supply contract mainly it is a transmission tower which is admittedly manufactured by the respondent in their factory and cleared there- from. These goods were sold at factory gate of respondent therefore, the property in the said goods stands transferred the moment it is cleared from the gate of the respondent. Therefore, it cannot be said that the appellant have provided the Works Contract Service along with the goods manufactured and supplied by them. In this transaction the appellant executed the Works Contract Service with the labour and certain other material used in erection, installation and commissioning. As regard the goods manufactured and supplied by the respondent the same belongs to service recipient i.e. EDAs therefore, the value of the said goods cannot be included in the gross value of Works Contract Service.
6.7 This is not a case where the service provider i.e. appellant and the service recipient i.e. EDAs have colluded and with intention to evade service tax entered into two contract one for supply of goods and other for providing service of erection, installation and commissioning of transmission line. In the bid document itself which was offered by the service recipient put a clear condition that two separate contracts need to be entered into i.e. one for supply of service and other for supply/sale of goods therefore, both the contracts are separate contract and cannot be clubbed together.
6.8 As per the definition of the Works Contract Service one of the condition is that the property in goods used in execution of works contract must be transferred during the execution of contract. In the present case the appellant while clearing the transmission towers from their factory issued the sale invoices accordingly, the property in the said goods does not remain with the respondent but the same was transferred to service recipient and while execution of the works contract service the property in the said goods was with the recipient. Since the transfer of property in the said goods is not taking place during the execution of the Works Contract Service the value thereof cannot be included in the Works Contract Service. At the same time the respondent have used certain accessories and parts for execution of Works Contract Service and value thereof was admittedly included for the reasons that the property in the said good was transferred only during execution of 28 | P a g e ST/12078/2013 ST/11245/2016 -DB works contract service. Therefore, there is a clear distinction between goods property of which is transferred prior to execution of Works Contract Service and the property in the goods transferred during the execution of Works Contract Service. In view of the clear provision under Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007 as amended by Notification No. 23/2009-S.T., dated 7-7-2009 the value of the goods, property of which belongs to service recipient before execution of Works Contract Service, shall not be included in the gross amount of Works Contract Service.
6.9 The revenue's contention is that appellant being common for supply of goods and provider of Works Contract Service cannot enter into separate contract and in such case the one composite contract is not divisible. On this issue much water was flown. In the various courts have given judgments on this issue some of the judgment cited :
• Bhagwandas Goverdhandas Kedia v. Girdharilal Parshottamdas & Co., AIR 1966 SC 543 • Tata Cellular v. Union of India, (1994) 6 SCC 651.
6.10 From the above judgments it can be seen that reliance on the tender or invitation to bid to decide the nature of the contract or the right and obligation flowing under a contract entered pursuant thereto is wholly misplaced, which would be governed only by the contracts entered into two between the parties. In the present case even though there is single bid that contain the condition of separate contract for supply of goods and supply of service. The two separate contracts are correct and legal and the same cannot be clubbed and held that it is a composite contract. The bid/tender is only a offering to the prospective contracts however, the contract is an agreement between two parties and which is recognized as a legal document therefore, when two separate contract are entered into between two separate parties, revenue cannot insist that there should be one composite contract.
Therefore, we are of the clear view that even though there is single bid/tender, the two separate contracts are legal and correct and no question can be raised. In the following judgments the issue in question was considered :
• State of Madras v. Gannon Dunkerley & Co. (Madras) Ltd. - (1958) 9 STC 353 = 2015 (330) E.L.T. 11 (S.C.) • Hindustan Aeronautics Ltd. v. State of Karnataka, (1984) 1 SCC 706 • Builders' Assn. of India v. Union of India, (1989) 2 SCC 645 • State of Karnataka v. Trans Global Power Limited - (2015) 77 VST 509 29 | P a g e ST/12078/2013 ST/11245/2016 -DB • Reliance Infrastructure Ltd. v. Deputy Commissioner - 2015 VIL 60 CAL • Ishikawajma-Harima Heavy Industries Ltd. v. Director of Income-
tax, (2007) 3 SCC 481 = 2007 (6) S.T.R. 3 (S.C.).
6.11 In the above judgments one common issue has been considered that there can be two separate contracts, that is one for sale and another for Works Contract Service as in the present case the value of goods sold, property of which in goods has already been passed on, cannot form part of the value of the second contract i.e. Works Contract.
6.12 The Contention of the revenue is that it is necessary to enter a single indivisible contract is contrary to the principle that there are more than one way for performing an act. It is for parties concerned to choose the method and manner. In this regard the Hon'ble Supreme Court in CIT v. Motors and General Stores (P) Ltd., (1967) AIR 1968 SC 200 reads as under :
'6. In a later case - Commissioners of Inland Revenue v. Wesleyan and General Assurance Society [30 TC II ] - Viscount Simon expressed the principle as follows :
".................
Secondly, a transaction which, on its true construction, is of a kind that would escape tax, is not taxable on the ground that the same result could be brought about by a transaction in another from which would attract tax.."' 6.13 From the above judgment it is clear that even if it is contented that due to two separate contracts there is a shortfall in payment of tax that itself cannot be a reason to reject the concept of two separate contract legally entered into between two parties. Therefore the revenue's contention related to this is also not sustainable.
6.14 The revenue's main contention is that even though there are two contracts one for supply of goods and other is for Works Contract Service, both the contracts are not divisible and should be considered as one contract and hence the value of goods supplied under separate contract should be added in the Works Contract Service. This very same issue has been considered by this Tribunal in Tata Projects Limited - 2019 (31) G.S.T.L. 436 (Tri. - Hyd.) wherein under the identical facts the following order was passed :
"2. Thus, appellant had entered into two supply contracts and a contract for services which included supply of material related to supply of services. Appellant discharged Service Tax on the services contract taking it as a works contract. Revenue was of the view that the offshore 30 | P a g e ST/12078/2013 ST/11245/2016 -DB and onshore agreements also need to be included in the value of services rendered and surplus tax should have been discharged accordingly. It is the case of the Revenue that umbrella agreement is the complete agreement and the three agreements viz.; onshore supply, offshore supply and services are mere components of the same. Therefore, while determining the service tax liability under works contract basis, the entire value should be reckoned. A show cause notice was issued accordingly demanding differential service tax, for the period 2008-09 to 2013-14. Penalties were also proposed to be imposed under Sections 76 and 77. It was also proposed to recover interest under Section 75 of the Finance Act, 1994. After following due process, Ld. Commissioner confirmed the demands and interest and imposed penalties as proposed. Hence this appeal."
7. We have considered the arguments on both sides and perused the records. There is no dispute on the facts of the case that the appellant had entered into three agreements with M/s. APPDCL as per the LOI issued by them, of which two are supply contracts and one is a contract for services which also included supply of some material. He also had an umbrella agreement combining these three agreements. It is not also in dispute that in addition to the supply, the appellant had discharged VAT/CST as the case may be in respect of the supply contracts. The only question remains to be answered is whether the value of this onshore and offshore supplies by the appellants need to be included in the value of services rendered by them under the works contract scheme. It is not in dispute that the material in question was supplied by the appellant with respect to this particular contract and after the supply was completed, the goods which were supplied were given by APPDCL back to appellant for execution of the contract. A plain reading of C.B.E. & C. Circular D.O.F. No. 334/13/2009-TRU, dated 6-7- 2009 explains that such values became includible in the value of the works contract as per the amendment made vide Notification No. 23/2009-S.T., dated 7-7-2009. By inserting an Explanation, it was also clarified by C.B.E. & C. themselves that the inclusion of the values would not apply to such contracts where either the execution of works contract has already started or any payment (whether in part or in full) has been made on or before 7-7-2009. In this particular case, the payments in respect of all the three contracts were made prior to 7-7-2009. Needless to say that there is no separate payment under the umbrella contract because it was only a combination of the other three contracts. This issue was agitated by the appellant before the adjudicating authority 31 | P a g e ST/12078/2013 ST/11245/2016 -DB who, however, did not agree with this contention on the following words :
"7.1 The issue required to be decided in these proceedings is whether the contracts dated 12-8-2009 with service recipients, commenced before and payments received before 7-7-2009 can be considered as separate contracts or as one contract. It has been argued by the appellant that both the contracts are independent and cannot be considered as one for the purpose of determining taxable value of the service provided. It was further argued that even if two contracts are treated as one, still appellant's case will not be covered under the Explanation added with effect from 7-7-2009 in Rule 3(1) of the Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007. In view of the findings above and nature of EPC works contract service and the existence of only one contract No. for all the supply and the service contracts, the scope of supply/work being the same i.e. "basic and detailed design, engineering, procurement, manufacture, assembly, pre- assembly, inspection, tests at contractors and/or his sub-vendors' works, shock painting, packing, transportation to site, freight and insurance of balance of plant systems and equipment package for 2 × 800W thermal power plant"; that the assessee is responsible for installation of the whole facility under the EPC contract by using the Off-shore supply and On-shore supply procured by the assessee themselves, and therefore, the contracts have to be considered as one. In this regard, it is observed that both, supply contract and service contract have no separate defects liability clauses and the total price of the Contract, price variation being for the total price of the contract, and the Liquidated Damages applicable for the entire and complete Design, Engineering, Procurement, manufacture, supply, erection, testing, commissioning, initial operation, reliability operation and performance guarantee tests on EPC basis for Balance of Plant (BOP) systems and equipment for 2×800 MW supercritical coal fired Thermal Power Plant, the contracts have to be considered as one".
8. In other words, the adjudicating authority held that the three contracts in question are essentially part of the same contract and they were signed on 12-8-2009, hence the Explanation w.e.f. 7-7-2009 to Rule 3 of the Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007 is not relevant. On a plain reading of the contracts in question, we do not find it so. There are indeed three different contracts and for which three different payments were to be 32 | P a g e ST/12078/2013 ST/11245/2016 -DB made and were made. The umbrella agreement only combines all these three agreements so as to give a complete perspective of the scope of the contract. In fact, there is no payment whatsoever under the umbrella agreement. Further, the advances in respect of the three contracts were received prior to 7-7-2009 and hence the amended provisions do not apply. In view of the above, we find that the value of the material supplied under offshore and onshore contracts cannot be included in the value of the works contract service as the advance payment in respect of all the three contracts are received prior to 7-7- 2009.
9. We also find that this case is identical to the case of Essar Projects (India) Limited (supra) in which a similar view has been taken. In view of the above, we find that the demand of service tax and interest and imposition of penalties in the impugned order are not sustainable and the impugned order is liable to be set aside and we do so.
10. The appeal is allowed and the impugned order is set aside."
6.15 From the above decision it can be seen that the facts are identical and as much as the assessee in the said case entered into two supply contract and a contract for service which included supply of that material which is related to supply of service. The assessee has charged service tax on the service contract taking it as a Works Contract. Revenue raised the same contention that the value of both the contracts needs to be included in the value of service rendered. The Tribunal considering the same set of facts came to the conclusion that since the contracts were executed prior to 7-7-2009, hence the amended provision do not apply. Accordingly it was held that the value of material supplied under both the contracts cannot be included in the value of Works Contract Service.
6.16 In the present case also the similar facts are involved and the contracts were executed prior to 7-7-2009. Therefore, even if revenue is of the contention that both the contract i.e. one for supply of goods and other for Works Contract Service are meant for one composite contract by virtue of unamended provision, the value of supply contract cannot be included in Works Contract Service.
6.17 The Tribunal Hyderabad had occasion to once again examine the same issue in Tata Projects Limited - 2020 (35) G.S.T.L. 309 (Tri. - Hyd.) wherein, considering the identical facts in the present case it was held as under :
"4. On examination of the matter, we find that the department seeks to include the value of goods supplied either under a different contract or as a separate part of the same contract in the value of 33 | P a g e ST/12078/2013 ST/11245/2016 -DB taxable services on which service tax on works contract service is to be charged. We find that on an identical issue in respect of the same assessee in Appeal No. ST/22281/2015, after examining the amendment to Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007 vide Notification No. 23/2009-S.T., dated 7-7-2009 and the explanation of the amendment by C.B.E. & C. vide D.O.F. No. 334/13/2009-TRU, dated 6-7-2009 as discussed above, we held that appellant is not liable to include the value of the goods as the contracts were signed/payments were made prior to 7-7-2009. We find no reason to deviate from our earlier decision. This covers 13 of the 14 projects in respect of which the demand was raised. In respect of the 14th project namely project with respect to SALSETTE Borivli BMC, which was entered post-7-7-2009, we find from Sl. No. 10 in Annexure-I to the show cause notice the differential tax payable, according to the show cause notice, is negative. Therefore, no Service Tax is payable. In conclusion, the demands as confirmed by the impugned order are liable to be set aside and we do so. Consequently, the interest and penalties associated with the demands are also set aside."
6.18 From the amended provision as well as the judgment cited above, it is clear that to counter the situation like in the present case the amendment was brought with effect from 7-7-2009. If the contention of the revenue is accepted it will amount to give retrospective effect to the amendment of 7-7- 2009 which is not permissible under law as per the settled position by Hon'ble Supreme Court in various cases that any amendment cannot be made applicable. Retrospectively unless it is specifically mentioned therein, therefore even considering the undisputed fact of two contracts the value of goods supplied under separate contract cannot be added in the value Works Contract Service. The above judgments are based upon this Tribunal's judgments in the case of M/s. Essar Projects (India Limited) - 2014 (33) S.T.R. 696 wherein, the similar facts rise in the present case were involved where the tribunal has passed the following order :
"2. Brief facts of the case are that appellant entered into two contracts with M/s. Vadinar Power Company Limited and M/s. Essar Power Gujarat Limited. One of the contracts was for supply of indigenous equipment and materials (supply contract) and the other one for the Construction/Erection/Installation of plant (construction contract). In addition, the service recipient also procured imported equipment and materials which was also supplied to the appellant for completing the construction contract. It is the case of the Revenue that both the contracts entered into by the appellant and the service 34 | P a g e ST/12078/2013 ST/11245/2016 -DB recipients are artificially bifurcated and are required to be considered as one. Revenue in their cross-objection under ST/CO/10461 of 2013 mainly argued that Explanation to Rule 3(1) of the Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007, substituted under Notification No. 23/2009-S.T., dated 7-7-2009, is not applicable to the applicant's case and both contracts should be treated as one.
B.4 As can be seen that the facts in the above referred case in identical with the facts of the present case. Considering the above facts, Hon'ble Court observed as under :
6. We have given our anxious thoughts to the arguments made by both sides and also perused the records. The issue required to be decided in these proceedings is whether two contracts dated 24-8-
2007, executed by the appellant with service recipients can be considered as separate contracts or as one contract. It has been argued by the appellant that both the contracts are independent and cannot be considered as one for the purpose of determining taxable value of the service provided. It was further argued that even if two contracts are treated as one, still appellant's case will not be covered under the Explanation added with effect from 7-7-2009 in Rule 3(1) of the Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007. The adjudicating authority in Para 30 of the impugned order has held that appellant is responsible for installation of the whole facility under the construction contract by using the indigenous machinery procured by appellant and, therefore, both the contracts have to be considered as one. In this regard, it is observed that both, supply contract and construction contract have separate defects liability clauses under Clauses 18 and 34 of the respective contracts. Relevant clause 18.1 of the supply contract and 34.1 of construction contract are reproduced below :-
"Article 18 - Defects liability 18.1 - The owner shall have the right, but not the obligation, to instruct the Supplier, in writing to perform such additional supply or remedy any Defects or damage in the Balance of Plant or in the Supplier's Documents and any part thereof, as the case may be, during the Defects Notification Period or within 14 (fourteen) days after the expiration as a result of an inspection made by or on behalf of the Owner at any time or times prior to the expiration of the Defects Notification Period."
"Article 34 - Defects liability 35 | P a g e ST/12078/2013 ST/11245/2016 -DB 34.1 - The owner shall have the right, but not the obligation, to instruct the Contractor to perform such additional Supply or remedy any Defects or damage in the Facility (or any Unit thereof) or any Contractor's Documents and any part thereof arising out of or in relation to the Works, during the Defects Notification Period or within 14 (fourteen) days after the expiration as a result of an inspection made by or on behalf of the Owner at any time or times prior to the expiration of the Defects Notification Period."
7. It is evident that clause 18.1 of the Supply Contract talks about remedy of defects or damage in the balance of plant. As per the definition of the supply contract, balance of plant includes all such machinery permanent plant, equipment, material, etc. required for commissioning and maintenance of the balance of plant. On the other hand, 'defects liability' mentioned under clause 34 of the Construction Contract talks of the remedy of defects/damages in the 'facility' or to any unit thereof. The word 'facility' is defined under the Construction Contract to mean a Thermal Power Project in relation to which the works are required to be carried out in accordance with the contract. The word 'defect' as per the definition clause means any defect, imperfection, deficiency or other fault in the facility or part thereof arising from or in relation to the execution of work.
8. From the above clauses of the contracts, it is clear that there are separate defects liability clause under the contracts separately provided for the defects in balance of plant and the defects that can creep in the working of the facility by the service provider for the service recipient. Therefore, it is not correct to hold that defects liability clause of the construction contract also make provisions for maintenance and repair of balance of plant.
9. The arguments made by the appellant, that the Explanation added to Rule 3(1) of the Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007 is applicable only for those contracts which are entered after 7-7-2009, has got some force. The clarification issued by C.B.E. & C. under Circular No. 150/1/2012-S.T., dated 8-22012, in Para 3, has clarified as follows :-
"3. The Explanation appended to Rule 3(1) with effect from 7-7- 2009, categorically says in the proviso that "...nothing contained in this Explanation shall apply to a works contract where the execution under the said contract has commenced or where any payment, except by way of credit or debit to any account, has been made in relation to the said contract on or before the 7th day of July, 2009."
36 | P a g e ST/12078/2013 ST/11245/2016 -DB Where execution of works contract has commenced prior to 7-7- 2009 or where any payment (except payment through credit or debit) has been made towards a works contract prior to 7-7-2009, then in those cases 'gross amount' for the purpose of payment of Service Tax does not include the value of free of cost supplies."
9.1 It is clear from the above Circular issued by C.B.E. & C. that where execution of works contract has commenced prior to 7-7-2009, in those cases gross amount, for the purpose of payment of Service Tax, will not include the free of cost supply by the service recipient. In this regard, appellant has argued that as per clause 15.4 of the Supply Contract, reproduced below, full rights/title/ownership in respect of each item of the Balance of Plant stand transferred to the owner on delivery by the supplier at the site :-
"15.4 - The full right, title, ownership and interest and all risks (except for those specifically retained by the Supplier in accordance with the terms of this Contract) in each item of the Balance of Plant shall be transferred to the Owner upon Delivery by the Supplier of that item of the Balance of Plant at the Site and upon endorsement of the documents required under Article 15.1."
9.2 In view of the above clause of the supply contract, the findings of the adjudicating authority that ownership of the Balance of Plant and items stands transferred only at the time of completion of work, is not correct. In the case of imported equipments as well as the Balance of Plant equipment, the ownership/title lies with the service recipient when the same are received at site. Accordingly, it has to be held that after receipt of balance equipment, the title/ownership of the same is transferred to the service recipient. Accordingly, adjudicating authority cannot go beyond the C.B.E. & C. Circular No. 150/1/2012-S.T., dated 8-2-2012 wherein it has been clarified that for the works contract executed before 7-7-2009, free of cost supplies are not required to be added to the gross amount, for the purpose of payment of Service Tax. There is no evidence on record to convey that both, the supply contract and the construction contract were artificially bifurcated after introduction of Explanation to Rule 3(1) of Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007.
The identical issue has been further considered by this Tribunal in the case of Essar Projects (India) Limited - 2014 (36) S.T.R. 681 (Tri. - Ahmd.) where the Tribunal as observed as under :
"7. So far as adding the value of Supply Contract to the Service Contract is concerned, this Bench has already taken a view that such 37 | P a g e ST/12078/2013 ST/11245/2016 -DB clubbing cannot be done as per our order No. A/10908- 10909/WZB/AHD/2013, dated 11-7-2013 in the case of Essar Projects (India) Limited v. CCE & ST, Rajkot in Appeal No. ST/10138 of 2013 [2014 (33) S.T.R. 696 (Tri.)]."
6.19 The similar view was taken by the tribunal Mumbai in the case of Gammon India Ltd. - 2015 (37) S.T.R. (225) (Tri. - Mum.) wherein, it was held that even though there are separate contract which were commenced before 7-7-2009 the value of goods is not included in value of Works Contract Service. In view of the consistent view taken in various above judgments by this Tribunal there is no reason to deviate from the said view by us. The revenue's ground as regard the above judgments is that all the judgments have been appealed against before the Hon'ble Supreme Court and in some of the cases appeals are admitted.
7. We are of the view that merely because the revenue's appeal is pending in the Hon'ble Supreme Court, Tribunal judgments do not loose its binding nature in view of the judicial discipline. Therefore, following the above judgments we are of the view that the value of the goods supplied under separate contract cannot be included in the value of service contract of Works Contract Service.
7.1 We find that the respondent has also made an alternative submission that the computation of service tax is erroneous. It was submitted that if the revenue department wants to include the value of material supplied under material supply contract then the respondent should be given option to pay service tax on erection service contract at full rate without any abatement. Since we have already taken a view that value of Supply contract is not includible in the gross value of Works Contract Service, we need not to address this issue."
4.10 We also note that similar proposition was held by this tribunal in case of Ocean Interiors Ltd. reported in 2019-VIL-677-CESTAT-Chennai and the same is now affirmed by Hon'ble Supreme Court as reported in 2023 (10) CENTAX 209 (SC).
4.11 We find that the first show cause notice issued under the proviso to Section 73(1) of the Finance Act, 1994 alleged that the activity of the 38 | P a g e ST/12078/2013 ST/11245/2016 -DB Appellants is classifiable under the taxable category of commercial or industrial construction services and other two show cause notices are only statements under Section 73(1A) of the Finance Act, 1994 which adopted the allegations of the first show cause notice. Therefore, on the basis of above analysis of the classification of the services the demand of service tax is not sustainable on the issue of classification of services also.
4.12 We also find force in the argument advanced by the Appellants on the invocation of extended period of limitation. As held above the demand of service tax is not sustainable on the ground of valuation and classification of services, the Appellants have rightly pointed out that in the Order in Original having number AHM-SVTAX-000-027-2015-16 dated 17.03.2016 (Appeal No. ST/11245/2016) Ld. Commissioner has held that the correct classification of services of the Appellants is "works contract services". As there are two different views of the revenue authorities it cannot be held as suppression or wilful misstatement on the part of the Appellants to evade payment of service tax. The issue in the present appeals is purely of interpretation in nature. Further, we also take note of the latest Audit Report dated 26.12.2017 produced by the Appellants wherein the Revenue Authorities have audited the Appellants for the period October 2012 to March 2017 wherein no objection has been raised by the Revenue Authorities regarding inclusion of value of materials in the value of services.
We also note that the period of dispute in the present appeals are only up to September 2013 and for the period thereafter even the Revenue Authorities have accepted the method of valuation adopted by the assessee wherein no objection is raised. Therefore, the appeals are entitled to be allowed on the grounds of limitation as well.
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5. In view of the above, we set aside the impugned orders and allow the appeals filed by the Appellants with consequential relief, if any.
(Pronounced in the open court on 03.04.2024) RAMESH NAIR MEMBER (JUDICIAL) C.L.MAHAR MEMBER (TECHNICAL) Raksha