Custom, Excise & Service Tax Tribunal
Bharat Heavy Electricals Limited vs Commissioner Of Service Tax on 17 November, 2017
CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL SOUTH ZONAL BENCH CHENNAI Appeal No.ST/46/2011 [Arising out of Order-in-Original No.12/2010 dt. 21.10.2010 passed by the Commissioner of Central Excise, Chennai-III] Appeal No.ST/22/2012 [Arising out of Order-in-Original No.25/2011 dt. 19.10.2011 passed by the Commissioner of Central Excise, Chennai-III] Appeal No.ST/41066/2013 [Arising out of Order-in-Original No.08/2013 dt. 31.01.2013 passed by the Commissioner of Central Excise, Chennai-III] Appeal No.ST/40506/2016 [Arising out of Order-in-Appeal No.403/2015 (STA-II) dt. 30.11.2015 passed by the Commissioner of Service Tax (Appeals-II), Chennai] Bharat Heavy Electricals Limited Appellant Versus Commissioner of Service Tax, Chennai Respondent
Appearance:
Shri G. Natarajan, Advocate For the Appellant Shri K. Veerabhadra Reddy, JC (AR) For the Respondent CORAM :
Honble Ms. Sulekha Beevi C.S. Member (Judicial) Honble Shri B. Ravichandran, Member (Technical) Date of hearing / decision : 17.11.2017 FINAL ORDER No. 42955-42958 / 2017 Per B. Ravichandran These four appeals are on common dispute regarding correct service tax liability of the appellant.
2. The brief facts of the case are that the appellants are engaged in construction, erection and commissioning of various power projects in terms of agreements entered into with different clients. The dispute in the present appeals relates to five such contracts. The period involved is from 10.9.2004 to 31.3.2012 covered in four proceedings. The appellants were registered with the department and were discharging service tax on these contracts. In respect of some of the contracts, they have identified the civil construction activity and after availing abatement of 67% discharged service tax under commercial or industrial construction service. For erection and commissioning of various structures and machinery, they have discharged service tax under erection and commissioning or installation services on full value. They have availed cenvat credit on the input services and capital goods with reference to this tax liability. The Revenue contended that the appellants are liable to discharge service tax on the gross value of all these contracts categorizing the same under "Erection, Commissioning or Installation Services" for all the period. The abatements claimed by the appellant was also sought to be denied. The lower authorities upheld the view of the Revenue and confirmed service tax liability that arose on the differential value because of re-categorization of whole services under erection, commissioning and installation. Penalties were also imposed on the appellant.
3. Ld. counsel appearing for the appellant mainly submitted on the following lines :
(a) The appellants examining the contracts discharged service tax liability as per their understanding. Wherever they could identify the construction activity separately, they discharged tax under construction service after abatement. For erection, commissioning they have discharged tax on full gross value without any concession.
(b) The position regarding composite works contract with reference to service tax liability has been settled by the Hon'ble Supreme Court in the case of CCE & CC Kerala Vs Larsen & Toubro Ltd. - 2015 (39) STR 913 (SC). It is now well settled position that no composite services contract involving supply of materials can be subject to service tax prior to 1.6.2007.
(c) Regarding the tax liability of the appellant for these contracts, he submitted that they have by following the above methodology, discharged service tax which works out to higher than the liability that will arise if the service tax liability on such contracts are to be paid only from 1.6.2007 availing composition scheme as per 2007 Rules.
(d) The composition scheme for the works contract service liable to tax w.e.f 1.6.2007 cannot be denied to them as they have fulfilled the required condition as per 2007 Rules. Though they have discharged service tax under different tax entry, the tax liability when reworked as per the decision in L&T (supra), it will be clear that they have discharged more than the statutory liability.
(e) He contested the imposition of penalties on the appellant on the ground that the whole issue is involving substantial interpretation of legal provisions which was contested before various judicial forums and finally resolved by the Hon'ble Supreme Court.
4. Ld.A.R opposed the appeals on various grounds. He submits the following :
(a) The appellants artificially split the contract into construction and erection. This is not permissible. The predominant nature of the contract is that of erection, commissioning or installation. As such, the lower authority is correct in confirming the tax liability under such category.
(b) Regarding claim of the appellant either for abatement under construction service or for composition under works contract service, it is submitted that they are not eligible for either of them. When the contract is composite, abatement cannot be allowed for construction service when cenvat credit is availed on input services. Similarly, the composition rate for works contract is applicable only when due option as per Rule 3 of 2007 Rules is exercised by the appellant in respect of each contract. Reliance was placed on the decision of Apex Court in the case of Nagarjuna Constn. Co. Ltd. Vs GOI 2012 (28) STR 561 (SC).
5. We have heard both sides and perused the appeal records. Admittedly, the dispute in the present appeals relates to the on-going contracts, at the time of introduction of new tax entry as "Works Contract Service' w.e.f. 1.6.2007. The law laid down by the Hon'ble Apex court in the case of L&T (supra) makes it clear that there can be no service tax liability on the appellant for such composite works contract prior to 1.6.2007.
6. The appellants themselves in respect of the contracts discharged service tax by splitting them into construction based on rate schedule for construction activity and erection activities separately. This was objected to by Revenue. We note that the contracts executed are for a purpose of power generation units. However, in respect of at least a few of the contracts, there is a separate Letter of Indent and Agreement specifically for erection, testing and commissioning of power station on turnkey basis and another one separately for civil construction activities. The scope of such contract whether it falls under 'works contract service' or on different entries requires examination. However, the Revenue combined even these separate agreements and considered all activities as 'erection, commissioning or installation'. We find that such course of action is not sustainable.
7. The central point of dispute has to be resolved only with reference to the nature of the contracts for the purpose of liability. It is to be categorically established that a particular contract involves supply of material as well as provision of service clearly attracting a tax entry "Works Contract Service". As noted above, the appellant themselves had followed the different classification apparently on the basis of separate agreements though for overall same power project. In such case, when the agreements are identified and separately executed, the question of their classification under 'composite works contract service' has to be examined with the basic documents to ascertain whether or not any supply of materials are involved.
8. Combined with the above question, is the quantification of liability of the appellant. In case, the contracts now under dispute are to be held as works contract, then liability will arise only from 1.6.2007. The next point will be whether or not the appellant shall be eligible for composition scheme for such works contract. We hold that in case contracts are held to be works contracts, then necessarily the application of composition scheme to such contracts cannot be denied only on the ground that there was no option exercised during the material time.
9. With reference to the reliance placed by Revenue on Nagarjuna Constn. Co. Ltd. (supra), we find that the facts of the present case are on a different footing. In the present case, the tax liability of appellant for the period 1.6.2007 will not arise in case of works contract. For the period post-1.6.2007, necessarily the tax liability is determined belatedly under works contract service. Hence the question of option has no relevance as neither appellant nor the Revenue classified the service at the material time under 'Works Contract Service'. The availability of composition scheme as per 2007 Rules are to be examined. We also note that decision in Nagarjuna Constn. Co. Ltd. (supra) is not with reference tax liability of works contract service which was resolved only in L&T case (supra).
10. In view of the above discussions and analysis, we note that the claim of the appellant that they have discharged more than the required tax on these services even if the claim of the department is taken into consideration for treating the contracts as a whole, requires re-examination. Though the Revenue dealt with services under erection, commissioning or installation, we note that the applicability of works contract service in line with the decision of Hon'ble Supreme Court requires examination. The question of availability of composition will be consequent to such finding.
11. Keeping in view the above analysis, we find it fit and proper to set aside the impugned orders and remand the matter to the original authority for a fresh decision. All the issues are kept open. Adequate opportunity shall be provided to the appellant to submit their side of the case before a decision is taken.
12. Appeals are remanded in the above terms.
(dictated and pronounced in court)
(B. Ravichandran) (Sulekha Beevi C.S)
Member (Technical) Member (Judicial)
gs
11
Appeal Nos.ST/46/2011, ST/22/2012
ST/41066/2013 & ST/40506/2016