Customs, Excise and Gold Tribunal - Bangalore
Lincoln Helios (India) Ltd. vs Commr. Of C. Ex. (Appeals) on 21 October, 2005
ORDER T.K. Jayaraman, Member (T)
1. This is an appeal against OIA No. 27/2005 dated 8-2-2005 passed by the Commissioner of Central Excise, Bangalore. The brief facts of the case are as follows. The appellants entered into a composite contract with National Hydroelectric Power Corporation Ltd., Manipur on 7-12-2002 for manufacture and supply of centralised lubrication system and its erection and commissioning at site. They filed ST 3 return for the period ending 30-9-2003 claiming exemption in respect of erection and commissioning service. This category of service is brought under service tax w.e.f., 1-7-2003. It was submitted by the appellants that the goods are cleared on payment of central excise duty on the whole value of contract. The original authority held that the appellants are liable to pay 33% of the gross value of the contract as per notification No. 19/2003-S.T. dated 21-8-2003 or pay the applicable service tax after availing the benefit of notification No. 12/2003-S.T. dated 20-6-2003 on the commissioning and installation charges collected by them. He imposed a penalty of Rs. 100/- per day under Section 76 of the Finance Act, 1994, after confirming the demand to the extent of commissioning and installation services rendered by the assessee from 1-7-2003 under Section 73(1)(b) of the Finance Act, 1994. In the original order, the service tax was not quantified. Aggrieved over the original order the appellants approached the Commissioner (Appeals). The Commissioner (A) upheld the OIO and passed the impugned order. Hence, the appellants have come before this Tribunal for relief.
2. Shri K.K. Varrier, the learned Consultant appeared on behalf of the appellant and Shri Ganesh Havanur, the learned SDR appeared for the Revenue.
3. The learned consultant submitted that the contract covers the following heads.
(i) Design and drawing services for the systems
(ii) Manufacturing and supply of the systems
(iii) Erection and commissioning charges.
Further he said that the central excise duty was paid on the entire contract amount. No exemption from payment of central excise duty was claimed on the charges towards erection and commissioning. In the circular F.B3/7/2003-TRU, dated 21-8-2003, it is clearly stated that service tax is payable only when commissioning or installation of plant, equipment or machinery is done by a Commissioning and Installation Agency. In the instant case, the appellant is a manufacturer who has manufacturer the goods and carried out the commissioning and installation as per the composite and inseparable contract in the capacity as a manufacturer and not as a service provider. The activity of installation and commissioning carried out at the project site by the appellant is not a service activity but a manufacturing activity. CESTAT, Chennai in the case of CCE, Chennai v. Binny Ltd., has held that when duty paid goods are assembled at site, the goods would continue to be excisable goods and liable for excise duty. Further the Ministry has given in their 37B order No. 58/1/2002-Cx., dated 15-1-2002 that the erection, installation charges should be included in the assessable value, if the resultant goods are movable.
4. The learned departmental representative submitted that as stated by the original authority the appellants are liable to pay service tax. Notification No. 12/2003-S.T. dated 20-6-2003 exempts value of goods and materials sold by service provider to the recipient of service. Another Notification No. 19/2003-S.T. dated 21-8-2003 provides for payment of 33% of the gross amount charged from the customer under a contract for supplying plant, machinery or equipment and commissioning or installation of the said plant, machinery or equipment subject to the condition that the exemption in this notification is optional and the benefit of this notification shall be allowed only if the commissioning and installation agent has not availed the benefit under notification No. 12/2003-S.T. dated 20-6-2003.
5. I have gone through the records of the case carefully. The contract is dated 7th December, 2002. At that time there was no service tax on erection and commissioning. The contract separately shows the price of the lubrication systems and in Part II of the contract a separate price for erection and commissioning is given. In fact the amount is Rs. 10,000/- for one set and the total erection and commissioning charges comes to Rs. 20,000/-. They have given a discount at the rate of 8% and the net charges comes to Rs. 18,400/-, The excise duty is also included. The excise duty is paid at 16% is equal to Rs. 2,944/-. Even though the contract was entered before the levy of service tax on commissioning and installation service, on going through the invoices, it appears that the major work has been executed after the levy was brought into effect. Just because the appellant had paid excise duty on the erection and commissioning charges, it cannot be held that erection and commissioning cease to be taxable service. The argument that the appellant is not a commissioning and installation agency also does not help the appellants much. An agency may do very many things. If it undertakes commissioning and installation, the gross amount charged for such services would be liable to service tax. Arguing that the agency is not purely rendering the service of commissioning and installation and therefore, it is not leviable to service tax, in my opinion is not a sound one. When a manufacturer after manufacture provides erection, commissioning or installation, definitely the gross amount collected for such services is liable to tax. The party cannot say that his main job is manufacture and commissioning is only incidental, therefore he is not a commissioning agency. If this argument is accepted, then the very purpose in levying service tax on commissioning and installation would be defeated. Therefore, in this case, the appellant is liable for service tax as held by the original authority. Since there is no mala fide, the penalty is set aside. The appeal is disposed of in the above matter.
(Pronounced in open Court on 21-10-2005)