Customs, Excise and Gold Tribunal - Bangalore
Transformers And Electricals Kerala ... vs Commissioner Of Central Excise on 25 September, 2007
ORDER
T.K. Jayaraman, Technical Member
1. These appeals have been filed against the Order-in-Revision No. 03/2005-06-ST dated January 5, 2006 passed by the Commissioner of Central Excise and Customs, Cochin and also the Order-in-Appeal No. 103/2006-ST dated May 23, 2006 passed by the Commissioner of Customs and Central Excise (Appeals), Cochin. In both these appeals, the issue is one and the same. Therefore, we are passing a common order on the issue.
2. The appellants, M/s. Transformers & Electricals Kerala Ltd. (hereinafter referred to as, "the TELK"), are engaged in the manufacture of various types of heavy duty transformers and their parts. The appellant has two divisions, viz., marketing division and project engineering division. The project engineering division undertakes works such as design, engineering, supply, erection and commissioning of sub-station/power station, switch yards, etc. The services of "consulting engineers" were brought under the service tax net with effect from July 7, 1997. "Consulting engineer" is defined to be "a professionally qualified engineer or an engineering firm who either directly or indirectly renders any advice, consultancy or technical service in any manner to a client in one or more disciplines of engineering". The Central Board of Excise and Customs, in their Circular dated July 4, 1997, has explained the scope of services of a consulting engineer, which includes any one or more of the following:
(i) Feasibility study
(ii) Pre-design services/project
(iii) Basic design engineering
(iv) Detailed design engineering
(v) Procurement
(vi) Construction, supervision and project management
(vii) Supervision of Commissioning and initial operation
(viii) Manpower planning and training
(ix) Post operation and management
(x) Trouble shooting and technical services, including establishing systems and procedures for an existing plant.
3. In view of the scope of the "consulting engineer" service as clarified by the CBEC, the Revenue examined the nature of the services undertaken by the appellant and issued a series of show cause notices for demand of service tax from the appellant for the services rendered in the capacity of "consulting engineer". The appellant resisted all the show cause notices on the ground that they are not actually "consulting engineers" and their relationship with the client is in the nature of contract and they are actually contractors who execute various works given by the clients and they argued that they would not come within the ambit of "consulting engineer" as defined in the Finance Act, 1994. But, the adjudicating authorities did not accept the contention of the appellant and they confirmed the demand. Finally, the matter went before the CESTAT and the CESTAT issued Final Orders dated September 15, 2003 and November 13, 2003 remanding the matter to the original authority to examine the entire issue in the light of Daelim Industrial Co. Ltd. v. Commissioner of C. Ex., Vadodara wherein it was held that a works contract cannot be vivisected to charge service tax on each component. Consequent to the remand order of the CESTAT, the original authority passed the Order-in-Original No. 44/2004 dated June 21, 2004. In that order, the original authority dropped the entire proceedings against the appellants on the basis of the decision in the Daelim's case . The Order-in-Original dated June 21, 2004 is covering four show cause notices and the entire period involved is from July 7, 1997 to December 31, 2002. It should be borne in mind that the service tax on "consulting engineers" was introduced only with effect from July 7, 1997. The above Order-in-Original was reviewed by the Commissioner under the powers given to him and after examining the entire matter, he passed an Order-in-Revision No. 03/2005-06(ST) dated December 24, 2005 in which the Commissioner confirmed the demand of Rs. 2,95,271 being the service tax payable by the party. Further, he imposed equal penalty on the appellant under Sections 76 and 77 of the Finance Act, 1994 as amended for contravention of the provisions of Sections 68, 69 and 70 of the Finance Act, 1994 as amended and Rules 4, 6 and 7 of the Service Tax Rules, 1994.
4. As regards the Order-in-Appeal dated May 23, 2006, this order also has been appealed against and the period involved in this order is from March 1, 2003 to June 30, 2003. But, the issue involved is one and the same. In the Order-in-Appeal, the Commissioner (Appeals) has upheld a demand of Rs. 2,47,671 being the service tax payable by the appellant for the above mentioned period. He has set aside the penalty imposed on the appellant. The appellants are highly aggrieved over the impugned orders and, therefore, they have come before us for relief.
5. Shri Gangadharan, the learned Assistant Officer (Taxes), of the appellant-company, appeared for the appellants and Shri S.M. Tata, the learned DR for the Revenue.
6. We heard both sides. Shri Gangadhrarn, the learned Assistant Officer (Taxes) of the appellant unit, argued that the appellant-company is a Government of Kerala Unit and they are engaged mainly in the manufacture of transformers and later, on the basis of the contract with their clients, they supply and undertake the erection and commissioning of the same. According to him, the appellant-unit cannot be called as consulting engineers. He emphasised that they only manufacture the transformers and the cost of the design, drawing, engineering, etc., are already included in the cost of the transformer on which they had paid the Central excise duty. Therefore, they cannot be taxed further. Further, he said that they are actually not consulting engineers but they can be called only contractors and whatever service they render to a client is only in the capacity of a contractor and in that sense, they cannot be considered consulting engineers. He said that their company does not engage in any consultancy and even the design, drawing, etc., are not conceived by them. Their clients have their own consulting engineers and on the basis of the advice rendered by them, the appellant only executes the orders. Moreover, he said that the contracts entered by the appellant with their clients are in the nature of works contracts or turnkey projects. He strongly relied on the Daelim's case wherein it is held that a works contract cannot be vivisected to charge service tax for the component activities. He relied on a very large number of case-laws on the issue and urged the Bench to drop all proceedings against the appellants.
7. On the other hand, the learned Departmental Representative took us to all the invoices, which have been raised by the appellant-unit and said that on going through the invoices, it is very clear that the nature of the work undertaken by the appellants is engineering consultancy. He also explained that the Commissioner has already allowed the benefit by excluding the charges for erection and commissioning exercise in the light of the Board's clarificatory circular issued in 2004. To be precise, it is the Circular No. 79/9/2004-ST dated May 13, 2004 wherein it has been clarified that as charges for erection and commissioning, installation have been separately notified as taxable services, they would not be considered as consultancy engineering services. Further, he said that the Daelim's case is clearly distinguishable. Moreover, even though the SLP against the Daelim's case was dismissed by the honourable apex court, he said that it cannot be said that the Tribunal's order has merged with the order of the apex court because it was only an SLP and not a civil appeal. He relied on the decision of the honourable apex court in the case of S. Shanmugavel Nadar v. State of Tamil Nadu .
8. We have gone through the records of the case very carefully. We find that the Commissioner, while passing the order-in-revision, has carefully examined all the invoices raised by the appellants in respect of the services rendered by them. In annexure to the impugned order-in-revision No. 13/2005-06 (ST), there are 101 invoices. The description of work done, the invoice number and the amounts charged for these services are indicated. A perusal of these annexure reveals that the work done relates to designing and engineering, supervision of erection, installation, supervising charges for service technicians, design and drawing, training for technical personnel, design, excavation and installation, charges for supervision, commissioning, supervising charges for engineer, etc. The Commissioner, in his order-in-revision, has examined the services rendered by the appellant in the light of the Board's order and in para 9 of the order-in-revision, he has enumerated a few examples of the services rendered by the appellant:
1. Charges for design, engineering services for 132/6.6 KV switch yard.
2. Charges for erection and commissioning of equipment of 110 KV sub-station.
3. Charges for supervision and erection of 132/6' switch equipment for 75 days.
4. Training for technical personnel.
5. Five per cent amount claimed against submission of equipment, drawing and loading data.
6. Service charges paid to engineers and technicians.
9. In the light of the Board's Circular 1997, he had come to the conclusion that the appellants had rendered all the services and separately charged for all these services. Therefore, he held that the appellants are liable for the service tax.
10. As regards the contention of the appellant that their clients, in most of the cases, engage themselves the services of engineers and the engineers deputed by M/s. TELK were for mainly overseeing the work, the learned Commissioner, in page 10, para 2 of the order-in-revision, has negatived the contention on the basis of the deposition dated February 11, 2000 of Shri Babu Kuncheria, Senior Manager (Accounts), wherein to a specific query of the Superintendent (Preventive) as to whether the customer comes with a complete drawing and blueprint for execution of work, it has been stated that the customers give their specifications based on which M/s. TELK make the drawing and submit the same for the customer's approval. Therefore, their contention has not been accepted. Further, the Tribunal, in the case of CCE, Raipur v. BSBK P. Ltd. [2007] 10 VST 438 (CESTAT-New Delhi) : [2007] 5 STR 124 (Tri.-Delhi) has held that when separate bills in respect of designing and engineering are raised by the appellant, the contract entered is in the nature of "divisible contract" and the ratio laid in the Daelim's case cannot be applied. This is clearly applicable to the present case also where invoices have been raised by the appellant for the various services rendered by them and the Daelim's case cannot be applied on this account. The contention of the appellant that they are a unit engaged in the manufacture of transformers and, therefore, they cannot be charged service tax is not correct. The Tribunal, in the case of Nokia (I) Pvt. Ltd. v. Commissioner of Customs, Delhi [2006] 1 STR 233 (Tri.-Delhi), has held that consulting engineer services include not only advisory/consultative assistance involving cerebral activity of professional but also implementation of their advice and no distinction can be made between the two. It would also include training of personnel, software support, etc. In the light of these things, we cannot accept the appellants' contention that they have not rendered services in the capacity of a consulting engineer.
11. The appellant-unit is engaged in the manufacture of design of transformers and also the execution of various projects. In the course of the execution, they have to carry out design, drawing, engineering, training, supervision of erection, commissioning, trouble shooting, etc. All these activities come within the scope of activity of consulting engineers as clarified by the Board. It has also been held by the Tribunal in the case of Transweigh (India) Ltd. v. Commissioner of Central Excise, Mumbai [2006] 3 STR 281 (Tri.-Mumbai) that the appellants' contention that to attract the levy of service tax under the category of consulting engineer, the service provider should be engaged solely in the process of rendering consulting services was not accepted. The appellant may be a manufacturing company only but so long as they render certain services, which fall within the ambit of consulting engineers, they are liable for service tax. We find that the appellants employ highly qualified professional engineers for various activities. In the course of the implementation of various works given by their clients, they had to necessarily undertake certain services, which are in the nature of consulting engineer in the light of the Board's clarification issued in the year 1997. In the light of these things, we find that the appellants' contentions cannot be accepted. The appellants are actually liable for service tax and we do not find any infirmity in the impugned orders.
12. However, in the order-in-revision, apart from confirming the demand of service tax to the extent of Rs. 2,95,271 equal penalty has been imposed. On a careful consideration, we find that right from the beginning, the appellants had agitated the levy of service tax on them. At one stage, even the Deputy Commissioner passed an order in their favour in the light of the Daelim's case . Since, the entire issue is one of interpretation and also taking into account the fact that the appellant is a Government unit, the levy of equal penalty in the order-in-revision is not justified. Therefore, we set aside the penalty.
13. As far as the demand in respect of the order-in-appeal, we confirm the same. Since the issue involved in the order-in-appeal is also one and the same, we are not separately discussing the order.
14. Summing up, we find that on a very careful consideration of all the invoices raised by the appellant-unit in respect of the services rendered by them, we find that all these activities come within the scope of "consulting engineer services" as clarified by the CBEC in their circular issued in the year 1997. Moreover, the Daelim's case would not be applicable because in the present case, there is a clear demarcation of charges for the various services rendered by them. The contention that the appellants are only a manufacturing firm and, therefore, they cannot be brought under the service tax net is also not sustainable, as the appellants employ highly trained professional engineers and in the course of the execution of their work, they render various services which amount to consulting engineer services. Therefore, we uphold the impugned orders with a modification that the equal penalty imposed in order-in-revision is set aside. The appeals are disposed of in the above manner.