Custom, Excise & Service Tax Tribunal
National Dairy Development Board vs Vadodara-I on 1 July, 2024
CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL,
WEST ZONAL BENCH : AHMEDABAD
REGIONAL BENCH - COURT NO. 3
SERVICE TAX Appeal No. 11539 of 2016-DB
[Arising out of Order-in-Original/Appeal No AND-EXCUS-000-COM-001-003-16-17 dated
10.05.2016 passed by Commissioner of Central Excise and Service Tax-VADODARA-I]
National Dairy Development Board .... Appellant
Pb No.40, Anand, ANAND, GUJARAT- 388001
VERSUS
Commissioner of Central Excise & ST, Vadodara-i .... Respondent
1st Floor, Central Excise Building, Race Course Circle, Vadodara, Gujarat -390007 WITH
(i) SERVICE TAX Appeal No. 11540/2016 (National Dairy Development Board)
(ii) SERVICE TAX Appeal No. 11541/2016 (National Dairy Development Board)
(iii) SERVICE TAX Appeal No. 11560/2016 - (CCE & ST, Anand)
(iv) SERVICE TAX Appeal No. 11644/2019 (National Dairy Development Board) [Arising out of Order-in-Original/Appeal No AND-EXCUS-000-COM-001-003-16-17 dated 10.05.2016 passed by Commissioner of Central Excise and Service Tax-VADODARA-I, Arising out of Order-in-Original/Appeal No VAD-EXCUS-001-COM-50-18-19 dated 31.03.2019 passed by Commissioner of Central Excise, Customs and Service Tax- VADODARA-I] APPEARANCE :
Shri Harish Bindumadhavan, Advocate for Shri Mihir G Rayka, Addl. Commissioner (AR), for the Respondent CORAM: HON'BLE MR. RAMESH NAIR, MEMBER (JUDICIAL) HON'BLE MR. C.L. MAHAR, MEMBER (TECHNICAL) DATE OF HEARING : 12.03.2024 DATE OF DECISION: 01.07.2024 FINAL ORDER NO. 11464-11468/2024 C. L. MAHAR :
The appellant has filed these appeals against the impugned order which is a combined order in respect of three show cause notices dated 17.04.2013 (period 2007-08 to 2011-12), dated 19.05.2014 (April 2012 to Sept. 2013) and dated 20.10.2015 (period Oct 2013 to March 2015). Earlier 2 Appeal Nos. ST/11539-11541/2016, ST/11560/2016, ST11644/2019-DB the matter was remanded vide CESTAT Order No. A/11577/2015 dated 28.10.2015 passed against adjudication order dated 12.09.2014 arising out of show cause notice dated 17.04.2013. The issue involved in all the three show cause notices is the same.
2. National Dairy Development Board (herein after referred to as 'NDDB' or 'Appellant') is a statutory body corporate formed by an Act of Parliament namely the National Dairy Development Board Act, 1987 and its functions include promoting, planning and organizing Programs for the purpose of development of dairy and other agriculture-based industries on an intensive and nation-wide basis. The appellant is registered with Service Tax authorities vide registration No. AABCN2029CST008. The appellant had executed agreements with various customers under the category of "Consulting engineering service" for designing, planning, promoting, developing, constructing, sponsoring and setting up of dairy industries and undertaking any other related promotional activity including the financing of the same. These agreements were executed for providing "Consultancy Services/ Consulting Engineering Service" in relation to the execution of a project for creation of the Dairy Distribution System. The appellant had been discharging service tax on a value comprising of 5% of total cost of the project received by them as fee/charges for providing "Consulting engineering service".
3. On the basis of an intelligence, the Revenue conducted investigation against on the premise that is engaged in execution of various turnkey contracts classifiable as „Works Contract Service‟ but misclassifying the same as „Consulting Engineering Service‟. It is contended by the department that service tax is payable on whole of the value of the project under the category of "Works Contract Service" and not merely on 5% of the value of the cost of the Project received by them is charges for providing "Consulting Engineering Service", thus short paying the service tax thereon. On the basis of the investigation, a show cause notice dated 17.04.2013 was issued by the Commissioner, CE, Vadodra-1 alleging that the appellant has entered into contracts with their customers and agreed to execute Turnkey Projects which included Engineering, Procurement and Construction and Commissioning (EPC) projects; the appellant also transferred the goods through their contractors to Project Authorities; NDDB finalized "Turnkey agreement" right from the preparation of project cost estimate upto / till 3 Appeal Nos. ST/11539-11541/2016, ST/11560/2016, ST11644/2019-DB handing over the project to Project Authorities; after finalization of Turnkey agreement and Bidding for each work, NDDB made individual contract/ agreement with each contractors/ suppliers, for undertaking activities of supplying of labour and materials required for the project, released respective purchase orders with a clause to raise bills including all taxes in NDDB's name and made payment to each contractors / suppliers / consultants; NDDB was deducting the TDS on WCT (Work Contract Tax) as applicable in the respective states and kept the original bills with them;
NDDB also use to prepare tender specifications, invite, receive and analyze bids, award the contracts on behalf of Project Authority in respect of civil, mechanical and electrical items required for construction, installation and commissioning". It was alleged in the SCN that that all the projects executed were only turnkey Projects and the terms and conditions of all Turnkey agreements executed during 2007-08 (October-March) to 2011-12 as given by NDDB were same; that on satisfactory performance under Turnkey agreement, Project Authority was to pay to the NDDB a consultancy service fee at the rate of 5% plus Service Tax as applicable from time to time of the overall actual cost of the project. Accordingly, NDDB calculated the taxable value and paid the service tax under the category of "Consultancy Engineering Service"; One such Agreement dated 28.11.2008 was entered into with M/s. Bhopal Sahakari Dugdha Sangh Maryadit Bhopal (hereinafter referred to as Project Authority or BSDSM) for Bhopal Dairy Expansion Project, i.e. BSDSM project, where on behalf of BSDSM, NDDB appointed 8 (eight) different contractors for civil work, supply of equipments, architecture etc.; as per terms and conditions, contractor had to issue bills inclusive of all taxes, in the name of Chief Executive Officer, BSDSM, Bhopal Dairy Plant, Habibgunj, Bhopal and bills to be submitted to Group Head (Purchase), NDDB, Anand for necessary payment thereof; this method was being followed by NDDB for all the contracts they had undertaken to execute.
3.2 It has been the contention of the Department that looking to the nature of jobs executed by NDDB viz. Engineering consultancy, procurement, commissioning and transfer of property under turnkey agreement, it was not merely a Consultant Engineering Services (CES) but was much beyond the limit of „CES‟; that though NDDB in some cases provide technical or consultancy advice and also their engineers' visits for supervision is limited to pre-defined schedule and in such cases their role 4 Appeal Nos. ST/11539-11541/2016, ST/11560/2016, ST11644/2019-DB was limited to consultant engineer service, whereas, in turnkey Agreement, the Scope of work includes all works/jobs and was either handled by NDDB themselves or through the contractors / consultants/ suppliers appointed by them and hence the scope of their work extended beyond the definition of „Consultancy Engineering Service‟. The NDDB, after the completion of turnkey Project" transferred the property/ goods on payment of VAT/ WCT to their clients i.e., Project Authority; that in view of this "transfer of Property"
and from the activities undertaken by NDDB under Turnkey Agreement, which were beyond the scope of Consultancy Engineering Service, the Department entertained a view that the services rendered by NDDB were covered under the category of Works contract Service [WCS) defined in sub- clause (zzzza)(e) of Section 65(105) of the Finance Act, 1994 (herein after referred to as the Act) amendment introduced from 01.06.2007 vide Notification No. 23/2007-S.T., dated 22.05.2007. It has therefore been alleged that M/s. NDDB had wrongly declared/ classified their services under the category of "Consulting Engineer Service" instead of "Work Contract service" as specified under Section 65(105) (zzzza) of the Act. On the basis of above it was alleged that NDDB has wrongly paid the service tax at the rate under "Consulting engineer service‟ on technical service fee received by them at the rate of 5% of the overall actual cost of the various projects specified in the contracts instead of paying the service Tax under the category of „works contract service‟ on the entire overall actual cost of the projects and the evaded service tax amounting to Rs. 54,71,93,096/- by mis-classifying their service and short paid the service tax by willful mis- classification of their service under the category of "Consulting engineer service" instead of under the category of "works contact service".
3.3 The show cause notice was originally adjudicated vide adjudication order dated 11.10.2013 confirming a total demand of Rs. 54,71,93,096/- but in denovo proceedings as ordered by the CESTAT Ahmedabad vide Order No. A/10343/2014 dated 04.03.2014, the demand of Rs. 9,71,74,113/- was confirmed vide adjudication order dated 12.09.2014. In further appeal against the adjudication order dated 12.09.2014, the matter was further remanded back by CESTAT Ahmedabad vide No. A/11577/2015 dated 28.10.2015 to decide the matter afresh with specific reference to the issue whether the impugned service was "Consulting Engineering Service" or the "Works Contract Service". In the meantime, two more show cause notices dated 19.05.2014 and 20.10.2015 were issued to the appellants for the 5 Appeal Nos. ST/11539-11541/2016, ST/11560/2016, ST11644/2019-DB subsequent periods covering the same issue and the impugned order is a combined order adjudicating upon all the three show cause notices. The appellant had challenged the show cause notices on the preliminary grounds that the subsequent show cause notices dated 19.05.2014 & 20.10.2015 were in the form of statements of notice which were not valid as the provisions of law with respect to classification of services had changed with effect from 01.07.2012. On merits, the appellants had contested the allegations with respect to taxability under the category of "Works contract Service" against the declared service of "Consultancy engineering service" by them.
3.4 The Ld. Commissioner, vide the combined impugned order dated 12.05.2016 has confirmed demands of Rs. 9,71,74,113 against for the period 2007-08 to 2011-12 (SCN dated 17.04.2013), Rs. 17,29,09,170/- for the period April 2012 to Sept. 2013 (SCN dated 19.05.2014) and Rs. 10,15,44,472/- for the period Oct. 2013 to March 2015 (SCN dated 20.10.2015). The appellant has preferred separate appeals in respect of the three show cause notices decided in the impugned order. As the issue involved is the same, we are taking all the three appeals collectively in this order.
3.5 The learned Adjudicating Authority in the impugned order-in-original has held that the NDDB was paying service tax declaring their activity under "Consulting Engineer service' which was actually a service of "works contract service'; that NDDB has executed Turnkey Project which was comprised of engineering, Procurement and Construction/ Commissioning (EPC) Projects. The terms contract between the NDDB and the Project Authority clearly reveals that the same was a works contract; that NDDB had purchased equipments, machinery etc. by issuing purchase orders to the suppliers/ contractors and the Project Authority had no say in the same in as much as there was a specific clause in the agreement that the Project Authority may not issue any direct instructions to the suppliers/ manufactures/ erectors during the course of the project. That various clauses in the contract clearly stated that NDDB‟s jobs was not merely providing Consulting engineering service but had completed a turnkey project taxable under the category of "Works Contact" service. In this respect the impugned order relied upon various clauses in the Contract which stipulated that appellant was responsible for preparing cost estimates, a complete set of plans and 6 Appeal Nos. ST/11539-11541/2016, ST/11560/2016, ST11644/2019-DB specifications for civil, mechanical and electrical works and ancillaries, prepare process flow diagram and material balance (or the product mix for which the plant is being designed), preparation of site and plant, preparation of plant conceptual layout drawings along with machinery layout, prepare tender specifications, invite, receive and analyze bid, award the contract in respect of civil, mechanical electrical items required for construction, installation and Commissioning, technical assistance to be provided to Project Authority for site selection, to start construction work on selected vacant site after possession of such vacant site to award specific contracts to local parties. The appellant was also to provide training to different categories of the persons/ staff of project Authority; upon completion of the erection work, NDDB shall commission and run the plant for 15 consecutive days in the presence of the representatives of the Project Authority; after completion of the trial runs the project authority should take over the plant and sign the handing over / taking over documents; that the handing over/ taking over documents to be submitted by the NDDB to the Project Authority will consist of a list showing the inventory of various machinery and equipment installed in the plant along with order copies, Audited statements of expenditure in respect of items/ material, which are used in erection or as consumables. It has further been mentioned in the impugned order that the NDDB was making payments directly to the concerned parties for Raw materials and consumables stores necessary for the commissioning and operation of the plant; that as per the contract Project authority had to pay NDDB an advance not less than 30% of the approved estimated cost of the plant and equipment and civil work within 15 days of signing this agreement and NDDB was free to operate on these funds, necessary action for procurement of plant, equipment and inviting tenders was to be initiated by them only after the receipt of advance. The appellant maintained accounts of all expenditure incurred under different budget heads during the execution of the project; that, on completion of the project the NDDB had to furnish a certified copy of the said accounts duly audited by a firm of CA appointed by the NDDB with the approval of the Government of India; That upon signing the agreement with the Project Authority, on availability of advance funds, availability of site, receipt of approved drawings and specifications from the Project Authority, M/s. NDDB had to commence the execution of the project on TURNKEY basis. It has been held that the deemed sales of the goods viz. Cement, Reinforcement Steel, Plant, 7 Appeal Nos. ST/11539-11541/2016, ST/11560/2016, ST11644/2019-DB Machinery equipments and other material etc. had taken place from sub- contractor(s)/ supplier(s) of the authorized representative of turnkey project owner i.e. NDDB and also from „IDMC, Anand‟ a wholly owned subsidiary company of the NDDB to the Project Authority through M/s. NDDB and in the event Project authority was not having any Privity of contract with the sub- contractor(s).
3.6 On the basis of above clauses in the contract, it has been held that the appellant had complete control on appoint of suppliers and sub-contractors for supply of equipments, plant and machinery, raw material and execution of the contract and thus the services provided by the appellant was not merely of consulting engineering service, but of works contract service. It has been further held that there was also "transfer of property" involved in the contract as the appellant‟s role was that of a main contractor who appointed sub-contractors and suppliers/sub-contractors were acting on behalf of the appellant.
3.7 It has been held in the impugned order-in-original that "the contractor/ the NDDB having specialization and technical knowhow, they are responsible to the Project Authority for the entire project. On completion, the Project Authority will simply be able to "turn the key" and operate the project facility. The NDDB is responsible for construction and completion of the project and in this regard, the appellant enters into direct contracts with the construction contractors. EPC contracting shifts risk away from the Project Authority and towards the NDDB. This is because EPC / Turnkey contracting in question leaves the NDDB to decide how it will meet the Project Authority's requirements within the agreed price with maximum profit. It is in the contractor‟s/ the NDDB's interest to meet the Project Authority's requirements at the minimum cost, thereby maximizing its own profit. Thus, NDDB stands to earn on three counts:
(i) a consultancy service fee at the rate of 5% (Five PERCENT) of the overall actual cost of the project;
(ii) repeat business for its subsidiary company M/S IDMC, Udyognagar, Gujarat, thereby reducing overhead costs, cost of designing the project etc. and other activities undertaken by IDMC as given in para 34.4; and 8 Appeal Nos. ST/11539-11541/2016, ST/11560/2016, ST11644/2019-DB
(iii) As the project authority does not have any right / benefit of direct negotiation with the suppliers, any profit margin arising out of cost savings within the agreed cost of project. This playing by NDDB within the "cost of project" clearly shows that it is transferring of property i.e. plant & machinery to the project authority."
With respect to challenge to the show cause notices dated 19.05.2014 & 20.10.2015 issued in the form of statements, it has been held that provisions of works contract as defined Section 65(105)(zzzza)(e) before 01.07.2012 and Section 65(B)(52) after 01.07.2012 were the same with respect to the issue in hand and the appellant had sufficient notice to the allegations made against him in the notices/statements. Therefore, the issue of show cause notice in the form of statements had not vitiated the proceedings arising out of these show cause notices. Accordingly, the impugned order has been passed confirming demands of Rs. 9,71,74,113 against the appellant for the period 2007-08 to 2011-12 (SCN dated 17.04.2013), Rs. 17,29,09,170/- for the period April 2012 to Sept. 2013 (SCN dated 19.05.2014) and Rs. 10,15,44,472/- for the period Oct. 2013 to March 2015 (SCN dated 20.10.2015) along with demanding interest under Section 75 and imposing penalties under Section 76 & 77 of the Act.
4. The Learned Advocate Shri Harish Bindumadhavan appearing on behalf of the appellant has assailed the show cause notices dated 19.05.2014 and 20.10.2015 covering the period October 2013 to March 2015 on the ground that those were in the form of statements issued on the basis of grounds taken in the previous show cause notice dated 17.04.2013;that the provision of law relating to the taxable services with reference to which the Statement has been issued under Section 73(1A) of the Act for the period after July 1, 2012 have been made inapplicable in view of Notification 20/2012-ST dated June 5, 2012 issued pursuant to the proviso to Section 65 of the Act as it stood prior to July 2012. The appellant submits that in service tax legislation a paradigm transformation in legal position has been brought in w. e. f. July 01, 2012. That post July, 2012, service tax legislation has taken a giant leap from positive list based taxation to negative list based taxation. Various Rules have been formulated in respect of taxability, valuation etc. Since, the service tax legislation would operate based on negative list approach; all the services which do not merit classification under negative list would be liable to service tax. As a result, the concept of classification or the provisions 9 Appeal Nos. ST/11539-11541/2016, ST/11560/2016, ST11644/2019-DB relating to classification have been done away with. This means that the earlier provisions of classification stipulated in section 65 of the erstwhile Finance Act, 1994 is no more applicable.
4.1 Learned advocate has challenged the maintainability of Statement which covers the period commencing from October 01, 2013 to March 31, 2015 (SCN dated 19.05.2014 & 20.10.2015) on the ground that the provision of law relating to the taxable services with reference to which the Statement has been issued under Section 73(1A) of the Act for the period after July 1, 2012 have been made inapplicable in view of Notification 20/2012-ST dated June 5, 2012 issued pursuant to the proviso to Section 65 of the Act as it stood prior to July 2012.The Statement has been issued under provisions of section 65 (105) of erstwhile Act alleging that the services provided by NDDB would merit classification under Works Contract Service' as defined under section 65(105)(zzzza) of the Act and therefore, taxable under sub-section (105)(zzzza) of section 65 of the erstwhile Act for the service provided during the period October, 2013 to March, 2015. Thus, it has been submitted that the Statement issued under Section 73(1A) is invalid for the reason that the condition precedent under the said provision for the issue of the same is not fulfilled. In the present case the provisions under which the earlier notice dated April 17, 2013 was issued have been made inapplicable from July 1, 2012 and therefore the grounds on which the statement has been issued cannot be treated as the same as in the earlier notices.
4.2 The consideration received by the appellant in relation to the consultancy provided by the appellant has already been subject to levy of service tax and has been specifically disclosed in the ST-3 returns which have been submitted with the Department from time to time. The appellant NDDB has been selected for the projects because it possesses expertise in the field of engineering. It has developed a proficiency in managing and providing a frame work for the execution of the agreement; that NDDB is only providing consultancy and there is no execution of works by NDDB; that the relevant clause in the contract reads as -
"And in consideration of the satisfactory performance of the tasks, duties, responsibilities and functions, aforesaid by the NDDB, the Project Authority shall pay to the NDDB a consultancy service fee at the rate of 5% (Five PERCENT) plus service tax as applicable from time to time, of the overall actual cost of the project."
That during the relevant period definition of Works Contract read as under:-
Definition of ''Works Contract":10
Appeal Nos. ST/11539-11541/2016, ST/11560/2016, ST11644/2019-DB Prior to 01.07.2012 Section 65 (105):
(105) "taxable service" means any service provided or to be provided, (zzzza) to any person, by any other person in relation to the execution of a works contract, excluding works contract in respect of roads, airports, railways, transport terminals, bridges, tunnels and dams.
Explanation. - For the purposes of this sub-clause, "Works contract" means a contract to herein, -
(i) transfer of property in goods involved in the execution of such contract is
leviable to tax as sale of goods, and
(ii) such contract is for the purposes of carrying out, -
(a) erection, commissioning or installation of plant, machinery, equipment or
structures, whether prefabricated or otherwise, installation of electrical and electronic devices, plumbing, drain laying or Other installations for transport of fluids, heating, ventilation or air-conditioning including related pipe work, duct work and sheet metal work, thermal insulation, sound insulation, fire proofing or water proofing, lift and escalator, fire escape staircases or elevators; or
(b) construction of a new building or a civil structure or a part thereof, or of a pipeline or conduit, primarily for the purposes of commerce or industry; or
(c) construction of a new residential complex or a part thereof; or
(d) completion and finishing services, repair, alteration, renovation or restoration of, or similar services, in relation to (b) and (c); or
(e) turnkey projects including engineering, procurement and construction or commissioning (EPC) projects.
Post to 01.07.2012 "works contract" means a contract wherein transfer of property in goods involved in the execution of such contract is leviable to tax as sale of goods and such contract is for the purpose of carrying out construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, alteration of any movable or immovable property or for carrying out any other similar activity or a part thereof in relation to such property;"
4.3 That, in both pre and post 01.07.2012, it was necessary that there should be transfer of property from the service provider besides executing work of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, alteration of any movable or immovable property. That NDDB has done neither of them; that Appellant does not effect any transfer of property in goods. NDDB is only appointing contractors and suppliers for execution of the project and supply of equipment and raw materials; that the supply of goods by contractor cannot be considered as supply by the appellant; even though the 11 Appeal Nos. ST/11539-11541/2016, ST/11560/2016, ST11644/2019-DB contracts with the contractors/ suppliers are issued by NDDB, they are on behalf of the Project Authority; that the definition does not intend to include in its ambit the transaction wherein the contractor directly and independently transfers the property in goods to customers; they just advise clients and on the basis of their advice clients procure goods; that NDDB is consulting engineer and in accordance with their expert advice, contractor independently transfers the property in goods to project authority; that neither the NDDB Act nor the agreements entered into with project authorities envisage NDDB to function or carry out the activities as defined in the term 'works contract' such as construction, erection, commissioning etc. These activities are performed by the contractors; that none of the clauses extracted in the impugned Statement and reproduced in impugned order indicate the transfer of property in goods by the service provider on which VAT has been paid and the further services as indicated in the definition of works contract service have been performed by .
4.4 He further relied upon the TRU circular F. No. 43/5/ 1997 dated July 2, 1997 which was issued contemporaneously along with the introduction of the taxable service of 'consulting engineering' service which stated that The services which attract the levy include all the services which are rendered in the capacity of a professional person and specifically include the services pertaining to structural engineering works civil/ mechanical/ electrical engineering works or relating to construction management. All services rendered within the above scope of the term engineering attract service tax provided they are rendered in the capacity of a consulting engineer. The scope of the services of a consultant may include any one or more of the following categories:
(i) Feasibility study.
(ii) Pre-design services/project.
(iii) Basic design engineering.
(iv) Detailed design engineering.
(v) Procurement.
(vi) Construction supervision & project management.
(vii) Supervision of commissioning and initial operation.
(viii) Manpower planning and training.12
Appeal Nos. ST/11539-11541/2016, ST/11560/2016, ST11644/2019-DB
(ix) Post-operation and management.
(x) Trouble shooting and technical services, including establishing systems and procedures for an existing plant.
Though the above list is not exhaustive, it illustrates the wide scope and nature of the services rendered by a consulting engineer.
Accordingly he emphasized that the scope of "consulting engineering service" is very vide and cannot be restricted in the narrow sense as held by the adjudicating authority; that all the services provided by the appellant were within the scope of consulting engineering service as per the circular; that the appellant after entering into the agreement with the contractors issues a purchase order to each contractor for execution of the works specified therein; that the appellant specifically states that the Bills should be in the name of the Project Authority under the specified agreement and even though the contractors issues the bills to NDDB, those are specifically mentioned to be to the account of the Project Authority; that In view of this, the transfer of property takes place between the contractor and Project Authority. The appellant is never in possession or in ownership of the goods/material involved in the execution of the works; he further stated that the copies of Balance Sheet/s for the period under dispute showing that no sales in relation to such works contract have been accounted for in the books of accounts as per generally accepted accounting principles; Copy of VAT / CST Annual Returns filed in the State of Gujarat to demonstrate that Appellant has not supplied any goods by way of sale for the execution of any work as defined in Section 65(105) of Finance Act 1994: that there is no direct/indirect involvement of the appellant in the execution of the turnkey agreement i.e. construction of plant or procurement of machinery etc. at any stage of the turnkey agreement; that the appellant is merely an intermediary in respect of technical issues and financial matters providing advice and monitoring the control processes and procedures; The work in relation to construction, installation and erection is solely performed by the contractor and not by the appellant; that the Department has chosen to merely rely on certain clauses in isolation of the whole contract to hold the provision of Works contract service whereas the contract cannot be read as a piece meal and it should be read as a whole; that it is settled position of law that the nomenclature used in the Contract (titled as "Turnkey Contract"), is not determinative of the nature of the services provided by the appellant as agreement must be read as a whole to decipher the intention of the parties;
13Appeal Nos. ST/11539-11541/2016, ST/11560/2016, ST11644/2019-DB that merely for the reason that the contract has been mentioned as a turnkey contract, the same cannot tantamount to be a works contract without satisfying the ingredients of the works contract service viz. transfer of property in goods and carrying out construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, alteration of any movable or immovable property work; that the burden of providing that a particular transaction falls under the contours of a definition of taxable service is on the Department after adducing evidence and such exercise or burden has not been discharged by the Department; that it was not correct that the project authority was not authorised to issue any instructions to suppliers/ manufacturers/ erectors but the relevant clause provides that the Project Authority may not issue any direct instruction to the supplier / manufacturer / erectors during the course of project; Any instruction / changes required may be discussed in the site meeting where the Project Authority's representatives would be present; that since the Project Authority does not have any significant experience in undertaking the civil work, the work is entrusted to the appellant for purpose of supervision, therefore, NDDB should provide assistance / instructions to the contractor in the presence of the representative of the Project Authority that simply by virtue of this clause, the appellant cannot be regarded as a contractor, undertaking the execution of any works contract. The learned advocate has relied upon judgment of Lanco Infratech Limited vs. CC, CE and ST, Hyderabad [2015 (38) STR 709 (Tri-LB) wherein the Larger Bench relying on State of A.P and Ors V. Larsen and Toubro and Ors. [2008 (17) VST 1 (SC) held that, even where an Appellant (Lanco) had entered into a turnkey/ EPC project agreement or other works contract but had subcontracted the whole or part of the works awarded (under terms of the agreement which authorized such sub-contracting); and the incorporation of goods into the construction/ structures was by the sub-contractor and not by the appellant there is no rendition of Works Contract Service by such appellant, which is taxable under Section 65(105)(zzzza). It is further held by the bench that whereunder an agreement (whether termed as a works contract, turnkey or EPC project contract), the principal contractor, in terms of the agreement with the employer/ contractee assigns the works to a sub-contractor and the transfer of property in goods involved in the execution of such contract passes from the sub-contractor by accretion to or incorporation into the works, the principal contractor cannot be considered as having provided the 14 Appeal Nos. ST/11539-11541/2016, ST/11560/2016, ST11644/2019-DB taxable (works contract) service, enumerated and defined in Section 65(105)(zzzza). That, this decision has overruled the decision of Ramky Infrastructure relied upon by the department. He further, relied on the judgment of Supreme Court in the case of State of Andhra Pradesh v Larsen & Toubro Limited (2008-TIOL-158-SC-VAT) where the Supreme Court observed that even if there is no privity of contract between the contractee and the sub-contractor that would not do away with the principle of transfer of property by the sub-contractor by employing the same on the property belonging to the contractee. The Supreme Court has laid down the principle that in a case involving the contractee, the main contractor and the subcontractor, the work executed by subcontractor results in a single deemed sales transaction and there cannot be multiple deemed sales. The Supreme Court held that if the view that there are two deemed sales involved in the case of a works contract is taken, such a view would result in plurality of deemed sales which would be contrary to Article 366(29A)(b) of the Constitution and may result in double taxation.
4.6 The learned advocate submits that the nature of services as being undertaken by the appellant have already been examined by the Hon'ble Tribunal in the case of M/s. Embassy Property Developments Limited v. Commissioner of Service Tax, Bangalore, 2024 (1) TMI 983, wherein the Hon'ble Tribunal, while dealing with a similar contract, held that:
"10. A plain reading of the agreement particularly Clauses 5, 6, 7 and 8 of the Agreement dated 31.3.2005 which deal with the functions and obligations of the project manager in carrying out and implementing the agreement entered with M/s. Manyata Promoters Pvt. Ltd. reveals that the appellants are required to manage overall implementation of the project viz., the Software Technology Park for which the agreement had been entered between the appellant and M/s. Manyata Promoters Pvt. Ltd.. It states and reveals their obligation and function is implementation of the project and not execution of the project. On a close reading of few stipulations/clauses of the Agreement, in the said context of the recitals, we find that the appellants are required to supervise and coordinate all aspects of the development, use of reasonable means to see that the development is completed in accordance with plans and specifications, cash management of the project by providing cash flow charts and estimate charts to M/s. Manyata Promoters Pvt. Ltd., approach Municipality and any other authorities in obtaining approvals; and also they are responsible for certification at every stage of work commencing from the drawings, foundation, etc.. It is clear that the actual project is executed by appointment of suitable contractors having adequate financial resources and good reputation; subcontractors, team of professionals consisting of architects, quantity surveyors, structural engineers, building services or mechanical and electrical contractors who would be appointed by M/s. Manyata Promoters Pvt. Ltd. on the basis of recommendation by the appellant for completion of the project. The term 'project' is also defined under the said Agreement at Clause 2.9 which means the development of the scheduled property by putting up commercial development, software tech park, hardware tech park, entertainment centre, etc.. The fees for rendering the service 15 Appeal Nos. ST/11539-11541/2016, ST/11560/2016, ST11644/2019-DB prescribed under Clause 5.2.1 to be paid to the appellant is 5% of the expenditure incurred on the construction and development of the project; also the computation of the construction and development expenses are prescribed at Clause 5.2.3. of the agreement. Analysing the stipulations of the said Agreement dated 31.3.2005, it cannot be said that the arrangement between and M/s. Manyata Promoters Pvt. Ltd. for execution of the project as a whole; on the contrary, it reveals that appellant has been engaged to advise/assist M/s. Manyata Promoters Pvt. Ltd. in implementation and completion of the project. Therefore, the claim of the appellant that they have been appointed to execute the project has been rightly rejected by the learned Commissioner as the activities/performance stipulated under the Agreement clearly discloses that the services rendered in the management of the project for its completion by engaging suitable contractors, subcontractors, team of professional, obtaining approvals etc.; thus, in the nature of advice, consultancy or technical assistance. No contrary evidence has been placed by to rebut the said finding of the Commissioner. "
That, in the instant case, where the appellant has provided the same services, therefore the department has erroneously classified the same to be 'Works Contract' Service.
4.7 Learned advocate has further argued that the finding in the impugned order that they have deducted Income Tax TDS and Works Contract TDS under the State VAT Law while making payments to contractors does not show that Appellant has undertaken the job of works contract; that as per the Income Tax legislation and State specific VAT legislation, the person making the payment to the contractor is liable to deduct TDS accordingly the appellant being duly authorized by Project Manager and responsible for making payment to the contractor, have deducted the TDS while making payment to contractor in relation to execution of works contract, thus statutorily Appellant was liable to deduct TDS under income tax legislation and State specific VAT legislation. The compliance of the law in relation to deduction of tax at source under other legislations cannot be considered as a basis to suggest that Appellant is rendering works contract service to project authority.
4.8 He further refuted the findings of the impugned order-in-original that the present contract in dispute is a turnkey contract as the appellant would be able to earn on following counts: (i) Consultancy service fees (ii) Repeat business for its subsidiary IDMC (iii) Any cost saving in projects within agreed price. The earning on account of cost saving indicates that NDDB transfers the property in goods to project authority as baseless and a mere assumption without any substance. He argued that that this allegation raised by the Respondent indicates that the OIO lacks application of mind while 16 Appeal Nos. ST/11539-11541/2016, ST/11560/2016, ST11644/2019-DB deciding the classification of disputed services. The Respondent has not provided any proof or factual evidence to substantiate above point; he argued that the that the process of awarding the contracts by the appellant are subject to guidelines of Central Vigilance Commission ('CVC) and certain information / returns are statutorily prescribed which are periodically submitted with CVC giving the details of contractors, projects etc; accordingly, it can never be the case that the appellant can make undue favour to any person / contractor including its subsidiary IDMC Ltd. while awarding the contracts. This aspect clearly and strongly negates the allegation raised by the Respondent of repetitive business for subsidiary or cost savings within agreed price of project as every activity is subject to particular process / guidelines and not arbitrary one.
4.9 As alternate submissions, the learned advocate stated that the manner of calculation of demand under works contract was not correct as the demand has been worked out for the period 01.04.2013 to 31.03.2015 on the basis of abatement method, whereas the department has specially been provided CA certificates with respect to the value of goods used in the project. The value of service element therefore only needed to be taxed only which was done in the case of show cause notice dated April 17, 2013 after the order of the Tribunal. Further, he claimed that the value should be treated as cum-tax value. He further stated that the Respondent in OIO has clearly mis-interpreted the fact that the appellant has admitted the demand of Rs. 9,71,74,113 arising in the earlier show cause notice, whereas the fact is that the appellant merely accepted the manner of valuation by reducing the material portion from the total value, without conceding the core issue with respect to the classification of service i.e. the impugned service was "Consulting Engineering Service" being claimed by the appellant. He further claimed that the service tax already paid by the appellant on "Consulting Engineering Service" needed to be reduced from the total demand.
4.10 Lastly, he argued that the appellant being a government body, no allegation of fraud, willful misrepresentation or suppression is tenable as held by the Tribunal in the matters of Indian Institute of Technology (IIT) v. CST-Il 2016 (42) (STR) 406 ; CCE, Indore v. Nepa Ltd., 2013 (298) ELT 225 (Tri-Del); Hindustan Insecticides Ltd. v. CCE, Delhi-I 2017 (6) GSTL 218 (Tri-Dei.).
17Appeal Nos. ST/11539-11541/2016, ST/11560/2016, ST11644/2019-DB
5. On the other hand the Ld. Authorised representative of the department has re-iterated the findings in the order in original. He has emphasized that the contract has been titled as "Turnkey Agreement"; the appellant had appointed sub-contractors and suppliers by making agreement in his name and was making payments to them; that the sub-contractors/ suppliers worked on behalf of the appellant whose role was that of the main contractor. The appellant had awarded contract to its own subsidiary IDMC for Design, Supply and Labour job for installation, testing and commissioning of Dairy and Allied equipment for cost cutting and maximizing gains. The appellant has handled almost each and every work from start to handing over the project. Hence the services provided by the appellant were nothing but "Works Contract" only and whole of the cost of project was liable to service tax with admissible abatements.
6. We have gone through the rival arguments on the issue.
7. With respect to objection raised by the Ld. counsel of the appellant regarding the maintainability of the show cause notices dated 19.05.2014 & 20.10.2015 issued in the form of statements, we have a considered view that the appellant had a clear notice to the allegations made in the statements that the department seeks to classify and tax their impugned services under the category of works contract which had been issued for the period prior to 01.07.2012 and post 01.07.2012. Though definition of works contract has undergone some changes after 01.07.2012 but it has not affected‟ the appellant's case and has not been able to show as to how the definition of works contract was different from the earlier definition with respect to allegations made in the statements and the earlier show cause notice. It is trite that when the appellant has clear notice to allegations made in the show cause notice, the show cause notice is not vitiated merely for the reason that some provisions of law have been erroneously quoted in the show cause notice. Thus, we hold that the notices issued in form of statements were valid show cause notices issued to the appellant.
7.1 Regarding the classification of the services provided by the appellant as to whether same qualify to be "Work Contract" service as contended by the department or "Consulting Engineering Services‟ as claimed by the appellant, we find that the scope of "Consulting Engineering Service" is very 18 Appeal Nos. ST/11539-11541/2016, ST/11560/2016, ST11644/2019-DB wide as covered in TRU circular F. No. 43/5/ 1997 dated July 2, 1997 stated above which is not restricted to designing and technical or consultancy advice only but include various other services like Procurement, Construction supervision & project management, Supervision of commissioning and initial operation, Manpower planning and training, Post- operation and management and Trouble shooting and technical services, including establishing systems and procedures for an existing plant. Thus, various jobs performed by the appellant as defined in the contract and made out in the impugned order are very much part of the consulting engineering service. Thus, merely on the basis of these jobs performed by the appellant, it cannot be held that the impugned contract was of works contract service. Further, in the case of M/s. Embassy Property Developments Limited v. Commissioner of Service Tax, Bangalore reported in 2024 (1) TMI 983, as relied upon by the appellant duly supports their contention. The relevant extract of this decision are reproduced here below:-
"10. A plain reading of the agreement particularly Clauses 5, 6, 7 and 8 of the Agreement dated 31.3.2005 which deal with the functions and obligations of the project manager in carrying out and implementing the agreement entered with M/s. Manyata Promoters Pvt. Ltd. reveals that the appellants are required to manage overall implementation of the project viz., the Software Technology Park for which the agreement had been entered between the appellant and M/s. Manyata Promoters Pvt. Ltd.. It states and reveals their obligation and function is implementation of the project and not execution of the project. On a close reading of few stipulations/clauses of the Agreement, in the said context of the recitals, we find that the Appellants are required to supervise and coordinate all aspects of the development, use of reasonable means to see that the development is completed in accordance with plans and specifications, cash management of the project by providing cash flow charts and estimate charts to M/s. Manyata Promoters Pvt. Ltd., approach Municipality and any other authorities in obtaining approvals; and also they are responsible for certification at every stage of work commencing from the drawings, foundation, etc.. It is clear that the actual project is executed by appointment of suitable contractors having adequate financial resources and good reputation; subcontractors, team of professionals consisting of architects, quantity surveyors, structural engineers, building services or mechanical and electrical contractors who would be appointed by M/s. Manyata Promoters Pvt. Ltd. on the basis of recommendation by the appellant for completion of the project. The term 'project' is also defined under the said Agreement at Clause 2.9 which means the development of the scheduled property by putting up commercial development, software tech park, hardware tech park, entertainment centre, etc.. The fees for rendering the service prescribed under Clause 5.2.1 to be paid to the appellant is 5% of the expenditure incurred on the construction and development of the project; also the computation of the construction and development expenses are prescribed at Clause 5.2.3. of the agreement. Analysing the stipulations of the said Agreement dated 31.3.2005, it cannot be said that the arrangement between the appellant and M/s. Manyata Promoters Pvt. Ltd. for execution of the project as a whole; on the contrary, it reveals that appellant has been engaged to advise/assist M/s. Manyata Promoters Pvt. Ltd. in implementation and completion of the project. Therefore, the claim of the appellant that they have been appointed to execute the project has been rightly rejected by the learned Commissioner 19 Appeal Nos. ST/11539-11541/2016, ST/11560/2016, ST11644/2019-DB as the activities/performance stipulated under the Agreement clearly discloses that the services rendered in the management of the project for its completion by engaging suitable contractors, subcontractors, team of professional, obtaining approvals etc.; thus, in the nature of advice, consultancy or technical assistance. No contrary evidence has been placed by the Appellant to rebut the said finding of the Commissioner."
16. In the present case, commencing from identification of the contractors, sub- contractors, professional team, day-to-day management of cash flow, completion of the project in accordance with plan, etc., with active participation and advice of the appellant from time-to-time rendered to M/s. Manyata Promoters Pvt. Ltd., fall within the scope of advice, consultancy or technical assistance. Besides the statements of various persons recorded from time-to-time, reveal that the activities by the appellant acknowledge to be in the nature of managerial service rendered to M/s. Manyata Promoters Pvt. Ltd. Besides, we find that the appellant had collected Service Tax as per Clause 5.2.1 of the Agreement in few instances from M/s. Manyata Promoters Pvt. Ltd. but not paid the same to the department. Thus, the Project Development Management Fee collected by the Appellant squarely fall under the category of 'Management Consultancy Service' and taxable service during the period under dispute. The claim of the Appellant that it becomes taxable only with effect from 01.06.2007 under the 'Management or Business Consultancy Service', in our view is not sustainable in view of the facts and circumstances of the case discussed as above."
The moot question to be decided is whether the appellant has transferred any property in the project to the project authority. In the impugned order it has averred that various suppliers of raw materials/equipment, sub- contractors who executed the works contract/ construction/ erection and installation etc. were acting on behalf of the appellant who performed as main contractor in as much as the appellant has issued tenders and entered into contract with these sub-contractors/ suppliers and the bills were issued in the name of the appellant. However, the appellant has refuted all these allegations and has stated that all the contracts were issued to Contractors/ suppliers and they have done the execution work for and on behalf of project authority. The role of the appellant was mere advisory to award contracts based on skill and technical knowledge it possesses as the project authority had no knowledge about such work. They appointed contractor specifically informing them that they are being appointed for the Project Authority and at the same time they entered into contracts in their name but whatever amount was paid to the contractor was only charged from the project authority and CA certified accounts of all payments were handed over to the project authority. They did not receive any separate consideration over and above the 5% charges for the consulting engineering service provided by them. The department has merely proceeded on assumptions and presumptions by stating that the appellant awarded contracts to maximise 20 Appeal Nos. ST/11539-11541/2016, ST/11560/2016, ST11644/2019-DB gains and that the process of awarding the contracts by the appellant are subject to guidelines of Central Vigilance Commission (CVC) and certain information / returns are statutory prescribed which are periodically submitted with CVC giving the details of contractors, projects etc.; accordingly, the appellant can never make undue favour to any person / contractor including its subsidiary IDMC Ltd. while awarding the contracts which clearly and strongly negates the allegation raised by the Respondent of repetitive business for subsidiary or cost savings within agreed price of project as every activity is subject to particular process / guidelines and not arbitrary. Further, the Ld. Counsel has produced copy of Balance Sheets and Copy of VAT / CST Annual Returns filed in the State of Gujarat for the period under dispute showing that no sales in relation to such works contract have been accounted for in the books of accounts as per generally accepted accounting principles which were not disputed by the adjudicating authority.
7.2 In view of the above, we are of a considered view that the department has failed to prove that anything in excess of 5% charges/fee was received by the appellant from the project authority. The appellant being a government body, the balance sheets, sales tax/ vat returns filed by them cannot be doubted upon unless specifically countered by the department and on the basis of those, it is seen that no transfer of property in goods has taken place from the appellant to the Project Authority. Though the appellant has been receiving payments from the Project Authority and paying to the contractors, the same can be considered to be merely a service provided by the appellant as an „authorised agent‟ of the Project Authority within the scope of their contractual obligations. No evidence has been brought on record of if any amount being received by the appellant from the project authority for payment to contractors/ suppliers was retained or appropriated by the appellant out of that. The appellant being a government body is subject to various statutory checks by the vigilance/ audits authorities and it cannot be assumed that anything not reflected in the books of account was actually accrued to them. We find that to buttress his arguments the OIO has relied upon one such sample invoice/2nd RA bill dated 28.09.2011 issued by M/s. Friends Project (P) Limited, Kanpur in this case which is discussed as under 21
Appeal Nos. ST/11539-11541/2016, ST/11560/2016, ST11644/2019-DB "To Chief Executive officer, Bhopal Dairy Expansion Project Bhopal, A/c. Bhopal Expansion Project c/o NDDB Anand (P.O.N0. 18881 dated 22.12.2010 P.O. Value Rs. Rs.4,56,63,996.98 Where under they had charged only of value of work/ Service Charges and nothing other than it.
It was further seen that to the said invoice/ RA bill the NDDB had also issued a Back-to Back/ corresponding statement dated 12.8.2011 (P.O. No. 01 dated 22.12.2010 P.O. value Rs.4,56,63,996.98) to the Project Authority charging there under:-
(1) Value of work done.
(2) Price of material viz. Cement, Reinforcement steel, and other Materials those
were used in the Civil work carried out and charged under 2nd RA bill as above by M/S. Friends' Projects (P) Ltd; Kanpur and lessening other deductions. It is evident that the value of the subcontracted service and supply was paid by the NDDB. The facts of the case reveal that NDDB has undertaken to set up the dairy plant and the various types of responsibilities as stated in the foregoing paras to set up the plant lied with them."
7.3 We do not find that anything against the appellant can be inferred from the manner of issuing the above invoice in as much as it duly supports the appellant‟s contention that the amount which was charged from the Project Authority by the appellant for payments to the contractors/ suppliers, the same amount was paid them to the contractors without retaining any part of the same. Further, merely that the contractor has shown the description of work as "value of Work/ Service Charges" and has elaborated the same to be for value of work done and Price of material viz.
Cement, Reinforcement steel, and other Materials those were used in the Civil work carried out and charged under 2nd RA bill as above by M/S. Friends' Projects (P) Ltd; Kanpur and lessening other deductions" does not bring any adverse inference against so long the payment received from the project authority and that paid to the contractor was same".
8. In view of the above findings, we are of the considered view that there was no transfer of property in goods or immovable property from the appellant to the Project Authority which was an essential ingredient to classify the contract as works contract and in the absence of which contract cannot be classified to be a "Works Contract". We hold the impugned contract to be duly classified and taxable as "Consulting Engineering Service" and accordingly set aside the impugned Order. All the appeals filed by party are allowed with consequential relief.
22Appeal Nos. ST/11539-11541/2016, ST/11560/2016, ST11644/2019-DB
9. The department has filed appeal on the following grounds :-
"The benefit of exemption, equivalent to an amount in excess of the Service Tax calculated on a value of percentage specified in the corresponding entry in Column No (3) of Notification No. 01/2006-ST dated 01.03.2006, is available to the taxable services as described therein However in the column (3) of the Table viz. Description of taxable service, provided in the Notification No. 01/2006-ST dated 01.03.2006, there is no mention of the service category Works Contract Services', implying thereby that the benefit of exemption/abatement from payment of Service Tax under the category of Works Contract Services' is not available under the said Notification No. 01/2006-ST dated 01.03.2006. During the relevant period the valuation of taxable services of Works Contract Services was to be determined in terms of Rule 2A of Service Tax (Determination of Value) Rules, 2006. Thus, the Commissioner has failed to note that the benefit of exemption/abatement under the category of Works Contract Services' is not available under the Notification No. 01/2006-ST dated 01.03.2006, thereby he has erred in extending the benefit of abatement under the said Notification No. 01/2006-ST dated 01.03.2006 to the assessee for the period from April- 2012 to June-2012, in spite of the fact that he has concluded that the services provided in the impugned case falls under the category of 'Works Contract Services."
Since we have already held in the preceding discussions that the service provided by the appellant M/s. NDDB does not fall under the category of Works Contract service and the services rendered by them is of the Consulting Engineering service, they have already discharged their service tax liability. The department‟s appeal is primarily for wrongful extension of abatement of Notification No. 1/2006-ST dated 01.03.2006 however, since we have already decided the matter that service tax has correctly been paid by the appellant M/s. NDDB and the work undertaken by them under the category of Works Contract service, the grounds of appeal in the department‟s appeal does not hold any water. Therefore, we set-aside the same as without any merit.
23Appeal Nos. ST/11539-11541/2016, ST/11560/2016, ST11644/2019-DB
10. In view of the above, the appeals of the appellant M/s. National Dairy Development Board (NDDB) are allowed and the appeal filed by the Department having appeal No. ST/11560/2016 is dismissed.
(Pronounced in the open court on 01.07.2024) (Ramesh Nair) Member (Judicial) (C L Mahar) Member (Technical) KL