Custom, Excise & Service Tax Tribunal
M/S Shonan Siddhart (J.V.) vs Commissioner Of Central Excise, Nagpur on 9 November, 2016
IN THE CUSTOMS, EXCISE AND SERVECE TAX APPELLATE TRIBUNAL, WEST ZONAL BENCH AT MUMBAI COURT NO. I APPEAL NO. ST/707/11-Mum (Arising out of Order-in-Original No. 14/ST/2011-12/C dated 24.10.2011 passed by the Commissioner of Customs & Central Excise, Nagpur.) For approval and signature: Honble Mr. M.V. Ravindran, Member (Judicial) Honble Mr. C.J. Mathew, Member (Technical) =====================================================
1. Whether Press Reporters may be allowed to see : No
the Order for publication as per Rule 27 of the
CESTAT (Procedure) Rules, 1982?
2. Whether it should be released under Rule 27 of the : No CESTAT (Procedure) Rules, 1982 for publication
in any authoritative report or not?
3. Whether their Lordships wish to see the fair copy : Seen
of the order?
4. Whether order is to be circulated to the Departmental : Yes
authorities?
=====================================================
M/s Shonan Siddhart (J.V.)
Appellant
Vs.
Commissioner of Central Excise, Nagpur
Respondent
Appearance:
Shri Prakash Shah, Advocate
for Appellant
Shri D. Nagvenkar, Addl. Commr. (A.R.)
for Respondent
CORAM:
HONBLE SHRI M.V. RAVINDRAN, MEMBER (JUDICIAL)
HONBLE SHRI C.J. MATHEW, MEMBER (TECHNICAL)
Date of Hearing: 09.11.2016
Date of Decision: 06.12.2016
ORDER NO.
Per: M.V. Ravindran:
This appeal is directed against Order-in-Original No. 14/ST/2011-12/C dated 24.10.2011 passed by the Commissioner of Customs & Central Excise, Nagpur.
2. The relevant fact that arises for consideration are appellant herein were as a joint venture, awarded a contract for providing and laying spiral welded/fabricated M.S. Pipe line for raising main and its allied works for Nerla lift irrigation scheme. On verification of such joint venture deed and on perusal of work order dated 18.01.2007, department was of the view that the said activity of the appellant would get covered under the category of Erection Commissioning or Installation Services falling under Section 65(39a) of the Finance Act, 1994. Based upon such conclusion and information provided by the appellant, a show-cause notice was issued for demand of the Service Tax liability. Appellant contested that the show-cause notice on merits as well as limitation. The adjudicating authority after following due process of law came to a conclusion that their activities as indicated by the appellant for construction of the balance work, Nerala Lift irrigation scheme is covered under Erection Commissioning or Installation Services, dismissing the claim of the appellant that it would fall under Commercial and Industrial Construction Services eligible for exemption.
2. Learned Counsel would take us through the entire case and submits as under:-
A. Vide the order impugned in the above appeal, the Respondent has confirmed the demand of service tax of Rs.2,66,31,150.00 under the proviso to section 73(1) of the Finance Act, 1994 with interest under Section 75 of the Finance Act and imposed penalties under sections 77 and 78 of the Finance Act, 1994 and Rule 7(c) of the Service Tax Rules in view of his findings that the activity of construction of a project named as Construction of Balance Work, Nerala (Paghora) a Lift Irrigation Scheme in pursuance of the contract with Vidharbha Irrigation Development Corporation (VIDC) is taxable services under the Erection, Commissioning or Installation services.The Respondent took, for the purpose of calculating the service tax,33 per cent of of the gross amount received by the Appellant as value under Section 67 of the Act. This is evident from the annexure A to the show cause notice (page 17/98).
B. It is submitted that the impugned order of the Respondent holding that the activity of the Appellants is taxable under the Erection, Installation and Commissioning services is ex-facie unsustainable in view of paragraph 24 of the judgment of the Honble Apex Court in the case of Commissioner of Central Excise and Customs (Kerala) vs. Larsen & Toubro Limited-2015 (39) S.T.R. 913 (S.C.).
C. The five services referred to in paragraph 24 above are set out in paragraph 10 of the judgment, which includes erection, commissioning or installation. The relevant extract of paragraph 10 reads thus:
10.?Section 64. Extent, commencement and application.
(1)?This Chapter extends to the whole of India except the State of Jammu and Kashmir.
(2)?It shall come into force on such date as the Central Government may, by notification in the Official Gazette, appoint.
(3)?It shall apply to taxable services provided on or after the commencement of this Chapter.
Section 65. Definitions. - In this Chapter, unless the context otherwise requires, ---
(105) taxable service means any service provided -
(g)?to a client, by a consulting engineer in relation to advice, consultancy or technical assistance in any manner in one or more disciplines of engineering [but not in the discipline of computer hardware engineering or computer software engineering;
(zzd)?to a customer, by a commissioning and installation agency in relation to erection, commissioning or installation;
(zzh)?to any person, by a technical testing and analysis agency, in relation to technical testing and analysis;
(zzq)?to any person, by a commercial concern, in relation to construction service;
(zzzh)?to any person, by any other person, in relation to construction of a complex;
Explanation : For the purposes of this sub-clause, construction of a complex which is intended for sale, wholly or partly, by a builder or any person authorized by the builder before, during or after construction (except in cases for which no sum is received from or on behalf of the prospective buyer by the builder or a person authorized by the builder before the grant of completion certificate by the authority competent to issue such certificate under any law for the time being in force) shall be deemed to be service provided by the builder to the buyer; : (emphasis supplied) D. It is admitted by the Respondent in his order impugned in the above appal that the contract between the Appellant and Vidharbha Irrigation Development Corporation is a composite contract and in view thereof the Respondent gave 67 per cent abatement from the gross amount received by the Appellant for calculating the service tax.
E. In view of the aforesaid authoritative pronouncement of the Honble Apex Court, taxable services of erection, commissioning and installation covers service contract simplicitor and not composite contracts.
F. In view of the aforesaid, the demand of service tax under the erection, commissioning and installation services confirmed under the impugned order is clearly untenable and unsustainable in law.
G. It is now well settled that classification of service under which the demand is made is held not to be correct, the demand under any other taxable service cannot be sustained.
H. Without prejudice and in any event, it is submitted that on the finding recorded by the Commissioner himself the activity of the Appellant will not be covered by erection installation and commissioning services in view of the following judicial precedents :
(a) Indian Hume Pipe Co.Ltd. vs. Commissioner of Central Excise, Trichy reported in 2008 (12) STR 363 (Tri Chennai) as affirmed by the Honble Madras High Court in 2015 TIOL-2049-HC MAD ST
(b) Commissioner of Central Excise, Mumbai vs. Surindra Engineering Co. Ltd. reported in 2014 (36) STR 1191 (Tri Mumbai)
(c) Lalit Constructions vs. Commissioner of Central Excise, Raigad reported in 2012 (27) STR 138 (Tri Mumbai)
(d) Lanco Infratech Ltd. vs. CC, CE & ST, Hyderabad reported in 2015 (38) STR 709 (Tri-LB) I. The larger Bench of this Honble Tribunal in Lanco Infratech Ltd. v. Commissioner of Customs, Central Excise and Service Tax, Hyderabad [2015 TIOL-768-CESTAT-BANG-LB = 2015 (38)S.T.R. 709 (Tri. - Bang)] covered the issue Considered in the light of the precedents referred to herein above; the definitions of ECIS and CICS; the Board clarification dated 7-1-2010; the Dictionary meanings ascribed to the word conduit; and provisions of Section 65A(2)(a) and (b), we conclude that construction of a pipeline/conduit for transmission of water/sewerage and involving associated works like digging of the earth, supporting pipeline/conduit, construction of pumping stations together with associated machinery and other construction works, including for transmission of water in lift irrigation projects, cannotbe classified under ECIS. These services are only classifiable as CICS. Where the pipeline/conduit laying is executed for Government or Government undertakings as part of irrigation, water supply, or sewerage projects, the works are not exigible to service tax under CICS (prior to 1-6-2007), since these are not primarily for commercial or industrial purposes and are excluded from the scope of the taxable services qua the exclusionary clause definition of CICS, in Section 65(25b) of the Act. J. The above order of the larger bench of this Honble Tribunal has been quoted with approval by the Honble Madras High Court in the case of Indian Hume Pipe (supra).
K. Without prejudice and in any event and assuming that the services provided by the Appellant are taxable under the works contract services, which became taxable with effect from 1.7.2007, for which there is no demand in the show cause notice or in the impugned order, no service tax is payable by the Appellants. The relevant definition of works contract services reads thus:
(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 wherein, -
(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 pre-fabricated 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 andconstruction or commissioning (EPC) projects; L. Admittedly, the main activity undertaken by the Appellant is laying of pipeline, which is primarily not for the purpose of commerce and industry and consequently not taxable under Works Contract Services.
M. Further the definition of taxable services of works contract excludes, inter alia, works contract in respect of dams. The work undertaken by the Appellants is in respect of dams.
N. Without prejudice and only by way of an alternative submission, the Appellant submits that the quantification of demand is erroneous.
O. Further, the invocation of extended period is patently unsustainable and demand beyond the normal period of one year is clearly barred under section 73(1) of the Act as dispute in the present case involves one of the interpretations of law. Imposition of penalties in the given circumstances is unwarranted. The Appellants are entitled to benefit of section 80 of the Act.
3. Learned departmental representative take us through the contract entered and submits that the said contract entered in January, 2007 and the tax liability is correctly confirmed under Erection Commissioning or Installation Services. It is his submission that appellant has been contesting before the lower authorities that the services rendered by them would be fall under Commercial and Industrial Construction Services and that the said services fall under works contract services was never argued and they should not be allowed new argument before the Tribunal.
4. On consideration of the submissions made by both sides and perusal of records, we find that the work executed by the appellant by a contract entered with M/s Vidarbha Irrigation Development Corporation, Nagpur for providing and laying spiral welded/fabricated M.S. Pipe line for raising main and its allied works like construction of manifold, pumping machinery, switch yard and all cable work for electric supply (from M.S. E.B. point onwards) including all related civil, mechanical and electrical works as per design and drawing, commissioning, testing of the entire pipe line and pumping machinery including maintenance for two years after completion of the scheme. It can be noticed from the description of the work awarded to the appellant, it is a contract turnkey project which results in an erected structure with installation of pumping machinery, electrical switch yard and other related civil, mechanical and electrical structures, in our considered view would get covered under head Commercial and Industrial Construction Services. This specific issue was before the Larger Bench of the Tribunal in the case of Lanco Infratech Ltd. (supra), wherein the Larger Bench has settled that the law and held that irrigation projects/lift irrigation projects would get covered under CICS prior to January, 2007 but eligible for exemption. We also find strong force in the contention of the appellant that the issue is now covered under Hon'ble Supreme Court in the case of Larsen & Toubro Ltd. (supra), in the said case the Hon'ble Apex Court was considering the same issue of vivisected contract for taxability under different categories. After considering the law, their lordships in paragraph 24 held as under:-
24.?A close look at the Finance Act, 1994 would show that the five taxable services referred to in the charging Section 65(105) would refer only to service contracts simpliciter and not to composite works contracts. This is clear from the very language of Section 65(105) which defines taxable service as any service provided. All the services referred to in the said sub-clauses are service contracts simpliciter without any other element in them, such as for example, a service contract which is a commissioning and installation, or erection, commissioning and installation contract. Further, under Section 67, as has been pointed out above, the value of a taxable service is the gross amount charged by the service provider for such service rendered by him. This would unmistakably show that what is referred to in the charging provision is the taxation of service contracts simpliciter and not composite works contracts, such as are contained on the facts of the present cases. It will also be noticed that no attempt to remove the non-service elements from the composite works contracts has been made by any of the aforesaid Sections by deducting from the gross value of the works contract the value of property in goods transferred in the execution of a works contract. It is undisputed in the case in hand, contract entered by the appellant is a works contract/turnkey project to be handed over M/s Vidarbha Irrigation Development Corporation, Nagpur. As the issue is squarely covered by the judgment of Hon'ble Apex Court, we hold that the impugned order is unsustainable.
5. Learned D.Rs submissions that whether the issue that the contract entered would get covered under Erection Commissioning or Installation Services was never before the lower authorities and hence the appellant should not be allowed to raise the same before the Tribunal is also dismissed as the Bench has recorded the finding on casual perusal of contract entered into is works contract wherein the appellant has used material in all the projects. Since the issue is question of law, in our opinion it can be raised before the Tribunal.
6. The impugned order is set aside on merits itself. Since we are allowing the appeal on merits, we are not recording any observation on the various submissions made by both sides.
7. The impugned order is set aside and appeal is allowed.
(Pronounced in Court on 06.12.2016) (C.J. Mathew) (M.V. Ravindran) Member (Technical) Member (Judicial) Sp 2 APPEAL NO. ST/707/11-Mum