Custom, Excise & Service Tax Tribunal
Orient Paper Mills vs Jabalpur on 18 November, 2024
CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL
NEW DELHI
PRINCIPAL BENCH - COURT NO. - IV
Service Tax Appeal No. 50796 of 2017 [DB]
[Arising out of Order-in-Original No. 12/COMMR/JBP/ST/2017 dated 02.02.2017
passed by the Commissioner of Central Excise, Customs & Service Tax, Jabalpur,
Madhya Pradesh]
M/s. Orient Paper Mills ...Appellant
(Unit of Orient Paper & Industries Ltd.)
P.O. - Amlai, Shahdol,
Madhya Pradesh
VERSUS
Commissioner of Central Goods
and Service Tax, Customs and Central
Excise - Jabalpur ...Respondent
C.R. Building, Mission Chowk, Napier Town, Jabalpur, Madhya Pradesh - 482001 APPEARANCE:
Shri Ayush A. Mehrotra and Shri Upkar Agarwal, Advocates for the Appellant Shri Harshvardhan, Authorized Representative for the Respondent CORAM:
HON'BLE DR. RACHNA GUPTA, MEMBER (JUDICIAL) HON'BLE MRS. HEMAMBIKA R. PRIYA, MEMBER (TECHNICAL) DATE OF HEARING: 23.07.2024 DATE OF DECISION: 18.11.2024 FINAL ORDER No. 59730/2024 DR. RACHNA GUPTA Present is an appeal against the Order-in-Original No. 12/2017 dated 02.02.2017. The facts in brief which have culminated into the said order are as follows: 1.1 M/s. Orient Paper Mills, the appellants, are engaged in manufacture of 'Paper & Paper Board'. They also registered under service tax for discharging following taxable services:
(i) Transports of Goods by Road Services
(ii) Renting of immovable property Services 2 Service Tax Appeal No. 50796 of 2017 [DB]
(iii) Repair & Maintenance Services
(iv) Cable Operator Service
(v) Test Inspection & Certificate Service 1.2 The officers of Central Excise and Service Tax Division -
Jabalpur noticed that the appellant had entered into a contract dated 30.07.2007 with M/s. TOSCOTEC S.p.A., Italy for supply and erection of New Tissue Paper Plant at Amlai. The value of contract was 69,50,000 Euro (Rs.44,79,27,500/-). The department alleged that the activity rendered by the appellant is covered under category of Works Contract Service. The taxable value is calculated at Rs.24,91,53,131/-. It is alleged that the service tax on the said value for the period from July 2007 to December 2008 has not been paid nor even the returns have been filed by the appellant. Accordingly, vide Show Cause Notice No. 97/2013 dated 22.10.2013, service tax of Rs.3,07,95,328/- (inclusive of Education Cess and Higher Education Cess) is proposed to have been recovered from the appellant along with the proportionate interest and the appropriate penalties. The service tax of Rs.48,99,102/- as has already been paid by the appellant is proposed to have been appropriated against the confirmed demand. The said proposal has been confirmed vide the impugned Order-in-Orginal/Order under challenge. Being aggrieved, the appellant is before this Tribunal.
2. We have heard Shri Ayush A. Mehrotra and Shri Upkar Agarwal, learned Advocates for the appellant and Shri Harshvardhan, learned Authorized Representative for the department.
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Service Tax Appeal No. 50796 of 2017 [DB]
3. Learned counsel for the appellant has mentioned that vide contract dated 30.07.2007, the TOSCOTEC had agreed to supply the apparatus, equipment and spare parts i.e. 'goods' for setting up tissue paper manufacturing plant/paper plant and had undertaken the supervision of erection, startup and commissioning of the Paper Plant. In addition it undertook engineering, design, manufacture and supply of the said goods and has been discharging their service tax liability for rendering the said services of consulting and supervising by paying Rs.48,99,102/- on the value of supervision services of Rs.3,96,36,750/- received from TOSCOTEC. The TOSCOTEC was merely supervising the erection and commissioning and they were not themselves performing erection and commissioning. Hence, the allegations of the department for considering their activity as Works Contract Service are blatantly wrong.
3.1 It is further submitted that Rule 2A of the Service Tax (Determination of Value), Rules 2006 (hereinafter called as Valuation Rules) for including the value of services provided by independent contractors in the value of contract executed with TOSCOTEC was erroneously invoked in the present case. Such inclusion is alleged as double taxation. The confirmation of demand is prayed to set aside. Learned counsel has relied upon the decision of this Tribunal in the case of DNS Contractor Vs. Commissioner of Central Excise, Delhi reported as 2015 (37) S.T.R. 848 (Tribunal - Del.) and Viral Builders Vs. Commissioner of Central Excise, Surat reported as 2011 (21) STR 457 (Tribunal-Ahmedabad).
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Service Tax Appeal No. 50796 of 2017 [DB] 3.2 Finally, it is submitted that the show cause notice issued in the present case is barred by time. In the present case, it is an admitted fact that the department despite investigating in December 2008 and getting immediate response and documents from the appellant company has issued the present show cause notice on 22.10.2013 i.e. almost after 63 months from the date of investigation and 53 months from the date of filing of ST-3 returns on 27.04.2009. Such an undue delay in issuance of present show cause notice bars the same by time. Otherwise also the things were in the notice of department since 2008, hence there seems no ground of invoking the extended period of limitation. Learned counsel has relied upon the following decisions:
(i) Indian Petrochem Corporation Ltd. Vs. Collector of C. Ex., reported as 2000 (125) ELT 1048 (Tribunal)
(ii) Commissioner Vs. Indian Petrochem Corporation Ltd.
reported as 2006 (198) ELT A127 (SC)
(iii) Padmini Products Vs. CCE reported as 1989 (43) ELT 195 (SC)
(iv) Cambay Organics Pvt. Ltd. Vs. Commr of C.Ex. reported as 2007 (ELT) 586 (Tri.-Ahmd.) With these submissions, order under challenge is prayed to be set aside and appeal is prayed to be allowed.
4. While rebutting these submissions, learned Authorized Representative has submitted that the demand in the present case has been confirmed after examining the various clauses of the contract. It has rightly been concluded that the erection and 5 Service Tax Appeal No. 50796 of 2017 [DB] commissioning has been done by the appellant but through the sub-contractor, hence, there is no infirmity in including the payments made to the sub-contractors in the taxable value. Rule 2A of the Valuation Rules is mentioned to have been rightly invoked. Learned Departmental Representative has relied upon the decision of Larger Bench of this Tribunal in the case of Commissioner of Service Tax, New Delhi Vs. Melange Developers Private Limited reported as 2020 (33) GSTL 116 (Tri.-LB), wherein it has been held that sub-contractor would be liable to pay service tax even if the main contractor has discharged the service tax liability on the activity undertaken by the sub- contractor in pursuance of the contract. Appeal is accordingly prayed to be dismissed.
5. Having heard the rival contentions and perusing the entire records, we observe and hold as follows:
5.1 The demand in the present case has been challenged on the ground that the work under taken by the appellant is only of design, engineering, documentation, manufacture, supply of equipments and machinery and the supervision of erection and commissioning of such machinery and as such the activity cannot be called as Works Contract Service. The value of the work done for erection and commissioning is not includable as the same has got done from the contractors in India after executing separate work orders. Rule 2A is alleged to have been wrongly invoked due to these facts. On the contrary, the department has alleged the activity of the appellant to be called as Works Contract Service.
Various clauses of agreement dated 30.07.2007 have been relied 6 Service Tax Appeal No. 50796 of 2017 [DB] upon to hold that the appellant was not merely rendering consultancy and supervision services along with the supply of goods, they were actually rendering the Works Contract Services by getting erected and commissioned the goods supplied. Rule 2A is impressed upon to have been rightly invoked. In the light of this controversy, following issues need adjudication:
(i) Whether the activity rendered by the appellant can be called as Works Contract Service?
(ii) Whether the appellant is liable to pay service tax on the expenditure incurred for erection and commissioning of the plant by engaging various sub-contractors in terms of Rule 2A of Service Tax Valuation Rules?
6. Issue No.1 6.1 To adjudicate this issue, foremost we look into the definition of Works Contract Service under Section 65 (105) (zzzza) as is reproduced below:
(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, 7 Service Tax Appeal No. 50796 of 2017 [DB] 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; 6.2 From the above definition, it becomes clear that when one single contract talks about transfer of property in goods and for rendering such services as mentioned in clause (a) to (e) of sub- clause (ii) as quoted above, it has to be called as Works Contract Service. At this stage, we have perused the contract entered into between the appellant and TOSCOTEC, Italy. The conjoint reading of all these clauses clarifies that TOSCOTEC, Italy agreed to supply the equipments for tissue plant to the appellant which are manufactured by TOSCOTEC themselves as per the design prepared by them and TOSCOTEC also agreed to supervise the entire erection, startup and commissioning of the plant. 6.3 It is also coming apparent from the contract clause no. 5.1 that TOSCOTEC only was supposed to provide engineering services as described in appendix - 1 of the contract. Appendix - 1 has not been attached by the appellant. As per clause 5.12, the contractor/TOSCOTEC only had to provide the proper training for the operation and maintenance of the plant with the written approval of the employer/the appellant under contractors scope of supply and services. Training was also be provided by the 8 Service Tax Appeal No. 50796 of 2017 [DB] contractor at the site during the later stages of erection, commissioning and initial operations according to appendix - 1. 6.4 Perusal of these clauses makes it abundantly clear that the contract with TOSCOTEC was the contract of supply and services. Though the appellant has taken the plea that vis-à-vis erection, start up and commissioning, TOSCOTEC/contractor only had to supervise i.e. they only had to provide the technical knowhow services, hence the contract cannot be called as Works Contract. But from the definition as reproduced above, sub-caluse (ii) thereof, it is clear that whenever the goods are supplied for the purposes of carrying out works in clause (a) to (e), it shall be Works Contract Services. The phrase use in sub-cause (ii) is "for the purposes of carrying out" instead of being "for carrying out". The use of word 'purposes' in this sub-clause, to our opinion, means to include all activities which are incidental for carrying out any of the services in sub-clause (a) to (e) of the said clause (ii). Apparently and admittedly contractor/TOSCOTEC, Italy had not only supplied the tissue plant equipment and machineries but also had agreed to supervise the entire procedure of erection, installation and commissioning of the said equipment and machinery. Not only this, they have also agreed to train the employees of the appellant for the upkeep and maintenance of the plant supplied by them. Hence, to our opinion, the activity of the appellant is an act "for the purposes of carrying out erection, commissioning or installation" of the tissue paper plant which is manufactured by TOSCOTEC, Italy and is supplied by TOSCOTEC itself to the appellant along with all such services of getting the same properly erected and installed and commissioned. In light of this observation, the mere fact that 9 Service Tax Appeal No. 50796 of 2017 [DB] the erection, installation, commission and construction of civil structure for the purpose has got done from other Indian companies is irrelevant for the purpose. The act of supervising the erection, commissioning and installation is held to be an act "for the purposes of carrying out erection, commissioning and installation." 6.5 From the contract, we also observe that the contract is a composite contract of supply and services as the price of goods has not been separately mentioned than the price of services. The contract price is the CISF price of goods at the rate of 69,50,000 Euros (Rs.44,79,27,500). This price is mentioned to have included the price of services, freight price, price of insurance from Italian port to mill site Amlai. Hence, it is clear that the contract in question is a composite contract for supply of goods and for rendering services. The services which are meant for the purpose of carrying out erection, commissioning and installation of the goods supplied. Hence, we hold that the activity rendered by TOSCOTEC, a company situated at place other than India, to the appellant in India is an activity of Works Contract Service. Resultantly, in terms of Section 66A of the Finance Act, 1994, appellant is liable to pay service tax under Reverse Charge Mechanism. Hence Issue No.1, as framed above, stands decided in favour of department and against appellants. 7. Issue No. 2 7.1 Rule 2A of Valuation Rules reads as follows:
(i) Value of service portion in the execution of a works contract shall be equivalent to the gross amount charged for the works contract less that value of property in goods transferred in the execution of the said works contract.10
Service Tax Appeal No. 50796 of 2017 [DB] Explanation. - For the purposes of this clause,-
(a) gross amount charged for the works contract shall not include value added tax or sales tax, as the case may be, paid or payable, if any, on transfer of property in goods involved in the execution of the said works contract;
(b) value of works contract service shall include, -
(i) labour charges for execution of the works;
(ii) amount paid to a sub-contractor for labour and services;
(iii) charges for planning, designing and architect's fees;
(iv) charges for obtaining on hire or otherwise, machinery and tools used for the execution of the work contract;
(v) cost of consumables such as water, electricity, fuel used in the execution of the work contract;
(vi) cost of establishment of the contractor relatable to supply of labour and services;
(vii) other similar expenses relatable to supply of labour and services; and
(viii) profit eamed by the service provider relatable to supply of labour and services."
7.2 The definition makes it clear that though the Value Added Tax or sales tax shall not be the part of gross amount charged for the works contract but it shall include the value of all such elements as mentioned at sub-clause (i) to (viii) of sub-clause (b) as quoted above. Since the contract between the appellant and TOSCOTEC is already held to be composite contract with no distinction in the price of goods and that of services, it is also held to be a Works Contract Service. Hence the charges paid by the appellant to various contractors as mentioned in Annexure - A to the show cause notice are held includable in the gross value of the impugned contract between appellant and TOSCOTEC, Italy. Hence, we do not find any infirmity neither in the show cause notice nor in the order under challenge where the service tax liability upon the total 11 Service Tax Appeal No. 50796 of 2017 [DB] value of contract including the cost paid to the contractors for erection, commissioning and that the liability of appellant is being included in the amount/value for rendering Works Contract Service. 7.3 The said liability has been computed for an amount of Rs.3,07,95,328/- which has been confirmed. However, we observe that the adjudicating authority has failed to appreciate that appellant had already paid an amount of Rs.48,99,102/- on 17.12.2008 itself on account of Works Contract Services. This fact has been recorded in the show cause notice Para 4 thereof also. The adjudicating authority has also failed to take into consideration the service tax paid by the appellants vis-à-vis invoices raised by the various contractors. The amount of service tax already paid by the appellant vis-à-vis the activity in question should have been set off against the impugned demand. Hence we order the modification in computation of amount of liability.
7.4 Finally coming to the plea of limitation as the appellant has contested the demand on the ground of limitation also submitting that the show cause notice is beyond the period of more than 5 years, hence is liable to be set aside. However we observe that the show cause notice itself has alleged that the appellant has failed to furnish the taxable value of Rs.2,49,15,31,31/- to the notice of the department and thus have concealed/suppressed the same with an intent to evade the payment of service tax amounting to Rs.3,07,95,328/-. The adjudicating authority also in Para 22 of the order under challenge has recorded that the liability of service tax came to the notice when they first made the payment to M/s. 12
Service Tax Appeal No. 50796 of 2017 [DB] TOSCOTEC on 30.06.2008. For this, the ST-Return was required to be filed on 25.10.2008 but the appellant failed to discharge their liability during the appropriate period. The said act is rightly held to be a deliberate attempt for non-payment of service tax in contravention of provisions of Section 68 of Finance Act, 1994. Hence, it is held that proviso to Section 73 of Finance Act has rightly been invoked. Show cause notice cannot be held to be barred by time.
8. In the light of above discussion, the order under challenge is accordingly upheld. However, with the modification that the amount of service tax already paid be set off against the demand confirmed. With these observations, the appeal is hereby order to be dismissed.
[Order pronounced in the open court on 18.11.2024] (DR. RACHNA GUPTA) MEMBER (JUDICIAL) (HEMAMBIKA R. PRIYA) MEMBER (TECHNICAL) HK