Custom, Excise & Service Tax Tribunal
C.C.E. & S.T. Vadodara-I vs Vijay Tanks & Vessels Ltd on 8 May, 2017
In The Customs, Excise & Service Tax Appellate Tribunal West Zonal Bench At Ahmedabad ~~~~~ Appeal No : ST/7/2006 (Arising out of OIA-COMMR-A--37-A&37-B-VDR-I-2006 dated 31/03/2006 passed by Commissioner (Appeals) of Central Excise, Customs and Service Tax-VADODARA-I) C.C.E. & S.T. Vadodara-I : Appellant (s) Versus Vijay Tanks & Vessels Ltd : Respondent (s)
Represented by:
For Appellant (s) : Shri Sameer Chitkara, Authorised Representative For Respondent (s): Shri J. C. Patel, Shri Rahul Gajera, Advocates CORAM:
Dr. D. M. Misra, Honble Member (Judicial) Mr. Raju, Honble Member (Technical) Date of Hearing: 27.03.2017 Date of Decision: 08.05.2017 Order No. Per: Mr. Raju This appeal has been filed by revenue against the respondents Vijay Tanks & Vessels Ltd (VTVL). VTVL are engaged in providing services to various clients including IOCL. SCN was issued to the appellant demanding service tax on the Consulting Engineering Service provided by the appellant. The demand was confirmed by the original adjudication authority. The matter was challenged by respondents before Commissioner (Appeals) who allowed the appeal. Aggrieved by the said order revenue is before the tribunal. 2 Ld. AR for the Revenue relied on the CBEC Circular No. B 43/5/97-TRU dated 02.07.1997 clarifying the scope of services falling under the category of Consulting Engineer. He argued that in terms of the said circular, the service is consulting engineer may include any one or more of the following activities.
(i) Feasibility study;
(ii) Pre-design services/project report;
(iii) Basic design engineering;
(iv) Detailed design engineering;
(v) Procurement;
(vi) Construction supervision and project management;
(vii) Supervision of Commissioning and initial operation;
(viii) Manpower planning and training;
(ix) Post-operation and management;
(x) Trouble shooting and technical services, including establishing systems and procedure for an existing plant.
He argued that in terms of Sr. No. 2(i) and 2(iv) of this list, the respondent activity is provision of Consulting Engineer Service. It has been argued in the grounds of appeal that the Commissioner (Appeals) has fail to consider the admission made by Shri T. S. Selvan, Excise Officer of the assessee to the fact that they have provided services like Basic Design Engineering and Detailed Design Engineering to IOCL, Barauni. It has further argued that Commissioner (Appeals) has wrongly relied upon the decision of this Tribunal in the case of M/s. Daelim Industries Company Ltd. It has been argued that the contract in the case of M/s. Daelim Industries Company Ltd, was a contract of turnkey basis and not a consultancy contract. It has been argued that while a contract of the kind examined in the case of M/s Daelim Industries Company Ltd cannot be vivisected, the contract in the respondent case provides separate value of the supply portion and for different services. It has also been argued that the decision of M/s Daelim Industries Company Ltd, is based on the decision of Honble Apex Court in the case of State of Punjab vs. Associated Hotels of India Limited reported in 1972-1-SSC-472. It has been argued in the grounds of appeal that the said decision is not applicable to the extent case, as the same was given for context of the State Governments Powers to levy Sales Tax on the transfer of property in goods. It has also been argued that no finding on invocation has been given.
3 The learned counsel for the respondents argued that the Commissioner (Appeals) has examined all the aspects of the case. He argued that the facts of the case are identical to those in the case of M/s Daelim Industrial Company. He pointed out that Commissioner (Appeals) has examined the facts in great details in the impugned order. He further argued that the impugned order has compared the facts in the case of Daelim and the instant case. He took us through the comparison appearing in para 2 of the impugned order which reads as follows PARTICULARS DAELIM Case VIJAY TANK Case (present case)
1.Owner M/s. IOCL M/s. IOCL
2.Consultant M/s. Engineers India Ltd.
M/s. Project & Development India Ltd (PDIL)
3.Contractor M/s. Daelim Ind. Co.
M/s. Vijay Tank & Vessel
4.Project Work Contract for Construction, Erection and Installation of Diesel Hydrodesulphurization (DHDS) Plant and Utilities Work contract for Supply cum Erection of 6 nos. LPG Storage Bullets.5.
5.Consideration Lumpsum, Turnkey basis for performing all works covered under contract. A break-up of lump sum amount has been indicated in the contract as price schedule.
Lumpsum, Trunkey basis for performing all works covered under contract. Includes break-up of lumpsum amount as Price Schedule.
6.Clauses relating to drawings etc. 10.01 Drawing accompanying bidding documents indicative. Final construction shall be carried out as per the drawing prepared by the Contractor (DAELIM) reviewed by EIL (Consultant).
10.2 Contractors (DAELIM) shall prepare basic & detailed engineering drawings & other supporting documents as required for completion.
10.3 Drawing supplied by contractor (DAELIM) shall be reviewed by EIL (Consultant) / Owner (IOCL) 10.4 EIL(Consultant)/Owner (OCL) may review and offer comments, suggestions on layout, structural scheme, design and or drawings prepared by Contractor (DAELIM) 1.05.00.0 Detailed DESIGN ENGINEERING Specification in the contract.
1.05.04.01 The Contractor (VIAJY TANK) shall design all civil, structural, architectural work and prepare all required civil,, architectural and structural DRAWINGS needed for construction. Design Engineering to comply with Design Engineering Specification given above.
1.05.04.02 All design engineering and preparation of Drawings shall be carried out by the Contractor (VIJAY TANK) 1.05.04.03 & 1.05.04.04 All drawings shall be of standard size, prepared in ink; the Contractor (VIJAY TANK) shall submit requisite number of prints of supporting design calculations along with explanatory notes, computer inputs & outputs and Drawings (complete in all respects) for review and checking purposes.
1.05.04.06 to 1.05.04.09 Consultant (PDIL) may review and offer comments, suggestions on layout, structural scheme, design and or drawings prepared by Contractor Ld. Counsel for the respondent argued that the Commissioner in the impugned order is taken great pains to compare all aspects in the case of M/s Daelim Industries Company Ltd with that of the instant case. He further pointed out that the decision of this Tribunal in the case of Daelim Industries Company Ltd has been upheld by the Honble Apex Court as reported in 2004 (170) ELT A 181 (SC). He further argued that in the latest decision of Honble Supreme Court in the case of Commissioner of Central Excise & Customs, Kerala vs. Larsen & Toubro Ltd. 2015 (39) STR 913 (SC) has held that the EPC contract of the kind entered into in the instant case are a separate species of contract distinct from contract for services. The Honble Apex Court has observed that first kind services would be taxable only after interaction of the Works Contract Service in the Finance Act, 1994.
3.1 Ld. Counsel further relied on the decision of Tribunal in the case of Instrumentation Ltd. Vs. Commissioner of Central Excise, Jaipur-I 2011 (235) STR 221 (Tri.-Del.) wherein in the identical circumstances, it was held that for the period prior to 01.06.2007 such contracts would not be taxable under the Finance Act, 1994. He argued that the said decision of Tribunal has been sat-aside by the Honble Apex Court in its decision in the case of Commissioner of Central Excise & Customs, Kerala vs. Larsen & Toubro Ltd. 2015 (39) STR 913 (SC).
3.2 Ld. Counsel further argued that prior to introduction of works contract service; there was no provision of separating the value of the sale element of the works contract from the total value of the works contract. It is further argued that in absence of any such provision the value of works contract cannot be vivisected.
3.3 It was further argued that during the period prior to May 2006 companies were not covered by the definition of Consulting Engineer Service as has been held in the decision of this Tribunal in the case of Commissioner of Central Excise, Jaipur-I 2015 (39) STR 847 (Tri.Del.). In the said decision relying on place of decision of Honble High Court in the case of C.S.T. Bangalore vs. Turbotech Precision Engineering Pvt. Ltd. 2010 (18) STR 545 (Kar.) upheld by the Honble Apex Court in the case of Larsen & Toubro Ltd (supra).
3.4 Learned counsel also argued that the demand has been calculated on the basis of the sales income taken straight away from the Balance Sheet. The said income includes all kinds of receipts and not merely the receipts of the works contracts of the kind being examined for the liability.
3.5 Learned counsel also argued that extended period of limitation cannot be invoked as the appellants had a bonafide belief that they are not liable to the service tax as is evident from the statement of their Director Sh V Sundarrajan.
4 We have gone through rival submissions. We find that the impugned order has short listed the issues to be decided as follows:-
(i) Whether service tax is chargeable in the category of Consulting Engineers Service on the activity of providing Design, Drawing and Documents etc under the contact for supply and erection of 6 Moulded LPG Storage Systems-Bullets to M/s IOCL, Barauni;
(ii) Whether service tax is chargeable in the category of Consulting Engineers Service on similar activities undertaken by the appellants in respect of other clients under the Purchase Orders/Contracts during the period 1997-1998 to 2001-2002.
(iii) Whether the demand for the period 1997-1998 to 2001-2002 has been correctly computed, and
(iv) invocability of extended period in the case and imposition of penalty on the appellants and on Shri Sundarrajan, Director, M/s Vijay Tanks & Vessels Ltd.
For examining these issues the commissioner (A) has relied on the decision of Tribunal in the case of M/s Daelim Industrial Company.
4.1 The appellants have also relied on the decision of decision of Honble High Court in the case of C.S.T. Bangalore vs. Turbotech Precision Engineering Pvt. Ltd. 2010 (18) STR 545 (Kar.) upheld by the Honble Apex Court in the case of Larsen & Toubro Ltd (supra) to assert that no service tax can be demanded from them as they, being a company, do not fall under the category of Consulting Engineer. In the case of Turbotech Precision Engineering Pvt (Supra) the following has been held
7.?During relevant period, the definition of Consulting Engineer defined under section 65(31) reads as hereunder :
consulting engineer means any professionally qualified engineer or an engineering firm who, either directly or indirectly, renders any advice, consultancy or technical assistance in any manner to a client in one or more disciplines of engineering.
Subsequently the definition of Consulting Engineer has been amended under the Finance Act, 2006 which has come into effect from 1st May 2006, the definition of which reads as hereunder :
65(31) consulting engineer means any professionally qualified engineer of any body corporate or any other firm who, either directly or indirectly, renders any advice, consultancy or technical assistance in any manner to any person in one or more disciplines of engineering.
8.?From the combined reading of the definition of Consulting engineer prior to 2006 and after 2006, it is clear to the Court that the service rendered by the Company had not been included under the definition of consulting engineer prior to 2006 as it stood under Section 65(13). As a matter of fact, this Court has decided the said point in CEA 12/2007 on 1st April 2010 stating that prior to the Amendment Act, 2006, the Companies were not included under the definition of consulting engineer. When we have taken such a view, considering the relevant assessment year in the present case we have to hold that the service rendered by the assessee-Company during relevant period cannot be brought under the category of consulting engineer. If the service rendered by the assessee cannot be considered as a consulting engineer, the question of calling upon the assessee to pay the service tax under the Finance Act, brought the assessee under the word consulting engineer does not arise at all. Therefore, the said point has to be answered against the revenue and in favour of the assessee.
In the instant case the demand pertains to the period prior to 2006 and the appellants are a company. In these circumstances the appellants do not come under the definition of consulting engineer in terms of Section 65(31) of the Finance Act 1994. Thus the demand under the head of Consulting Engineer cannot be sustained against a company. The proceeding cannot therefore be sustained against the appellant and demand of tax, interest and penalties has to be set aside.
4.2 Now we examine the other issues. We find that the Ld. Commissioner (Appeals) has compared the terms of the contract of the appellant in case of supplies made to M/s IOCL with the terms of contract examined by tribunal in the case of M/s Daelim Industrial Company. The Commissioner (A) has incorporated a comparison chart of the terms of the two contracts. The same is reproduced below PARTICULARS DAELIM Case VIJAY TANK Case (present case)
1.Owner M/s. IOCL M/s. IOCL
2.Consultant M/s. Engineers India Ltd.
M/s. Project & Development India Ltd (PDIL)
3.Contractor M/s. Daelim Ind. Co.
M/s. Vijay Tank & Vessel
4.Project Work Contract for Construction, Erection and Installation of Diesel Hydrodesulphurization (DHDS) Plant and Utilities Work contract for Supply cum Erection of 6 nos. LPG Storage Bullets.5.
5.Consideration Lumpsum, Turnkey basis for performing all works covered under contract. A break-up of lump sum amount has been indicated in the contract as price schedule.
Lumpsum, Trunkey basis for performing all works covered under contract. Includes break-up of lumpsum amount as Price Schedule.
6.Clauses relating to drawings etc. 10.01 Drawing accompanying bidding documents indicative. Final construction shall be carried out as per the drawing prepared by the Contractor (DAELIM) reviewed by EIL (Consultant).
10.2 Contractors (DAELIM) shall prepare basic & detailed engineering drawings & other supporting documents as required for completion.
10.3 Drawing supplied by contractor (DAELIM) shall be reviewed by EIL (Consultant) / Owner (IOCL) 10.4 EIL(Consultant)/Owner (OCL) may review and offer comments, suggestions on layout, structural scheme, design and or drawings prepared by Contractor (DAELIM) 1.05.00.0 Detailed DESIGN ENGINEERING Specification in the contract.
1.05.04.01 The Contractor (VIAJY TANK) shall design all civil, structural, architectural work and prepare all required civil,, architectural and structural DRAWINGS needed for construction. Design Engineering to comply with Design Engineering Specification given above.
1.05.04.02 All design engineering and preparation of Drawings shall be carried out by the Contractor (VIJAY TANK) 1.05.04.03 & 1.05.04.04 All drawings shall be of standard size, prepared in ink; the Contractor (VIJAY TANK) shall submit requisite number of prints of supporting design calculations along with explanatory notes, computer inputs & outputs and Drawings (complete in all respects) for review and checking purposes.
1.05.04.06 to 1.05.04.09 Consultant (PDIL) may review and offer comments, suggestions on layout, structural scheme, design and or drawings prepared by Contractor After this detailed scrutiny the Commissioner found the facts in the two cases to be identical. The Commissioner further observed that the Revenue has not challenged the contention of the VTTL that the activities in respect of which demand has been raised for the period 1997-1998-to 2001-2002 were similar to the activities in the case of IOCL, Barauni contract, in respect of which the purchase order was available. She also examined certain contracts produced by the VTTL during the proceedings before the Commissioner (Appeals), namely, those of M/s ELF Gas India Limited, M/s IOCL, Chennai. The impugned order clearly observes that 15.1 On examining the matter, it is seen that there is no denial/ challenge from the side of the Department/Adjudication Authority about the contention of the Appellants that the activities in relation to which the demand for the period 1997-98 to 2001-02 was raised/confirmed were similar to the activity as in the IOCL Barauni case. This is also borne out from a perusal of some of the Contracts/purchase Orders, copies of which were produced by the Appellants during the proceedings, eg. Purchase Order No. A082/TEC/2001 Dated 18/04/2001 from M/s Elf Gas India Limited for Design, Drawing, supply of Material, Fabrication, Erection, Commissioning and Statutory approval of 18M Dia Propane Horton Spheres and Safety Valves at their mangalore plant for Rs. 10,90,78,000/-, Tender No. ENT:PT:RO:008:2000-2001 dated 16/10/2000 for Design and Construction of Retail Outlets at specified locations for M/s IOCL, Chennai on lumpsum turn key basis for Rs.2,35,94,103/-,, Letter of Commitment No. REAL/MECH/PROJ/LOC/4 dated 11/04/2000 for Fabrication and Erection of Group I and II (RTF,ATF, and RRTF) Tanks at RPL, Jamnagar Refinery site for Rs. 9,23,89,175/- etc. the above contentions are also supported by the Contract Wise Price Details furnished by the party, year wise, for the period of dispute. In view of the various reasons above, it is reasonable to conclude that the activities of the appellants for which the impugned demand was raised by the department/confirmed in the OIO also relate to activities similar to those involved in the contract for Supply and Erection of Mounded LPG Storage Tanks (Bullets) for M/s IOCL Barauni. In this connection, it is noted that as the period of dispute is 1997-98 to 2001-02, which is prior to 10/09/2004 when the Service Tax on Erection, Commissioning and Installation service was introduced and accordingly, the present demand does not involve the aspect of chargeability of service tax on the subject activities/service under the category Erection, Commissioning and Installation service. Moreover, the present demand has been raised by the Department under the category Consulting Engineers Service, as was the case in relation to the demand in the contract for Supply and Erection of Mounded Storage Tanks to M/s IOCL Barauni. As the activity in relation to this portion of the demand are similar to those as in the IOCL Barauni case, the decision reached in respect of the said demand on merits would apply to this portion of the demand also, Accordingly, following the ratio of the Tribunal decision in the case of Daelim industrial Co. vs CCE, Vadodara 2003(155)ELT457(Tri-Del), which has also been upheld by the Honble Supreme Court in commissioner vs. Daelim Industrial co. Ltd. 2004(170) E.L.T. A181 (S.C.). I hold that the impugned demand is not sustainable on merits.
From these contracts she concluded that all contracts in the disputed period are similar to the contract produced by the appellant in case of IOCL. Therefore relying on the said decision of tribunal in the case of M/s Daelim Industrial Company, holding the same to be given in identical facts, dropped the demand under the category of consulting engineering service. While dropping the demand the impugned order also holds as follows 14.3 Thus, on perusal of the Clauses in the contracts in the two cases, it is seen that both projects are essentially turn key projects for supply and erection/ commissioning of plant/ storage tanks and not consultancy contracts The Design, Drawing and Detailed Engineering carried out by the respective parties are for execution of the said contract and are thus incidental/integral to their carrying out the project.
In the case of M/s Daelim Industrial Company Tribunal had granted relief to the appellant. The decision in the case of M/s Daelim Industrial Company was also approved by Honble Apex Court.
4.3 As against these findings in the impugned order the review has been ordered on the CBEC Circular NO.B.43/5/97-TRU dated 02-07-1997 in which while clarifying the scope of services falling under the category of 'Consulting Engineer', it is stated that the scope of the services of a consulting engineer may include anyone or more of the following categories
(i) Feasibility study;
(ii) Pre-design services/project report;
(iii) Basic design engineering;
(iv) Detailed design engineering;
(v) Procurement;
(vi) Construction supervision and project management;
(vii) Supervision of commissioning and initial operation;
(viii) Manpower planning and training;
(ix) Post-operation and management;
(x) Trouble shooting and technical services, including establishing systems and procedure for an existing plant.
It has been argued in the review order that in view of Sr. Nos. (ii), (iii) and (iv), as above, all type of designs involved in a particular project, have to be considered as a part of Consulting Engineer's services. However it is seen that this circular does not deal with the services in the nature of works contract service where the Hon Apex court has held that no tax can be levied prior to introduction of works contract service. Moreover the appellants are not covered by definition of Consulting Engineer as has been held in the decision of this Tribunal in the case of Commissioner of Central Excise, Jaipur-I 2015 (39) STR 847 (Tri.Del.). In the said decision relying on place of decision of Honble High Court in the case of C.S.T. Bangalore vs. Turbotech Precision Engineering Pvt. Ltd. 2010 (18) STR 545 (Kar.) upheld by the Honble Apex Court in the case of Larsen & Toubro Ltd (supra).
4.3.1 It has been asserted in the review order that the Cornmlsstoner (Appeals) has not considered the findings of the adjudicating authority that Shri T.s.selvan, Excise Officer of the assessee in his statement dated 21-06-2002, recorded under Section 14 of the Central Excise Act, 1944 duly applicable to Service Tax matters in terms of Section 83 of the Finance Act, 1994, has specifically admitted the fact that they have provided services viz., basic design engineering and detailed design engineering to IOCL, Barauni in the present case and simply set aside the Order on the ground that activities carried out are similar to the case of M/s. Daelim. Therefore, setting aside of the service tax amounting to Rs. 3,75,000/- on the taxable value of Rs.75,00,000/- provided towards designing and drawing by the Commissioner (Appeals) is not proper and legal. In view of the fact that appellants are not are not covered by definition of Consulting Engineer no tax can be levied under said service.
4.3.2 The review order attempts to differentiate the decision in the case M/s. Daelim Industries Company Ltd relied in the impugned order. It is seen that no grounds have been made out for differentiation. In absence of any such ground the decision in the case of Daelim Industries Company Ltd approved by Hon Apex Court holds. Moreover in view of the fact that appellants are not are not covered by definition of Consulting Engineer no tax can be levied under said service.
5 In view of the above we find no merit in the appeal and the same is dismissed.
(Order pronounced on 8.5.2017)
(D. M. Misra) (Raju)
Member (Judicial) Member (Technical)
G.Y.
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Appeal No. ST/7/2006