Custom, Excise & Service Tax Tribunal
National Refrigeration & Air ... vs Cce, Ludhiana on 24 February, 2011
CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL,
WEST BLOCK NO.II, R.K. PURAM, NEW DELHI-110066.
DIVISION BENCH
ST/Stay/328/10 in No.214 of 2010
(Arising out of Order-in-Original No.12/Ldh/09 dt.13.11.09 passed by the CCE, Ludhiana)
For approval and signature:
Honble Mr. Ashok Jindal, Member (Judicial)
Honble Mr. Mathew John, Member (Technical)
1
Whether Press Reporters may be allowed to see 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 CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not?
3
Whether Their Lordships wish to see the fair copy of the Order?
4
Whether Order is to be circulated to the Departmental authorities?
National Refrigeration & Air Conditioning Engg. Appellants
Vs.
CCE, Ludhiana Respondent
Present for the Appellant: Shri Sudhir Malhotra, Advocate
Present for the Respondent: Shri K.K.Jaiswal, SDR
Coram: Honble Mr. Ashok Jindal, Member (Judicial)
Honble Mr. Mathew John, Member (Technical)
Date of Hearing/Decision: 24.02.2011
ORDER NO._______________
PER: ASHOK JINDAL
The appellants have filed this appeal alongwith stay application against the order confirming demand of service tax of Rs.73,15,931/- alongwith various penalties under sections 76,77 & 78 of the Finance Act, 1994 on the ground that the appellants are engaged in the activities of erection, commissioning and installation service.
2. The facts of the case are that it was alleged against the appellants that they are engaged in the activities of providing the services of erection, commissioning and installation of air conditioning and related works to various customers, such as military, railways, and airports etc. As per Finance Act, 1994, the aforesaid services are being undertaken by the appellants are being defined under Section 65 (105) of the Finance Act, 1994 for which the appellants did not get themselves registered and failed to discharge service tax liability for the period from 01.10.2003 to 30.09.2008 and also not furnish periodical service tax return during the material period. Thus, they allegedly appeared to have contravened the provisions of Section 68 read with Sections 66, 69 & 70 of the Act read with Rule 4, 6 & 7 of Service Tax Rules, 1994. Accordingly, a show cause notice was issued to the appellants on 22.04.09. The same was adjudicated and the impugned demands were confirmed. Aggrieved by the said order, the appellants are before us.
3. Learned Advocate for the appellants submitted that the appellants are executing turnkey contracts for designing, supplying, installing and commissioning of heating, ventilation and air conditioning systems for lump sum price to the military engineering services, airport authorities and railway. In terms of the agreements entered into with their Customers, the appellants were responsible to hand over functional systems to the customers. It was contended that during the course execution of works contract service, the appellants have discharged their liability to VAT/sales tax on the value of goods passed on to the customers. He further submitted that in the show cause notice it was alleged against the appellants that during the impugned period, the appellants are executed for the activities of commissioning and installation service and the service tax is payable on the gross amount received less the benefit of abatement of 67%. It was also held by the Commissioner that execution of works contract is taxable with effect from 1.6.2007 to 30.09.2008 (after allowing the abatement) without appreciation that no such abatement scheme was available for the services classifiable under the taxable category of execution of works contract service. In the impugned order, the Commissioner has dropped the demand pertaining to airports and Railway.
4. Learned Advocate for the appellants further submitted that as their contracts are composite contracts through which the appellants were required to supply complete systems to their customers as per agreement. In these circumstances, supply of complete systems cannot be termed as erection, commissioning and installation service.
5. He further submits that with effect from 10.6.2007, the activities undertaken by the appellants were covered under the execution of works contract service. So prior to that period they are not liable to pay service tax on erection, commissioning and installation service.
6. To support this contention, he relies on the decision of this Tribunal in the case of Jyoti Limited vs. CCE, Vadodara-2008 (9) STR 373 and CCE, Raigad vs. Indian Oiltanking Limited 2010 (25) STT 327 wherein this Tribunal has held that turnkey contracts were not taxable prior to 1.6.2007. He submits that as the show cause notice has been issued on the basis that the appellants are engaged in the service of erection, commissioning and installation. So the demand prior to 1.6.2007 under the category of work contract is not sustainable as there is no demand can be raised under this category. He further submitted that the extended period is not invokable in this case, as the appellants have not suppressed any relevant facts with intent to evade payment of service tax when the Commissioner, himself has classified the activity undertaken by the appellants under 2 different categories. He also submitted that while the amount received by the appellants should be treated as cum service tax as no extra payment on account of service was received.
7. Learned Advocate submitted that if at all it is presumed that their activity falls under erection, commissioning and installation service then as per the contract, they are liable to pay service take on commissioning and testing of AC plant as per description of the contract wherein 5% of the amount of the total contract is for the activity of erection, commissioning and installation. Hence, the adjudicating authority has erred in the facts by not giving the benefit of the amount at which the appellants have paid sales tax/VAT. The charge of service tax on the 33% of the total value of the contract after giving benefit of abatement of 67% is not sustainable when the contract, itself provide the amount of the activity of erection, commissioning and installation.
8. Learned Advocate also submitted that the activities undertaken by the appellants on behalf of their customers, namely, military engineering service (MES) are out of the scope of service tax as per the letter issued by the Director of Contract Management, Military Engineering Service, New Delhi vide their letter dated 20.2.2008. He further submitted that in view of the above submission, no penalty can be imposed on the appellants when the taxability for their activity is in dispute. Therefore, he prayed impugned order be set aside.
9. On the other hand, learned SDR reiterated the findings in the impugned order and submitted that the adjudicating authority has passed the impugned order after taking into account the whole of the submissions of the appellants which are raised by them before this Tribunal today. Hence, the appellants should be asked to make some pre-deposit at this stage.
10. Heard and considered.
11. After hearing both sides at length and examination of the records in detail, we find that the appeal can also be disposed of at this stage. Therefore, after waiving the conditions of pre-deposit, we find that it would be appropriate to dispose of the appeal at this stage with the consent of both the sides. Therefore, we take up the appeal for consideration.
12. We take note of the submissions made by the learned Advocate and examined the work orders. We have seen the one of the work order No.CEWAC-38/2002-2003 wherein at serial no.1 to serial no.26 there is mention of descriptions of items which have to be supplied at serial No.21 to 27 of the work order, it is clearly specified labour charges for erection, commissioning and testing of the, the amount payable 5% on this amount of the whole of the work order which has not been examined by the adjudicating authority. We find that the appellants have placed on record the letter issued by the Military Engineering Services dated 20.2.2008 wherein para 2 & 3, it has been clarified as under:
2. Some of the formations intimated that Service Tax Deptt in their area is insisting for the service tax on the service contracted by the MES for management, maintenance, repairs, erection and installation services. The matter was referred to the Ministry of Defence for the clarification, MOD has clarified the issue as under:
As per the clarification given by MOF, the basic principle to be followed with regard to the leviablity of service tax is whether the building/civil structure is used or to be used for commerce or industry. Therefore if the repair and maintenance services are linked with a building/civil structures which are not used for commercial activities, such service may not be taxable.
3. As per the clarification issued above if the repairs and maintenance services are linked with a building/structure which are not used for commercial activities such service may not be taxable. Formation concerned may apprise the Service Tax Deptt.
13. The repairs and maintenance services are linked with a building/structure which are not used for commercial activities such service may not be taxable. As MES (a Department of Ministry of Defence) is not involved in any commercial activity, therefore any service rendered to them is not taxable. This issue has also not been dealt with by the adjudicating authority. Therefore the services rendered to MES during the impugned period are not liable to service tax. We further find that during the impugned period, the service tax is leviable on the value of the service provided. It is admitted fact that the appellants have not received service separately and charged service tax separately. Therefore, appellants are entitled for cum service tax benefit, this aspect has also not been considered by the adjudicating authority. We find that if the appellants have to pay service tax, they have to have the service tax only on the value of labour charges of erection, installation and commissioning as per work orders as discussed hereinabove. This fact has also been ignored by the adjudicating authority.
14. Therefore, in view of the above, discussion, we find that the matter needs re-examination by the adjudicating authority in the light of the discussion and findings hereinabove. Therefore, it would be appropriate in the interest of justice that the adjudicating authority shall examine the issue in view of the above observations and pass appropriate orders after giving a reasonable opportunity of hearing to the appellants to present their case. Therefore after setting aside the impugned order, the appeal is allowed by way of remand. The stay application is disposed of in the above manners.
(The operative part of this order pronounced in the open court on 24.2.2011) (ASHOK JINDAL) MEMEBR (JUDICIAL) (MATHEW JOHN) MEMEBR (TECHNICAL) mk 1 8