Custom, Excise & Service Tax Tribunal
Uhde India Pvt. Ltd vs Commissioner Of Service Tax, Mumbai on 2 September, 2015
IN THE CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL
WEST ZONAL BENCH AT MUMBAI
COURT No. I
APPEAL No. ST/61, 62/11-Mum
ST/CO/52, 53/11-Mum
(Arising out of Order-in-Appeal No. M-I/AV/326-327/2010 dated 04-11-2010 passed by Commissioner of Central Excise (Appeals), Mumbai-I)
For approval and signature:
Honble Mr. M.V. Ravindran, Member (Judicial)
and
Honble Mr. C.J. Mathew, Member (Technical)
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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?
====================================================== Uhde India Pvt. Ltd.
Rashtriya Chemicals & Fertilizers Ltd. Appellants Vs. Commissioner of Service Tax, Mumbai Respondent Appearance:
Shri H.G. Dhareadlikari, Advocate for Appellant Shri B. Kumar Iyer, Supdt. (AR), for Respondent CORAM: Honble Mr. M.V. Ravindran, Member (Judicial) Honble Mr. C.J. Mathew, Member (Technical) Date of Hearing : 02/09/2015 Date of Decision : 02/09/2015 ORDER NO Per: M.V. Ravindran
These two appeals and the cross objection filed by the Revenue are disposed of by a common order as the issue involved is the same.
2. Relevant facts that arise for consideration of M/s Uhde India Ltd. the appellant no. (1) are engaged in rendering services under the category of Consulting India Services, M/s Rashtriya Chemicals & Fertilizers Ltd. is the appellant no. (2) are engaged to manufacturing of fertilizers. Appellant no. (2) had awarded two lump-sum turn key projects (LSTK) contract for setting up a Nitric Acid plant to appellant no. (1) which was executed during the period of September, 2003 to February, 2004. Appellant no. (1) discharged the service tax liability on the presumption that such an activity is liable to be taxed. Subsequently on being pointed out by appellant no. (2) that tax liability need not be paid, they filed a application for refund claim of Rs. 36,28,515/- and appellant no. (2) filed a refund claim for an amount of Rs. 16, 72, 515/- on the ground that they were not required to discharge the service tax liability; both the appellants had filed the refund claim which are not overlapping the adjudicating authority as well as the first appellate authority rejected the contentions raised by the appellants that the services received and rendered by them do not fall under the category of service which are to be taxed in as much, the contract upheld to appellant no. 1 was works contract coming on a such conclusion, both the lower authorities rejected the refund claim.
3. Learned counsel would take through the entire case records and also the agreement entered between the appellants. He would draw our attention that the said agreement is a works contract as the materials required for executing the contract is procured by the appellant No. 1 and by mistake that have discharged the service tax liability under various categories. He would submit that there is no dispute as to the facts that the contract of setting up a Nitric Acid plant is a works contract. He would submit that Honble Supreme Court in the recent judgment in the case of Larsen and Tourbo Ltd. & others as reported at 2015-TIOL-187-SC-ST has clearly settled a law holding that Composite Works Contract cannot be vivisected to tax under any heading prior to 1.6.2007. He reads the specific paragraphs.
4. Learned departmental representative on the other hand submits that the judgment of Honble SC is in respect of the works contract executed which are indivisible in nature; he would submit that in the case is in hand, the Works Contract awarded to appellant No. 1 is divisible one, in as much the schedule for payment indicates the payment to be made by appellant No. 2 to appellant No. 1 is on completion of particular stage. He would also read from the judgment of the Apex court in the case of Larsen and Tourbo Ltd. (supra).
5. We have considered the submissions made at length by both sides and perused the records.
6. It is undisputed that appellant No. 1 has executed a LSTK contract for setting up a Nitric Acid plant for appellant no. 2. It is also undisputed that the technology up gradation of H.P. Nitric Acid Plant is a lump-sum contract for 66,87,10,000 Rupees. The price schedule in the said contract indicates the amount to be paid is the contracted price, to be paid by appellant No. 2 in consideration of contracted performance of the work covered under the said work order, which included license and know how, basic design and engineering, detailed engineering, procurement, supply, fabrication, transportation, stores, construction, erection, installation, insurance, testing and pre-commissioning, by warrantee tests etc.
7. On plain reading of the contract, we find that the said contract is given as a turnkey project and breakup of the schedule of the payment which has been relied upon heavily by the learned departmental representative, will not carry the case of revenue any further, as, both appellant no. 1 and appellant no. 2 considered the said contract as a turnkey contract which is works contract. It is also noted from paragraph no 17 of the impugned order that appellant no. 1 had discharged appropriate works contract tax to state government authorities. We find that appellant had make out a case in their favor on to that the service tax liability on the works contract will be applicable only from 1/06/2007. This view is fortified by the Apex Courts in judgment in the case Larsen and Tourbo Ltd and others (supra). With respect, we reproduce the relevant paragraphs of the ratio of the Apex court.
15. A reading of this judgment, on which counsel for the assessees heavily relied, would go to show that the separation of the value of goods contained in the execution of a works contract will have to be determined by working from the value of the entire works contract and deducting therefrom charges towards labour and services. Such deductions are stated by the Constitution Bench to be eight in number. What is important in particular is the deductions which are to be made under sub-paras (f), (g) and (h). Under each of these paras, a bifurcation has to be made by the charging Section itself so that the cost of establishment of the contractor is bifurcated into what is relatable to supply of labour and services. Similarly, all other expenses have also to be bifurcated insofar as they are relatable to supply of labour and services, and the same goes for the profit that is earned by the contractor. These deductions are ordinarily to be made from the contractor's accounts. However, if it is found that contractors have not maintained proper accounts, or their accounts are found to be not worthy of credence, it is left to the legislature to prescribe a formula on the basis of a fixed percentage of the value of the entire works contract as relatable to the labour and service element of it. This judgment, therefore, clearly and unmistakably holds that unless the splitting of an indivisible works contract is done taking into account the eight heads of deduction, the charge to tax that would be made would otherwise contain, apart from other things, the entire cost of establishment, other expenses, and profit earned by the contractor and would transgress into forbidden territory namely into such portion of such cost, expenses and profit as would be attributable in the works contract to the transfer of property in goods in such contract. This being the case, we feel that the learned counsel for the assessees are on firm ground when they state that the service tax charging section itself must lay down with specificity that the levy of service tax can only be on works contracts, and the measure of tax can only be on that portion of works contracts which contain a service element which is to be derived from the gross amount charged for the works contract less the value of property in goods transferred in the execution of the works contract. This not having been done by the Finance Act, 1994, it is clear that any charge to tax under the five heads in Section 65(105) noticed above would only be of service contracts simpliciter and not composite indivisible works contracts.
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.
29. It is interesting to note that while introducing the concept of service tax on indivisible works contracts various exclusions are also made such as works contracts in respect of roads, airports, airways transport, bridges, tunnels, and dams. These infrastructure projects have been excluded and continue to be excluded presumably because they are conceived in the national interest. If learned counsel for the revenue were right, each of these excluded works contracts could be taxed under the five sub-heads of Section 65(105) contained in the Finance Act, 1994. For example, a works contract involving the construction of a bridge or dam or tunnel would presumably fall within Section 65(105)(zzd) as a contract which relates to erection, commissioning or installation. It is clear that such contracts were never intended to be the subject matter of service tax. Yet, if learned counsel for the revenue is right, such contracts, not being exempt under the Finance Act, 1994, would fall within its tentacles, which was never the intention of Parliament.
8. It can be seen from the above reproduced ratio, Apex Court has clearly laid down that the service tax liability on works contract cannot be imposed prior to 1.6.2007 by vivisecting the contract and taxing individually the services. In view of the forgoing, we hold that the impugned order is incorrect and liable to be set aside and we do so. The impugned order is set aside and the appeals are allowed with consequential relief, if any. Cross objection filed by the revenue are also disposed of.
(Pronounced in Court) (C.J. Mathew) Member (Technical) (M.V. Ravindran) Member (Judicial) akp 1 2 APPEAL No. ST/61, 62/11-Mum