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of <h1>Turnkey contract indivisible for service tax; judgment sets aside order.</h1> The judgment set aside the impugned order, holding that the turnkey contract could not be vivisected to impose service tax on individual components under ... Consulting Engineering Services Issues Involved:1. Classification of services under Consulting Engineer.2. Applicability of service tax on turnkey contracts.3. Compliance with pre-deposit requirements.4. Legal interpretation of turnkey contracts.Detailed Analysis:1. Classification of Services under Consulting Engineer:The appellants contended that their work, which involved a Lump sum Turnkey Composite Contract, did not fall under the purview of Consulting Engineer services as defined under Section 65 of the Finance Act, 1994. They argued that their contract was for the execution of a turnkey project and not for providing consultancy or technical assistance. The adjudicating authority initially categorized the services under consulting engineering service due to the bifurcation of the project into various components.2. Applicability of Service Tax on Turnkey Contracts:The core issue was whether elements of a turnkey contract could be subjected to service tax under the category of Consulting Engineer. The appellants relied on precedents such as the case of M/s. Daelim Industries, where it was held that a work contract on a turnkey basis could not be vivisected and subjected to service tax. The Tribunal had previously ruled that the design element of a work contract should not be subjected to service tax by vivisecting the contract. The Supreme Court had upheld this view by dismissing the Department's appeal in the Daelim Industries case.3. Compliance with Pre-deposit Requirements:The appellants were initially required to pre-deposit Rs. 9,68,57,000/- as per the Stay Order. They filed multiple applications for reconsideration and modification of the stay orders, requesting an unconditional waiver of pre-deposit. The appeals were dismissed for non-compliance with the pre-deposit requirement. However, the Hon'ble CESTAT remanded the matter back to the Commissioner (Appeals) to decide afresh without insisting on any pre-deposit.4. Legal Interpretation of Turnkey Contracts:The judgment emphasized the nature of turnkey contracts, which involve a comprehensive scope of work, including design, procurement, construction, and commissioning. Various authoritative sources were cited to define turnkey contracts, including S.B. Sarkar's Words and Phrases of Excise & Customs, Black's Law Dictionary, and MacGraw-Hill Dictionary of Scientific And Technical Terms. The judgment concluded that the contract in question was a composite contract on a turnkey basis, which should not be subjected to service tax by breaking it into segments.Conclusion:The judgment set aside the impugned order, holding that the turnkey contract could not be vivisected to impose service tax on individual components under the category of Consulting Engineer. The appeals were allowed, emphasizing that the entire contract should be considered as a whole and not subjected to service tax in parts. The ruling relied on precedents and authoritative definitions to support the conclusion that a turnkey contract is indivisible for the purposes of service tax.
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