2012 (11) TMI 494 - AT - Service Tax

Tribunal upholds service tax classification, denies pre-01.06.2007 exemption. Free issue material included in taxable value.

The Tribunal upheld the classification and taxability of services prior to 01.06.2007 under specific service categories, rejecting the appellant's claim ... Erection, Commissioning or Installation, Commercial or Industrial Construction, Works Contract, Goods Transport Agency - non inclusion of value of site material used in providing services - Held that:- As decided in C.S.T., BANGALORE Versus TURBOTECH PRECISION ENGINEERING PVT. LTD. [2010 (4) TMI 344 - KARNATAKA HIGH COURT] the question of liability under the works contract service was examined and it was held that it will be effective only from 01.06.2007. Therefore, for the period prior to 1-6-07, the meaning of 'Works Contract' as commonly understood i.e. a contract for work, and labour and in other words, a service contract has to be adopted, and it would not be correct to treat a work contract as something different from a service contract. If such a work contract is an indivisible service contract, whether or not involving use of goods which get consumed or get passed on to service receiver either as such or in changed form, and that service is taxable, the works contract will attract service tax and if the work contract is a composite contract involving sale of goods and one or more services and those service are taxable, the service tax will be chargeable on the value of these services. Thus a contract for erection, installation and commissioning, even if involving transfer of property in goods on which state VAT/Sale Tax is paid, would attract service tax even for the period prior to 1-6-07, Similarly a divisible contract involving consulting Engineer's service (preparation of drawings/designs, preparation of operation manuals, or other technical assistance), procurement of goods, erection, installation and commissioning would attract Service Tax on Engineering Consultancy component and erection installation and commissioning component even prior to 1-6-07. This is so there is nothing in Sec. 65(105) and Section 66 of the Finance Act, 1994 from which it can be inferred that the taxable services defined in various clauses of Section 65(105) have to be standalone services and will not attract tax, if they are provided along with other services or providing of the service involves supply/use of goods on which VAT or Sales Tax is payable. Under-valuation - the appellant had separately collected the amount in the cost of wind energy converter as site material which was in reality required for various services rendered for installation of wind mills there was under valuation of services such as electrical work, civil work, D.P. structure, metering etc. Also what was used to supply 4 items to sub-contractors for use in construction of foundation and the same were mentioned in the purchase order as free issue material thus prima facie it is conveyancing that these items cannot be considered as part of the wind energy converter and therefore inclusion of cost of these materials in the wind energy converter was wrong and showing them as free supply was also wrong. Having availed CENVAT Credit on input/input service, the appellant could not have taken the benefit of abatement. Therefore, prima facie, that charge has also to be upheld. The appellant has not been able to make out a prima facie case for complete waiver & as regards financial difficulty, no balance sheet or annual report was produced. The appellants should be required to deposit an amount of Rs.4.5 crores which is less than 10% of the total demand of Service Tax and less than 5% of the total amount of demanded as Service Tax, interest and penalty imposed. Issues Involved:1. Classification and Taxability of Services Prior to 01.06.20072. Inclusion of Free Issue Material in the Gross Value for Taxable Services3. Availment of CENVAT Credit and Benefit of Notification No.1/2006-ST4. Financial Hardship and Requirement of Pre-depositDetailed Analysis:1. Classification and Taxability of Services Prior to 01.06.2007:The appellants argued that the services provided were works contract services, which became taxable only from 01.06.2007. They relied on several decisions, including the Board's circular dated 06.07.2009, to support that free issue material should not be added to the gross value charged for works contract services before 07.07.2009. However, the Tribunal referenced the decision in the case of Instrumentation Limited, which stated that services covered under specific service headings prior to 01.06.2007 were taxable even if they later fell under works contract services. The Tribunal held that the appellant's services were correctly classified and taxable under other heads before 01.06.2007, rejecting the claim that these services were not taxable prior to this date.2. Inclusion of Free Issue Material in the Gross Value for Taxable Services:The appellant had not included the value of site materials used in providing erection, installation & commissioning services, commercial or industrial construction services, and works contract services, leading to under-valuation. The Tribunal found that the appellant had wrongly included the cost of these materials in the cost of wind energy converters, which were exempt from excise duty. It was determined that these materials should have been included in the taxable value of the services provided, as they were essential for the installation of wind mills.3. Availment of CENVAT Credit and Benefit of Notification No.1/2006-ST:The Tribunal noted that the appellant had availed CENVAT Credit on input services, which disqualified them from claiming the benefit of Notification No.1/2006-ST. The appellant's argument that CENVAT Credit reversed is as good as not availed was not accepted. The Tribunal upheld the charge that the appellant wrongly utilized the CENVAT Credit balance for payment of service tax on GTA services.4. Financial Hardship and Requirement of Pre-deposit:Regarding financial hardship, the appellant submitted an affidavit stating that their factory was closed due to a strike, affecting cash flow and resulting in delayed salaries. The Tribunal considered this affidavit and the financial difficulties but still required the appellant to deposit Rs.4.5 crores, which was less than 10% of the total service tax demand and less than 5% of the total amount demanded, including interest and penalty. The Tribunal granted a stay against the recovery of the balance amounts, subject to the deposit being made within eight weeks.Conclusion:The Tribunal concluded that the appellant did not make a prima facie case for complete waiver and required a partial pre-deposit. The classification of services prior to 01.06.2007 was upheld under specific service categories, and the inclusion of free issue material in the taxable value was mandated. The appellant's financial hardship was acknowledged but did not exempt them from making a partial pre-deposit.