Tribunal rules in favor of coffee manufacturer on service tax liability under composite contract

The Tribunal ruled in favor of the appellant, a manufacturer of instant coffee, regarding the liability to pay service tax under 'Erection, Commissioning, or Installation Service'. The Tribunal classified the contract as a composite contract involving both supply of goods and services, falling under Works Contract Service (WCS). Since all payments were received before the introduction of WCS on 01-06-2007, the Tribunal held that service tax cannot be levied on contracts executed prior to that date. The impugned order demanding service tax was set aside, and the appeal was allowed in favor of the appellant with consequential reliefs.

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Issues:
1. Liability to pay service tax under 'Erection, Commissioning, or Installation Service'.
2. Classification of the contract as a composite contract involving both supply of goods and services.
3. Applicability of service tax on works contract services executed prior to 01-06-2007.

Analysis:
1. The appellant, engaged in the manufacture of instant coffee, was found to have erected two freeze drying plants on their premises. The Departmental Officers contended that there existed a contract between the appellant and a foreign supplier for the supply and erection of the plant, which falls under taxable services. A show cause notice was issued demanding service tax, which was confirmed by the adjudicating authority. The appellant argued that they are not liable to pay service tax under 'Erection, Commissioning, or Installation Service'.

2. The appellant submitted that the contract was a composite contract involving both supply of goods and provision of services, which should be classified as works contract services. They highlighted that the contract amount included the supervision for commissioning the plant, and the value of the service portion was not ascertainable from the lump sum EPC contract. The Tribunal agreed with the appellant, stating that their contract with an element of a turnkey project was not covered under taxable service before 01-07-2007, and therefore, it falls under Works Contract Service (WCS).

3. The Tribunal noted that all payments were received before the introduction of WCS on 01-06-2007. Citing a decision by the Hon'ble Apex court, the Tribunal held that service tax cannot be levied on contracts executed prior to 01-06-2007. Relying on the decision, the impugned order demanding service tax was deemed unsustainable and set aside. The appeal was allowed with consequential reliefs, if any, in favor of the appellant.

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