2007 (11) TMI 93 - AT - Service Tax

Turnkey supply, installation and commissioning of ATMs are indivisible works contracts; not liable to service tax before 1-6-2007

DIEBOLD SYSTEMS (P) LTD. Versus COMMISSIONER OF SERVICE TAX

CESTAT held that turnkey supply, installation and commissioning of ATMs constituted indivisible works contracts and were not liable to service tax before ... Levy of service tax on the supply, installation, and commissioning of Automated Teller Machines (ATMs) - works contracts - exigible to service tax - 'cum-tax' benefit from 10-9-2004 in terms of the Explanation to Section 67 - demand for interest on tax - HELD THAT:- The taxing event in the instant case is the execution of turnkey projects involving sale of ATMs to banks coupled with the incidental activities of installation, commissioning etc. These projects were executed by the assessee in terms of the purchase orders placed on them by the banks concerned. The payments for these works were made by the banks against invoices raised by the assessee, wherein the gross value was mentioned without segregation of price of ATM, installation/commissioning and other charges. The lower authority found these projects to be indivisible. These facts are enough for us to hold that there could be no levy of service tax on the above works contracts prior to 1-6-2007. In other words, during the period of dispute, the subject events were not taxable in the absence of the requisite charging provision. Charging provisions are to be found in the statute itself and, where there is none in the statute, they cannot be supplemented by Notifications. Notification No. 19/2003-S.T. relied on by the Revenue can have no operation in respect of any service as long as such service does not find a place in the list of taxable services under Section 65 of the Finance Act, 1994. ATM-related services were introduced for the levy of service tax only w.e.f 1-5-2006 and indivisible works contracts like the ones involved in the present case came to be chargeable to service tax only w.e.f. 1-6-2007. Thus the subject matter of this case does not attract any of the taxable services for any period prior to 1-5-2006. It is true that, with the insertion of clause (29A) in Article 366 of the Constitution, sales tax could be levied in respect of indivisible works contracts. But, for the levy of service tax in respect of such contracts prior to 1-6-2007, no statutory authority has been cited by SDR. Apart from their case on merits, we have also found a strong case for the assessee against the impugned demand of tax, on the strength of the Commissioner's own findings having a bearing on the assessee's plea of limitation. Ld. Commissioner acknowledged the fact that the assessee had a bona fide doubt as to whether their activity attracted service tax or not. On this basis, he dropped the proposal to impose penalties on the party under Sections 76 & 78 of the Finance Act, 1994. We observe that, if the assessee's doubt was bona fide as found by ld. Commissioner, no mala fides can be attributed to them and they cannot be held to have suppressed anything before the department with intent to evade payment of service tax. In such a situation, there is force in the assessee's submission that the larger period of limitation was not invocable against them. In the result, the assessee's appeals succeed on all counts and the same are allowed. The impugned orders, to the extent they are against the assessee, stand set aside. In view of our decision on appeal No. S/126/06 of the assessee, we dismiss the Revenue's appeal. Issues Involved:1. Levy of service tax on the supply, installation, and commissioning of ATMs.2. Indivisibility of works contracts and their tax implications.3. Applicability of service tax on ATM-related services before 1-5-2006.4. Invocation of the extended period of limitation for tax demand.5. Non-imposition of penalties by the Commissioner.Detailed Analysis:1. Levy of Service Tax on ATMs:The department sought to levy service tax on 33% of the gross amounts charged by the assessee from banks for the supply, installation, and commissioning of ATMs, treating the assessee as a 'commissioning and installation agency' under clause (28) of Section 65 of the Finance Act, 1994. The Commissioner confirmed the demand but dropped the penalties. The assessee contested the demand, arguing that the contracts were indivisible works contracts, not subject to service tax.2. Indivisibility of Works Contracts:The assessee argued that their contracts for ATMs were indivisible and could not be split into sale of goods and service components for tax purposes. They cited the Tribunal's decision in the Daelim Industrial Co. Ltd. case, which held that an indivisible works contract could not be vivisected for service tax. The Tribunal in the present case agreed, noting that indivisible works contracts became taxable only from 1-6-2007. The Commissioner himself found the contracts to be indivisible, supporting the assessee's position.3. Applicability of Service Tax on ATM-related Services Before 1-5-2006:The assessee contended that ATM-related services became taxable only from 1-5-2006 and indivisible works contracts from 1-6-2007. Therefore, the demand for the period July 2003 to July 2005 was unsustainable. The Tribunal agreed, stating that the introduction of ATM-related services as a taxable category on 1-5-2006 indicated that such services were not covered by any pre-existing taxable service category.4. Invocation of the Extended Period of Limitation:The assessee challenged the demand on the ground of limitation, arguing that they were registered with the department since 2003 and had been filing returns, making the department aware of their activities. The Commissioner acknowledged the assessee's bona fide doubt regarding their tax liability and dropped the penalties. The Tribunal found that this acknowledgment indicated no mala fides on the assessee's part, making the extended period of limitation inapplicable.5. Non-imposition of Penalties:The Commissioner dropped the proposal to impose penalties under Sections 76, 77, and 78 of the Finance Act, 1994, acknowledging the assessee's bona fide doubt regarding their tax liability. The Revenue appealed against this non-imposition of penalties, but the Tribunal upheld the Commissioner's decision, finding no intent to evade tax by the assessee.Conclusion:The Tribunal allowed the assessee's appeals, setting aside the impugned orders to the extent they were against the assessee, and dismissed the Revenue's appeal. The Tribunal held that the works contracts executed by the assessee were indivisible and not subject to service tax prior to 1-6-2007, and the extended period of limitation was not invocable. The Tribunal's decision was based on established legal principles and precedents, including the Daelim case and the Supreme Court's rulings on taxation statutes.