Indivisible turnkey contracts cannot be vivisected for service tax without a clear statutory charging provision.

An indivisible turnkey contract for supply, installation and commissioning of ATMs could not be split and taxed as an assumed service component before a specific charging provision existed. The article states that a levy requires clear statutory authority identifying the taxable event, liable person and measure of tax, and that a notification under the Finance Act, 1994 could not create a charge in the absence of such authority. It also notes that registration, disclosure of activity and the adjudicating authority's acceptance of bona fide doubt negatived suppression, so the extended limitation period and penalties were unsustainable. The tax demand, interest and penalties were therefore set aside.

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Issues: (i) Whether the assessee's turnkey contracts for supply, installation and commissioning of ATMs could be vivisected and subjected to service tax prior to the introduction of a specific charging provision for such contracts. (ii) Whether the demand was barred by limitation and whether penalties were sustainable.

Issue (i): Whether the assessee's turnkey contracts for supply, installation and commissioning of ATMs could be vivisected and subjected to service tax prior to the introduction of a specific charging provision for such contracts.

Analysis: The contracts were found to be indivisible works contracts undertaken on a turnkey basis, with invoices raised for the gross value without segregation of the price of ATMs and the installation or commissioning element. The legal principle applied was that a taxing levy must clearly specify the taxable event, the person liable and the measure of tax, and that a works contract could not be split up for taxing an assumed service component in the absence of an express charging provision. The introduction of ATM-related services and the later specific taxation of works contracts showed that the activity was not taxable under the earlier regime. A notification issued under the Finance Act, 1994 could not create a charge where none existed in the statute.

Conclusion: The demand of service tax on the assessee's indivisible ATM turnkey contracts for the disputed period was unsustainable and was set aside in favour of the assessee.

Issue (ii): Whether the demand was barred by limitation and whether penalties were sustainable.

Analysis: The assessee had been registered and had disclosed its business activity, while the adjudicating authority itself accepted that there was a bona fide doubt regarding taxability and on that basis dropped the penalty proposals. That finding negatived any allegation of suppression with intent to evade tax, and therefore the extended period of limitation could not be invoked. The same factual and legal basis also supported denial of penalties.

Conclusion: The demand was time-barred for the extended period and the penalties were not imposable, in favour of the assessee.

Final Conclusion: The appeals of the assessee succeeded, the tax demands, interest and penalties were set aside, and the Revenue's appeal failed.

Ratio Decidendi: An indivisible works contract cannot be vivisected to levy service tax on an assumed service component unless the statute itself provides a clear charging provision for that activity, and a notification cannot substitute for such statutory authority.

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