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

CESTAT held that turnkey supply, installation and commissioning of ATMs constituted indivisible works contracts and were not liable to service tax before ... Taxable event - indivisible works contract - vivisection of works contract - charging provision in a taxing statute - introduction of taxable service by specific entry (ATM-related services and works contracts) - extended period of limitation under Section 73 - bona fide doubt and penalty/limitationIndivisible works contract - taxable event - charging provision in a taxing statute - Levy of service tax on turnkey contracts for supply, installation and commissioning of ATMs executed by the assessee during the period of dispute. - HELD THAT: - The Tribunal found that the works contracts in question were indivisible as recorded by the Commissioner and that indivisible works contracts were not exigible to service tax for the period in dispute. The court applied the principle that a taxing statute must clearly and unambiguously specify the taxable event, the person liable and the rate; in the absence of a statutory charging provision covering ATM-related services or indivisible works contracts during the relevant period, service tax could not be levied. ATM-related services were introduced into the list of taxable services only w.e.f. 1-5-2006 and indivisible works contracts became chargeable only w.e.f. 1-6-2007; therefore the subject events prior to those dates did not attract service tax and could not be substituted by a Notification alone. [Paras 7, 8, 9]Demand of service tax on the indivisible turnkey ATM contracts for the period July 2003 to April 2006 (and related sub-periods) is not sustainable and is set aside.Vivisection of works contract - Notification under Section 93 - charging provision in a taxing statute - Whether Notification No.19/2003-S.T. could be used to vivisect indivisible works contracts and sustain service tax demands for the period prior to statutory inclusion of such services. - HELD THAT: - The Tribunal held that a Notification cannot supply a charging provision where the statute does not otherwise include the service in the list of taxable services. Reliance on Notification No.19/2003-S.T. to tax the service component of indivisible works contracts prior to the statutory insertion of the relevant taxable entries is impermissible. The court relied on precedents and reasoning that addition of a new taxable entry presupposes that the service was not taxed under pre-existing entries and that statutory clarity is indispensable for taxation. [Paras 7, 8, 9]Notification No.19/2003-S.T. cannot be invoked to levy service tax on the indivisible works contracts for the period before the relevant services were included in the statute; the Revenue's reliance on that Notification is rejected.Introduction of taxable service by specific entry (ATM-related services and works contracts) - taxable event - Whether ATM-related services or works contracts were taxable prior to their specific inclusion in Section 65 (i.e., before 1-5-2006 for ATM-related services and before 1-6-2007 for indivisible works contracts). - HELD THAT: - The Tribunal observed that ATM-related services were introduced w.e.f. 1-5-2006 and indivisible works contracts were made exigible w.e.f. 1-6-2007; earlier periods therefore lacked the requisite charging entry. The court applied decisions holding that where a service is only later added to the statute, it cannot be treated as having been covered by other entries for the earlier period. Consequently, the activities under the contracts during the dispute period do not fall within any taxable entry. [Paras 8, 9]Operations relating to ATMs carried out during the stated periods are not taxable as ATM-related services or as parts of indivisible works contracts prior to their statutory inclusion; demands for those periods fail.Extended period of limitation under Section 73 - bona fide doubt and penalty/limitation - Invocability of the extended period of limitation and imposition of penalties under the Finance Act in view of the assessee's bona fide doubt. - HELD THAT: - The Commissioner himself had recorded that the assessee entertained a bona fide doubt about the taxable nature of their activity and accordingly dropped proposals for penalty. The Tribunal found that where a bona fide doubt exists, suppression or mala fide conduct cannot be attributed to the assessee and the extended period under Section 73 is not invocable. This finding on the facts supported setting aside the demands to the extent founded on extended limitation and militated against penalties. [Paras 10, 11]Extended period of limitation under Section 73 is not invocable against the assessee given the bona fide doubt; penalty proposals are unsustainable and demands based on extended limitation are set aside.Final Conclusion: The appeals filed by the assessee are allowed; service tax demands raised on indivisible turnkey contracts for supply, installation and commissioning of ATMs for the stated periods are quashed, the Revenue's appeal is dismissed, and demands founded on extended limitation and penalties are set aside in view of the bona fide doubt. 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.