Tribunal grants appeals, sets aside order, and provides relief based on contract separation and tax calculation errors.

The tribunal allowed the appeals, setting aside the adjudicating authority's order, and granted consequential reliefs to the appellants. The decision was based on the separation of contracts for supply and erection, the non-inclusion of transformer value in service tax calculations, and the absence of any basis for penalties.

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Issues Involved:
1. Eligibility to avail CENVAT credit on inputs used in manufacturing transformers.
2. Inclusion of the value of transformers in the value of services for service tax calculation.
3. Imposition of penalties on the appellants.

Issue-wise Detailed Analysis:

1. Eligibility to Avail CENVAT Credit on Inputs Used in Manufacturing Transformers:
The main contention was whether the appellant, M/s IMP Powers Ltd., could avail CENVAT credit on inputs used in manufacturing transformers while discharging service tax liability under the Works Contract Composition Scheme. The adjudicating authority held that the appellant was ineligible for CENVAT credit on inputs due to the composition scheme. However, the tribunal found that the appellant had separate contracts for the supply and erection of transformers, with central excise duty paid on the transformers. The tribunal noted, "The inputs used for manufacture of transformer are not inputs for execution of works contract." Consequently, the demand for CENVAT credit against the appellant was deemed "absolutely illegal."

2. Inclusion of the Value of Transformers in the Value of Services for Service Tax Calculation:
The adjudicating authority included the value of transformers in the value of services to demand differential service tax. The tribunal disagreed, stating, "Transformer was not used in execution of works contract but it itself was installed/commissioned and hence there is no meaning of including the value of transformer in value of works contract service." The tribunal emphasized that the value of materials used in providing services could be included, but the transformer itself was not consumed in providing the service. The tribunal also referenced CBEC Circular No. 150/1/2012-ST and the Tribunal’s order in Essar Projects (India) Ltd., which clarified that for contracts executed before 07.07.2009, the value of free issue materials need not be included.

3. Imposition of Penalties on the Appellants:
The adjudicating authority imposed penalties on the appellants, including M/s IMP Powers Ltd., M/s Sunil Hitech Engineers, and Shri Aaditya Ramniwas Dhoot. The tribunal found that the appellants had a "bonafide belief about tax on supply and services separately being two independent contracts" and thus, there was no reason to impose penalties. The tribunal concluded that the impugned order was "not sustainable" and set aside the penalties.

Conclusion:
The tribunal allowed the appeals, setting aside the adjudicating authority's order, and granted consequential reliefs to the appellants. The tribunal's decision was based on the separation of contracts for supply and erection, the non-inclusion of transformer value in service tax calculations, and the absence of any basis for penalties.

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