2022 (7) TMI 1183 - AT - Service Tax

Tribunal sets aside orders, finds appellants not liable for service tax, deems demands time-barred.

The tribunal set aside the impugned orders, concluding that the appellants were not liable to pay service tax under the categories mentioned, and the ... Interpretation of 'Erection, Commissioning or Installation' as taxable service - Scope of 'Commercial or Industrial Construction Service' and the exclusion 'in respect of' roads, airports, railways, bridges - Fabrication using client's materials - job work, excisable manufacture and exemption under Notification No.8/2005 ST - Time bar and inapplicability of extended limitation period where bona fide belief or bona fide doubt existsInterpretation of 'Erection, Commissioning or Installation' as taxable service - Scope of 'Commercial or Industrial Construction Service' and the exclusion 'in respect of' roads, airports, railways, bridges - Whether fabrication of structural items (beams, struts, pylons etc.) for flyovers, bridges, railways and airports by the appellants falls within 'Erection, Commissioning or Installation' or is excluded as 'Commercial or Industrial Construction Service' in respect of those civil structures. - HELD THAT: - The Tribunal found that the adjudicating authority based its demand largely on the appellants' annual/audit reports without examining individual sub contracts. Fabrication of structural items which become part of civil structures such as flyovers, bridges, railways and airports falls within the definition of 'Commercial or Industrial Construction Service' and such services 'in respect of' roads, airports, railways, transport terminals, bridges, tunnels and dams are specifically excluded from the tax net. Flyovers/bridges cannot be equated with plant, machinery or equipment; hence the work does not fall within the earlier narrower definition of 'Erection, Commissioning or Installation' and is not taxable under that head. The Tribunal applied and relied on precedents holding that fabrication integral to completion of civil structures is part of construction and outside the scope of the erection/installation taxable service. [Paras 18, 19, 20, 21]Demand of service tax under 'Erection, Commissioning or Installation' for fabrication work forming part of bridges, railways and airports is not sustainable and is set aside.Fabrication using client's materials - job work, excisable manufacture and exemption under Notification No.8/2005 ST - Interpretation of fabrication as manufacture vs service - Whether fabrication of steel structures carried out by the appellants using clients' raw materials is taxable as 'Erection, Commissioning or Installation', or is job work/manufacture (excisable) or at most Business Auxiliary Service exempt under Notification No.8/2005 ST. - HELD THAT: - Records show fabrication was carried out using clients' materials at clients' sites, amounting to job work/production on behalf of clients. Several decisions relied on by the bench hold that such on site fabrication may amount to manufacture or otherwise cannot be taxed under 'Erection, Commissioning or Installation'. Even if treated as rendering of service, the activity would at best fall under Business Auxiliary Service and is exempt under Notification No.8/2005 ST (production with client's materials at client's site). The show cause notices did not make a demand under Business Auxiliary Service, but under ECIS, which the Tribunal found untenable on the facts. [Paras 19, 22, 23]Fabrication carried out with clients' materials is not taxable as 'Erection, Commissioning or Installation'; it is either excisable manufacture or exempted business auxiliary service, and the demand under ECIS cannot be sustained.Interpretation of 'Erection, Commissioning or Installation' as taxable service - Whether the demand of service tax in respect of alleged fabrication for ABG Shipyard Ltd is sustainable against the appellants. - HELD THAT: - The show cause notice itself and the records indicate no receipts from ABG Shipyard in the appellants' annual reports. Form 16A relied upon in the demand shows payment to an entity with the same name but a different PAN, which is not the appellants' PAN. The Commissioner did not rebut this record. On these facts, the demand in respect of ABG Shipyard cannot be sustained. [Paras 11, 24]Service tax demand relating to alleged fabrication for ABG Shipyard Ltd is unsustainable and is set aside.Time bar and inapplicability of extended limitation period where bona fide belief or bona fide doubt exists - Liability of sub contractor to pay service tax and effect of prior uncertainty - Whether the extended limitation period ( proviso to the limitation provision) is invocable so as to sustain demands beyond one year for the period October 2004 to March 2009. - HELD THAT: - The Tribunal held that the show cause notices sought tax for October 2004 to March 2009, which exceeds the one year limitation. The extended period of five years cannot be invoked unless there is evidence of fraud, collusion, wilful mis statement or suppression of facts with intent to evade tax. The appellants maintained records and there is a bona fide belief (supported by contemporaneous tribunal decisions and genuine doubt on subcontractor liability prior to CBEC circular/decisions) that no service tax was payable. Furthermore, the liability of sub contractors to pay service tax was not settled during the relevant period, and where an issue was not free from doubt requiring larger bench consideration, the extended limitation was held inapplicable. [Paras 12, 25, 26]Extended limitation period is inapplicable; demands beyond the one year period are time barred and unsustainable.Final Conclusion: The Tribunal set aside the impugned orders, allowing the appeals: demands framed as service tax under 'Erection, Commissioning or Installation' for the fabrication/construction activities in question are not sustainable; the ABG Shipyard demand fails on record; and demands beyond the one year limitation are time barred. Appeals allowed with consequential reliefs. Issues Involved:1. Liability to pay service tax under 'Erection, Commissioning or Installation' services.2. Classification of services as 'Commercial or Industrial Construction Service'.3. Fabrication of steel structures and its taxability.4. Applicability of Business Auxiliary Service exemption.5. Fabrication of Hulls/Parts of body of Ships for ABG Shipyard Ltd.6. Limitation period for service tax demand.7. Jurisdiction of the Commissioner of Central Excise, Surat.Detailed Analysis:1. Liability to Pay Service Tax under 'Erection, Commissioning or Installation' Services:The demand for service tax was based on the appellants' Annual Report/Audit Report, which described their business as Erection and Commissioning Contractor. However, the show cause notice did not examine individual sub-contracts or work contracts to determine if they met the definition of 'Erection, Commissioning or Installation' under Section 65 (39a) of the Finance Act 1994. The tribunal found that the activities undertaken by the appellants, such as fabrication of structural items for flyovers, bridges, and railways, did not fall under this category as they were part of civil construction and excluded from service tax.2. Classification of Services as 'Commercial or Industrial Construction Service':The appellants argued that their activities fell under 'Commercial or Industrial Construction Service' as defined in Section 65 (25b) of the Finance Act 1994, which excludes services related to bridges, railways, and airports from the tax net. The tribunal agreed, noting that fabrication of beams, struts, and pylons for bridges and railways is part of civil construction and thus not taxable. This was supported by judgments such as Jagdish Prasad Agarwal v. CCE and Pioneer Fabrications P. Ltd v. CCE.3. Fabrication of Steel Structures and Its Taxability:The appellants' fabrication of steel structures using clients' raw materials was considered a job-work activity and not liable to service tax under 'Erection, Commissioning and Installation'. The tribunal cited several decisions, including Hazi Ap Bava & Co v. CCE and Neo Structo Construction Ltd v. CCE, which held that such fabrication is not taxable as it amounts to manufacturing excisable goods.4. Applicability of Business Auxiliary Service Exemption:Even if the job work activity was considered a service, it would fall under 'Business Auxiliary Service' as per Section 65 (19) (v) of the Finance Act 1994 and was exempted by Notification No. 8/2005-ST dated 1-3-2005. The tribunal found that the appellants met the conditions for this exemption, and there was no demand for service tax under this category in the show cause notice.5. Fabrication of Hulls/Parts of Body of Ships for ABG Shipyard Ltd:The tribunal found no evidence that the appellants undertook fabrication work for ABG Shipyard Ltd, as the show cause notice did not show any receipt of payments from ABG Shipyard. The demand was based on payments made to another firm with a similar name. Therefore, the service tax demand on this ground was not sustainable.6. Limitation Period for Service Tax Demand:The show cause notices dated 21-4-2010 demanded service tax for the period October 2004 to March 2009, which was beyond the one-year limitation period specified in Section 73 (1) of the Finance Act 1994. The tribunal found no evidence of suppression of facts or intent to evade tax, and the appellants' belief that no service tax was payable was reasonable and bona fide. Therefore, the larger period of limitation of five years was inapplicable, making the demand time-barred.7. Jurisdiction of the Commissioner of Central Excise, Surat:The tribunal noted that while the Commissioner of Central Excise, Surat, may have jurisdiction to demand tax for services provided outside his jurisdiction after the appellants obtained registration in 2007, the tax demand was not sustainable on merits and limitation. Thus, the issue of jurisdiction was of academic importance, and no conclusive finding was given.Conclusion:The tribunal set aside the impugned orders, concluding that the appellants were not liable to pay service tax under the categories mentioned, and the demands were time-barred. The appeals were allowed with consequential reliefs in accordance with the law.