Lump-sum turnkey work contract cannot be split to tax consultancy; billing schedule and engineer-in-charge show single work contract

CESTAT, New Delhi held the appellant's agreement with the owner was a lump-sum turnkey work contract, not a consultancy contract. Contract clauses showed the billing schedule governed progressive payments within the lump sum and that the owner's consultant acted as engineer-in-charge directing execution. The Tribunal found a work contract cannot be vivisected to tax residual process design and detailed engineering as consulting services. The impugned orders treating part of the contract as taxable consultancy were set aside and the appeal allowed.

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Issues involved: Determination of liability to pay service tax on residual process design and detailed engineering in a construction contract.

Summary:
The case involved a contract between M/s. Indian Oil Corporation Ltd. and M/s. Daelim Industrial Co. Ltd. for the construction of a diesel hydro-desulphurisation plant. The dispute arose when the Additional Commissioner of Central Excise issued a show cause notice holding the appellant liable to pay service tax on engineering services. The appellant contended that theirs was a construction contract and not an engineering consultancy service. Despite appeals, the duty demand was upheld. The main argument was that the contract was primarily for the construction of the desulphurisation plant, and the engineering services provided were incidental to the main objective.

The key issue in the appeal was whether consulting engineer services were involved in the contract. The contract details revealed that the project was for the construction, erection, and installation of the plant, with specific clauses outlining the responsibilities of the contractor. The contract was on a lump sum turnkey basis, and the appellant's role was focused on executing the construction work rather than providing consultancy services. The Tribunal concluded that the contract was a work contract and not a consultancy contract, emphasizing that a work contract cannot be dissected for the purpose of levying service tax.

Therefore, the Tribunal set aside the impugned orders, allowing the appeal and directing the return of any amount paid by the appellant to the department.

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