Sale of machinery versus taxable service: incidental site assembly was not separately taxable, and extended limitation was unsustainable.

Where draw texturizing machines were manufactured and sold as excisable goods, cleared in dismantled parts for transport convenience, the incidental erection and commissioning at the buyer's site was treated as part of the sale transaction and not a separate taxable service. No independent erection or installation charges were shown, and the full contract value had already suffered Central Excise duty, so service tax could not be levied on the same activity. The extended limitation period was also held inapplicable because the assessee was registered, had filed returns, and had disclosed the clearance and assembly facts to the department, with no wilful suppression or intent to evade tax.

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Issues: (i) Whether the activity of erection, installation and commissioning of Draw Texturizing Machines, cleared in parts and sold on a lump-sum basis, was liable to service tax as a taxable service. (ii) Whether invocation of the extended period of limitation was justified.

Issue (i): Whether the activity of erection, installation and commissioning of Draw Texturizing Machines, cleared in parts and sold on a lump-sum basis, was liable to service tax as a taxable service.

Analysis: The machinery was manufactured and sold as excisable goods, and because of its size it was removed in dismantled portions under the prescribed trade notice procedure. The contract remained one for sale of machinery, and any assembly or erection at the buyer's site was only incidental to delivery of the complete machine. No separate erection or installation charges were shown or recovered, and the entire contract value had already suffered Central Excise duty. A transaction of sale is excluded from the definition of service, and where no independent consideration exists for the alleged service, service tax cannot be fastened. The valuation material and the cited authorities supported the view that erection and commissioning, in these facts, formed part of the sale of goods and not a separate taxable service.

Conclusion: The demand of service tax on the alleged erection, installation and commissioning activity was not sustainable and was against the assessee.

Issue (ii): Whether invocation of the extended period of limitation was justified.

Analysis: The assessee was registered with the Central Excise department, paid duty on the full value of the machines, filed returns, and had even intimated the department about staggered clearance and site assembly. The facts relied upon for the demand were already on record, and there was no material to establish wilful suppression or misstatement with intent to evade tax. In these circumstances, the longer limitation period could not be invoked.

Conclusion: Invocation of the extended period of limitation was not justified and the demand on that basis was time-barred.

Final Conclusion: The impugned orders were unsustainable, and the appeals were allowed with consequential relief.

Ratio Decidendi: Where a machine is sold as excisable goods, cleared in parts for practical transport reasons, and no separate consideration is recovered for erection or installation, the incidental assembly at the buyer's site remains part of the sale transaction and does not constitute a separately taxable service.

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