Composite supply of installed machinery not liable to service tax where erection and commissioning were integral to manufacture.

Service tax was held not leviable on erection, installation and commissioning undertaken by a textile machinery manufacturer where the contract covered supply of fully installed and commissioned machines as a composite supply. The work at the buyer's premises was treated as incidental to the manufacture and delivery of a completed commercial product, not as an independent service. No separate consideration was charged for the activity, and excise duty had already been paid on the full contract value. On those facts, the service tax demand and penalties were set aside.

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Issues: Whether service tax was payable on erection, installation and commissioning activities undertaken by a manufacturer of textile machinery where the contract was for a lump sum supply of fully installed and commissioned machines, the entire contract value was subjected to excise duty, and no separate amount was charged for such activities.

Analysis: The contract was for supply of complete machines in installed and commissioned condition. The erection and commissioning work at the buyer's premises was not undertaken by an independent commissioning agency but was part of the process of supplying the machine as a complete commercial product. No segregated consideration was shown for erection or commissioning, and excise duty had already been paid on the full contract value. On these facts, the activities were held to be integrally connected with manufacture and supply, and the demand of service tax on the same consideration could not be sustained.

Conclusion: Service tax was not leviable on the appellant's erection, installation and commissioning activity, and the demand as well as penalties were set aside in favour of the assessee.

Final Conclusion: The appeal succeeded because the impugned service tax levy was held unsustainable on the composite supply of machinery treated as a completed manufactured product.

Ratio Decidendi: Where erection, installation and commissioning are integral to the supply of a manufactured machine, form part of a composite contract, and no separate consideration is charged while excise duty is paid on the full value, such activity is incidental to manufacture and does not attract service tax on the manufacturer.

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