Composite import contracts cannot be split to tax incidental installation services where no separate consideration is established.

A composite import contract with a single consolidated invoice value for machinery, installation, supervision and commissioning could not be split to levy service tax on a notional erection, commissioning and installation service component under reverse charge, because no separate consideration for the service was shown and installation was incidental to supply. The demand also failed on limitation, as the record did not show deliberate suppression, wilful misstatement or intent to evade tax; mere non-registration and non-filing of returns were insufficient to invoke the extended period. On both merits and limitation, the demand and penalty were held unsustainable.

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Issues: (i) Whether the consolidated consideration paid to the foreign supplier for imported machinery, including installation and commissioning obligations, was liable to service tax as Erection, Commissioning and Installation Service under reverse charge mechanism. (ii) Whether the demand was barred by limitation in the absence of deliberate suppression or intent to evade tax.

Issue (i): Whether the consolidated consideration paid to the foreign supplier for imported machinery, including installation and commissioning obligations, was liable to service tax as Erection, Commissioning and Installation Service under reverse charge mechanism.

Analysis: The invoices disclosed a single consolidated CIF value for supply, installation, supervision and commissioning of machinery, and the department itself proceeded on the total invoice value after allowing abatement. No separate consideration for erection or commissioning was shown to have been negotiated or paid. The contractual arrangement was treated as a composite supply in which installation and commissioning were incidental to the sale and supply of machinery. In such a case, the transaction could not be artificially split to levy service tax on a notional service component, both for the period prior to 01.07.2012 and for the period thereafter, in the absence of a distinct nexus and separate flow of consideration for the alleged service.

Conclusion: The liability to service tax under ECIS on reverse charge mechanism was not attracted, and the issue was decided in favour of the assessee.

Issue (ii): Whether the demand was barred by limitation in the absence of deliberate suppression or intent to evade tax.

Analysis: The appellant had acted on a bona fide belief that no separate service tax was payable where customs duty had already been assessed on the full invoice value including installation elements. The record did not disclose clear evidence of deliberate suppression, wilful misstatement, or any intentional attempt to evade tax. Mere non-registration and non-filing of returns, without affirmative proof of evasion, were insufficient to justify invocation of the extended period.

Conclusion: The extended period of limitation could not be invoked, and the demand was time barred; this issue was decided in favour of the assessee.

Final Conclusion: The impugned demand and penalty were unsustainable both on merits and on limitation, and the appeal succeeded.

Ratio Decidendi: A composite import contract with a consolidated invoice value, where installation and commissioning are incidental to supply and no separate consideration for service is established, cannot be vivisected to levy service tax on a notional service component; absent proof of deliberate evasion, the extended period of limitation is not available.

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