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Issues: (i) Whether a consolidated payment made under a composite import contract for machinery, which included installation, commissioning and erection obligations of the foreign supplier, could be vivisected and subjected to service tax as Erection, Commissioning and Installation Service under reverse charge mechanism. (ii) Whether the demand was sustainable for the extended period in the absence of deliberate suppression or intent to evade.
Issue (i): Whether a consolidated payment made under a composite import contract for machinery, which included installation, commissioning and erection obligations of the foreign supplier, could be vivisected and subjected to service tax as Erection, Commissioning and Installation Service under reverse charge mechanism.
Analysis: The invoices showed a single consolidated CIF value covering supply of machinery as well as installation and commissioning obligations. No separate consideration for the service component was shown or proved, and the department had also proceeded on the basis of the gross invoice value with abatement, without demonstrating a distinct service nexus. For the period prior to 01.07.2012, the taxable service contemplated service by a commissioning and installation agency, whereas the foreign supplier was found to be merely the supplier under a composite contractual obligation, not a separate commissioning and installation agency. For the post-01.07.2012 period also, the absence of a clear and separately identifiable consideration for the alleged service prevented artificial bifurcation of the contract value. The fact that the same consolidated invoice value had been considered for customs assessment under EPCG further supported the view that the value could not be split again for service tax.
Conclusion: The consolidated contract value could not be artificially bifurcated, and no service tax was leviable on the alleged ECIS component; the finding is in favour of the assessee.
Issue (ii): Whether the demand was sustainable for the extended period in the absence of deliberate suppression or intent to evade.
Analysis: The appellant's stand was found to be based on a bona fide belief arising from the composite nature of the transaction and the customs treatment of the full invoice value. The record did not show clear evidence of a deliberate or intentional attempt to evade tax. Mere non-registration or non-filing of returns, without more, was insufficient to establish suppression with intent to evade where the underlying liability itself was genuinely disputed on legal and factual grounds.
Conclusion: The extended period was not invocable and the demand was time-barred; the finding is in favour of the assessee.
Final Conclusion: The demand was unsustainable both on merits and on limitation, and the assessee succeeded in the appeal.
Ratio Decidendi: A composite import contract for machinery with inseparable installation and commissioning obligations cannot be artificially split to levy service tax on an alleged service component unless separate consideration and a distinct taxable service nexus are clearly established; absent suppression or intent to evade, the extended limitation period cannot be invoked.
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