In a recent short but important judgment the honorable tribunal has decided the following issue:

"Whether a part of turnkey project performed by a contractor appellant had not executed work contract on turnkey basis but executed an independent contract entered into between Nilachal Ispat Nigam Limited (NINM) and the appellant was liable to pay Service tax for the engineering consultancy service rendered."

Brief Facts of the Case:

- There was a contract for setting up of a sinter plant with the principal contractor.

- Principal contractor has awarded a segment of turnkey project of setting up of a sinter plant to the appellant.

Decision:

-  No doubt, the principal project was a turnkey project and not disputed by both the parties.

- It was also not disputed that rendering of service was a part and parcel of such project.

- Rendering engineering consultancy being a secondary object of the principal object of setting up of a sinter plant, the appellant is not disentitled to get the benefit of judgment in Daelim Industrial Company Ltd. case in view of composite contract executed by a Consortium.

- There was no dispute also that the nature of the activity to be carried out by the appellant and the consideration payable were for different purposes including the designing and engineering services, supervision services including performance guarantees and post commissioning services.

-  Service is not payable as the activity is not taxable being a segment of turnkey project. 

(For full text of judgment - visit - 2007 -TMI - 2321 - CESTAT, KOLKATA and 2005 - TMI - 97 CEGAT, NEW DELHI for Daelim Industrial Company Ltd.)

Turnkey project integration: ancillary engineering and supervision services treated as part of composite project, not separate taxable services. Where a subcontractor performs a segment of an integrated turnkey project that is functionally and contractually tied to the principal object of setting up a plant, that segment is treated as part of the composite turnkey execution rather than as an independent taxable service; ancillary services like design, engineering, supervision and post commissioning support do not attract separate service tax if they form part of the overall turnkey deliverable.