TaxTMI 
TaxTMI 
2009 (1) TMI 443
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....td., Gujarat Refinery, for constructing storage tank for offsite and utility for LAB project for lump sum contract for entire work of drawing, designing and procurement of materials and construction of storage tank, which could not be split into individual components for levy of service tax. They placed reliance upon Tribunal's decision in Daelim Industrial Co. Ltd. v. CCE [2007] 7 STT 184 (New Delhi - CESTAT) to support their claim that a lump sum turnkey works contract cannot be vivisected and part of it subjected to tax, which decision was upheld by the Apex Court, and the Tribunal's decision in Larsen & Toubro Ltd. v. CCE [2005] 1 STT 183 (Chennai - CESTAT). On scrutiny of the refund claim, it was noticed from the letter of acceptance issued by the assessees to their clients that prices for three different categories had been quoted - (i) lump sum price for detailed engineering inclusive of service tax; (ii) lump sum price for supply portion, and (iii) lump sum price for service (construction and erection) portion. It was clear from the above bifurcation that the exact price for the services of construction and erection was worked out by the assessees. Since the valu....
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....not be vivisected for a part of it to be subjected to service tax. The Special Leave Petition filed by the department against the decision was dismissed by the Apex Court as in 2004 (170) ELT A181 (SC). The facts in the present case are identical to that of Daelim Industrial Co. Ltd.'s case (supra) - the respondent has been awarded a contract by IOC for the very same Gujarat Refinery Project and the terms and conditions thereof are admittedly identical to the terms of the contract between Daelim and IOC. Further, the Tribunal has consistently held that a lump sum indivisible contract cannot be vivisected and part of it cannot be subjected to service tax in the case of Larsen & Toubro Ltd. (supra), Ircon International Ltd. v. CCE [2005] 2 STT 264 (New Delhi - CESTAT), CCE v. Shapoorji Pallonji & Co. Ltd. [2006] 3 STT 127 (Delhi - CESTAT), CCE v. Larsen & Toubro Ltd. [2007] 7 STT 91 (New Delhi - CESTAT) and Diebold Systems (P.) Ltd. v. CST [2007] 9 STT 317 (Chennai - CESTAT). We also note that in the case of Jyoti Ltd. v. CCE [Final Order Nos. A/3085 - 3087 of 2007, dated 18-12-2007], the assessee entered into a lump sum indivisible contract for sale of mechanical engineering and....
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....he Supreme Court was concerned with the constitutional validity of the 46th Amendment by which State legislature was empowered to levy service tax on certain transactions described in sub-clauses (a) to (f) of clause (28A) of article 366, which otherwise did not satisfy the normal meaning of the expression "sale of goods". Noting the legislative history of tax on the sale and purchase of goods, the Apex Court observed in para 5 of its judgment that the power to levy sales tax was conferred on the States by the Constitution vide entry 54 of List II of the Seventh Schedule to the Constitution which covered "taxes on the sale or purchase of goods other than newspaper". The Bench noted that prior to the 46th Amendment controversy about levy of sales tax on the value of goods involved in a works contract had arisen before some High Courts. In the case of Gannon Dunkerley & Co. (Madras) Ltd. v. State of Madras AIR 1954 Mad. 1130, the Hon'ble Madras High Court arrived at the conclusion that the transaction in question, viz. building contracts were not contracts for sale of goods us defined under the Sales of Goods Act, 1930 and, therefore, the assessees were not liable to pay sales ta....
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....upplied in a building contract which had been entered into in two distinct and separate parts as stated above. It could not have been the contention of the revenue prior to the 46th Amendment that when the goods and materials had been supplied under the distinct and separate contract by the contractor for the purpose of construction of a building the assessment of sales tax could be made ignoring the restrictions and conditions incorporated in Article 286 of the Constitution. If that was the position can the States contend after the 46th Amendment under which by a legal fiction the transfer of property in goods involved in a works contract was made liable to payment of sales tax that they are not governed by Article 286 while levying sales tax on sale of goods involved in a works contract? They cannot do so. When the law creates a legal fiction such fiction should be carried to its logical end. ... 40. We are surprised at the attitude of the States which have put forward the plea that on the passing of the 46th Amendment the Constitution had conferred on the States a larger freedom than what they had before in regard to their power to levy sales tax under Entry 54 of the State L....
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....ociated Hotels of India Ltd. 1972 (1) SCC 472 which was relied upon in the case of Daelim, for the reason that it was mainly with respect to sales tax which introduced a deeming provision. Relevant extract from the Larsen & Toubro (supra) decision is reproduced herein below:- "31. .... Revenue has not been able to distinguish the present contract from that involved in Daelim case because the contract in the present cases are essentially for construction and not for the services and the services referred to are an integral part of contract. The contract is a work contract on a turnkey basis and not a consultancy contract. It is well-settled by series of case laws that a work contract cannot be vivisected and part of it subjected to tax. The decision in the Associated Hotels case does not lend any support to the revenue as a solitary instance cited by the learned S.D.R. in the case of S. Krishna of Andhra Pradesh High Court has been undone by the Supreme Court in the Guntur Tobacco case cited by the appellants. The 46th Amendment to the Constitution has also not made any difference to the decision of Associated Hotels as it was mainly with respect to sales tax which introduced ....
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....ons of the Apex Court regarding transactions relating to deemed sales only. 8. Works contract service has been introduced with effect from 1-6-2007. Therefore, service tax can be levied on the service portion involved in the execution of a works contract only after the above date and not prior thereto. When a subsequent entry is enacted to cover an activity without changing an existing entry, it is presumed that the earlier entry did not cover the said activity. In the present case, the tax rate of both installation or commissioning service which was introduced in 2003, and works contract service introduced with effect from 1-6-2007, remains the same and the definition of the expression "erection, installation or commissioning" has not undergone any change during the period in question and, therefore, subsequent to introduction of levy of service tax on works contract, such contract would not be covered prior to 1-6-2007 under the taxable head of installation or commissioning service. 9. During the course of hearing, learned consultant for the Revenue raised a contention that it was the intention of the Revenue to levy service tax on the service/labour portion under taxable h....
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....he Tribunal, namely that charges for erection, installation and commissioning are not covered under the category of 'consulting engineering services' for a period prior to 2003 in the case of CCE v. Gujarat Goldcoin Ceramics Ltd. [2005] 1 STT 218 (Mum. - CESTAT) following the earlier decision of DGP Windsor Ltd. v. CCE [2007] 7 STT 104 (Mum. - CESTAT), and the Gujarat Goldcoin decision has been followed in Sanghi Oxygen (Bombay) (P.) Ltd. v. CCE [2006] 4 STT 81 (Mum. - CESTAT). Therefore, reliance placed by the learned consultant for the Revenue on the December 2002 circular is misplaced. 11. In the light of the above discussion, we uphold the impugned order of sanction of refund of service tax paid by the respondents, and reject the appeal. A.K. Srivastava, Technical Member 12. I have carefully gone through the order proposed by the Hon'ble Vice President. However, I am unable to agree with the same. Hence, this separate dissenting order. 13. I have examined the relevant records and considered the submissions including the written submissions made by both the sides. 14. Facts of the case are very simple, which have been clearly brought out by the Hon'....
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....India Ltd. (supra) and thus the Tribunal has held that indivisible works contract cannot be vivisected and part of it subjected to tax. 18. At the time of hearing as also in his written submissions, ld. consultant for the Revenue has submitted that no doubt that the Department's SLP against the Tribunal's decision in Daelim Industrial Co. Ltd. has been dismissed by the Hon'ble Apex Court as reported in 2004 (170) ELT A181, yet such dismissal of SLP will not have any precedential value as held by the Hon'ble Apex Court in the case of Hari Singh v. State of Haryana 1993 (66) ELT 23. He has also submitted that the Tribunal's decision in Daelim Industrial Co. Ltd. is per incuriam inasmuch as the Tribunal has not noticed and considered the Hon'ble Apex Court's decisions in the case of Builders' Association of India (supra) and Associated Cement Companies Ltd. (supra) wherein the Hon'ble Apex Court has held that after the 46th Amendment to the Constitution of India by inserting clause (29A) to Article 366, indivisible works contract could be split up and part of it could be subjected to tax. 19. With respect to the Tribunal's decision in L....
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....of India by inserting clause (29A) to Article 366, indivisible works contract can be split up and part of it subjected to tax, be it sales tax or service tax or any other tax for that matter. In his submission, this is very clear from the subsequent judgments of the Hon'ble Apex Court in the case of Builders' Association of India (supra) and Associated Cement Companies Ltd. cited (supra). 22. I have carefully gone through the aforecited judgments of the Hon'ble Apex Court. I find that in the case or Builders' Association of India (supra), one of the questions for consideration was whether the State Legislature has the power to levy tax on the transfer of property in goods involved in the execution of contracts referred to in sub-clause (b) of clause (29A) of Article 366 of the Constitution. Considering this question, in para 36 of the judgment, the Hon'ble Apex Court has held as follows: "36. Even after the decision of this Court in the State of Madras v. Gannon Dunkerley & Co. (Madras) Ltd. it was quite possible that where a contract entered into in connection with the construction of a building consisted of two parts, namely, one part relating to the sal....
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....ed prior to 46th Amendment of the Constitution were relied upon. After considering those decisions, the Hon'ble Apex Court in para 23 held as follows: "23. . . .The Forty-sixth Amendment was made precisely with a view to empower the State to bifurcate the contract and to levy sales tax on the value of the material involved in the execution of the works contract, notwithstanding that the value may represent a small percentage of the amount paid for the execution of the works contract. Even if the dominant intention of the contract is the rendering of a service, which will amount to a works contract, after the Forty-sixth Amendment the State would now be empowered to levy sales tax on the material used in such contract. The conclusion arrived at in Rainbow Colour Lab case, in our opinion, runs counter to the express provision contained in Article 366(29A) as also of the Constitution Bench decision of this Court in Builders' Association of India v. Union of India [1989] 2 SCC 645." 24. From the above judgments of the Hon'ble Apex Court. I am clear in my mind that after the 46th Amendment of the Constitution by inserting clause (29A) to Article 366, indivisible works ....
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....Tribunal in the case of B.E. Billimoria & Company Private Limited [Order No. C-II/890-891/WZB/2008, dated 25th April, 2003] holding that PSC girders are not marketable is based upon the finding that the contract between the appellants and M/s. Konkan Railway Corporation Limited for whom M/s. B.E. Billimoria & Company Private Limited were contractors for the construction of bridges and not for the construction of girders. The Bench also relied upon the fact that the nature of the contract entered into between M/s. Konkan Railway Corporation Limited and M/s. B.E. Billimoria & Company Private Limited was works contract, which was indivisible, and the supply of material is only necessary to the performance of contract for work and labour. We note that the decision of Hon'ble Madras High Court in the case of Richardson & Cruddas Ltd. v. The State of Madras - 1965 (16) STC 826 has relied upon the decision of the Apex Court in the case of the State of Madras v. Gannon Dunkerley & Co. Ltd. - 1958 STC 353 holding that (sic.) no sales tax cannot be levied on the amount received under works contract by the Building Contractor even though he had supplied goods for the construction of the b....
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....The reliance by the Bench in the case of B.E. Billimoria & Company Private Limited upon the upholding of the decision of Madras High Court in the case of Richardson and Cruddas Limited by the Apex Court by dismissal of revenue's appeal as reported in 21 STC 245 is misplaced for the reason that the Richardson and Cruddas' decision cover the period prior to the 46th Amendment and the Supreme Court's dismissal of appeal filed by the State of Madras against the Madras High Court's decision was prior to the 46th Amendment to the Constitution in 1982..........." 27. The learned consultant for the revenue has also relied upon the Apex Court decision in the case of Bharat Sanchar Nigam Ltd.'s case (supra) wherein the Hon'ble Apex Court agreed with its decision in Associated Cement Companies Ltd.'s case (supra). 28. I have perused the above judgment and I find that in para 47 of the judgment, the Hon'ble Apex Court has held that after the 46th Amendment, the sale element of those contracts which are covered by the six sub-clauses of clause (29A) of Article 366 are separable and may be subjected to sales tax by the States under Entry 54 of List II. 29....
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....was not taxable earlier under T.I. 68. 33. A similar issue had come up before the CESTAT in the case of Tata Tea Ltd. v. CCE 2004 (164) ELT 315 (Trib. - Delhi) in which it was held that the question whether the Furnace Oil used by the 100 per cent EOU in their boilers was a "consumable" within the meaning of Entry No. 7 of Annexure-I to Notification No. 1/95-CE was decided by the Commissioner, solely with reference to Entry No. 3C of Annexure-I to the notification holding that the entry was not applicable to the furnace oil used in the boilers in appellant's EOU (not being a textile unit) till 21-5-2000. It was held by the Tribunal that for the relevant period (1-1-2000 to 21-5-2000). Entry No. 7 consumables and not Entry No. 3C was specific for the appellant's EOU. It was held that each entry in the Annexure is per se specific and requires to be construed independently, untrammelled by anything contained in any other entry. It was held that the "Furnace oil required for the boilers" vide Entry No. 3C of Annexure-I as amended on 22-5-2000 is specific for all 100 per cent EOUs from the said date. But "Furnace oil required for the boilers used in the textile units" vide En....
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....#39;s decision in Daelim Industrial Co. Ltd.'s case (supra) is per incuriam and in two cases of Larsen & Toubro Ltd.'s case (supra) the Hon'ble Apex Court has already admitted the Department's appeals as reported in 2005 (182) ELT A149 (SC) and 2007 (5) STR J98 (SC) respectively. It is his submission that though there is no stay granted against the Tribunal's decisions in the aforesaid two cases of Larsen & Toubro Ltd. yet once the Hon'ble Apex Court has admitted the Department's appeals, there is no finality of the Tribunal's decisions. In this connection, he has relied upon the judgment of the Hon'ble Apex Court in the case of West Coast Paper Mills Ltd. (supra). 37. I have considered the above submissions. I find that in the case of Asian Techs Ltd. (supra) the Larger Bench of the Tribunal has already held that after the 46th Amendment of the Constitution, indivisible works contract can be split up and part of it can be subjected to tax. However, this decision is not found to have been cited or relied upon in the subsequent decisions. I also find that Tribunal's decision in Daelim Industrial Co. Ltd. has been consistently followed by va....
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.... opinion are placed before the Hon'ble President for reference to the Larger Bench or to a Third Member for resolving the difference:- "1. Whether the Tribunal's decision in Daelim's case is binding on the coordinate benches of the Tribunal, although Apex Court's dismissal of Department's SLP against the said decision is not a binding precedent as held by the Hon'ble Vice President? Or Whether the Tribunal's decision in Daelim's case being per incuriam has no precedential value and is not binding on the coordinate benches of the Tribunal as held by the Member (Technical)? 2. Whether the indivisible works contract, prior to its introduction with effect from 1-6-2007, could be split up and part of its subjected to tax, be it sales tax, service tax or any other tax after the 46th Amendment of the Constitution by inserting clause (29A) to Article 366 of the Constitution as held by the Member (Technical)? Or Whether service tax can be levied on the service portion involved in the execution of a works contract only after 1-6-2007 and not prior to 1-6-2007 as held by the Hon'ble Vice President?" P.G. Chacko, Judicial Member (Third M....
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....The learned Member (Technical) also drew support from the Supreme Court's decision in Bharat Sanchar Nigam Ltd.'s case (supra). The regular Bench extensively referred to clause (29A) of Article 366 of the Constitution of India, inserted by the 46th Amendment. While the learned Vice-President was of the view that one should not look into the above Constitutional provision in the context of examining the question whether service tax was leviable on any works contract inasmuch as the above amendment was relevant only to Entry 54 of List II (State List) of the VIIth Schedule to the Constitution. In other words, according to the learned Vice-President, the leviability of service tax on works contract requires to be ascertained only with reference to the date of introduction of works contract as a taxable service in the statute book, without reference to Article 336(29A) of the Constitution. The learned Vice-President also referred to Budget Circular No. 334/1/2007-TRU, dated 28-2-2007, wherein works contract was described as "the proposed taxable service" and a special procedure for assessment of the tax was also proposed. On the other hand, the learned Member (Technical) consid....
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....ices provided to any person in relation to mining of mineral, oil or gas was introduced in June, 2007 and the other entry (zzzzj) was introduced later on with effect from 16-5-2008. The Hon'ble High Court held that the introduction of a new entry and inclusion of certain services in that entry would pre-suppose that there was no earlier entry covering such services. Accordingly, the revenue's bid to levy service tax on the service covered by entry (zzzzj) for the period prior to May, 2008 under the pre-existing entry (zzzy) was foiled. Paragraphs 37 and 38 of the Hon'ble High Court's judgment are usefully reproduced hereunder:- "37. Entry (zzzzj) is entirely a new entry. Whereas entry (zzzy) covers services provided to any person in relation to mining of mineral, oil or gas, services covered by entry (zzzzj) can be identified by the presence of two characteristics namely (a) supply of tangible goods including machinery, equipment and appliances for use, (b) there is no transfer of right of possession and effective control of such machinery, equipment and appliances. According to the members of the 1st petitioner, they supply offshore support vessels to carry out ....
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....td.'s case (supra). On the other hand, it has been pointed out by the learned counsel that the SLP filed by the department against the Tribunal's decision in Daelim case was dismissed by the Apex Court. This aspect, I note, was considered by the Tribunal in Diebold Systems case also. The Tribunal, in that case, noted the brief text of the Supreme Court's order dismissing the SLP, which reads thus: "We see no reason to interfere. The Special Leave Petition is dismissed". This order of the Hon'ble Supreme Court indicates that the merits of the Tribunal's judgment were examined by the Supreme Court. In this scenario, I am of the opinion that the view taken by this Tribunal in Daelim case and followed consistently in subsequent cases has the stamp of approval of the Apex Court and hence will have binding effect. Coupled with this is the fact that the ratio decidendi of Diebold Systems (supra) has been approved by the Hon'ble High Court in the case of Indian National Shipowners Association (supra). At the risk of repetition, I observe that the view taken in Daelim case was followed in Diebold Systems, paragraphs 7 to 9 of which are reproduced below for the sake o....
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....contracts to be indivisible. 8. Inherent in the decision of the Tribunal in Daelim case is a basic concept of taxation, which is the one recognized and declared by the Apex Court in the case of Govind Saran Ganga Saran v. Commissioner of Sales Tax [1985] 60 STC 1 and reads thus:- "The components which enter into the concept of a tax are well known. The first is the character of the imposition known by its nature which prescribes the taxable event attracting the levy, the second is a clear indication of the person on whom the levy is imposed, and who is obliged to pay the tax, the third is the rate at which the tax is imposed, and the fourth is the measure or value to which the rate will be applied for computing the tax liability. If those components are not clearly and definitely ascertainable, it is difficult to say that the levy exists in point of law. Any uncertainty or vagueness in the legislative scheme defining any of those components of the levy will be fatal to its validity." It was held more or less to the same effect by the Apex Court in Mathuram Agrawal's case thus: "....The intention of the Legislature in a taxation statute is to be gathered from the lan....
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....vice" as claimed by them and not "Management Consultancy Service" as claimed by the revenue. 'Business Auxiliary Service' was introduced in July 2003 when the other service was already on the statute book. After noting that the definition of "Management Consultancy Service" remained the same even after introduction of 'Business Auxiliary Service' as a taxable service, the Tribunal rejected the revenue's plea that the service provided by the assessee could still be taxed as "Management Consultancy Service" for the period prior to July 2003. In the present case, the assessee is also supported by the decision in Widia GMBH case. That company had transferred technology to another company for manufacture of certain tools and parts thereof and had received consideration therefor during 1993-1999. The department sought to levy service tax on the amount received by the assessee from their technical collaborators, in the Category of "Consulting Engineers' Service". The demand was contested by the assessee by submitting that the technology transfer fell within the ambit of "Scientific and Technical Consultancy Service" which was introduced on 16-7-2001 only. This cont....
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....ndivisible works contracts and the same was in the nature of transaction between a mandap-keeper and his customer. We have not found any comparison between such transaction and the one between the assessee and the banks concerned. Again, the above decision of the Apex Court is not an authority on the proposition that service tax could be levied in respect of indivisible works contracts on the strength of a Notification issued under section 93 of the Finance Act, 1994 in the absence of charging provision in the said Act. It is true that, with the insertion of clause (29A) in Article 366 of the Constitution, sales tax could be levied in respect of indivisible works contracts. But, for the levy of service tax in respect of such contracts prior to 1-6-2007, no statutory authority has been cited by SDR." 44. The learned Special Consultant for the revenue has pointed out that the principal bench of this Tribunal took contra view in a similar case and referred the issue to a Larger Bench. He has also produced a copy of the referral order vide 2008-TIOL-1880-CESTAT-DELHI. The referring Bench noted inter alia that Daelim was not correctly decided and the finding that a turnkey works cont....