TaxTMI 
TaxTMI 
2011 (3) TMI 826
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.... in any manner is one or more disciplines of engineering became taxable. Under Section 65 (31). The term "Consulting Engineers" means any professionally qualified engineer or an engineering firm, who, either directly or indirectly, renders any advice, consultancy or technical assistance in any manner to a client is one or more disciplines of engineering. The services of "Installation & Commissioning" and "Repair & Maintenance" became taxable w.e.f. 1.7.2003 and the Appellant took service tax registration for repair & maintenance on 1/8/03 and for "installation & commissioning"- and "Consulting Engineer's Service" on 20.01.2004. The allegation against the Appellant is that though they were providing taxable services of Consulting engineers even during the period prior to 1.8.03, they neither took service tax registration nor paid any service tax on the same. According to the Department, during the period from December, 1999 to April, 2004, the Appellant, in terms of their Contracts with their clients, provided taxable service of 'Consulting Engineer" to them and charged an amount of Rs.8,07,18,925/- on which service tax chargeable was Rs.40,71,946/-, but they did not pay any service....
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....re separately mentioned in their contracts; and (iii) in their contracts, the part of consulting engineer's services could be separated and charged to tax. According to the Department, since the service tax can be levied on the part of the value of the contract, especially when the taxable value of the service is separately known, the charges for drawing/designing, providing training to personnel and other technical assistance are chargeable to service tax. It has also been alleged that the Appellant by not taking any service tax registration and not informing the Department about their Engineering Consultancy activity, have suppressed this information from the Department. The above allegations are incorrect as the Appellant had not provided any Consulting Engineer's service but had executed lump sum turnkey contracts for design, engineering, manufacture, supply, erection, testing and commissioning of control systems. (2) The lower appellate authority has completely overlooked the law laid down by this Tribunal in a series of judgments holding that "lump sum turnkey contracts for design, engineering, manufacture, supply, erection, test....
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.... is applicable to entry 54 (sales tax) and cannot be extended to entry 53 (tax on consumption on sale of electricity) of List II. (c) Hon'ble Supreme Court's judgment in case of Geo Miller & Co. (P) Ltd. vs. State of M.P. reported in (2004) 5 SCC - 209 (para 22, 23 & 24) wherein it was held that Article 366 (29A) seeks to define "tax on the sale or purchase of goods", which is used in sales tax entries 92 and 92A of List I and entry 54 of List II and, therefore, this definition cannot be adopted for entry tax covered by entry 52 of List II of 7th schedule. (d) Hon'ble Delhi High Court's judgment in case of - The Federation of Hotels & Restaurant Association of India vs. Union of India reported in AIR (2007) Delhi - 137 (para 4 & 8) = (2007-TIOL-345-HC-DEL-SWMA) wherein it was held that supply of mineral water and soft drink in hotels and restaurants does not constitute sale under the provisions of Standards of Weights & Measures Act, 1976 and Standards of Weights & Measures (Packaged Commodities) Rules, 1976 even though by deeming fiction of Article 366 (29A) (f), supply of these has been considered sale for levy of sales tax. &n....
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....er's Association reported in 2009 (14) STR 287 (Bom.) has held that if an activity is covered under a new taxing entry, then such service would not be taxable under any earlier entry. Hon'ble Karnataka High Court in case of Turbotech Precision Engineering Pvt. Ltd. reported in 2010 (18) STR 545 (Kar.) has held that such work contract became taxable w.e.f. 1/6/07, any activity under rule contract was not taxable prior to this date. (8) House of Lords, in case of Customs & Excise Commissioner vs. British Telecommunications plc. [(1999) STC - 758], where BT had purchased new cars for its fleet direct from the manufacturers, the contracts with manufacturers were for sale and delivery of the cars and the property in a car passed only on or after its delivery and supplies of transport in form of delivery services were different and distinct from supply of cars, held that since what BT wanted was delivered cars and delivery service was incidental or ancillary to the supply of cars, and only on delivery, the property in cars passed, the contract was one contract for delivered cars and one supply for VAT purpose and BT was not entitled to deduct tax on delivery charges....
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....ract for erection, installation and commissioning of machinery/equipment. Since these are not indivisible work contracts, the question of their divisibility is irrelevant. Tribunal in case of - Transformers & Electricals, Kerala vs. CCE reported in 2008 (9) S.T.R. 285 and in case of Nokia (I) P. Ltd. vs. CCE reported in 2006 (1) S.T.R. - 33 (Cestat - DB) has held that Engineering consultancy component of EPC contracts is taxable. Tribunal's judgment in case of Transformers & Electricals, Kerala vs. CCE (supra) has been upheld by Hon'ble Kerala High Court vide judgment reported in 2009 (14) S.T.R. - 737 (Ker.). Same view has been taken by the High Courts and Tribunal in the cases of - (a) M.N. Dastur & Co. Ltd. vs. UOI reported in 2002 (140) E.L.T. - 341 (Cal. H.C.) (para 15); (b) Tata Iron & Steel Co. Ltd. vs. U.O.I, (para 14) reported in 1988 (033) E.L.T. - 0297; (c) CCE, Thiruvananthapuram vs. Kerala State Electricity Board (para 10) reported in 2006 (003) S.T.R. 0625 ; (d) Foster Wheeler Energy Ltd....
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....ot add words to a statute or read into it something which is not there. (5) The Appellant's plea that the charges for drawings, designs, engineering/technical assistance shown in the contracts and invoices are not the actual charges for these service is un-acceptable, as the contracts have clauses regarding preparation of drawings, designs and providing other technical assistance and invoices show separate charges for these services. Documentary evidence cannot be countered by oral evidence. No documentary evidence has been produced by the Appellant to show that the charges for drawings, designs, engineering or technical assistance shown in the contracts and invoices are not the actual charges for these services. (6) Though Department's SLP to Hon'ble Supreme Court against Tribunal's judgment in case of Daelim Industrial Co. Ltd. vs. CCE, Vadodara was dismissed by the Court, the dismissal being summary dismissal without any reasoned order, does not lay down any law. (7) Hon'ble Supreme Court's judgment in case of Geo Miller & Co. (P) Ltd. vs. State of M.P. (supra) cited by the appellant pertains to entry tax and the ....
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.... therefore longer limitation period under Section 73 (1) of the Finance Act, 1994 is available to the Department. For the same reason, penalty under Section 78 has been rightly imposed. 2.3 Shri P.K. Sahu, Advocate, in rejoinder emphasised on the following points. (1) A LSTK contract has an identity separate from its component activities and the same has to be treated as one indivisible contract. It cannot be split up for subjecting its components to service tax. (2) In Larger bench judgment in case of CCE, Raipur vs. BSBK Pvt. Ltd., cited by the learned DR, the question as to whether the legal fiction created by introducing Article 366 (29A) of the constitution by 46th Constitutional amendment for the purpose of charging sales tax on transfer of property in goods involved in work contracts and certain other contracts which are not sale under Sale of Goods Act, 1930, could be extended to laws other than sales tax, has not been considered at all, while it is settled law that a legal fiction cannot be extended for purposes, other than the purpose for which the same had been created. 3. We have carefully considered t....
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....the objective of these contracts is delivery of installed and functioning C & I system, such indivisible contracts can not be vivisected for changing tax on design & engineering component. It has also been pleaded that service tax could be charged on service portion of such contracts only w.e.f. 1/6/07 under Section 65(105) (ZZZZa) of the Finance Act 1994, read with Rule 2A of the Service Tax (Determination of Value) Rules 2006, as 'Work Contract Service' and prior to 1/6/07, no tax could be charged on such contracts. It is also pleaded that in any case, the bulk of the demand is time barred, as longer limitation period is not available to the Department as the Department was all along aware that when the Appellant erect, install & commission the control & instrument system supplied by them, they charge amount towards design & engineering from the clients along with charges for the goods supplied. Thus, the points to be decided in this case are as under:- (1) Are the activities of the Appellant mentioned in the contracts and invoices as "Drawing", "Designing", "Engineering" or "Training" covered by the definition of Consulting engineers' service, as defined un....
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....p; (g) trouble shooting and technical services including establishing system and procedures for an existing plant. 4.2 There is no dispute that the Appellant is covered by the definition of "Consulting Engineer". The original adjudicating authority as well as the Commissioner (Appeals) have given clear findings that the Appellants' contracts with their clients required them to prepare basic engineering drawings as well as detailed engineering drawings of the control & instrumentation System to be installed and in the invoices the charges for these jobs and in some cases, for training of the clients' personnel, have been separately shown. The preparation of basic engineering drawings & detailed engineering drawings, on the basis of which erection and installation work is done and training of the clients' personnel in operation & maintenance of the equipments installed is clearly technical assistance provided to the clients and hence the same is covered by the definition of Consulting Engineer's services. 5. Are the Appellant's contracts with their customers indivisible lumpsum Turnkey Contracts for Designing of erection, installation & commissioning of Instruments ....
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....provision of which is the intention of the contract, is taxable. If such a service contract involves transfer of property in goods in course of providing the service, by invoking the legal fiction of Article 366 (29A) of the Constitution of India, for the purpose of charging sales tax, this contract can be treated as a contract for sale of goods which have got passed on to the service receiver either as such or in charged form and a contract for service and the deemed sale portion can be subjected to sales tax. But for charging service tax on such a contract, the legal fiction of Article 366 (29A) is of no relevance and the contract will attract service tax if the service is taxable under Section 65 (105) of the Finance Act, 1994. 5.2.1 As against indivisible contracts, whether for sale or for service, there are composite contracts consisting of sale as well as a service or sale as well as more than one service. In such contracts, there is intention for sale as well as service, whether one service or more than one service. As observed by Hon'ble Supreme Court in para 13 of its judgment in case of Gannon Dunkerley & Co. and others vs. State of Rajasthan reported in 1993 (088) STC....
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....TC 129 - (AIR 1953 Assam 42)]. In D. Masanda and Co. v. Commr. of Sales Tax (1957) 8 STC 370 - (AIR 1957 Madh Pra 76) the question was whether photographic materials imported and used in the process of manufacturing photographic work, copies of which were supplied by the assessee to a customer, was a transaction involving sale of those materials. The High Court held that such a transaction did not cease to be a sale merely because the materials were not sold directly in their original form but in another form, forming the components of the finished product, namely, the copies of the photograph, and that the transaction was not merely the performance of skilled services but the supply of finished goods. This was, however, a border line case. The transaction might well be considered as one of service, during the performance of which, a transfer of certain materials, in respect of which there was no contract for sale, either express or implied, may be said to have taken place. An illustration of such a kind is furnished by the case of United Bleachers Ltd. v. State of Madras, (1960) 11 STC 278 (Mad.) In that case the assessee bleached and dyed, calendared, pressed and folded unbleache....
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....ying raw tobacco in Krishna and Co. Ltd. v. State of Andhra Pradesh, (1956) 7 STC 26 - (AIR 1957 Andh Pra 706). But the decision in that case did not rest on there being a transfer of packing materials in favour of the customer. There was evidence that such a transfer was for consideration, in as much as the amounts charged as remuneration for service also contained charges for the packing materials, though such charges were not separately shown in the assessee's accounts. In such a state of evidence it would be possible for the Court to infer a separate implied contract of sale of packing materials and not as part of the service of drying raw tobacco and delivering it in packed condition." Though the judgment of Hon'ble Andhra Pradesh High Court in case of Krishna & Co. Ltd Vs. State of Andhra Pradesh (supra) was overruled by Hon'ble Apex Court in the case of State of Andhra Pradesh Vs. Guntur Tubacco Ltd. reported in AIR 1965 SC-1396 observing that in absence of any evidence from which contact to sell packing material could be inferred, the respondent's contract of drying tobacco leaves with their customer must be treated as contract of service, the Apex Court in this case hel....
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....le of goods as well as providing of service, depends upon whether there is such intention in the contract and such intention has to be ascertained from the terms of the contract. Similarly if in a contract there is intention to provide more than one services - A, B & C and charge for the same, it will be treated as a composite contract for the services A, B & C. A contract would be an indivisible contract for a particular service if the intention of the contract is providing that particular service for some consideration and use of other service/services or goods or both is incidental. Charging of a fixed lump sum price or single point responsibility for performance of the contract involving use of goods and services do not make such a contract an indivisible contract as, as discussed above, the identity of a contract - whether an indivisible contract for a service or an indivisible contract for sale of goods or a composite contract for sale as well as service or services depends upon the intention of the contracting parties, as expressed in the wordings of the contract. 5.3 There is nothing in the language of Section 65 (105) or Section 66 of the Finance Act, 1994 from which it....
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....permitted by Constitution of India not merely for levy of sales tax but also for service tax and that Article 366. (29A) (b) read with Article 286A and 246 of the Constitution enable segregation of value of goods from different elements of service involved in composite contract and segregated elements fall under respective fields of taxation, has not considered the judgments of Hon'ble Supreme Court in cases of Geo Miller & Co. (P) Ltd. vs. State of M.P. (supra), Southern Petrochemical Industries Co, Ltd. vs. Electricity Inspector (supra), The Federation of Hotels & Restaurant Association of India vs. UOI (supra) wherein it was held that the legal fiction created by Article 366 (29A) for the purpose of enabling the State Governments to charge sale tax or transfer property in goods involved in transactions, which are not sales transaction under Sale of Goods Act, 1930, cannot be extended to fields other than sales tax, has not been discussed at all, but when a contract is a divisible contract of sales & service in which separate intention for sale of goods and rendering of service is discernible, even without invoking the legal fiction of Article 366 (29A), it can be said that servi....
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....er Section 65 (105) of the Finance Act, 1994 would be taxable. Thus for the purpose of charging service tax, the question of divisibility or indivisibility of the work contract, which is nothing but a service contract, is irrelevant. The moment a work contract is called indivisible, the question will arise as to work contract for what? The indivisible work contract would certainly be for some service and if that service is taxable service tax would be attracted. The question of vivisection of an indivisible work contract is relevant only in the context of charging sales tax on the transfer of property in goods involved in providing of service, for which by 46th Constitutional amendment Article 366 (29A) containing extended definition of "Tax on sale or purchase of goods" was introduced. But there is no need to invoke the legal fiction of Article 366 (29A) for charging service tax on a work contract. 5.4.2 The Appellant have cited the judgment of House of Lords in case of Customs & Excise Commissioners Vs. British Tele Communications PLC (supra) and Card Protection Plan Ltd. Vs. Customs and Excise Commissioner (supra). 5.4.2.1 In the case of Card Protection Plan (supra) the di....
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....be charged in respect of such contracts and in this regard, reliance has been placed on judgment of Hon'ble Bombay high court in case of Indian National Shipowner Association (supra) and of Karnataka High Court the case of V/s Turbotech Precision Engineering Pvt. Ltd. After carefully considering the submissions from both the sides on this plea, we are of the view that the same is not correct view of the following. (1) Sec. 65(105) (ZZZZa); introduced w.e.f. 1/6/07 defines taxable service in relation execution of a work contract --- as "any service provided or to be provided, to any person, by any other person in relation to the execution of a works contract, excluding work contract in respect of roads, airports, railways, transport terminal, bridges, tunnels and dams". As per the explanation to Section 65(105) (ZZZZa), for the purpose of this sub clause', 'work contract' means a contract wherein -- (i) transfer of properly in goods involved in execution of such contract is leviable to tax as sale of goods; and (ii) such contract is for the purposes of carrying out (a) erection, commissioning or ....
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....), and (c) "Residential Construction Service" as given in Section 65(105) (ZZZh) read with Section 65(30a) & 65(91a), it will be seen that the "works contract", defined in Explanation to Section 65(105) (ZZZZa) is nothing but contract for erection, commissioning or installation service as defined in Section 65 (105) (zzd) read with Section 65 (29) and Section 65(39a), or "Commercial or industrial construction Service", as defined in Section 65(105) (ZZq) read with Section 65(25b)) or "Residential Construction Service" as defined in Section 65(105) (ZZZh) read with Section 65(30a) and 65(91a) or contracts for "Turnkey projects including engineering procurement and construction or commissioning (EPC Project)", which involve transfer of property in goods in execution of such contracts and such transfer of property in goods is liable to Sales tax/VAT as sale of goods. Since the definition of "work contract" is only for the purpose of clause 65(105) (ZZZZa) which came into force w.e.f. 1/6/07, it is valid only for the period w.e.f. 1/6/07 and for the types of contracts mentioned in it. Therefore, for the period prior to 1/6/07, the meaning of 'Works Contract' as commonly understood i.e.....
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....as discussed above, Section 65(105) (ZZZZa) read with Rule 2A of Service Tax (Determination of Value) Rules, 2006 and Work Contract (Composite Schemes for payment of Service Tax) Rules 2007 only provide a new machinery provision for assessment of service tax on "Erection, installation or Commissioning Contracts", "Commercial or industrial construction contracts", "Residential Construction Service Contracts" and "EPC Contracts" involving transfer of property in goods on which sales tax/VAT is chargeable. But it does not mean that these contracts were not liable to Service Tax prior to 1.6.07 as, as discussed above, "erection, installation or commissioning services", "commercial or industrial construction service", residential constructions services were taxable even prior to 1.6.07, even if the same involved use/supply of goods on which Sales tax VAT was payable. Similarly in respect of EPC contracts which are divisible contracts for design & engineering, procurement of goods, erection, installations & commissioning, service tax was chargeable even prior to 1.6.07 on these taxable service component. The taxable services covered by Section 65 (105) (ZZZa) and the services covered by ....
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....nbsp;has held that construction service was taxable even during period prior to 1/6/07, the date from which Section 65 (105) (ZZZZa) regarding 'work's contract service' was introduced. 5.6 In the present case, while some contracts are purely for design and engineering, in all other contracts, the contracts contain clauses for design and engineering for which separate charges are mentioned. As per the contract terms, the basic design and detailed drawings have to be shown to the clients for their approval and only after approval of the drawings, the work of procurement of machinery and equipment, erection, installation and commissioning starts. Therefore we are satisfied that the contracts in this case have a distinct component of activity, coming within the purview of "consulting Engineer's service" and service tax under Section 66 read with Section 65 (105) (g) of the Finance Act, 1994 would be chargeable or the amount charged for "drawings/designs, Engineering", training, etc. It has been pleaded by the Appellant that the charges for drawings, designing, engineering, training etc. as mentioned in the contract, are only milestone payments, not the actual charges for their activ....
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....iso to Section 73 (1) of the Finance Act, 1994 available to the Department for recovery of non-paid service tax? 6.1 It has been pleaded by the Appellant that in any case, the bulk of service tax demand raised vide show cause notice dated 28/1/05 for the period from December 1999 to April, 2004 is time barred, as longer limitation period under proviso to Section 73 (1) of the Finance Act, 1994 is not available to the Department for the reason that the Department was aware that the Appellant in cases, where the Instrument, and control equipments cleared by them to their customers, were also installed and commissioned at their premises, the appellant were also charging certain amounts towards "design and engineering" and "erection, installation and commissioning". In this regard, the Appellant point to the show cause notice dated 15/1/91 issued to them for demand of allegedly short paid central excise duty in respect of clearances of instrument and apparatus during 1986-87 on the ground that the amounts recovered by the Appellants from their customers towards "Engineering charges" and "Erection and commissioning charges" were not included in the assessable value of the goods. 6....