TaxTMI 
TaxTMI 
2007 (12) TMI 20
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....allation, erection and commissioning of machinery to the specific requirements of the customers. In such cases, they collected amounts billed variedly as charges towards erection, testing and calibrations, installation and commissioning , construction activities etc. In respect of some other buyers, they procured some accessories and miscellaneous goods from other manufacturers or open market and in such cases collected the price from their customers for supply of the said bought out items. (c) They have, thus, collected a sum of Rs.36,95,14,983/-towards post clearing activities relating to the period July 97 to December 2000. (d) A show cause notice dt.4.6.01 was issued, proposing demand of duty of Rs.1,84,75,749/- and proposing imposition of penalty under various sections on appellant company and others. (e) The original authority by his order dt.10.4.02, inter alia, held (i) that the appellant company not only supplied their own manufactured goods, equipments to the buyers, but also supplied the bought out parts, equipments procured by the appellant from open market or from other manufacturers; (ii) They go to ....
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....* Detailed engineering * Procurement * Construction supervision and project management * Supervision of commissioning and initial operation * Man power planning and training * Post-operation and management * Trouble shooting and Technical services, including establishing systems and procedures for an existing plant. (g) Commissioner confirmed the duty amounting to Rs.1,84,75,749/- and imposed penalty of Rs 3,69,51,498/ under Section 78 and also penalties under Sections 76 and77. He also imposed penalties of Rs.5 lakhs each on Shri Suresh Gandhi, General Manager (Finance) and Shri Suresh Singhal, Company Secretary of the appellant company. 4.The learned advocate submits that they have entered into a turn-key contract with the customer and such contract cannot be vivisected and part of the activities covered by the contract subjected to levy of the service tax. In support of his contention, he relied on as many as ten decisions of the Tribunal. 5.The learned DR reiterates the findings of the Commissioner. He also relies on the decision of the Tribunal in case of CCE Raipur Vs. BSBK Pvt. Ltd. as reported in 200....
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....Bang.) M/s Turbotech Precision Engg. P. Ltd. Vs. CCE Bangalore-II 10. Order dt.9.10.06 2007(5)STR 353 (Tri-Bang.) M/s Blue Star Ltd. Vs. CCE Hyderabad-II 7.1. In case of Daelim Industrial Co.Ltd., the contract was for construction, erection, and installation of desulphurization plant on payment of lump sum price. Primary objective of the contract was construction of desulphurization plant. The clause of contract left no doubt that the contract was Works contract on turn-key basis and not a consultancy contract. 7.2 In the case of Larsen & Toubro Ltd., the issue involved was in relation to the execution of engineering project on Works contract terms and it was held that the design element of these contracts cannot be vivisected and charged to Service Tax as consulting engineering. 7.3.In the case of Shapoorji Pollanji & Co. Ltd., it was held that the charges for design and detailed engineering of commissioning of plant cannot be separated and charged to service tax under the head Consulting Engineering, when the firm executed a turnkey project of "Multiserve Line 600 BPM Coca Cola Bottling Plant" for M/s Hindustan....
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....ling the services of the appellant company indicates that these activities cannot be considered as integral to setting up of a project on turnkey basis. Therefore, they stand as certain additional/optional services given to certain buyers/customers. The activities undertaken by them at the customers end can not be treated as part of any manufacturing activity but only as services rendered by them. 8.2. In such a situation, the ratio of Tribunal's decision in case of Blue Star Ltd. relied upon by the learned SDR will be applicable as the facts in the said case more akin to the facts the present case. The relevant portion of the findings from the said order is reproduced below: 5.Referring to the memorandum of Association of the respondent, the learned authorized representative brought out the fact that the main objects of the company included the work as engineers, designers etc. He also distinguished the ratio of the decision in Daelim Industrial Co. Ltd. (supra) by stating that "vivisect" of the contract entered into by the respondent was carried out by the department in that case but in the subject case, the contract itself is a "divisible contract" which ha....
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..... Further, the intention to include the "designing and drawing work" as services in turn-key project is also evident from CBEC Circular dated 18-12-2002. 6.5The turn-key project contract entered into by the respondent is "divisible" as stated in the very letter of acceptance of tender dated 7-2-1996. In the impugned order the learned Commissioner (Appeals) has made the following observations :- "As held by CESTAT in the case of M/s. Daelim Industrial Co. Ltd. (supra) and also in the case of M/s. L&T (supra) the work contract cannot be vivisected to select those activities which comprise taxable services". In the subject case the contract itself is "divisible" and no surgery to isolate the Siamese twin of services/goods has taken place. Further the expression "Vivisect" used profusely by both the sides has turned out quizzical, as Concise Oxford Dictionary defines the term "vivisect" to mean "to perform vivisection on" and the word "vivisection" turns out to mean "dissection or other painful treatment of living animals for the purposes of scientific research and unduly detailed or ruthless criticism". We revive here what Oliver Wendell Holmes once said about a word such as ....
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....p; Sd/- (M. Veeraiyan) &nbs....
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....ce, consultancy, technical assistance in any manner in one or more disciplines of engineering. As such, it is clear from the above definition that the "service" liable for tax is that there must be an advice, consultancy or technical assistance by a professionally qualified engineer or an engineering firm. As such, essentially the person liable to be taxed under the said category should be professionally qualified engineer. Admittedly, in the present case, appellants are manufacturer of goods, who also in some cases, undertakes the installation and erection of the goods so manufactured by them at the buyers premises, they are not an engineering firm engaged in consultancy, but undertake the entire project in respect of the goods manufactured by them, which has to be held as integral part of sale of their goods. The appellant is a body corporate engaged in the manufacture of the goods and cannot be said to be covered by expression "professionally qualified engineers", neither as engineering firm engaged in providing or rendering any advice, consultancy or technical assistance. 14. As is further seen that such engineering firm should be rendering any advice, consultancy or technic....
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...., consultancy or technical assistance on which there is levy of service tax. As such, I am of the view that the Dy. Commissioner has rightly interpreted the definition of 'consulting engineer' which would not include firms which are engaged in the actual execution of the works in any engineering skill. A mere contract to erect, install and commission any machinery is not leviable to service tax as it is an engineering contract executed by a contractor and not by a consulting engineer. Similarly, engineering goods manufactured on tailor-made basis, which would also include installation and erection of the same would not be covered by the scope of consulting engineer. Undoubtedly, same kind of service would be involved in tailor-made projects in as much as the projects would be complete handling after the goods manufactured are installed, erected and the entire plant commissioned, otherwise, the goods so received by the buyer would be of no use to them. In the instant case, the appellants are also undertaking the construction activities as required for necessary installation of machines and for commissioning of the plant. It is they who are undertaking the job themselves and ....
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....ransaction" and M/s. Jyoti Ltd., execute the job themselves. It is manifestly clear that manufacturers of machines provide some after sale services e.g. installation, erection and commissioning of machines, repairs and maintenance. These activities, services are in the nature of execution of job; it involves actual performance of work. It certainly does not involve giving advice or opinion or assistance to the buyers. The execution of work is not covered under "services". Service Tax is leviable on the services, rendered to a client for "advice", "consultancy", and "technical assistance". It is not levied on sale and purchase. Sale trans action is not leviable to service tax.' 18. I further find that the Dy. Commissioner in his impugned order has covered and dealt with in detail various services i.e. testing service, erection of plant, procurement of material and provision and construction activities separately and has come to a clear finding that same cannot be held to be as consulting engineering service covered under the provisions of service tax, which I re produce in brief "Testing Service: The notice has been proposed to pay service tax on it. Sample invoices, ra....
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....out goods and supplying to the buyers is not "procurement", because it does not contain advising or consulting the buyer as to how to procure and from where to procure certain goods, for project, specifications, etc. To say the least, value of boughtout goods, items/equipments etc. as purchased by the noticee, from the open market, or others and supplied/installed at the buyers' site is by no stretch of imagination, services containing consultancy, advice or technical assistance. They cannot form taxable value of services. Further, provisions of service tax lay down that all the SERVICES rendered within the scope of the term engineering attract service tax PROVIDED THEY ARE RENDERED IN THE CAPACITY OF A CONSULTING ENGINEER. It means that any execution of a job, actual performance of work done by manufacturing does not have any ingredient of services provided as consulting engineer. In case of any project, supply of goods (machinery/equipment) and execution of work (erection, commissioning, installation, etc.) are SALE TRANSACTIONS. Advice, consultancy or technical assistance are not the ingredients. Procurement that Consultant Engineer render advice, opinion, assistance and ....
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..... Jyoti Ltd. They do not provide any consultancy to buyers in the matter of such civil construction. Whatever civil work is carried out is required for erection/installation for their own manufactured machines/equipments and thus become part and parcel of sale transaction. There is no service of ad vice, consultancy or technical assistance provided. Documents, tenders, in voices/bills also reveal the said fact." I am in agreement with the above reasoning adopted by Dy. Commissioner while dropping the proceedings against the appellant. In addition, I also find that various decisions of the Tribunal as discussed in the order proposed by my learned brother are at all four corners with the facts of the instant case and are required to be followed. The Tribunal's decision in case of Daelim Industrial Co. Ltd. v. CCE, Vadodara as reported in 2006 (3) S.T.R. 124 (Tribunal) = 2003 (155) E.L.T. 457 (Tri), stands confirmed by the Hon'ble Supreme Court when the appeal filed by the Revenue was dismissed as reported in 2004 (170) E.L.T. A181 (S.C.). As such, I am of the view that the impugned order is required to be set aside and order of the l)y. Commissioner is required t....
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....ber (Technical) Member (Judicial) 21. [Order per: S.S. Kang, Member (J)]. - Heard both sides. 22. Following difference of opinion is referred to the 3rd Member :- "Whether the demand of duty confirmed against the appellants is required to be upheld along with interest and the penalty be reduced as indicated by learned Member (Technical) in respect of M/s. Jyoti Limited or their appeal along with the appeals of other two appellants be allowed as held by Member (Judicial)." 23. The appell....
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....is not liable for service tax as consulting engineer. I further find that the service of erection and commissioning has commenced under the service tax from the year 2003 whereas the work contract came under service tax net in the year 2007. The period in dispute is from July, 1997 to December, 2007. In of the above discussion I find that the appellants are not liable to pay the service tax as consulting engineer in view I of the decision of the Tribunal in the case of Daelim Industrial Co. Ltd. (supra). The impugned order is set aside and the appeals are allowed.. The matter be placed before the regular Bench for pronouncement of majority decision. Dated 10-12-2007 &....