AI Drafter - (New and Powerful) 
Generate professional replies, appeals, opinions to Show Cause Notices, assessment orders, audit objections, and other legal communications using TaxTMI's AI Drafter. 
TaxTMI 
TaxTMI 
2017 (12) TMI 1444
X X X X Extracts X X X X
X X X X Extracts X X X X
....asis, they had applied for registration and paid the service tax to the tune of Rs. 2,84,16,809/- on 8.1.2004. Thereafter, the 1st respondent, obtained advice from the tax practitioners and having understood that self assessment and remittance of service tax was uncalled for, applied for refund of the same. 3. The adjudicating authority in Order in SL.No.151/2004 dated 5.8.2004 held that the 1st respondent has entered into 4 different contracts with NTADCL for implementing Tirupur Water supply project and that the four contracts were independent in nature, for different purposes. Therefore the claim of M/s.HCCL that the contract entered with M/s. NTADCL, as one single turnkey contract, though there were divisions within the contract, is not acceptable. 4. The Adjudicating authority further held that the Engineering Contract entered with M/s.NTADCL, comes within the purview of consulting Engineering service and hence service tax already paid by M/s.HCCL on the amount received from M/s. NTADCL is correct, and accordingly, the claim for refund of Rs. 2.84 crores was liable for rejection. 5. Aggrieved by the same, the 1st respondent/assessee filed appeal and the Commissioner o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....unal is correct in holding that all the 3 contracts entered in to between the parties on the same date constitute a single turnkey contract and hence service tax is not leviable which view is against the definition of "Consulting Engineering Service" under Section 65(31) of the Finance Act, 1994 and the Notification No.CB 43/5/97-TRW dated 2.7.97 and circular No.49/11/2002-SR dated 18.12.2002. (iii) When the case laws relied on by the Tribunal deals with "Turnkey Project", is it correct on the part of the Tribunal to apply the ration of the above decision when there exists two different contracts one for Engineering and another for Construction in the present case against them." 10. Seeking reversal of the order, Mr.A.P.Srinivas, learned counsel for the appellant, made submissions. 11. Mr.N.Prasad, learned counsel appearing for 1st respondent/assessee made submissions to sustain the order of the tribunal. 12. Heard the learned counsel for the parties and perused the materials available on record. 13. Upon appreciation of evidence, the tribunal has come to the conclusion that there is an indivisible contract and paragraph Nos.3 and 4 of the order made in F.No.43....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the contracts together. In view of the above, it is our opinion that the opinion of the Consultant that service tax is payable by HCC on the engineering services is not based on facts and contract and consequently NTADCL, rejects HCC's claim of service tax from the company." 4. Following the ratio of the judicial authorities cited, we find ourselves in agreement with the plea taken by the appellants. HCCL implemented the coordination agreement and implemented the TWP. The agreement involved HCCL undertaking work of engineering design as well as construction of TWP. HCCL did not render engineering consultancy to NTDCL. Therefore, the impugned amount of service tax HCCL paid as Consulting Engineer was not due to be paid. The appeal is allowed." 14. In Daelim Industrial Co. Ltd. Vs. Commissioner of C.Ex., Vadodara, reported in 2003 (155) ELT 457 (Tri.-Del), upon perusal of the clauses in the Contract and material on record at paragraph No.6, the tribunal held as follows: "6. Thus, a perusal of the clauses of the contract leaves no doubt that the appellant contract with IOC was a work contract on turnkey basis and not a consultancy contract. It is wel....
X X X X Extracts X X X X
X X X X Extracts X X X X
....zb), (zc), (zd), (ze), (zf), (zg), (zh), (zi), (zj), (zk), (zl), (zm), (zn), (zo), (zq), (zr), (zs), (zt), (zu), (zv), (zw), (zx), (zy), (zz), (zza), (zzb), (zzc), (zzd), (zze), (zzf), (zzg), (zzh), (zzi), (zzj), (zzk), (zzl), (zzm), (zzn), (zzo), (zzp), (zzq), (zzr), (zzs), (zzt), (zzu), (zzv), (zzw), (zzx), and (zzy) of clause (105) of section 65 and collected in such manner as may be prescribed. Section 67. Valuation of taxable services for charging service tax.- For the purposes of this Chapter, the value of any taxable service shall be the gross amount charged by the service provider for such service rendered by him. Explanation.1- For the removal of doubts, it is hereby declared that the value of a taxable service, as the case may be, includes,- a) the aggregate of commission or brokerage charged by a broker on the sale or purchase of securities including the commission or brokerage paid by the stock-broker to any sub-broker; b) the adjustments made by the telegraph authority from any deposits made by the subscriber at the time of application for telephone connection or pager or facsimile or telegraph or telex or for leased circuit; ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....) Transfer of property in goods involved in the 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 installation of plant, machinery, equipment or structures, whether pre-fabricated or otherwise, installation of electrical and electronic devices, plumbing, drain laying or other installations for transport of fluids, heating, ventilation or air-conditioning including related pipe work, duct work and sheet metal work, thermal insulation, sound insulation, fire proofing or water proofing, lift and escalator, fire escape staircases or elevators; or b) Construction of a new building or a civil structure or a part thereof, or of a pipeline or conduit, primarily for the purposes of commerce or industry; or c) Construction of a new residential complex or a part thereof; or d) Completion and finishing services, repair, alteration, renovation or restoration of, or similar services, in relation to (b) and (c); or e) Turnkey projects including engineering, procurement and construction or commissioning (EPC) projects; 12. Section 67....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... (viii) profit earned by the service provider relatable to supply of labour and services; (c) where value added tax or sales tax has been paid or payable on the actual value of property in goods transferred in the execution of the works contract, then, such value adopted for the purposes of payment of value added tax or sales tax, shall be taken as the value of property in goods transferred in the execution of the said works contract for determination of the value of service portion in the execution of works contract under this clause. (ii) Where the value has not been determined under clause (i), the person liable to pay tax on the service portion involved in the execution of the works contract shall determine the service tax payable in the following manner, namely:- A) in case of works contracts entered into for execution of original works, service tax shall be payable on forty per cent of the total amount charged for the works contract; (B) in case of works contract entered into for maintenance or repair or reconditioning or restoration or servicing of any goods, service tax shall be payable on seventy per cent of the total amount char....
X X X X Extracts X X X X
X X X X Extracts X X X X
....annot be made the measure for levying the tax. The submission is further that the value of such goods would be the cost of acquisition of the goods by the contractor and, therefore, the measure for levy of tax can only be the cost at which the goods involved in the execution of a works contract were obtained by the contractor. On behalf of the States, it has been submitted that since the property in goods which are involved in the execution of a works contract passes only when the goods are incorporated in the works, the measure for the levy of the tax would be the value of the goods at the time of their incorporation in the works as well as the cost of incorporation of the goods in the works. We are in agreement with the submission that measure for the levy of the tax contemplated by Article 366(29-A)(b) is the value of the goods involved in the execution of a works contract. In Builders' Association case [(1989) 2 SCC 645 : 1989 SCC (Tax) 317 : (1989) 2 SCR 320] it has been pointed out that in Article 366(29-A)(b), [t]he emphasis is on the transfer of property in goods (whether as goods or in some other form). (SCC p. 669, para 32: SCR p. 347). This indicates that though the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s contract [itemNo. (v)] and other similar expenses for labour and services will have to be excluded as charges for supply of labour and services. The charges mentioned in item No. (vi) cannot, however, be excluded. The position of a contractor in relation to a transfer of property in goods in the execution of a works contract is not different from that of a dealer in goods who is liable to pay sales tax on the sale price charged by him from the customer for the goods sold. The said price includes the cost of bringing the goods to the place of sale. Similarly, for the purpose of ascertaining the value of goods which are involved in the execution of a works contract for the purpose of imposition of tax, the cost of transportation of the goods to the place of works has to be taken as part of the value of the said goods. The charges mentioned in item No. (vii) relate to the various expenses which form part of the cost of establishment of the contractor. Ordinarily the cost of establishment is included in the sale price charged by a dealer from the customer for the goods sold. Since a composite works contract involves supply of materials as well as supply of labour and services, the co....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the light of the facts of a particular case on the basis of the material produced by the contractor. Normally, the contractor will be in a position to furnish the necessary material to establish the expenses that were incurred under the aforesaid heads of deduction for labour and services. But there may be cases where the contractor has not maintained proper accounts or the accounts maintained by him are not found to be worthy of credence by the assessing authority. In that event, a question would arise as to how the deduction towards the aforesaid heads may be made. On behalf of the States, it has been urged that it would be permissible for the State to prescribe a formula on the basis of a fixed percentage of the value of the contract as expenses towards labour and services and the same may be deducted from the value of the works contract and that the said formula need not be uniform for all works contracts and may depend on the nature of the works contract. We find merit in this submission. In cases where the contractor does not maintain proper accounts or the accounts maintained by him are not found worthy of credence it would, in our view, be permissible for the State....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tting of an indivisible works contract is done taking into account the eight heads of deduction, the charge to tax that would be made would otherwise contain, apart from other things, the entire cost of establishment, other expenses, and profit earned by the contractor and would transgress into forbidden territory namely into such portion of such cost, expenses and profit as would be attributable in the works contract to the transfer of property in goods in such contract. This being the case, we feel that the learned counsel for the assessees are on firm ground when they state that the service tax charging section itself must lay down with specificity that the levy of service tax can only be on works contracts, and the measure of tax can only be on that portion of works contracts which contain a service element which is to be derived from the gross amount charged for the works contract less the value of property in goods transferred in the execution of the works contract. This not having been done by the Finance Act, 1994, it is clear that any charge to tax under the five heads in Section 65(105) noticed above would only be of service contracts simpliciter and not composite indivis....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the Centre cannot include the value of the SIM cards, if they are found ultimately to be goods, in the cost of the service. As was held by us in Gujarat Ambuja Cements Ltd. v. Union of India [(2005) 4 SCC 214] , SCC at p. 228, para 23:- This mutual exclusivity which has been reflected in Article 246(1) means that taxing entries must be construed so as to maintain exclusivity. Although generally speaking, a liberal interpretation must be given to taxing entries, this would not bring within its purview a tax on subject- matter which a fair reading of the entry does not cover. If in substance, the statute is not referable to a field given to the State, the court will not by any principle of interpretation allow a statute not covered by it to intrude upon this field. (at paras 88 and 89) 17. We find that the assessees are correct in their submission that a works contract is a separate species of contract distinct from contracts for services simpliciter recognized by the world of commerce and law as such, and has to be taxed separately as such. In Gannon Dunkerley, 1959 SCR 379, this Court recognized works contracts as a separate species of contract as follows: ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... subterfuge. We are inclined to think so as it would be frustrating the constitutional provision and, accordingly, we unhesitatingly repel the same. (at para 60) 19. In Larsen & Toubro Ltd. v. State of Karnataka, (2014) 1 SCC 708, this Court stated:- In our opinion, the term works contract in Article 366(29- A)(b) is amply wide and cannot be confined to a particular understanding of the term or to a particular form. The term encompasses a wide range and many varieties of contract. Parliament had such wide meaning of works contract in its view at the time of the Forty-sixth Amendment. The object of insertion of clause (29-A) in Article 366 was to enlarge the scope of the expression tax on sale or purchase of goods and overcome Gannon Dunkerley (1) [State of Madras v. Gannon Dunkerley and Co. (Madras) Ltd., AIR 1958 SC 560 : 1959 SCR 379] . Seen thus, even if in a contract, besides the obligations of supply of goods and materials and performance of labour and services, some additional obligations are imposed, such contract does not cease to be works contract. The additional obligations in the contract would not alter the nature of contract so long as the contract pr....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... convey the three components of the tax law i.e. the subject of the tax, the person who is liable to pay the tax and the rate at which the tax is to be paid. If there is any ambiguity regarding any of these ingredients in a taxation statute then there is no tax in law. Then it is for the legislature to do the needful in the matter. This construction, in our considered view, amounts to supplementing the charging section by including something which the provision does not state. The construction placed on the said provision does not flow from the plain language of the provision. The proviso requires the exempted property to be subjected to tax and for the purpose of valuing that property alone the value of the other properties is to be taken into consideration. But, if in doing so, the said property becomes taxable, the Act does not provide at what rate it would be taxable. One cannot determine the rateable value of the small property by aggregating and adding the value of other properties, and arrive at a figure which is more than possibly the value of the property itself. Moreover, what rate of tax is to be applied to such a property is also not indicated. (at paras 12 and....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ovisions cannot apply at all, it is evident that such a case was not intended to fall within the charging section. Otherwise one would be driven to conclude that while a certain income seems to fall within the charging section there is no scheme of computation for quantifying it. The legislative pattern discernible in the Act is against such a conclusion. It must be borne in mind that the legislative intent is presumed to run uniformly through the entire conspectus of provisions pertaining to each head of income. No doubt there is a qualitative difference between the charging provision and a computation provision. And ordinarily the operation of the charging provision cannot be affected by the construction of a particular computation provision. But the question here is whether it is possible to apply the computation provision at all if a certain interpretation is pressed on the charging provision. That pertains to the fundamental integrality of the statutory scheme provided for each head. (at para 10) 24. A close look at the Finance Act, 1994 would show that the five taxable services referred to in the charging Section 65(105) would refer only to service contracts simplici....
X X X X Extracts X X X X
X X X X Extracts X X X X
....etermining in different works contracts how much shall be the percentage of the total amount charged for the works contract, attributable to the service element in such contracts. It is this scheme and this scheme alone which complies with constitutional requirements in that it bifurcates a composite indivisible works contract and takes care to see that no element attributable to the property in goods transferred pursuant to such contract, enters into computation of service tax. 29. It is interesting to note that while introducing the concept of service tax on indivisible works contracts various exclusions are also made such as works contracts in respect of roads, airports, airways transport, bridges, tunnels, and dams. These infrastructure projects have been excluded and continue to be excluded presumably because they are conceived in the national interest. If learned counsel for the revenue were right, each of these excluded works contracts could be taxed under the five sub-heads of Section 65(105) contained in the Finance Act, 1994. For example, a works contract involving the construction of a bridge or dam or tunnel would presumably fall within Section 65(105)(zzd) as ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....onjectures and therefore, it was not open to the High Court, in the exercise of its writ jurisdiction, to set aside the findings of fact arrived at by the Special Court which were based on sound consideration of the materials on record." (iv) In Arulvelu v. State reported in 2009 (10) SCC 206, the Hon'ble Supreme Court, at Paragraph 29, explained what "perverse" means, 29. In Kuldeep Singh v. The Commissioner of Police, (1999) 2 SCC 10, the Court while dealing with the scope of Articles 32 and 226 of the Constitution observed as under: "9. Normally the High Court and this Court would not interfere with the findings of fact recorded at the domestic enquiry but if the finding of "guilt" is based on no evidence, it would be a perverse finding and would be amenable to judicial scrutiny. 10. A broad distinction has, therefore, to be maintained between the decisions which are perverse and those which are not. If a decision is arrived at on no evidence or evidence which is thoroughly unreliable and no reasonable person would act upon it, the order would be perverse. But if there is some evidence on record which is acceptable and which could be relie....