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TaxTMI 
TaxTMI 
TaxTMI 
2019 (11) TMI 1594
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....ith 'maintenance, management or repair services' undertaken by their Equipment, Maintenance and Repair Division for the shipping line of the AP Moller-Maersk Group whose containers may undergo damage while being handled or during voyages. They are contracted examine each container and, on the basis of survey of damages, submit an estimate of the cost of materials and of labour which, upon approval, is converted into a purchase order and, subsequently, into separate invoices for both. Normally, steel sheets, wood, steel articles, compressors and similar parts of refrigerated containers are utilised for effecting repairs. It is common ground that liability, as provider of 'management, maintenance or repair' service, taxable under section 65(105)(zzg) of Finance Act, 1994, is discharged on the labour component of the contracted activity. The appellant was proceeded against in three show cause notices dated 12th October 2010 for the period from 2005-06 to 2009-10, dated 14th October 2011 for 2010-11 and dated 9th October 2012 for 2011-12 to recover amounts collected towards materials utilised in rendering the service. All three were adjudicated in a single order-in-original no. 199-201....
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.... cost to the 'gross amount charged' by the service provider for the service provided hangs a tale. 6. According to Learned Special Counsel for Revenue, the claim of alternate classification as 'works contract service' had been properly discarded by the adjudicating authority leaving no option but to subject the entire activity to tax as 'management, maintenance or repair' and the consideration thereof to encompass cost of every input and input service deployed for the purpose. Drawing attention to master circular no. 96/7/2007 dated 23 August 2007 of Central Board of Excise & Customs, he endorsed the determination of tax liability ordered by the adjudicating authority. Supporting the finding that abatement of material cost attendant upon such taxable service is not an entitlement owing to absence of evidence of discharge of the liability on sale of such material, he pointed out that breach of this essential condition in notification no. 12/2003-ST dated 20th June 2003 sufficed for confirmation of demand in full. The purportedly logical and legally sound disposal of the claim preferred the appellant herein for exclusion from taxation of the material component of the impugned activi....
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....ing the transfer, delivery or supply and a purchase of those goods by the person to whom such transfer, delivery or supply is made; 4. The Constitutional amendment so passed was the subject matter of a challenge in Builders' Assn. of India v. Union of India, (1989) 2 SCC 645. This challenge was ultimately repelled and this Court stated :- "... After the 46th Amendment, it has become possible for the States to levy sales tax on the value of goods involved in a works contract in the same way in which the sales tax was leviable on the price of the goods and materials supplied in a building contract which had been entered into in two distinct and separate parts as stated above." (at para 36)' and, tracing the origin of disputed overlap prior to incorporation of concept of 'works contracts' in the scheme of Finance Act, 1994, it was stated that '6. Service tax was introduced by the Finance Act, 1994 and various services were set out in Section 65 thereof as being amenable to tax. The legislative competence of such tax is to be found in Article 248 read with Entry 97 of List I of the 7th Schedule to the Constitution of India. All the present cases are cases which arise before the ....
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....9, para 32: SCR p. 347). This indicates that though the tax is imposed on the transfer of property in goods involved in the execution of a works contract, the measure for levy of such imposition is the value of the goods involved in the execution of a works contract. We are, however, unable to agree with the contention urged on behalf of the contractors that the value of such goods for levying the tax can be assessed only on the basis of the cost of acquisition of the goods by the contractor. Since the taxable event is the transfer of property in goods involved in the execution of a works contract and the said transfer of property in such goods takes place when the goods are incorporated in the works, the value of the goods which can constitute the measure for the levy of the tax has to be the value of the goods at the time of incorporation of the goods in the works and not the cost of acquisition of the goods by the contractor. We are also unable to accept the contention urged on behalf of the States that in addition to the value of the goods involved in the execution of the works contract the cost of incorporation of the goods in the works can be included in the measure for levy ....
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....well as supply of labour and services, the cost of establishment of the contractor would have to be apportioned between the part of the contract involving supply of materials and the part involving supply of labour and services. The cost of establishment of the contractor which is relatable to supply of labour and services cannot be included in the value of the goods involved in the execution of a contract and the cost of establishment which is relatable to supply of material involved in the execution of the works contract only can be included in the value of the goods. Similar apportionment will have to be made in respect of item No. (viii) relating to profits. The profits which are relatable to the supply of materials can be included in the value of the goods and the profits which are relatable to supply of labour and services will have to be excluded. This means that in respect of charges mentioned in item Nos. (vii) and (viii), the cost of establishment of the contractor as well as the profit earned by him to the extent the same are relatable to supply of labour and services will have to be excluded. The amount so deductible would have to be determined in the light of the facts....
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.... formula for determining the charges for labour and services by fixing a particular percentage of the value of the works contract and to allow deduction of the amount thus determined from the value of the works contract for the purpose of determining the value of the goods involved in the execution of the works contract. It must, however, be ensured that the amount deductible under the formula that is prescribed for deduction towards charges for labour and services does not differ appreciably from the expenses for labour and services that would be incurred in normal circumstances in respect of that particular type of works contract. Since the expenses for labour and services would depend on the nature of the works contract and would not be the same for all types of works contracts, it would be permissible, indeed necessary, to prescribe varying scales for deduction on account of cost of labour and services for various types of works contracts." (at paras 45, 47 and 49) 15. A reading of this judgment, on which counsel for the assessees heavily relied, would go to show that the separation of the value of goods contained in the execution of a works contract will have to be determine....
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....going on to render the finding that '18. Similarly, in Kone Elevator India (P) Ltd. v. State of T.N. - (2014) 7 SCC 1 = 2014 (34) STR 641 (S.C.) = 2014 (304) ELT 3 (S.C.), this Court held: - "Coming to the stand and stance of the State of Haryana, as put forth by Mr. Mishra, the same suffers from two basic fallacies, first, the supply and installation of lift treating it as a contract for sale on the basis of the overwhelming component test, because there is a stipulation in the contract that the customer is obliged to undertake the work of civil construction and the bulk of the material used in construction belongs to the manufacturer, is not correct, as the subsequent discussion would show; and second, the Notification dated 17-5-2010 issued by the Government of Haryana, Excise and Taxation Department, whereby certain rules of the Haryana Value Added Tax Rules, 2003 have been amended and a table has been annexed providing for "Percentages for Works Contract and Job Works" under the heading "Labour, service and other like charges as percentage of total value of the contract" specifying 15% for fabrication and installation of elevators (lifts) and escalators, is self-contradict....
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.... all genre of works contract and is not restricted to one specie of contract to provide for labour and services alone. Parliament had all genre of works contract in view when clause (29-A) was inserted in Article 366." (at para 72)' 9. Referring to the decision of the Hon'ble High Court of Delhi in GD Builders v. Union of India [2013 (32) STR 673 (Del)] which was summed up as '31. In the aforesaid judgment, it was held that the levy of service tax in Section 65(105)(g), (zzd), (zzh), (zzq) and (zzzh) is good enough to tax indivisible composite works contracts. Various judgments were referred to which have no direct bearing on the point at issue. In paragraph 23 of this judgment, the second Gannon Dunkerley judgment is referred to in passing without noticing any of the key paragraphs set out hereinabove in our judgment. Also, we find that the judgment in G.D. Builders (supra) went on to quote from the judgment in Mahim Patram Private Ltd. v. Union of India, 2007 (3) SCC 668 = 2007 (7) STR 110 (S.C.), to arrive at the proposition that even when rules are not framed for computation of tax, tax would be leviable.' and, after considering various decisions of the Hon'ble Supreme Cour....
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....mposite indivisible works contracts, such contracts can be taxed by Parliament as well as State legislatures. Parliament can only tax the service element contained in these contracts, and the States can only tax the transfer of property in goods element contained in these contracts. Thus, it becomes very important to segregate the two elements completely for if some element of transfer of property in goods remains when a service tax is levied, the said levy would be found to be constitutionally infirm. This position is well reflected in Bharat Sanchar Nigam Limited v. Union of India, (2006) 3 SCC 1 = 2006 (2) STR 161 (S.C.), as follows:- "No one denies the legislative competence of the States to levy sales tax on sales provided that the necessary concomitants of a sale are present in the transaction and the sale is distinctly discernible in the transaction. This does not however allow the State to entrench upon the Union List and tax services by including the cost of such service in the value of the goods. Even in those composite contracts which are by legal fiction deemed to be divisible under Article 366(29-A), the value of the goods involved in the execution of the whole trans....
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....e agreement to sell, from the agreement to do work and render service and to impose a tax thereon cannot be questioned, and will stand untouched by the present judgment." (at page 427)' to deem the portion pertaining to transfer of goods in a 'works contract' within the ambit of Finance Act, 1994. On the contrary, the incorporation of 'works contract service' in Finance Act, 1994 permits the legislation of a mechanism to provide for vivisection of such 'works contracts' and, given this restrictive framework, precludes taxability of that which is clearly beyond the scope of List 1 in the Seventh Schedule of the Constitution of India. Non-discharge of such liability or any exemptions thereto will not alter the segregated jurisdiction. 11. In Kone Elevator India Pvt Ltd v. State of Tamil Nadu [2014 (304) ELT 161 (SC)], the Hon'ble Supreme Court has held that '63. Considered on the touchstone of the aforesaid two Constitution Bench decisions, we are of the convinced opinion that the principles stated in Larsen and Toubro (supra) as reproduced by us hereinabove, do correctly enunciate the legal position. Therefore, "the dominant nature test" or "overwhelming component test" or "the ....