TaxTMI 
TaxTMI 
TaxTMI 
2021 (3) TMI 823
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....ity Distribution Authorities(in short 'EDAs') namely, M/s. West Bengal State Electricity Distribution Company Limited ('WBSEDCL') M/S Rajasthan Rajya VidhyutPrasaran Nigam Limited('RRVPNL'),M/s.Madhya Pradesh Power Transmission Company Limited ('MPPTCL'), Adani Power Ltd ('APL')and Gujarat Energy Transmission Corporation Limited ('GETCL') had allotted contracts of manufacture,supply and Erection, Commissioning and Installation of transmission towers including civil works to the respondent. 2.1 Further department observed that prior to 01.06.2007 the respondent was classifying their activities of erection of high tension transmission line towers under the "Commercial or Industrial Construction Service" as defined under section 65(105)(zzq) and were discharging applicable service tax @ 12.36%. Subsequent from 01.06.2007, they have changed the classification of these contracts of Erection , Commissioning or Installation activity from "Commercial or Industrial Construction Service" to "Works Contract Services" and started paying service tax thereon under the works contract (Composition scheme for payment of service tax)Rules,2007. However, it was observed that they w....
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....tion and commissioning of towers transmission lines. Further, it was also observed that the reference of invitation to bid for the package was given in supply portion and erection portion both the contracts had emanated from the single bid which was later divided into two contracts namely, 'Supply Portion and Erection Portion' the general terms and conditions are almost common in 24 contracts entered into by the respondent with EDAs, it was further contended with various EDAs work floated tender erection of transmission towers and lines. The respondents were filling this tender and successfully qualified on financial grounds. It was observed that those contracts were bifurcated in 2 portion namely, Supply Portion and Erection Portion for their convenience only the respondent manufactured parts of the Transmission Towers and the other parts of the towers as required to be supplied were taken to the sites by the respondent and the erection activity was carried at predetermined sites. The scrutiny of the ST-3 return indicated that the assessee had classified their activities under Works Contract Services and were paying the service tax under (Composition scheme for payment of service ....
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....omplete and commission the towers which involved fabrication, galvanizing, delivery of tower structures at the sites and commissioning the said contract are on turnkey basis. He submits that as per various dictionary meaning of 'turnkey' is a job in which the contractor has to complete the entire operation, having the building, a plant etc. ready for use. Therefore, the contract on turned key basis should be one contract hence not divisible. He also referred to boards letter B1/ 16/2007-TRU dated 22.05.2007 which clarifies that" works contract is the Composite Contract for the supply of goods and services". He also invited attention to the board's clarification under D.O.F No. 334/13/2009-TRU dated 06.07.2009 mentioned at para 32 that the composition scheme is available only such works contract where the gross value of works contract includes the value of all goods used in relation to execution of the Works Contract whether received Free of costs or for consideration under any other contract. 4.2 He further submits that the respondent has submitted full and correct details sought by the department and the present issue was raised only during the audit on the basis of bid doc....
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....ract. Therefore, findings of adjudicating authority are incorrect hence, the impugned order deserves to be set aside and demand of service tax to be confirmed. He further relied upon the following judgements. * Siemens Limited-2020 (36) G.S.T.L 467 (App. A.A.R - GST- Mah.) * EMCO Limited-2019 (20) G.S.T.L 401 (A.A.R-GST) 4.5 Shri S.K Mathur, Learned Special Counsel filed a post hearing written submission dated 23.11.2020 in the said submission also precisely he submits that even though there are two contracts one for supply of material manufactured by the respondent and another for erection, installation and commissioning of transmission towers it is indivisible contract and the same are integral parts of each other. He reiterates the reliance made in the case of Kone Elevator India pvt ltd (Supra). 4.6 He further submits that the entire operational transmission line was handed over to EDA concerns as per the terms of the tender/bid. Therefore the entire project is outcome of a single bid. He also referred to the provision of section 2(7) and 6(3) of the Sale of Goods Act 1930 whereby, he submits that the two contracts one for goods and oth....
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....bsp; Shri V Sridharan, Learned Senior Counsel appearing on behalf of the respondent reiterates the finding given by the Adjudicating Authority in the impugned order. He further submits that all the 24 contracts which are under dispute in the present matter have been started/ under progress on or before 06.07.2009. The appellant had paid service tax on such 24 Contracts on the Works Contract Service under (Composition Scheme for payment of service tax) Rules, 2007 which were amended with effect from 07.07.2009. He referred to said rule pre and post its amendment. He further submits that the explanation to rules 3 of Works Contract Rules, 2007 was amended and according to which the explanation provided to the Rule 3 of works contract 2007 shall not apply where the execution in the said contract has commenced on or before 7th day of July 2009. He submits that in the present case the amended Rule 3 is applicable and according to which if the supply of goods is under any other contract for consideration or otherwise the same shall not be included in the gross amount charged for the works contract. He submits that the above change in statutory provision have been explained by....
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....rtment's appeal is liable to be dismissed on the above grounds. 5.2 Without prejudice, he also submits that the basis on which assessee has opted to pay service tax under composition scheme has been changed by insertion of proviso to explanation under Rule 3 of Composition Scheme, in such case the composition scheme cannot be thrust upon the assessee since the entire basis of payment of service tax was sought to be amended by amendment effective from 07.07.2009. The composition scheme will be in applicable in the present case. In such case the assesses has choice to pay service tax on full rate of tax of service portion of erection contract. Therefore, it was submitted that the manner of calculation of service tax while including the value of material supply in the material supply contract is erroneous and not sustainable in law. He further submits that as submitted above the law is settled in the favour of the respondent, hence the appeal filed by the revenue department has no merits. 5.3 The show cause notice dated 24.10.2012 alleged suppression and wilful mis-statement on the part of the respondent and invoked the extended period of limitation. The peri....
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....ccordingly it is clearly a sale as per section 4 of Sales of Goods Act, 1930. The second contract i.e. supply of service in the nature of erection, installation and commissioning of transmission towers itself is the works contract in its own right. The respondent use steel, cement, paint, grit, sand, coal etc and simultaneously undertaking erection activity of transmission lines. The ownership in this material is transferred from the respondent to EDAs (Customers), during the course of undertaking of the erection work. The ownership of these contracts material does not get transferred as contract of sale. The property in the goods is transferred during the undertaking the work as accretion/accession automatically while undertaking the work. It is therefore submitted that the necessary condition for works contract is that the property in the goods should pass on during the execution of a Works Contract as accretion / accession as per definition of Works Contract as defined in 65(105)(ZZZZA) of Finance Act, 1994. The transfer of property in goods involved in the execution of such contract is leviable to sale of goods before the commencement of work, the property in the goods is with ....
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....ent case is that whether the value of materials supplied by the respondent under a separate material supply contract with EDAs is required to be included in the gross value of Works Contract Service or otherwise. As per the facts prevailing on records and argued by both the sides there is no dispute that there is separate contract for supply of goods/ Sale of goods and contract for services namely erection, installation and commissioning of transmission line at site. The contention of the department in the appeal is that even though there are two contracts but it is a composite work undertaken by the respondent that is erection, installation and commissioning of transmission line therefore, it should be construed as one single contract. Consequently, the value of both the contract should be clubbed and considered for the purpose of payment of service tax under Works Contract Service. The respondent in respect of the relevant contracts discharging the service tax in terms of Works Contract (Composition scheme for payment of service tax) Rules, 2007. The said composition scheme rules amended with effect from 07.07.2009 therefore, it is necessary to refer to the said rules pre and pos....
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....ere any payment has been made in relation to the said contract on or before 07.07.2009. 6.2 The Central Board of Excise and Customs vide circular D.O.F NO 334/13/2009-TRU dated 06.07.2009 has clarified the above change and statutory provision as under:- "{5. Amendments in Rules (pertaining to service taxpayers): 5.1 Changes in the Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007: These rules provide a simplified procedure for working out the tax liability by the service providers providing works contract service. Instead of working out the service element from the value of works contract and paying service tax at full rate (i.e. 10%) the service provider is allowed to pay 4% on the 'gross amount charged' for the works contract. The reason for prescribing the lower rate under the scheme is that the service provider need not bifurcate the gross value of works contract. It was expected that the gross value should be shown to include the total value of materials as well as services used in providing the taxable services. However, it has been reported that in certain cases, the taxpayers are not including the full value of the goods required for exe....
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....elation to the execution of Works Contract [mentioned in the Explanation to Rule 3(1) (a) (i) and (ii)] in the 'gross amount' for the purpose of payment of service tax on works contract under the composition scheme, is a legal requirement, only with effect from 07/07/2009 when the Explanation became a part of Rule 3(1). 3. The explanation appended to Rule 3(1) with effect from 07/07/2009, categorically says in the proviso that "...nothing contained in this Explanation shall apply to a works contract where the execution under the said contract has commenced or where any payment, except by way of credit or debit to any account, has been made in relation to the said contract on or before the 7th day of July, 2009." Where execution of works contract has commenced prior to 07/07/2009 or where any payment(except payment through credit or debit) has been made towards a works contract prior to 07/07/2009, then in those cases 'gross amount' for the purpose of payment of service tax does not include the value of free of cost supplies. 4. The above clarification may be communicated to the field formations and service tax assessees through Trade Notice/ Public Not....
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....roperty in the said goods stands transferred the moment it is cleared from the gate of the respondent. Therefore, it cannot be said that the appellant have provided the Works Contract Service along with the goods manufactured and supplied by them. In this transaction the appellant executed the Works Contract Service with the labour and certain other material used in erection, installation and commissioning. As regard the goods manufactured and supplied by the respondent the same belongs to service recipient i.e. EDAs therefore, the value of the said goods cannot be included in the gross value of Works Contract Service. 6.7 This is not a case where the service provider i.e. appellant and the service recipient i.e. EDAs have colluded and with intention to evade service tax entered into two contract one for supply of goods and other for providing service of erection, installation and commissioning of transmission line. In the bid document itself which was offered by the service recipient put a clear condition that two separate contracts need to be entered into i.e. one for supply of service and other for supply /sale of goods therefore, both the contracts are separate con....
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....y the contracts entered into two between the parties. In the present case even though there is single bid that contain the condition of separate contract for supply of goods and supply of service. The two separate contracts are correct and legal and the same cannot be clubbed and held that it is a composite contract. The bid/ tender is only a offering to the prospective contracts however, the contract is an agreement between two parties and which is recognized as a legal document therefore, when two separate contract are entered into between two separate parties, revenue cannot insist that there should be one composite contract. Therefore, we are of the clear view that even though there is single bid / tender, the two separate contracts are legal and correct and no question can be raised. In the following judgments the issue in question was considered. * Madras Vs. Gannon Dunkerley & Co.(Madras) Ltd.(1958) 9 STC 353 * Hindustan Aeronautics Ltd Vs. State of Karnataka,(1984) 1 SCC 706 * Builders' Assn. of India Vs. Union of India , (1989) 2 SCC 645 * State of Karnataka Vs. Trans Global Power Limited 2015 77 VST 509 * Reliance Infrastructu....
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....orks contract. Revenue was of the view that the offshore and onshore agreements also need to be included in the value of services rendered and surplus tax should have been discharged accordingly. It is the case of the Revenue that umbrella agreement is the complete agreement and the three agreements viz; onshore supply, offshore supply and services are mere components of the same. Therefore, while determining the service tax liability under works contract basis, the entire value should be reckoned. A show cause notice was issued accordingly demanding differential service tax, for the period 2008-09 to 2013-14. Penalties were also proposed to be imposed under Sections 76 and 77. It was also proposed to recover interest under Section 75 of the Finance Act, 1994. After following due process, Ld. Commissioner confirmed the demands and interest and imposed penalties as proposed. Hence this appeal." 7.We have considered the arguments on both sides and perused the records. There is no dispute on the facts of the case that the appellant had entered into three agreements with M/s. APPDCL as per the LOI issued by them, of which two are supply contracts and one is a contract for serv....
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....s contract service and the existence of only one contract No. for all the supply and the service contracts, the scope of supply/work being the same i.e. "basic and detailed design, engineering, procurement, manufacture, assembly, pre assembly, inspection, tests at contractors and/or his sub vendors' works, shock painting, packing, transportation to site, freight and insurance of balance of plant systems and equipment package for 2x800 W thermal power plant"; that the assessee is responsible for installation of the whole facility under the EPC contract by using the Off-shore supply and On-shore supply procured by the assessee themselves, and therefore, the contracts have to be considered as one. In this regard, it is observed that both, supply contract and service contract have no separate defects liability clauses and the total price of the Contract, price variation being for the total price of the contract, and the Liquidated Damages applicable for the entire and complete Design, Engineering, Procurement, manufacture, supply, erection, testing, commissioning, initial operation, reliability operation and performance guarantee tests on EPC basis for Balance of Plant (BOP) systems an....
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....in the value of Works Contract Service. 6.16 In the present case also the similar facts are involved and the contracts were executed prior to 07.07.2009. Therefore, even if revenue is of the contention that both the contract i.e. one for supply of goods and other for Works Contract Service are meant for one composite contract by virtue of unamended provision, the value of supply contract cannot be included in Works Contract Service. 6.17 The Tribunal Hyderabad had occasion to once again examine the same issue in TATA PROJECTS LIMITED- 2020 (35) G.S.T.L (309) (Tri.Hyd) wherein, considering the identical facts in the present case it was held as under : "4. On examination of the matter, we find that the department seeks to include the value of goods supplied either under a different contract or as a separate part of the same contract in the value of taxable services on which service tax on works contract service is to be charged. We find that on an identical issue in respect of the same assessee in Appeal No. ST/22281/2015, after examining the amendment to Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007 vide Notification No. 23/2009-S.T....
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....the construction contract. It is the case of the Revenue that both the contracts entered into by the appellant and the service recipients are artificially bifurcated and are required to be considered as one. Revenue in their cross-objection under ST/CO/10461 of 2013 mainly argued that explanation to Rule 3(1) of the works contract (Composition Scheme for Payment of Service Tax) Rules, 2007, substituted under Notification No. 23/2009-S.T., dated 7-7-2009, is not applicable to the applicant's case and both contracts should be treated as one. B.4. As can be seen that the facts in the above referred case in identical with the facts of the present case. Considering the above facts, Hon'ble Court observed as under: 6. We have given our anxious thoughts to the arguments made by both sides and also perused the records. The issue required to be decided in these proceedings is whether two contracts dated 24-8-2007, executed by the appellant with service recipients can be considered as separate contracts or as one contract. It has been argued by the appellant that both the contracts are independent and cannot be considered as one for the purpose of determining taxable value of the s....
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....amages in the 'facility' or to any unit thereof. The word 'facility' is defined under the Construction Contract to mean a Thermal Power Project in relation to which the works are required to be carried out in accordance with the contract. The word 'defect' as per the definition clause means any defect, imperfection, deficiency or other fault in the facility or part thereof arising from or in relation to the execution of work. 8. From the above clauses of the contracts, it is clear that there are separate defects liability clause under the contracts separately provided for the defects in balance of plant and the defects that can creep in the working of the facility by the service provider for the service recipient. Therefore, it is not correct to hold that defects liability clause of the construction contract also make provisions for maintenance and repair of balance of plant. 9. The arguments made by the appellant, that the explanation added to Rule 3(1) of the Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007 is applicable only for those contracts which are entered after 7-7-2009, has got some force. The clarification issued by C.B.E. & C. ....
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....has been clarified that for the works contract executed before 7-72009, free of cost supplies are not required to be added to the gross amount, for the purpose of payment of Service Tax. There is no evidence on record to convey that both, the supply contract and the construction contract were artificially bifurcated after introduction of explanation to Rule 3(1) of Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007. The identical issue has been further considered by this tribunal in the case of ESSAR PROJECTS (INDIA LIMITED) 2014 (36) STR 681 (Tri- Ahmd.) where the tribunal as observed as under: "7. So far as adding the value of Supply Contract to the Service Contract is concerned, this Bench has already taken a view that such clubbing cannot be done as per our order No. A/10908-10909/WZB/AHD/2013, dated 11-7-2013 in the case of Essar Projects (India) Limited v. CCE & ST, Rajkot in Appeal No. ST/10138 of 2013 [2014 (33) S.T.R. 696 (Tri.)]." 6.19 The similar view was taken by the tribunal Mumbai in the case of GAMMON INDIA LTD. - 2015 (37) STR(225) (Tri- Mum) wherein, it was held that even though there are separate contract which were commenced befo....