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2021 (3) TMI 823
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.... India Ltd. (PGCIL) and various Electricity 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,....
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....erein, the work assigned was supply installation 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....
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.... of design, manufacture, test, deliver, install, complete 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 ....
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....supply of goods and services which is not divisible contract. 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 ....
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....al is maintainable on facts, merits, legality and be allowed in favour of revenue. 5. 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 cont....
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....Relying on the above judgment and submissions made, he submits that the issue is squarely covered in their favour and therefore revenue department'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 dat....
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.... goods are transferred at the recipient factory gate of the respondent and local VAT or CST as the case may be applicable on such sale of goods. Accordingly 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....
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.... taken on record and also considered carefully. 6. We have heard both sides and perused the records. The issue involved in the present 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 t....
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....ar that the above amendment in Rule 3 (explanation to rule 3) would not be applied to any works contract where the execution under the said contract has commenced or where 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 wel....
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....7/07/2009. Since the Explanation inserted in Rule 3(1) with effect from 07/07/2009 is clarificatory and prospective in nature, inclusion of value of free-of-cost supplies of goods and services in or in relation 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 payme....
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....egard the supply contract mainly it is a transmission tower which is admittedly manufactured by the respondent in their factory and cleared there from. These goods were sold at factory gate of respondent therefore, the property 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 wa....
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....the above judgments it can be seen that reliance on the tender or invitation to bid to decide the nature of the contract or the right and obligation flowing under a contract entered pursuant thereto is wholly misplaced, which would be governed only by 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....
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....S LIMITED- 2019 (31) G.S.T.L (436) (Tri-Hyd) wherein under the identical facts the following order was passed : "2. Thus, appellant had entered into two supply contracts and a contract for services which included supply of material related to supply of services. Appellant discharged Service Tax on the services contract taking it as a works 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 inter....
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....etermining taxable value of the service provided. It was further argued that even if two contracts are treated as one, still appellant's case will not be covered under the Explanation added with effect from 7-7-2009 in Rule 3(1) of the Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007. In view of the findings above and nature of EPC works 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 to....
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....ame contention that the value of both the contracts needs to be included in the value of service rendered. The tribunal considering the same set of facts came to the conclusion that since the contracts were executed prior to 07.07.2009, hence the amended provision do not apply. Accordingly it was held that the value of material supplied under both the contracts cannot be included 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 dif....
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....ited. One of the contracts was for supply of indigenous equipment and materials (supply contract) and the other one for the Construction/Erection/Installation of plant (construction contract). In addition, the service recipient also procured imported equipment and materials which was also supplied to the appellant for completing 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....
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....sp; It is evident that clause 18.1 of the Supply Contract talks about remedy of defects or damage in the balance of plant. As per the definition of the supply contract, balance of plant includes all such machinery permanent plant, equipment, material, etc. required for commissioning and maintenance of the balance of plant. On the other hand, 'defects liability' mentioned under clause 34 of the Construction Contract talks of the remedy of defects/damages 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,....
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.... only at the time of completion of work, is not correct. In the case of imported equipments as well as the Balance of Plant equipment, the ownership/title lies with the service recipient when the same are received at site. Accordingly, it has to be held that after receipt of balance equipment, the title/ownership of the same is transferred to the service recipient. Accordingly, adjudicating authority cannot go beyond the C.B.E. & C. Circular No. 150/1/2012-S.T., dated 8-2-2012 wherein it 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 Con....
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....ents and the tribunal has decided in favour of the assessee therefore, it cannot be said that the respondent had any mala fide intentions and have suppressed any fact with intention to evade payment of service tax. It is also on record that the respondent have represented the matter before Chief Commissioner and also before the CBEC in letter 21.10.2010 has clearly mentioned that the amendment in Works Contract Service (Composition scheme for payment of service tax) Rules, 2007 effective from 07.07.2009 would have prospective effect and in the respondent case it will not apply. This clearly shows that there is no suppression or wilful misstatement on the part of the respondent. The Learned Commissioner in the impugned order also observed that the respondent has filed periodical ST-3 return regularly and disclosed all the necessary details as may be required. The respondent also provided contract wise/ invoices wise details along with ST-3 return filed before the Jurisdictional Authority. In this circumstances charge of suppression or wilful misstatement do not survive against the respondent. 8. On the basis of the above fact, we are of the clear view that extended....