TaxTMI 
TaxTMI 
2024 (4) TMI 1327
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.... April 2012 to September 2013 Rs.2,26,75,162/- 1.1 The first show cause notice dated 21.10.2011 mentioned in the above table is the detailed show cause notice after examination of the statements recorded during the course of investigation and inquiry and documents supplied by the Appellants from time to time. The other two show cause notices were in fact, statements under the provisions of Section 73(1A) of the Finance Act, 1994. In other words, the subsequent two show cause notices did not allege anything in addition to first show cause notice dated 21.10.2011. 1.2 The brief facts of the case are that appellant is inter alia engaged in providing taxable services in category of erection, commissioning and installation Services, consulting engineer service, Commercial or Industrial Commercial Service, maintenance and repair service and goods transport agency service. The Appellant is engaged in pipeline construction business for oil gas pipeline projects wherein it provides all the services in relation to construction of pipelines. 1.3 The Appellant also provide temporary/ permanent cathodic protection system for cross country pipelines, tank bottoms, petro chemical pl....
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.... Service Tax of Rs. 8,27,00,775/- under the category of 'Commercial or Industrial Construction Service' and it was also proposed to demand consequential interest and penalties. Thereafter, for the period 2011-12, the department had issued a statement dated 20.10.2012 with reference to the show cause notice dated 21.10.2011 demanding service tax of Rs. 82,04,833/-. 1.6 On the identical issue, another statement of demand involving Service Tax of Rs. 2,26,75,162/-. was issued SCN (statement) dated 19.09.2014. The said show cause notices alleged that the appellant had entered in to composite contract with the service recipient and therefore, should have paid service tax on the entire value of the contract. However, the appellant with intention to evade tax had artificially bifurcated the supply and service components of the contract. 1.7 The department further alleged that the appellant had wrongly availed Cenvat credit in violation of the condition prescribed under Notification No. 12/2003-ST and that in terms of the aforesaid notification, the appellant was not allowed to transfer Cenvat credit to the service recipient. The department also relied on the RA bills issued by th....
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....t. Ltd. v. Commissioner of Service Tax, 2010 (17) STR 437 (T) 2.3 He further submits that it is a settled law that when supply of goods/material is amount to sale, no service tax is leviable. In support he placed reliance on the following judgments:- • Bharat Sanchar Nigam V. Union of India, 2006 (3) SCC 1 • Builder's Association V. Union of India- (1989) 2 SCC 645 • CCE Vs. BSBK, 2010 (18) STR- 555 (Tri-LB) • Imagic Creative Pvt. Ltd. V. CCT, 2008 (9) STR 337 (SC) • Gujarat Ambuja Cements Ltd. Vs. Union of India, (2005) 4 SCC 214. • BSNL V. UOI 2006 (2) STR 161 (SC) • Idea Mobile Communications LTD. V. CCE Trivandrum, 2006-TIOL-857-CESTAT-BANG 2.4 He further submits that the adjudicating authority has confirmed the demand mainly on the ground that since the material shown as sale of goods was consumed while providing the service. Therefore, the same cannot be allowed to be excluded from the service portion. He submits that this aspects has been clarified by the Board by CBC clarification dated 07.04.2004 which clearly states that material consumed by the service provider shall be entit....
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....missioner in this regard is absolutely incorrect. This aspect was also considered by this Tribunal in the case of Laxmi Engineering (Supra). He also reiterates the decision of NJ Devani Builders Pvt. Ltd. (supra). 2.9 Without prejudice, he further submits that even if it is presumed without admitting that the appellant is liable to pay service tax on the value of both contracts under composition scheme that the appellant would have opted for composition scheme. The appellant would have discharged its service tax liability in terms of the provision of Rule 2A of Service Tax Valuation Rules, 2007, which provides for discharging service tax liability only on the value of the services on full rate. 2.10 It is further submitted without prejudice to the above that demand was raised under the category of 'commercial or industrial construction service' whereas as per the proposal of the department to include the cost of material then the service under consideration is appropriately classifiable under the category of 'works contract service'. On this ground itself, the demand under 'Commercial or industrial construction service' will not sustain. He placed reliance on the following ju....
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....9.2014 which has adopted the entire detail given in the show cause notice 21.10.2011 but the adjudicating authority confirmed the demand under head of 'works contract service' despite the fact that the demands in the main show cause notice dated 21.10.2011 was raised proposing classification of service under the category of 'commercial or industrial construction service'. Therefore, in this case the order clearly travelled beyond scope of show cause notice. 3. On the other hand Shri Mihir G Rayka, Learned Addl. Commissioner (AR) appearing on behalf of the revenue reiterates the finding of the impugned order. 4. We have carefully considered the submissions made by both the sides and perused the records. 4.1 First we deal with arguments advanced by the Appellants that the value of materials sold under the supply contract cannot be subject to service tax. We find that the issue is no longer res integra and decided under the identical circumstances in case of Laxmi Engineering Pvt. Ltd. reported in 2023 (4) TMI 348- CESTAT AHMEDABAD wherein this Tribunal held as under: "5.2 After appreciating the above facts and going through the contracts and documentary evidences in....
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.... as under :- "Notification No. 12/2003-S.T., dated 20-6-2003. - In exercise of the powers conferred by Section 93 of the Finance Act, 1994 (32 of 1994), the Central Government, being satisfied that it is necessary in the public interest so to do, hereby exempts so much of the value of all the taxable services, as is equal to the value of goods and materialssold by the service provider to the recipient of service, from the service taxleviable thereon under Section 66 of the said Act, subject to condition that there is documentary proof specifically indicating the value of the said goods and materials. Provided that the said exemption shall apply only in such cases where - a. no credit of duty paid on such goods and materials sold, has been taken under the provisions of the Cenvat Credit Rules, 2004; or b. where such credit has been taken by the service provider on such goods and materials, such service provider has paid the amount equal to such credit availed before the sale of such goods and materials." Upon perusal of the same, we find that the benefit is available only subject to satisfaction of conditions specified therein above Notif....
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....e issue needs to be verified from the factual matrix. Hence, instead of going into the merit of the case, we deem it fit to remand the matter back to the adjudicating authority to reconsider the issue afresh by going into all the claims by the appellant as regards discharge of VAT on supply portion and discharge on service tax on the service portion. We make it clear that we have not recorded any findings on the merits of the case and are leaving all the issue open. We also direct the appellant not to seek the refund of the amount already deposited during the proceedings." However without verifying the factual position whether appellant paid the VAT on supply portion and service tax on service portion Learned Commissioner has decided the impugned matter which is legally not correct and against the remand direction of Tribunal. 5. Further, from the documentary evidence produced by the Appellant before us we find that the appellant have paid sales tax as also VAT on the material used in providing the said service by them. The ratio of the various decisions of the Tribunal are to the effect that where the salestax and VAT stands paid on the material it has to be held....
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....nder it was registered as a Works Contractor, would no longer be in doubt in view of the clear provisions of Section 67 of the Finance Act, 1994, as amended, which deals with the valuation of taxable services for charging service tax and specifically excludes the costs of parts or other material, if any, sold (deemed sale) to the customer while providing maintenance or repair service. This, in fact, is what is provided by the Notification dated 20th June, 2003 and CBEC Circular dated 7th April, 2004, extracted above, subject, however, to the condition that adequate and satisfactory proof in this regard is forthcoming from the assessee. On the very face of the language used in Section 67 of the Finance Act, 1994 we cannot subscribe to the view held by the Majority in the Appellate Tribunal that in a contract of the kind under consideration there is no sale or deemed sale of the parts or other materials used in the execution of the contract of repairs and maintenance. The finding of the Appellate Tribunal that it is the entire of the gross value of the service rendered that is liable to service tax, in our considered view, does not lay down the correct proposition of law which, accor....
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....had paid service tax only on the labour component after deducting 70% towards material cost on the gross tyre Retreading charges billed and received for the period from 16-6-2005. In short, they have paid service tax only on the 30% of the tyre Retreading charges received from the customers, by conveniently omitting 70% of the consideration received towards Retreading charges to avoid tax burden. The verification of invoices of the Appellant for the period from Jan.-2007 to March-2007, the officers noticed that the Appellant have shown material cost, patch cost and misc. charges i.e. Labour charges separately in their invoices. However, on the follow-up action the customers of the Appellant revealed that they have neither purchased nor received raw materials intended for Retreading and they had paid only the Retreading charges for carrying out the Retreading activity." The invoices which the appellant assessee has also brought on record by way of illustration show the break up of the gross value received. There is again no contest to the same. Leaving aside the question that the case now projected, with regard to lack of proof of incurring of expenses on goods and....
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....e other for payment of remuneration for services and for work done. In such a case, there are really two agreements, though there is a single instrument embodying them, and the power of the State to separate the 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) 18. Similarly, in Kone Elevator India (P) Ltd. v. State of T.N. - (2014) 7 SCC 1 = 2014 (34) S.T.R. 641 (S.C.) = 2014 (304) E.L.T. 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, wh....
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....nd service only. The learned Advocate General for Maharashtra was right in his submission that the term "works contract" cannot be confined to a contract to provide labour and services but is a contract for undertaking or bringing into existence some "works". We are also in agreement with the submission of Mr. K.N. Bhat that the term "works contract" in Article 366(29-A)(b) takes within its fold 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) 20. We also find that the assessees' argument that there is no charge to tax of works contracts in the Finance Act, 1994 is correct in view of what has been stated above." 4.6 Further, we find that Ld. Commissioner has also accepted that the activities of the Appellants is correctly classifiable as "works contract" services for the period prior to 01.07.2012. We find that Ld. Commissioner in his Order in Original having number AHM-SVTAX-000-027-2015-16 dated 17.03.2016 (Appeal No. ST/11245/2016) in Para 15.5 has observed as under: 15.5 The afo....
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....d in the value of taxable services even if the services of the Appellants is classifiable as works contract services. The Appellants have rightly claimed that the value of materials is separately available in the present case on which local VAT or sales tax is paid and invoices are available for the same. We find that the issue also stands covered in favour of the Appellants as decided by this Tribunal in case of Kalpataru Power Transmission Ltd. reported in 2021 (48) GSTL 354 (Tri.-Ahmd) wherein it is held as under: 2.2 From the above it was observed that the respondent may have entered into different contracts but they happen to be only one "Works Contract" wherein, 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 E....
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....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 7-7-2009 therefore, it is necessary to refer to the said rules pre and post its amendment. (A.4) Rule 3 of Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007 pre-amendment read as under : 3.(1) Notwithstanding anything contained in Section 67 of the Act and Rule 2A of the Service (Determination of Value) Rules, 2006, the person liable to pay Service Tax in relation to Works Contract Service shall have the option to discharge his service tax liability on the Works Contract Service provided or to be provided, instead of paying service tax at the rate specified in Section 66 of the Act, by paying an amount equivalent to two percent of the gross amount charged for the Works Contr....
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....ue 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 execution of works contract for working out 4 service tax liability under the Composition Scheme by either excluding the value of goods received free of cost from their client or splitting the contract into a sale contract (for a portion of goods required to execute the works contract) and works contract (for only a portion of the total value of goods and the labor charges), thus reducing the value of works contract for the purposes of calculating service tax. In order to plug this loophole, the Explanation appearing in sub-rule (3) is being amended to provide that the composition scheme would be availab....
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....fore the 7th day of July, 2009." Where execution of works contract has commenced prior to 7-7-2009 or where any payment (except payment through credit or debit) has been made towards a works contract prior to 7-7-2009, 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 Notice. Hindi version to follow." 6.4 As per the clear provision under the amended Rule 3 reads with amended Explanation and two circular clarifying provision of the said amendment, it is clear that any contract which is executed or payment thereagainst (except the way of credit/debit) made prior to 7-7-2009, the value of goods supplied under the separate contract cannot be included in the gross value of Works Contract Service. As per the undisputed fact and also finding given by the Learned Commissioner in the impugned order execution of 24 contracts have been commenced prior to 7-7-2009 therefore, the contention of inclusion of value of goods in the gross amount charged for the works contract as p....
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.... 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 contract and cannot be clubbed together. 6.8 As per the definition of the Works Contract Service one of the condition is that the property in goods used in execution of works contract must be transferred during the execution of contract. In the present case the appellant while clearing the transmission towers from their factory issued the sale invoices accordingly, the property in the said goods does not remain with the respondent but the same was transferred to service recipient and while execution of the works contract service the property in the said goods was with the recipient. Since the transfer of property in the said goods is not taking place during the execution of the Works Contract Service the value there....
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....e two separate contracts are legal and correct and no question can be raised. In the following judgments the issue in question was considered : • State of Madras v. Gannon Dunkerley & Co. (Madras) Ltd. - (1958) 9 STC 353 = 2015 (330) E.L.T. 11 (S.C.) • Hindustan Aeronautics Ltd. v. State of Karnataka, (1984) 1 SCC 706 • Builders' Assn. of India v. Union of India, (1989) 2 SCC 645 • State of Karnataka v. Trans Global Power Limited - (2015) 77 VST 509 • Reliance Infrastructure Ltd. v. Deputy Commissioner - 2015 VIL 60 CAL • Ishikawajma-Harima Heavy Industries Ltd. v. Director of Income-tax, (2007) 3 SCC 481 = 2007 (6) S.T.R. 3 (S.C.). 6.11 In the above judgments one common issue has been considered that there can be two separate contracts, that is one for sale and another for Works Contract Service as in the present case the value of goods sold, property of which in goods has already been passed on, cannot form part of the value of the second contract i.e. Works Contract. 6.12 The Contention of the revenue is that it is necessary to enter a single indivisible contract is contrary to the pr....
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....d 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 services which also included supply of some material. He also had an umbrella agreement combining these three agreements. It is not also in dispute that in addition to the supply, the appellant had discharged VAT/CST as the case may be in respect of the supply contracts. The only question remains to be answered is whether the value of this onshore and offshore supplies by the appellants need to be included in the value of services rendered by them under the works contract scheme. It is not in dispute that the material in question was supplied by the appellant with respect to this particular c....
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.... 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 and equipment for 2x800 MW supercritical coal fired Thermal Power Plant, the contracts have to be considered as one". 8. In other words, the adjudicating authority held that the three contracts in question are essentially part of the same contract and they were signed on 12-8-2009, hence the Explanation w.e.f. 7-7-2009 to Rule 3 of the Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007 is not relevant. On a plain reading of the contracts in question, we do not find it so. There are indeed three different contracts and for which three different paymen....
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....ri. - 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., dated 7-7-2009 and the explanation of the amendment by C.B.E. & C. vide D.O.F. No. 334/13/2009-TRU, dated 6-7-2009 as discussed above, we held that appellant is not liable to include the value of the goods as the contracts were signed/payments were made prior to 7-7-2009. We find no reason to deviate from our earlier decision. This covers 13 of the 14 projects in respect of which the demand was raised. In respect of the 14th project namely project with respect to SALSETTE Borivli BMC, which was entered post-7-7-2009, we find from Sl. No. 10 in Annexure-I to the....
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....he 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 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. The adjudicating authority in Para 30 of the impugned order has held that appellant is responsible for installation of the whole facility under the construction contract by using the indigenous machinery procured by appellant and, therefore, both the contracts have to be considered as one. In this regard, it is observed that both, supply contract....
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.... 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. under Circular No. 150/1/2012-S.T., dated 8-22012, in Para 3, has clarified as follows :- "3. The Explanation appended to Rule 3(1) with effect from 7-7-2009, 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 7-7-2009 or where any pay....
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.... - 2014 (36) S.T.R. 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) S.T.R. (225) (Tri. - Mum.) wherein, it was held that even though there are separate contract which were commenced before 7-7-2009 the value of goods is not included in value of Works Contract Service. In view of the consistent view taken in various above judgments by this Tribunal there is no reason to deviate from the said view by us. The revenue's ground as regard the above judgments is that all the judgments have been appealed against before the Hon'ble Supreme Court and in some of the cases appeals are admitted. 7. We are of the view that merely because the revenue's appeal is pending in the Hon'ble Supreme Court, Tribunal j....