AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2026 (5) TMI 12
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.... viewed the material component as trading/exempted activity and alleged that the appellant wrongly availed common input service credit without maintaining separate accounts or reversing credit under Rule 6(2) and Rule 6(3)/6(3A) of the CENVAT Credit Rules, 2004. Accordingly, after due process the Ld. Adjudicating Authority confirmed the demand with interest of Rs. 2,83,34,028/-, for the period 2010-11 to 2014-15, under Rule 14 of the CCR, 2004 read with the proviso to section 73(1) of the Finance Act, 1994, and imposed penalties under section 77 and section 78. Aggrieved, the appellant is in appeal before this Tribunal. 3. The Ld. Chartered Accountant Shri R. Viswanathan appeared for the appellant and Ld. Authorized Representative Shri M. Selvakumar appeared for the respondent. 3.1 Shri R. Viswanathan Ld. C.A. for the appellant submitted as follows: A. The appellant is carrying out the following services; (a) Management Consultancy (b) Works Contract Service (c) Maintenance and Repair No other works contracts other than present contract or related expenditure were incurred during the relevant years. B. The project, under d....
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....th separate material and service billing) was used only to discharge output service tax on the works contract provided to IPRWL. The credit pertained solely to the service portion and was proportionately disallowed as reflected in the records. H. Reliance on Departmental Letter No. 334/3/2011 dated 28.02.2011 issued by JS TRU II, is misplaced, and the observation that the Appellant's contentions lack logic or substance is unsupported by any findings of fact. I. As per section 73(1) of the Finance Act 1994, the SCN should be issued within 18 months from the relevant date as no suppression was involved and duty was discharged as per their books of account. J. As no question of reversal of credit arose, no ground for interest and imposition of penalty is made out. The Ld. C.A. prayed that the impugned order may be set aside and the appeal allowed. 3.2 Ld. A.R. Shri M. Selvakumar appearing for Revenue, submitted: A. Service tax is leviable only on the service portion of "execution of works contract" during the impugned period. B. CENVAT credit is available only for inputs/input services used for dutiable final products or taxable outpu....
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.... value of deemed sale of goods in a works contract as an exempt service and, applying Rule 2(e) of the CENVAT Credit Rules, 2004, held that reversal under Rule 6 was mandatory, including for the period FY 2010-11. 5. The core issue that arises for determination is whether the billing of goods, used in the project, by the sub-contractor to the appellant and thereafter onwards to IPRWL during execution of the works contract can be treated as "trading" or an "exempted service" for the purpose of Rule 6 of the CENVAT Credit Rules, 2004, so as to warrant reversal of CENVAT credit on common input services. 6. In Vanguard Rolling Shutters Vs CST [(1977) 39 STC 372 (SC) / AIR 1977 SC 1505], it was observed by the Hon'ble Supreme Court that it is difficult to lay down any rule of universal application to decide whether a contract is a works contract or contract for sale of goods. If the contract is primarily for supply of materials at prices agreed and the work or service is incidental to the execution of contract, it will be contract for sale. On the other hand, where contract is primarily a contract of work and labour and materials are supplied in execution of such contract, it is a....
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....**. *****. ***** In the case of Sentinel Rolling Shutters & Engineering Company Pvt. Ltd. Vs The Commissioner of Sales Tax [(1978) 42 STC 409 (SC)], this Court reiterated that tests indicated in several decisions of this Court to distinguish between a contract for sales and a contract for work and labour were not exhaustive and did not lay down any rigid or inflexible rule applicable alike to all transactions. These did not give any magic formula by the application of which one could say in every case whether a contract was a contract for sale or a contract for work and labour. These merely focused on one or the other aspect of the transaction and afforded some guidance in determining the question, but basically and primarily, whether a particular contract was one for sale of goods or for work and labour depended upon the main object of the parties gathered from the terms of the contract, the circumstances of the transactions and the custom of the trade. In that case, the assessee who was carrying on business as engineers, contractors, manufacturers and fabricators had entered into a contract with a company for fabrication, supply, erection and installation of two rolling ....
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....s may pass to the other party. That would not necessarily convert the contract into one of sale of those materials. In every case, the Court would have to find out what was the primary object of the transaction and the intention of the parties while entering into it. It may in some cases be that even while entering into the contract of work or even service, parties might enter into separate agreements, one of work and service and the other of sale and purchase of materials to be used in the course of executing the work or performing the service. But, then in such cases the transaction would not be one and indivisible, but would fall into two separate agreements. One of work or service and the other of sale. These principles can be deduced from the decision of this Court in The State of Himachal Pradesh and Others v. Associated Hotels of India Ltd. [(1972) 29 STC 474 (SC)], In the decision in the case of The State of Madras v. Gannon Dunkerley & Co. (Madras) Ltd. [(1958) 9 STC 353 (SC) / (1959) SCR 379], this Court had stated that according to the law, both of England and of India, in order to constitute a sale, it is necessary that there should be an agreement between the parties f....
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....labour and materials (as the case may be), by the workman. Materials added by the workman, on being affixed to or blended with the employer's materials thereupon vest in the employer by accession and not under any contract of sale. (ii) Where the workman supplies either all or the principal materials, the contract is a contract for sale of the completed chattel, and any materials supplied by the employer when added to the workman's materials vest in the workman by accession." (emphasis added) 8. BOOT contracts are a form of Turnkey contracts and are contracts for labour, work or service and not for sale of goods, though goods are used in executing the contract for labour, work or service. When a contractor undertakes a project, the buyer pays for cost of the structure which includes cost of material used, labour and other services offered by the contractor. Property in goods is passed on to buyer and there is no contract for supply of goods as such. It does not contemplate the delivery of a chattel as chattel. The laying of pipeline, as in this case, is an example of works contract, where passing of property in the pipe is part of the works contract. 9. In....
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....herein) and stated in the Schedule of Payments payable to the Contractor for the discharge of all of its obligations under the Contract for Detailed Design, design of Temporary Works, execution, testing, commissioning (including of the Works and the remedying defects in accordance with the provisions of the Contract. "Works" or "Scope of Work" means the works relating to the development, design, construction of the Project to be undertaken by the Contractor in accordance with the provisions hereof, including Performance Standards and services, things to be designed, engineered, constructed, supplied, executed, manufactured, installed, completed, tested, commissioned, rectified, replaced, made good, carried out and undertaken and any other permanent, temporary or urgent works required hereunder in respect of Project in accordance with the Contract. ***** ***** ***** 4. THE CONTRACTOR 4.1 General Obligations i. The obligation of the Contractor under this Clause 4.1 is to complete all the Works for Project facilities within the period given in accordance with the Contract which shall be in uniformity with the BOOT Agreement. viii. Scope ....
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....l fiction introduced by Article 366(29A)(b) in the Constitution, which divides the contract into a sale and service, should only be used for its intended purpose: levying tax on both sale and service in an indivisible contract. It can't be used to convert the reimbursement of payment for goods by the sub-contractor into "trading" or treat the value of the deemed sale of goods as an "exempt service". 13. In Imagic Creative Pvt. Ltd Vs Commissioner Of Commercial Taxes [2008 (9) S.T.R. 337 (S.C.)], the Hon'ble Supreme Court held as under: 26. We have noticed hereinbefore that a legal fiction is created by reason of the said provision. Such a legal fiction, as is well known, should be applied only to the extent for which it was enacted. It, although must be given its full effect but the same would not mean that it should be applied beyond a point which was not contemplated by the legislature or which would lead to an anomaly or absurdity. 14. The appellants in his reply to the SCN has submitted to the Ld. Adjudicating Authority that they maintained separate records for availment and compliance of the inputs/ input services. The invoices for each of the activities includi....