TaxTMI 
TaxTMI 
2026 (8) TMI 422
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....quently dismissed the appeal preferred by the Revenue. The impugned order arose out of Order-in-Original Nos. 03/2005 and 04/2005, both dated 23.12.2005, and Order-in-Original No. 04/2007 dated 23.02.2007 passed by the Commissioner of Service Tax, Chennai. FACTUAL MATRIX 2. The respondent-assessee is engaged in the business of supplying Automated Teller Machines (ATMs) to various banks. Pursuant to contracts awarded by different banks, the respondent-assessee undertook the supply, installation and commissioning of ATMs at the sites identified by the respective banks. The contracts were executed on a turnkey basis under which the respondent-assessee was responsible not merely for supplying the ATMs but also for their installation and commissioning. 3. The controversy in the present Appeals relates to the levy of service tax on 33% of the gross consideration received by the respondent-assessee from the banks for the period from July 2003 to April 2006. According to the Revenue Department, the said component represented consideration attributable to installation and commissioning activities and was, therefore, liable to service tax under the taxable category of "commissioning....
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....respondent-assessee preferred a further appeal before the CESTAT challenging the said adjudication order. 7. Since all the appeals arose out of a common controversy concerning the leviability of service tax on the activities undertaken by the respondent-assessee under the turnkey contracts for supply, installation and commissioning of ATMs, the CESTAT heard them together and disposed of them by the impugned final order dated 28.11.2007. Upon an examination of the terms and conditions governing the contracts entered into between the respondent-assessee and the various banks, the CESTAT held that the contracts were in the nature of indivisible turnkey contracts in which the dominant object was the supply of ATMs, while installation and commissioning constituted obligations merely incidental to the execution of the contracts. The CESTAT observed that the contracts envisaged a single, composite consideration for the execution of the entire work and did not contemplate a separate or independent consideration for installation and commissioning so as to render those activities exigible to service tax in isolation. 8. Referring to the statutory scheme governing the levy of service ta....
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.... specified services irrespective of the form in which the contract was structured. The installation and commissioning activities undertaken by the respondent-assessee squarely fell within the statutory definition of "commissioning or installation" and were, therefore, independently exigible to service tax. It was urged that the appellant-Revenue had rightly subjected only 33% of the gross contractual consideration to service tax, representing the value attributable to the installation and commissioning component. 13. Lastly, learned counsel further submitted that the CESTAT erred in placing reliance upon the decision in Daelim Industrial Co. Ltd. (supra) and in applying the ratio thereof to the facts of the present case. According to the learned counsel for the appellant, the said decision was distinguishable on facts and did not lay down an absolute proposition that every turnkey contract was immune from service tax. 14. Per contra, learned counsel for respondent-assessee supported the impugned order of CESTAT, arguing that that the contracts entered into with the various banks were indivisible turnkey contracts for the supply, installation and commissioning of ATMs, execute....
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....pass. The question is not whether the respondent-assessee undertook the installation and commissioning of ATMs pursuant to the contracts entered into with various banks. That factual position is undisputed. The controversy, rather, concerns the true nature of the contracts entered into by the respondent-assessee and whether, having regard to the provisions of the Finance Act, 1994 as they stood during the relevant period from July 2003 to April 2006, the Revenue was legally justified in artificially segregating a part of the composite consideration received under such contracts and subjecting the same to service tax under the taxable category of "commissioning or installation". 20. The answer to the aforesaid question, in our considered view, must necessarily be found in the statutory framework governing the levy of service tax during the relevant period. It is a settled principle of fiscal jurisprudence that the liability to tax must flow from the charging statute itself. A taxing statute admits of neither intendment nor equity. The existence, extent and incidence of a tax must be discernible from the language employed by the legislature, and no tax can be imposed by implicatio....
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....sessee assumes determinative significance. The factual findings recorded by the CESTAT, upon an examination of the contractual terms, reveal that the respondent-assessee was entrusted with turnkey contracts for the supply, installation and commissioning of ATMs. The contracts envisaged a single commercial objective, namely, the delivery of fully functional ATMs at the designated sites of the banks. The obligations undertaken by the respondent-assessee including procurement, supply, transportation, installation, testing and commissioning were all integral components of the execution of that singular contractual obligation. The consideration stipulated under the contracts was likewise composite in nature and was payable for the execution of the turnkey project as a whole. There was no separate bargain for installation or commissioning independent of the supply of the ATMs, nor was there any distinct consideration earmarked for such activities. 24. The Revenue nevertheless sought to subject 33% of the gross consideration received by the respondent-assessee to service tax by treating that portion as representing the value of "commissioning or installation". The very premise underlyi....
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....ods involved in the execution of works contracts. By creating a legal fiction, Article 366(29A)(b) enabled the value of goods involved in an indivisible works contract to be treated as a deemed sale and thereby brought within the taxing power of the States. Significantly, however, the constitutional amendment did not convert an indivisible works contract into separate and independent contracts in law. It merely authorised the segregation of the goods component for the limited purpose of imposing sales tax or value added tax, leaving the composite nature of the contract otherwise remained intact. 28. The above constitutional position assumes considerable significance while construing the provisions of the Finance Act, 1994. Unlike the constitutional amendment empowering the States to tax the deemed sale element in a composite works contract, the Finance Act, 1994, during the period relevant to the present appeal, contained no corresponding provision authorising the Revenue to segregate and tax the service element of an indivisible composite contract under the existing taxable entries. The charging provision under Section 66 of the Finance Act, 1994 merely levied service tax on th....
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....s. Consequently, this Court held that such contracts could not be vivisected and subjected to service tax under pre-existing taxable categories merely because they incidentally involved the rendition of one or more services. [Ibid at Para 42.]. 31. Of equal significance is the reasoning adopted by this Court in Larsen and Toubro Limited (supra) that the subsequent introduction of a distinct taxable entry relating to "works contract service" with effect from 01.06.2007 (via Finance Act, 2007) constitutes a clear legislative recognition that the existing taxable entries were insufficient to encompass indivisible composite works contracts. The introduction of a specific charging provision (in form of Section 65(105)(zzzza)), accompanied by a detailed valuation mechanism for determining the service element of such contracts, was not merely clarificatory in nature but represented a substantive legislative measure to bring within the service tax net a class of transactions which had hitherto remained outside the scope of the charging provisions. This legislative development reinforces the conclusion that, during the period with which the present appeal is concerned, no authority exist....
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....wered. In the absence of an express legislative mandate permitting such segregation under the Finance Act, 1994, the Revenue could not, by a process of administrative attribution or notional apportionment, create a taxable event where none existed under the charging provisions of the Act during the relevant period. 34. We also find no statutory foundation for the Revenue's attribution of 33% of the gross contractual consideration as representing the value of "commissioning or installation". The determination of such percentage does not emerge from the charging provisions of the Finance Act, 1994. Nor does the statute, as it stood during the relevant period, prescribe any machinery for isolating the service element of an indivisible turnkey contract by allocating a fixed percentage of the composite consideration thereto. The absence of a legislatively sanctioned mechanism for such segregation assumes particular significance in the field of taxation, where both the charge and the measure of tax must have clear statutory authority. A fiscal liability as held in Shiv Steels (supra) cannot rest upon a notional or assumed apportionment unsupported by the charging enactment. Unless....
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....lves provide either the charge or the machinery necessary for taxing indivisible composite contracts. Had the Revenue's interpretation been correct, the introduction of a separate taxable category together with an elaborate statutory machinery for valuation would have been largely otiose. 37. We are, therefore, of the considered view that the contracts executed by the respondent-assessee cannot be artificially disintegrated so as to subject a notional portion of the composite consideration to service tax under the taxable category of "commissioning or installation". During the period from July 2003 to April 2006, the Finance Act, 1994 did not authorise the vivisection of such indivisible turnkey contracts, nor did it provide the machinery necessary for identifying and assessing the service element embedded therein. Such authorisation came to be only introduced on 01.06.2007 (via Finance Act, 2007) in form of Section 65(105)(zzzza). Therefore, we are of the view that the demand raised by the Revenue proceeds on a legal premise which is inconsistent with the statutory framework as subsequently explained and authoritatively settled by this Court in Larsen and Toubro Limited (su....