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ST – Tax liability under services of ‘erection, commissioning or installation’ prior to 16th June 2005, did not extend to ‘lifts’: CESTAT

2019-TIOL-2245-CESTAT-AHM

IN THE CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL
WEST ZONAL BENCH, AHMEDABAD
REGIONAL BENCH
COURT NO. II

Appeal No. ST/109 of 2009-DB

Arising out of OIO-STC/13/O&A/COMMR/AHD/2008, Dated: 30.12.2008
Passed by Commissioner of Service Tax-SERVICE TAX – AHMEDABAD

Date of Hearing: 04.04.2019
Date of Decision: 04.04.2019

M/s OMEGA ELEVATORS
5/C ARCHANA INDUSTRIAL ESTATE, OPP
AJIT MILL, RAKHIAL, AHMEDABAD

Vs

CST SERVICE TAX
AHMEDABAD, 7TH FLOOR, CENTRAL EXCISE BHAVAN
AMBAWADI, AHMEDABAD – 380015

Appellant Rep by: Shri. Bishan R. Shah, C.A.
Respondent Rep by: Shri S.K. Shukla, AR

CORAM: Dilip Gupta
C J Mathew, Member (T)

ST – The assessee executes tasks for manufacturers of lifts at the sites of customers and it is contended that their submission that the incorporation of ‘installation of lifts’ as a particular description w.e.f. 16th June 2005 in section 65 (39a) of FA, 1994 that defines ‘erection, commissioning or installation’ thereby excluding the said activity from the purview of taxation which, till then, was limited to ‘erection, commissioning or installation of plant, machinery or equipment’, had not been taken into consideration in the impugned order – Reliance is placed on the decision of Tribunal in Kehems Engineering Pvt Ltd 2015-TIOL-1662-CESTAT-DEL – The submission on behalf of assessee that the dispute is squarely covered by earlier decision of Tribunal in re Keehems Engineering Pvt Ltd is not without merit – ‘Commissioning or installation’ in section 65(28) was expanded to include ‘erection’ and renumbered as section 65(39a) w.e.f. 10th September 2004 but, nevertheless, relatable only to ‘plant, machinery or equipment’ till 16th July 2005 when the activity was further extended to certain installation services by specific enumeration therein – That ‘lifts’, which the assessee is concerned with, is one of those is not in dispute – It is clear that the dichotomy envisaged in definition is deliberate, specific and mutually exclusive – Language is a means of communication through the articulation of sounds that, with the development of recording technology, is manifested, singly or in combination, as the written word – The dexterity inherent in the spoken that vests it with versatility and resilience is curtailed by ineffaceability of the letter – Therefore, for proper comprehension, it is the context and concatenation that needs appreciation – The expressions ‘erection’, ‘commissioning’ or ‘installation’ may, to a general render, appear to be synonyms – Yet, the conjunctive separator ‘or’ suffices to emphasize that these are mutually exclusive – Likewise, though such separator is absent between the two sets of activities after the amendment of 16th June 2005, the separate enumeration after the commonality of ‘installation’ in both is indicative that legislative intent is not mere disambiguation but of expanding the tax base – Any other construction would be disharmonious because all the new enumeration can be related to the existing taxable activity – The legal position is, thus, unambiguously clear – The tax liability on ‘erection, commissioning or installation’ prior to 1st June 2007 was limited to execution of work that did not involve supply of materials and that, prior to 16th June 2005, even such service simpliciter did not extend to ‘lifts’ owing to which the demand in impugned order is without authority of law: CESTAT

Appeal allowed

Case laws cited:

Commissioner of Central Excise, Indore v. Kehems Engineering Pvt Ltd – 2015-TIOL-1662-CESTAT-DEL… Para 2

Commissioner of Central Excise & Customs, Kerala v. Larsen & Toubro Ltd – 2015-TIOL-187-SC-ST … Para 3

FINAL ORDER NO. A/10915/2019

Per: C J Mathew:

M/s Omega Elevators assails the confirmation of demand of Rs 51,91,975 under section 73 of Finance Act, 1994 for the period from July 2003 to March 2005, along with interest thereon under section 75 of Finance Act, 1994, and penalties under both section 76 and section 78 of Finance Act, 1994, seeks setting aside of order-in-original no. 13/O&A/COMMR/AHD/2008 dated 30th December 2009 of Commissioner of Service Tax, Ahmedabad primarily on the ground of non-taxability, during the relevant period of the activity engaged in by them, under section 65(105)(zzd) of Finance Act, 1975 which is intended only to cover providers of ‘erection, commissioning or installation’ service.

2. The appellant executes tasks for manufacturers of lifts at the sites of customers and it is contended on their behalf by Learned Chartered Accountant that their submission that the incorporation of ‘installation of lifts’ as a particular description, with effect from 16th June 2005, in section 65 (39a) of Finance Act, 1994 that defines ‘erection, commissioning or installation’ thereby excluding the said activity from the purview of taxation which, till then, was limited to ‘erection, commissioning or installation of plant, machinery or equipment’, had not been taken into consideration in the impugned order. Reliance is placed on the decision of the Tribunal in Commissioner of Central Excise, Indore v. Kehems Engineering Pvt Ltd [2016 (41) STR 307 (Tri-Del)] = 2015-TIOL-1662-CESTAT-DEL.

3. It is further submitted that the appellant, in the course of execution of the task, is no mere contractor of labour but also supplies materials in furtherance of a composite contract which, falling within the definition of ‘works contract service’ in section 65(105) (zzzza) of Finance Act, 1994, precludes tax liability prior to 1st June 2007 for which Learned Chartered Accountant places reliance on the decision of the Hon’ble Supreme Court in Commissioner of Central Excise & Customs, Kerala v. Larsen & Toubro Ltd [2015 (39) STR 913 (SC)] = 2015-TIOL-187-SC-ST that, distinguishing the scope of taxability under, inter alia, section 65(105)(zzd) of Finance Act, 1994, incorporated prior to that date, from the subsequent enumeration as ‘works contract service’, restricted the tax to rendering of services simpliciter. Learned Chartered Accountant also contends that the demand is time-barred as the ingredients in proviso to section 73(1) of Finance Act, 1994 cannot be said to co-exist with pendency of the dispute before various fora till final rendering was handed down by the Hon’ble Supreme Court in re Larsen & Toubro Ltd.

4. Learned Authorized Representative argued that ‘lifts’ are equipment and, thereby, rendering the activity of ‘commissioning or installation’ to be taxable from 1st July 2003 by section 65(105)(zzd) of Finance Act, 1994. He places particular reliance on the admission of their liability in the statements of the proprietor of the appellant-assessee.

5. Having heard both sides and perused the records, we find that the submission on behalf of appellant that the dispute is squarely covered by the earlier decision of the Tribunal in re Keehems Engineering Pvt Ltd is not without merit. There are three definitions that are relevant for resolution of the dispute. The service sought to be taxed in section 65 (105) (zzd) of Finance Act, 1994 has remained unchanged since 1st July 2003 save that ‘erection’ was incorporated on 10th September 2004. The targeted provider of the service, described as ‘commissioning and installation agency’ in section 65(105)(zzd) was, prior to 10th September 2004, defined in section 65(29) and, thereafter’ expanded by incorporation of ‘erection’ to reflect the amendment in section 65(105)(zzd). In our opinion, it is the third, pertaining to the activity that was sought to be taxed, as amended from time to time, that requires our attention.

6. ‘Commissioning or installation’ in section 65(28) was expanded to include ‘erection’ and renumbered as section 65(39a) with effect from 10th September 2004 but, nevertheless, relatable only to ‘plant, machinery or equipment’ till 16th July 2005 when the activity was further extended to certain installation services by specific enumeration therein. That ‘lifts’, which the appellant herein is concerned with, is one of those is not in dispute. However, the urging of Learned Authorized Representative that this is mere elaboration to prevent any misconstruction is something that we are unable to concur with. Such a premise would have been acceptable had the addition, incorporated as section 65(39a)(ii), been preceded by the expression ‘Explanation’ or some similar conventional indicator. It is clear that the dichotomy envisaged in the definition is deliberate, specific and mutually exclusive.

7. Language is a means of communication through the articulation of sounds that, with the development of recording technology, is manifested, singly or in combination, as the written word. The dexterity inherent in the spoken that vests it with versatility and resilience is curtailed by the ineffaceability of the letter. Therefore, for proper comprehension, it is the context and concatenation that needs appreciation. The expressions ‘erection’, ‘commissioning’ or ‘installation’ may, to a general render, appear to be synonyms. Yet, the conjunctive separator ‘or’ suffices to emphasize that these are mutually exclusive. Likewise, though such separator is absent between the two sets of activities after the amendment of 16th June 2005, the separate enumeration after the commonality of ‘installation’ in both is indicative that legislative intent is not mere disambiguation but of expanding the tax base. Any other construction would be disharmonious because all the new enumeration can, in some way, be related to the existing taxable activity. This lends credence to the finding in re Kehems Engineering Pvt Ltd and, in particular, to

7. “We find that in the Board Circular No. 62/11/2003-S.T., Dated 21- 8-2003 it is mentioned in para 1.2 thereof that installing a boster pump, ari-conditioner, water filter, water heater, etc., would be covered under definition of ECIS. However, after expansion of definition of ECIS with effect from 16-5-2005, Board vide Circular No. B1/6/2005-TRU, dated 27-07-2005 clarified as under:-

“15.1 Erection, commissioning or installation of plant, machinery or equipment is already covered under service tax. The scope of this taxable service has been expanded by including specified installation services such as installation of electrical and electronic devices including their wirings and fittings, plumbing, drain laying or other installations for transport of fluids, heating, ventilation or air-conditioning including related pipe work, duct work, and sheet metal work, thermal insulation, sound insulation, fire proofing or water proofing, lift and escalator, fire escape staircases and travelators [refer clause (39a) of section 65].”

Thus, the later circular makes it absolutely clear that the scope of ECIS was expanded by including specified installation services such as installation of air-conditioning related pipe work, duct work and metal sheet work. Although Board circular is not binding on the quasijudicial authorities, it is clear that the later circular of the Board dated 27-7-2005 in a way revised the opinion expressed in its earlier Circular dated 21-08-2003. A careful perusal of definition of ECIS also reveals that sub-clause (i) is separate from sub-clause (ii) by “or”. Thus clauses (i) and (ii) represent an “either or” situation, meaning thereby that what is covered in sub-clause (i) is not covered in clause (ii) and vice versa. So as installation of air-conditioning is expressly covered under clause (ii), it cannot be covered under clause (i) and as clause (i) covers everything covered by the definition of ECIS prior to 16-6-2005, it was outside the scope thereof (i.e., ECIS prior to 16-05-2005).”

therein. furthermore, the scope for taxing of the service component of ‘works contracts’ with the incorporation of section 65(105)(zzzza) of Finance Act, 1994, was considered by the Hon’ble Supreme Court in re Larsen & Toubro Ltd and its was held that:-

15. “A reading of this judgment, on which counsel for the assesses heavily relied, would go to show that the separation of the value of goods contained in the execution of a works contract will have to be determined by working from the value of the entire works contract and deducting there from charges towards labour and services. Such deductions are stated by the constitution Bench to be eight in number. What is important in particular is the deductions which are to be made under sub-paras (f), (g) and (h). Under each of there’s paras, a bifurcation has to be made by the charging Section itself so that the cost of establishment of the contractor is bifurcated into what is relatable to supply of labour and services. Similarly, all other expenses have also to be bifurcated insofar as they are relatable to supply of labour and services and the same goes for the profit that is earned by the contractor. These deductions are ordinarily to be made from the contractor’s accounts. However, if it is found that contractors have not maintained proper account’s, or their accounts are found to be not worthy of credence, it is left to the legislature to prescribe a formula on the basis of a fixed percentage of the value of the entire works contract as relatable to the labour and service element of it. This judgment, therefore, clearly and unmistakable holds that unless the spitting of an indivisible works contract is done taking into account the eight heads, of deduction, the charge to tax that would be made would otherwise contain, apart from other things, the entire cost of establishment, other expenses, and profit earned by the contractor and would transgress into forbidden territory namely into such portion of such cost, expenses and profit as would be attributable in the works contract to the transfer of property in goods in such contract. This being the case, we feel that the learned counsel for the assesses are on firm ground when they state that the service tax charging section itself must lay down with specificity that the levy of service tax can only be on works contracts, and the measure of tax can only be on that portion of works contracts which contain a service element which is to be derived from the gross amount charged for the works contract less the value of property in goods transferred in the execution of the works contracts. This not having been done by the Finance Act, 1994, it is clear that any charge to tax under the five heads in Section 65(105) noticed above would only be of service contracts simpliciter and not composite indivisible works contracts.”

before going on to assail the devolving of liability to indivisible ‘works contracts’ under Finance Act, 1994 in the absence of any machinery provisions for disaggregation.

8. The legal position is, thus, unambiguously clear. The tax liability on ‘erection, commissioning or installation’ prior to 1st June 2007 was limited to execution of work that did not involve supply of materials and that, prior to 16th June 2005, even such service simpliciter did not extend to ‘lifts’ owing to which the demand in the impugned order is without authority of law. Appeal is, therefore, allowed.

(Operative portion of the order Pronounced in the open court)

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