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ST – When the contract is composite in nature, involving transfer of property in goods, samewould definitely fall under Works Contract Services: CESTAT

2019-TIOL-2344-CESTAT-MAD

IN THE CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL
REGIONAL BENCH, CHENNAI
COURT NO. III

Service Tax Appeal No. 42287 of 2015

Arising out of Order-in-Appeal No. 148/2015 (STA-II), Dated: 08.07.2015
Passed by the Commissioner of Service Tax (Appeals-II), 26/1, Mahatma Gandhi Marg, Nungambakkam, Chennai- 600034

Date of Hearing: 14.06.2019
Date of Decision: 24.06.2019

M/s AIRVENT SYSTEMS PVT LTD
34, 2ND FLOOR, R.K. NAGAR, MANDAVELLI, CHENNAI – 600028

Vs

THE COMMISSIONER OF GST AND CENTRAL EXCISE
CHENNAI OUTER COMMISSIONERATE
NEWRY TOWERS, NO. 2054/1, II AVENUE, 12TH MAIN ROAD
ANNA NAGAR, CHENNAI – 600040

Appellant Rep by: Shri N Viswanathan, Adv.
Respondent Rep by: Shri B. Balamurugan, AR

CORAM: Sulekha Beevi C S Member (J)
P Venkata Subba Rao, Member (T)

ST – On verification of records, it was seen that the appellant had not paid ST on Co-consultancy Services rendered by them and had also short paid ST on the services provided towards Erection, Commissioning and Installation Services – the period of dispute is from 2005-06 to 2007-08 – SCN issued – demand confirmed along with interest, penalty imposed – on appeal, the Commissioner (Appeals) upheld the demand of ST on Co-consultancy Service sand also upheld the demand of ST towards Works Contract Service after directing to re-quantify the amount under Works Contract Service – the penalty was ordered to be re-quantified and revised accordingly – appeal to CESTAT.

HELD – Erection, Commissioning and Installation Services :When the contract is composite in nature, involving transfer of property in goods, same would definitely fall under Works Contract Services – For the period prior to 1.6.2007, the demand of ST for composite contracts cannot sustain as per the decision of the Supreme Court in the case of Larsen & Toubro Ltd. [2015-TIOL-187-SC-ST ] – for the period post 1.6.2007, though the demand is made in the SCN under Erection, Commissioning and Installation Service and the adjudicating authority has also confirmed the demand under Erection, Commissioning and Installation Service, the Commissioner (Appeals) has travelled beyond the SCN to confirm the demand under Works Contract Service – this is highly erroneous and unsustainable – furthermore, in the decision of Real Value Promoters Pvt. Ltd. [ 2018-TIOL-2867-CESTAT-MAD ], the Tribunal has held that the demand of ST under Erection, Commissioning and Installation Services cannot sustain for composite contracts for the period post 1.6.2007 – the demand of ST under Erection, Commissioning and Installation Services/Works Contract Services cannot sustain and requires to be set aside: CESTAT

Co-consultancy Services : The issue being an interpretational one as also being mired in litigations during the relevant period, the allegation that the appellant has suppressed facts with intention to evade payment of ST cannot sustain and requires to be set aside – the demand under Co-consultancy Services is barred by limitation – the demand under both these issues cannot sustain – the impugned order is set aside – the appeal is allowed : CESTAT [para6.2, 6.3, 7.2, 8, 9]

Appeal allowed

Case laws cited:

Commissioner of C.Ex. & Cus., Kerala Vs. M/s. Larsen & Toubro – 2015-TIOL-187-SC-ST… Para 3.2

M/s. Real Value Promoters Pvt. Ltd. & Ors. Vs. Commissioner of G.S.T. & Central Excise, Chennai – 2018-TIOL-2867-CESTAT-MAD… Para 3.2

FINAL ORDER NO. 40857/2019

Per: Sulekha Beevi:

The appellants are registered with the Service Tax Department under the categories of Maintenance or Repair Service, Erection Commissioning and Installation Service, Consulting Engineering Service and Works Contract Service.

2.1 On verification of records, it was seen that they had not paid Service Tax on Co-consultancy Services rendered by them and had also short paid Service Tax on the services provided towards Erection, Commissioning and Installation Services. A Show Cause Notice dated 20.10.2010 was issued proposing to demand the total Service Tax amount of Rs. 6,04,461/-. After due process of law, the Original Authority confirmed the Service Tax along with interest and imposed penalty under Section 78 of the Finance Act, 1994.

2.2 Aggrieved, the appellant filed appeal before the Commissioner (Appeals), who vide Order impugned herein upheld the demand of Service Tax on Co-consultancy Services and also upheld the demand of Service Tax towards Works Contract Service after directing to re-quantify the amount under Works Contract Service. The penalty was ordered to be re-quantified and revised accordingly. Aggrieved by such order, the appellant is now before the Tribunal.

3.1 Ld. Advocate Shri. N. Viswanathan appeared and argued the matter on behalf of the appellant. He submitted that in the Show Cause Notice, the demand is made under Erection, Commissioning and Installation Services whereas the Commissioner (Appeals) has travelled beyond the Show Cause Notice as well as the order passed by the Original Authority to confirm the demand under Works Contract Service. The allegation in the Show Cause Notice is that the appellant was billing the amount of labour charges and supply of materials separately. The appellant had discharged VAT entirely on the cost of the materials supplied. The Department was of the view that the appellant was vivisecting the Work Orders and had to discharge Service Tax on the value of portion of the materials supplied also. The period of dispute is from 2005-06 to 2007-08. When the nature of works executed by the appellant are composite in nature, involving both supply of materials as well as rendering of services, the demand of Service Tax cannot sustain.

3.2 The Commissioner (Appeals) has erroneously concluded that for the period up to 01.06.2007, the appellant is required to pay Service Tax on the entire value with permissible abatement and for the period after 01.06.2007, the appellant would be liable for payment of Service Tax under Works Contract Service. He ordered for re-quantification of the demand in such manner. He relied upon the decision in the case of Commissioner of C.Ex. & Cus., Kerala Vs. M/s. Larsen & Toubro reported in 2015 (39) S.T.R. 913 (S.C.) = 2015-TIOL-187-SC-ST to submit that prior to 01.06.2007, the levy of Service Tax on such composite contracts cannot sustain. Even thereafter, the Service Tax demand cannot sustain under the category of ‘Erection, Commissioning and Installation Services’, as held by the Tribunal in the case of M/s. Real Value Promoters Pvt. Ltd. & Ors. Vs. Commissioner of G.S.T. & Central Excise, Chennai reported in – 2018-TIOL-2867-CESTAT-MAD

3.3 With regard to the demand of Service Tax on Co-consultancy Services, he submitted that the main service provider was raising invoices including the Service Tax. The appellant therefore, being a person who was rendering Co-consultancy Services, was of the bona fide belief that the Service Tax discharged by the main service provider would suffice and that there was no liability on the part of the appellant to pay Service Tax.

3.4 There were several decisions passed by the Tribunal holding that when the main contractor has discharged Service Tax, there is no liability on the sub-contractor to pay the Service Tax. Later, the Board vide Circular dated 23.08.2007 clarified that the sub-contractor has also to pay Service Tax. The appellant had not discharged Service Tax during the relevant period only because of the bona fide belief that the main service provider was discharging the Service Tax and that therefore, the appellant had no liability to pay the Service Tax. He therefore prayed that there was no suppression of facts with intention to evade payment of duty and the entire issue was an interpretational one as there were decisions in favour of the appellant also during the relevant period.

3.5 He argued that the Show Cause Notice issued to the appellant invoking the extended period of limitation for the demand under Co-consultancy Services therefore cannot sustain.

4.1 Ld. AR Shri. B. Balamurugan appeared on behalf of the Department. He reiterated the findings in the impugned order. He explained that the appellant was bifurcating the value of services rendered and supply of materials and discharging Service Tax only on the service portion. That for discharging Service Tax, the appellant has to take the entire value of the contract into account and thereafter deduct the eligible abatement. The confirmation of demand by the authorities below is therefore legal and proper.

4.2 With regard to the issue on Co-consultancy Services, Ld. AR submitted that the appellant had not discharged Service Tax for the disputed period, which is from 2005-06 to 2007-08. Even though the appellant has rendered services only as a Co-consultant, is liable to discharge Service Tax on the amount received by them for rendering such services. The Department has clarified the said issue as to the liability of the Sub-contractor to pay Service Tax vide Master Circular No. 96/7/2007-ST dated 23.08.2007.

5. Heard both sides.

6.1 The main issue is with regard to the demand of Service Tax under Erection, Commissioning and Installation Services. On perusal of the Show Cause Notice, it is alleged that the appellants have intentionally vivisected the contract into material and labour portions in order to evade payment of Service tax and that they have discharged Service Tax only on the labour charges received by them. It is noted in the Show Cause Notice that the appellant undertakes only composite contracts that is, inclusive of supply, installation and commissioning of the goods procured and supplied by them. This being so, when the contract is composite in nature, involving transfer of property in goods, would definitely fall under Works Contract Services.

6.2 For the period prior to 01.06.2007, the demand of Service Tax for such composite contracts cannot sustain as per the decision of the Hon’ble Supreme Court in the case of M/s. Larsen & Toubro Ltd. (supra). For the period post 01.06.2007, it is seen that though the demand is made in the Show Cause Notice under Erection, Commissioning and Installation Service and the adjudicating authority has also confirmed the demand under Erection, Commissioning and Installation Service. However, the Commissioner (Appeals) has travelled beyond the Show Cause Notice to confirm the demand under Works Contract Service. The Commissioner (Appeals) has directed that the appellant has to be given 33% abatement on the cost of the materials supplied by them and Service Tax can be raised upon the balance amount. When the demand in the Show Cause Notice is under Erection, Commissioning and Installation Service, the confirmation of demand under Works Contract Service is highly erroneous and unsustainable.

6.3 Furthermore, in the decision of M/s. Real Value Promoters Ltd. (supra), the Tribunal has held that the demand of Service Tax under Erection, Commissioning and Installation Services cannot sustain for composite contracts for the period post 01.06.2007. For these reasons, we hold that the demand of Service Tax under Erection, Commissioning and Installation Services/Works Contract Services cannot sustain and requires to be set aside, which we hereby do.

7.1 The second issue is with regard to Co-consultancy Services. In the Show Cause Notice, it is alleged that the appellant has not paid the Service Tax for the services rendered as Co-Consultant to the Principal Consultant viz., M/s. Jayaram Consultancy. Ld. Counsel for the appellant has submitted that they were under the bona fide belief that as a Co-consultant, they are not liable to pay Service Tax since the main service provider was discharging Service Tax. Indeed, there were decisions in favour of the assessee during the disputed period wherein it was held that when the main contractor has discharged Service Tax, the sub-contractor has no liability to pay Service Tax. The Board in its Circular dated 23.08.2007 had occasion to clarify the issue that Service Tax has to be discharged by the Sub-contractor also. The period involved with regard to this issue is up to 2007-08. The Show Cause Notice is issued on 20.10.2010 invoking the extended period.

7.2 We find that the issue being an interpretational one as also being mired in litigations during the relevant period, the allegation that the appellant has suppressed facts with intention to evade payment of Service Tax cannot sustain and requires to be set aside. We hold that the demand under Co-consultancy Services is barred by limitation.

8. For the reasons discussed above, the demand under both these issues cannot sustain. The impugned order is set aside.

9. The appeal is allowed with consequential reliefs, if any, as per law.

(Order pronounced in the open court on 24.06.2019)

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