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2014 (8) TMI 741 - AT - Service TaxWorks Contract - Split of Turnkey project - intention of parties - appellant splitting contract into two, one with the main party, namely, China National Automotive Industry International Corporation for supply of equipment and another with the authorized person in India for erection and commissioning - Held that:- a number of meetings and discussions were held between the appellants and SOKEO who were representing CNAICO and after these meetings and negotiations about prices Letter of intent was issued by the appellant to CANICO. It is important to note that even the said Letter of intent was issued through SOKEO. The Letter of intent very clearly speaks about the design, engineering, manufacture, testing, supply, transportation, storage at site, erection, testing and commissioning of plant and equipment. The two turbines were not manufactured by CNAICO but got manufactured from Nanjing Turbine & Electric Machinery (Group) Co Ltd. It was also observed from the said Letter of intent that CNAICO was to depute NTC for the supervision of erection job to be undertaken by SOKEO at the project site on free of charge basis. The Letter of intent makes it clear that designs system, engineering, procurement, manufacture, quality control, testing, packing and forwarding, deputation of supervisory engineer shall be the responsibility of CNAICO. Further the said Letter of intent states that certain equipments were to be procured locally and finally the equipment are to be installed at the site. It would thus be seen from the said Rule that clause (i) of sub-rule (1) provides that value of works contract service determined shall be equivalent to the gross amount charged for the works contract less the value of transfer of property in goods involved in the execution of the said works contract. We also note that the goods supplied by CNAICO have been cleared on payment of Customs duty after determining the value of such goods and therefore it should be possible to determine the value of transfer of property in goods involved in the execution of the said works contract and thereafter value of the service portion. The normal rate of service tax would be applicable on the value of service so determined. Penalty under Sections 77 and 78 of the Finance Act, 1994 is not imposable. Due to the fact that the appellants cannot be compelled to opt for the Composition Scheme and the value has to be determined as per Rule 2A of the Service Tax (Determination of Value) Rules, 2006, the matter will require re-examination by the original authority and the question of penalty under Sections 77 and 78 can be re-determined thereafter only. In our view, if appellants' contention that they have paid to CNAICO only for the supply of goods is true then the value for service portion will become nil and therefore it would have implication on penalty imposable - Matter remanded back - Decided in favour of assessee.
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