TMI Blog2010 (7) TMI 335X X X X Extracts X X X X X X X X Extracts X X X X ..... red by the Company had not been included under the definition of consulting engineer prior to 2006 as it stood under Section 65(13) - service rendered by the assessee - Company during relevant period cannot be brought under the category of consulting engineer - assessee falls under Section 65(105)(zzzza) Explanation (a) and (e) - under the definition of works contract, but the revenue has no power to call upon the assessee to pay service tax, interest and penalty therein, since the provisions of law has come into force with effect from 1-6-2007 - disposed off the appeal on the question of the same being covered under the category of works contract - appeal is dismissed - ST/344/2007 - 1016/2010 - Dated:- 19-7-2010 - S/Shri M.V. Ravindran, Member (J) and P. Karthikeyan, Member (T) REPRESENTED BY : Shri G. Shivadas, Advocate, for the Appellant. Shri P.R.V. Ramanan, Spl. Counsel, for the Respondent. [Order per : M.V. Ravindran, Member (J)]. - This appeal is directed against order-in-original No. 37/2007-S.T., dated 23-5-2007. 2. The relevant facts that arise for consideration are as follows : The Appellant is engaged in the manufacture of various el ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y w.e.f. 1-6-2007. 5. Learned Commissioner of Central Excise and Service tax LTU, Bangalore after considering the submissions made at length by the assessee came to the conclusion that the appellant is liable to pay service tax on the taxable services provided to M/s. Power Grid Corporation of India Ltd., (PGCIL) on the contract for onshore service contract and extended period of time will also be invocable. Coming to such a conclusion, the adjudicating authority passed the following order : (i) I hold that M/s. ABB are liable to pay service tax on the taxable services provided to M/s. Power Grid Corporation of India Limited, (PGCIL) such as erection, installation and commissioning of various transmission systems as well as supervision of such installation, testing and commissioning of Transmission systems from 1-7-2003 to 31-12-2005 and accordingly confirm the demand of service tax of Rs. 3,55,86,521/-(Rupees Three Crore Fifty Five Lakhs Eighty Six Thousand Five Hundred and Twenty one) and Education Cess of Rs. 6,97,4451- (Rupees Six Lakhs Ninety Seven Thousand Four Hundred and Forty Five Only) under the provisions of proviso to Section 73(1) of the Finance Act, 1994. (i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... andalone basis as a works contract involving supply of both material and labour. It is his submission that the contract No. L/553/01-S656-8/CA II/978 has been treated as works contract by the A.P. Sales Tax Act. He would draw our attention to the definition incorporated under Section 5F of the A.P. General Sales Tax Act 1957. As regards the levy of tax on transfer of property in goods involving in execution of works contract, he would also draw our attention to Section 5G 5H of the A.P. Sales Tax Act and also to various Rules in the A.P. General Sales Tax Rules, 1957 for the proposition that appellants at the point of starting the contract had declared the contract as a works contract for APGST Authorities and M/s. Power Gird Corporation India Ltd., have also declared the same as works contract. He would submit that the appellants had filed audited annual tax audit report as contemplated under the APGST Act along with TDS Certificate given by M/s. PGCIL and others. He would draw our attention to the said audit reports and assessment orders in respect of the very same contract. He would draw our attention to annual returns filed for the year 2003-2004 and 2004-2005 and the assessm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vities which is done by the appellants under this contract. He would submit that it is evident from the contract that the goods involved in the execution of such services gets clearly specified in the definition erection, commissioning or installation. It is his submission, in other words, where the contract does not comprise of transfer of property in the goods, it may not be regarded as works contract under the provisions of Section 65(105) (zzzza) of the Finance Act 1994. It is his submission that in the context of building constructions covered under the categories of definition of sub-clause (b) (c) (d) of the definition of works contract, the goods involved would be cement, steel etc., but not in respect of erection etc., services under the category 'a'. It is his submission that in the context of Turnkey and EPC contracts, the contract would typically comprise of design, engineering, procurement and construction of a facility and provide for start-up procedures, performance tests, creation of operating manuals and training of personnel which would definitely apply only to composite contract for supply of goods and services. It is his submission that contracts where a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5(105) of the Finance Act, 1994 cannot have a contradiction against each other and the contract in itself has to be gone into depth. He would submit that a contract which was entered in this case cannot be regarded either as a turnkey contract or a works contract as understood under the service tax law by any stretch of imagination. It is also his submission that the consolidated contract value in this case is divisible one and the same comprises individual elements for which separate values are available and attributable. He would submit that the default of breach provisions gives the contract a character of turnkey contract is fallacious as the preamble to the contracts clearly spelt out that ABB Sweden had requested PGCIL that the terms and conditions should be split into three distinct contracts. It is his submission that the fact remains that the three contracts are admittedly distinct though being executed for one single project. It is his submission that the work contained under the contract included erection, installation and commissioning of power distribution system and forms part of said related activities and cannot be read in isolation so as to mean plant machinery or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ess auxiliary service' wherein del credere agent was brought under service tax from 16-6-2005. After considering the legal position the Hon'ble High Court held that prior to the amendment to 'business auxiliary service' wherein del credere agent was brought under service tax from 16-6-2005 such agent was excluded from the purview of service tax. A copy of the judgment is enclosed as Annexure-VII. It is the submission that it is not disputed that even as on date both Section 65(39a) as well as Section 65(105)(zzzza) co-exist and hence both services have to be construed to be occupying independent taxing fields. It is the submission that a person may enter into only erection, installation and commissioning service contract where the entire material is supplied by the service receiver/customer and thus there is no transfer of property in goods by the service provider. In other words the service provider is purely engaged in the provision of services. It is submitted that such contracts will be covered under Section 65(39a). It is the submission that contracts where the service provider uses both his labour and material to execute a contract and thus transfers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s as has been already reproduced by us. We find from the contracts, that the contract in dispute is termed as 'on shore service contract' with the appellant for erection and related civil works to be performed in India covering various aspects like port clearances, transit insurance, insuring and transportation, storage preservation testing and putting into satisfactory performance including successful performance and guarantee test. It is to be noticed that the revenue authority would like to bring these services under the category of erection, installation and commissioning services only based upon the wording of the contract which read as 'onshore service contract'. We deem it necessary to produce relevant clauses from the agreement entered between Power Grid Corporation Ltd., and ABB. It reads as under : On-SHORE SERVICES CONTRACT NUMBER C-55301-S656-8/CA-111/978 BETWEEN POWERGRID AND ABB LIMITED, INDIA Preamble This agreement made on this 25th day of September, 2002 between POWERGRID CORPORATION OF INDIA LIMITED an Indian Company incorporated under the Companies Act 1956 with its registered office at B-9, Qutab Institutional Area, New Delhi, India (he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in India covering inter alia port clearance (in case of supplies from Off-shore), inland transit insurance, handling and transportation to site, storage, preservation, Services, testing and putting into satisfactory operation, including successful performance and guarantee test as defined in this Contract of all the equipment systems of the Project (hereinafter called the Onshore Services Contract ) and as more precisely described therein. - And whereas POWERGRID after examination of the proposal of ABB-Sweden and above request of ABB-Sweden has accepted the proposal of ABB-Sweden with certain modifications as incorporated in the Contract documents detailed in Article 2.0 below and further agreed to the proposal of ABB-Sweden for awarding the total scope of work under three distinct Contracts, in the above manner, subject to overall responsibility for successful performance of the Project resting with ABB-Sweden and for award of the On-shore Services Contract to ABB-India on the terms and conditions contained herein. Now therefore this On-shore Services Contract entered into between POWERGRID and ABB-India is as per the terms and conditions as detailed hereinafter........ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mages as agreed in the terms of the GCC, then it may also terminate this 'Onshore Services Contract at ABB-India's risk, cost and responsibility. However, any such default or breach by the On-shore Supply Contractor or Off- shore Contractor in the performance of their respective Contracts with POWERGRID, shall not automatically relieve ABB-India of any of its obligations under this On-shore Services Contract.... 13. It can be seen from the above reproduced clauses of the contract entered by M/s. Power Grid Corporation Ltd., and ABB, that the entire turnkey project has been divided into three contracts and the mention of all the three contracts is found in the agreement entered by M/s. Power Grid Corporation. Hence we are of considered view that all the three contracts are interlinked to each other. 14. Be that as it may, it is the arguement of the assessee that these entire contracts which have been entered into are nothing but works contracts and as has been understood by them as well as by M/s. Power Grid Corporation. They would rely upon certificate of deduction of tax towards works contract issued by M/s. Power Grid Corporation under the provisions of Rule 17-11 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the appellant herein had been declaring this particular contract as works contract with commercial Tax Officer, Hyderguda Circle, Hyderabad, Govt. of AP, while filing returns. We find from the submissions made by the counsel that on 26-10-2005, the assessment for the year 2004-2005 under APGST Act was finalized by the Authorities considering this contract as works contract and accepted the returns filed by the appellant claiming deductions thereof for the amount of works contract tax deduced by M/s. Power Grid Corporation and Others from the amount paid by them to the appellants. From this, it can be construed that the appellants as well as M/s. Power Grid Corporation were declaring this contract to the AP Govt. as a works contract and tax has been deducted towards the same @ 4% of the total turnover. 16. We find that the service tax liability under the works contract was brought into the service tax net with effect from 1-6-2007, the definition reads as under. works contract means a contract wherein, - (i) transfer of property in goods involved in the execution of such contract is leviable to tax as sale of goods, and (ii) such contract is for the purposes of car ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the purpose of levy of service tax. This is clear from the definition under section 65(105)(zzzza). 18. We find that on this basic issue whether the contract in question would be a works contract or any other contract , matter could be decided. If no service tax liability arises on a agreement, which is to be considered as works contract and as understood by contractual parties and State Government, and also on the face of clarification given by CBEC clarifying as to, that a contract which is treated as a works contract for the purpose of levy of VAT/Sales Tax shall be treated as works contract for the purpose of levy of service tax, in our considered view revenue has no case in the issue before us. 19. Before parting with the case we would like to record here that our above view is fortified by the recent judgment of the Hon'ble High Court of Karnataka in the case of CST, Bangalore v. Turbotech Precision Engineering Pvt. Ltd., [2010 (18) S.T.R. 545 (Kar)]. We may, with respect reproduce the entire judgment of their Lordships. The revenue has come up in this appeal being aggrieved by the order of the CESTAT in Order-in-Appeal No. 59/2004-S.T. in Final Order No. 10 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rties. 5. The main crux of the matter in this case is whether on the date of relevant assessment period the service rendered by the assessee has to be classified under the definition Section 65(13), as 'Consulting Engineer' and whether the assessee can be brought into tax considering the work executed by the assessee as a 'Works Contract'. 6. If these two questions are answered in favour of the revenue and against the assessee, the substantial questions of law framed in this appeal are to be answered in favour of the revenue and against the assessee. If the case of the assessee does not fall under Section 65(13) of the Act and if the works contract executed by the assessee during relevant assessment period, cannot be taxed under the Finance Act, then the substantial questions of law framed are to be answered against the revenue and in favour of the assessee. 7. During relevant period, the definition of Consulting Engineer defined under section 65(13) reads as hereunder : consulting engineer means any professionally qualified engineer or an engineering firm who, either directly or indirectly, renders any advice, consultancy or technical assistance in an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cated or otherwise, installation of electrical and electronic devices, 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 or elevators; or (b) construction of a new building or a civil structure or a part thereof or of a pipline or conduit, primarily for the purposes of commerce or industry; or (c) construction of a new residential complex or a part thereof; or (d) completion and finishing services, repair, alteration, renovation or restoration of, or similar services, in relation to (b) and (c); or (e) turnkey projects including engineering, procurement and construction or commissioning (EPC) projects. 10. This section has come into force with effect from 1-6-2007. After considering the contract entered into between the assessee and its employer, the case of the assessee falls under Section 65(105)(zzzza) Explanation (a) and (e). Even though the assessee's case falls under the definition of works contract, but the revenu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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