TMI Blog2012 (11) TMI 494X X X X Extracts X X X X X X X X Extracts X X X X ..... a composite contract involving sale of goods and one or more services and those service are taxable, the service tax will be chargeable on the value of these services. Thus a contract for erection, installation and commissioning, even if involving transfer of property in goods on which state VAT/Sale Tax is paid, would attract service tax even for the period prior to 1-6-07, Similarly a divisible contract involving consulting Engineer's service (preparation of drawings/designs, preparation of operation manuals, or other technical assistance), procurement of goods, erection, installation and commissioning would attract Service Tax on Engineering Consultancy component and erection installation and commissioning component even prior to 1-6-07. This is so there is nothing in Sec. 65(105) and Section 66 of the Finance Act, 1994 from which it can be inferred that the taxable services defined in various clauses of Section 65(105) have to be standalone services and will not attract tax, if they are provided along with other services or providing of the service involves supply/use of goods on which VAT or Sales Tax is payable. Under-valuation - the appellant had separately collected the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r industrial construction services and works contract services. Further, Service Tax of Rs.13,58,74,780/- has been demanded on the ground that the appellant is not entitled to avail the benefit of Notification No.1/2006-ST, as the appellant had violated the condition of the notification by availing credit of Service Tax paid on input service and an amount of Rs.56,95,397/- has been demanded as Service Tax under the category of Good Transport Agency (GTA) services on the ground that the appellant utilized the CENVAT Credit balance for payment of Service Tax on GTA services wrongly. Penalty equal to the Service Tax has also been imposed. Further, interest has also been demanded. 3. Ld.Sr.Advocate on behalf of the appellant submitted that the appellants were actually providing the works contract service and therefore the demand for Service Tax on the ground of under-valuation of different services cannot be sustained in view of the several decisions, wherein a view has been taken that the works contract service cannot be charged to Service Tax prior to 01.06.2007. He submits that on this ground alone, substantial portion of the demand cannot be sustained since the period involved is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s that even though the appellant had paid Service Tax under the different heads of service prior to 01.06.2007, the fact remains that the service provided by the appellant was works contract service and if the, appellant paid Service Tax because of ignorance or by wrong understanding of law, they cannot be held liable for under-valuation and consequential differential Service Tax liability. 6. The decisions relied upon by ld. Sr. Advocate are discussed. In the case of Turbotech Precision Engineering - 2010 (18) STR 545 (Kar.), the issue before Hon'ble High Court was whether the service provided was classifiable under the head Consulting Engineers service or Works Contract. In Para 8, 9 and 10 observed as follows. "8, From the combined reading of the definition of Consulting engineer prior to 2006 and after 2006, it is clear to the Court that the service rendered by the Company had not been included under the definition of consulting engineer prior to 2006 as it stood under Section 65(13). As a matter of fact, this Court has decided the said point in CEA 12/2007 on 1st April 2010 stating that prior to the Amendment Act, 2006, the Companies were not included under the definit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing 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 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." 7. From the above, it can be seen that the Hon'ble High Court clearly held that the appellant was not liable for Service Tax under the head Consulting Engineers during the relevant time because the definition did not include the services rendered by a company. Thereafter, the question of liability under the works contract service was examined and it was held that it will be effective only from 01.06.2007 and it was also held that the assessee's case fall under the definition of works contract. From the above, it is clear that in the case of Turbotech Precision Engineering (supra), prior to 01.06.2007, the service was not classifiable and leviable to Service Tax under any of the service category enumerated in the law. 8. The decisions in the case of ABB Limited - 2010 (20) S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts, railways, transport terminal, bridges, tunnels and dams". As per the explanation to Section 65(105)(zzzza), for the purpose of this sub clause, 'work contract' means a contract wherein - (i) transfer of property in goods involved in execution of such contract is leviable to tax as sale of goods; and (ii) such contract is for the purposes of carrying out. (a) erection, commissioning or installation of plant, machinery, equipment or structures, whether pre-fabricated or otherwise, installation of electrical and electronic devices, plumbing, drain laying or other installations for transport of fluid, heating, ventilation or air-conditioning including related pipe work, duct work and sheet metal work, thermal insulation, sound insulation fireproofing and water proofing, Lift and escalator, fire escape staircases or elevator; or (b) Construction of a new building or a civil structure or a part thereof, or of a pipeline, a conduit, primarily for the purpose of commerce or industry; or (c) Construction of a new residential complex or a part thereof; or (d) Completion and finishing servi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tracts and such transfer of property in goods is liable to Sales tax/VAT as sale of goods. Since the definition of "work contract" is only for the purpose of clause 65(105)(zzzza) which came into force w.e.f. 1-6-07, it is valid only for the period w.e.f, 1-6-0 7 and for the types of contracts mentioned in it. Therefore, for the period prior to 1-6-07, the meaning of 'Works Contract' as commonly understood i.e. a contract for work, and labour and in other words, a service contract has to be adopted, and it would not be correct to treat a work contract as something different from a service contract. As discussed in para 5.4.1 above, if such a work contract is an indivisible service contract, whether or not involving use of goods which get consumed or get passed on to service receiver either as such or in changed form, and that service is taxable, the works contract will attract service tax and if the work contract is a composite contract involving sale of goods and one or more services and those service are taxable, the service tax will be chargeable on the value of these services. Thus a contract for erection, installation and commissioning, even if involving transfer of property i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rvices were taxable even prior to 1-6-07, even if the same involved use/supply of goods on which Sales tax/VAT was payable. Similarly in respect of EPC contracts which are divisible contracts for design engineering, procurement of goods, erection, installations commissioning, service tax was chargeable even prior to 1-6-07 on these taxable service component. The taxable services covered by Section 65(105)(zzza) and the services covered by Section 65(105)(zzd) [erection, installation or commission services], Section 65(105)(zzq) (Commercial or industrial construction service) and Section 65(105)(zzzh) [residential construction service] are overlapping. While w.e.f. 1-6-07, following the principle of harmonious construction, it can be said that while Section 65(105)(zzzza) would cover the services defined by Section 65(105)(zzd), Section 65(105)(zzq), Section 65(105)(zzzh) and EPC contracts which involve transfer of property is goods on which tax as sale of goods is leviable, and Section 65(105)(zzd), 65(105)(zzq) and Section 65(105)(zzzh) will cover erection, installation or commissioning service, 'commercial or industrial construction services' and 'residential construction ser ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hey were not liable to pay Service Tax under other heads and they were paying Service Tax from the date of levy of Service Tax. It is not only the appellant's understanding about the liability to Service Tax, but also the decision in the case of Instrumentation Limited, which would show that the claim of the appellant that service has to be treated as works contract, is not acceptable. Moreover, the works contract service was introduced for the purpose of convenience of the assessees and also it was clearly understood that many of the services which were being levied to Service Tax under other headings may come under Service Tax levy under works contract service later. It has to be noted that unlike other services, specific rules for arriving at value was provided for works contract and the composition scheme has also been introduced. 10. In the case of Atwood Oceanics Pacific Ltd - Final Order No.A/1296-1298/WZB/AHD/2012, dt.30.08.2012, this Tribunal had occasion to consider the issue of classification and introduction of different services. According to Section 65A of Finance Act, 1994, the sub-clause which provides more specific description shall be preferred to sub-clause pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dit, we find considerable force in the arguments that upto 31.03.2008, the appellant could have utilized the credit. In any case, the amount involved is very small as compared to the total demand. 15. The discussion above, would show that the appellant has not been able to make out a prima facie case for complete waiver. 16. As regards financial difficulty, no balance sheet or annual report was produced before us. However, an affidavit filed by the Assistant General Manager (Indirect Taxes) was submitted by ld. Counsel. According to this affidavit, the AGM was working with the company for 1 1/2 year; the appellant's factory was closed because of strike; because of non-supply and installation of wind mills because of strike, the cash flow of the company is affected; salaries to the employees are getting delayed since May 2012 and the Company's financial result as on 31.08.2012 also show the accumulated loss of Rs.317 Crores. 17. In the facts and circumstances discussed above, we consider that that the appellants should be required to deposit an amount of Rs.4.5 crores (Rupees Four Crores, Fifty Lakhs only) which is less than 10% of the total demand of Service Tax and less than ..... X X X X Extracts X X X X X X X X Extracts X X X X
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