TMI Blog2007 (12) TMI 20X X X X Extracts X X X X X X X X Extracts X X X X ..... sold their products. In respect of certain buyers, at their request, the appellant has undertaken, at the customer's site, certain activities like construction, civil works including installation, erection and commissioning of machinery to the specific requirements of the customers. In such cases, they collected amounts billed variedly as charges towards erection, testing and calibrations, installation and commissioning , construction activities etc. In respect of some other buyers, they procured some accessories and miscellaneous goods from other manufacturers or open market and in such cases collected the price from their customers for supply of the said bought out items. (c) They have, thus, collected a sum of Rs.36,95,14,983/-towards post clearing activities relating to the period July 97 to December 2000. (d) A show cause notice dt.4.6.01 was issued, proposing demand of duty of Rs.1,84,75,749/- and proposing imposition of penalty under various sections on appellant company and others. (e) The original authority by his order dt.10.4.02, inter alia, held (i) that the appellant company not only supplied their own manufactured goods, equipments to the buyer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... * Feasibility study * Pre-designed services/project report * Basic design engineering * Detailed engineering * Procurement * Construction supervision and project management * Supervision of commissioning and initial operation * Man power planning and training * Post-operation and management * Trouble shooting and Technical services, including establishing systems and procedures for an existing plant. (g) Commissioner confirmed the duty amounting to Rs.1,84,75,749/- and imposed penalty of Rs 3,69,51,498/ under Section 78 and also penalties under Sections 76 and77. He also imposed penalties of Rs.5 lakhs each on Shri Suresh Gandhi, General Manager (Finance) and Shri Suresh Singhal, Company Secretary of the appellant company. 4.The learned advocate submits that they have entered into a turn-key contract with the customer and such contract cannot be vivisected and part of the activities covered by the contract subjected to levy of the service tax. In support of his contention, he relied on as many as ten decisions of the Tribunal. 5.The learned DR reiterates the findings of the Commissioner. He also relies on the decision of the Tribunal in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Order dt.10.1.06 2006(3)STR 508 (Tri-Del.) M/s Emerson Process Management Power Water Solution Inc. Vs. CCE Kanpur 7. Order dt.8.2.06 2006(3)STR 168 (Tri-Del.) CCE Raipur Vs. Beekay Engg. Corpn. 8. Order dt.21.3.06 2006(4)STR 63 (Tri-Mumbai) CCE Vadodara Vs. Larsen Toubro Ltd 9. Order dt.15.6.06 2006(3)STR 765 (Tri-Bang.) M/s Turbotech Precision Engg. P. Ltd. Vs. CCE Bangalore-II 10. Order dt.9.10.06 2007(5)STR 353 (Tri-Bang.) M/s Blue Star Ltd. Vs. CCE Hyderabad-II 7.1. In case of Daelim Industrial Co.Ltd., the contract was for construction, erection, and installation of desulphurization plant on payment of lump sum price. Primary objective of the contract was construction of desulphurization plant. The clause of contract left no doubt that the contract was Works contract on turn-key basis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .10.In case of Blue Star Ltd. he dealt with the cases of consolidated deal for supply, installation, and commissioning of air conditioning system. It has been held that it is a case of works contract and cannot be vivisected. 8.1.The facts of the present case are clearly distinguishable from the facts of the above mentioned cases. Here, it is not a case of setting up of a plant. The activities undertaken by the appellant at the customer's site are not shown to be part of the indivisible works contract on a turnkey basis. The very fact that only some of the buyers are availing the services of the appellant company indicates that these activities cannot be considered as integral to setting up of a project on turnkey basis. Therefore, they stand as certain additional/optional services given to certain buyers/customers. The activities undertaken by them at the customers end can not be treated as part of any manufacturing activity but only as services rendered by them. 8.2. In such a situation, the ratio of Tribunal's decision in case of Blue Star Ltd. relied upon by the learned SDR will be applicable as the facts in the said case more akin to the facts the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the entire contract. Also termed divisible contract; severable contract. 6.4It is also noted that the services such as pre-designed services/ project report, basic design engineering and detailed design engineering are all covered under the category of taxable service rendered by the consulting engineers vide Commissioner of Central Excise, New Delhi Trade Notice No. 54-C.E. (Service Tax)/97, dated 4-7-1997. It has also been clarified in the said trade notice that in case the services are rendered to the prime consultant, the levy of service tax does not fall on the sub-consultant. Further, the intention to include the designing and drawing work as services in turn-key project is also evident from CBEC Circular dated 18-12-2002. 6.5The turn-key project contract entered into by the respondent is divisible as stated in the very letter of acceptance of tender dated 7-2-1996. In the impugned order the learned Commissioner (Appeals) has made the following observations :- As held by CESTAT in the case of M/s. Daelim Industrial Co. Ltd. (supra) and also in the case of M/s. L T (supra) the work contract cannot be vivisected to select those activities which comprise taxa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Sd/- (M. Veeraiyan) Member (Technical) 11. [Order per: Archana Wadhwa, Member (J)1. - I have gone through the order proposed by learned brother and record a separate order as I am not in agreement with the same. As detailed facts have already been narrated in the order proposed by learned brother, I do not repeat the same to avoid redundancy. 12. It is seen that the appellant is a company, primarily engaged in the manufacture of various mechanical engineering and electrical goods. Apart from selling the goods to independent buyers, they also undertake turnkey projects with some of their customers, which apart from sale of their various goods manufactured by them also requires the appellants to undertake the detailed design, installation, erection and commissioning of the plant. The core question required to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. Where a person himself undertakes a job on contract basis for installation, erection and commissioning of machine, services are in the nature of execution of jobs and not in the nature of advice, consultancy or technical assistance. As observed by the original adjudicating authority, the word 'technical assistance' is preceded by the words 'advice' and 'consultancy'. Principle regarding interpretation of words has been laid down by Hon'ble Supreme Court in the case of Rohit Pulp and Paper Mills Ltd . 1990 (47) E.L.T. 491 (S.C.) and case of State v. Hospital Mazdoor Sabha 1960 -2 SCR 886. 15. It is evident that the meaning of the words 'technical assistance', thus is required to be judged from the words 'advice' and 'consultancy'. Both these words mean to give opinion on any subject . It does not include actual performance of any work . The execution of the work is not included under the words, 'ad vice', 'consultancy' or 'technical assistance' . Thus, the amounts realized towards execution of work will not be covered under Service Tax. 16. Further, in projects, the Consultants giv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erson can buy an air-conditioner from the market and get it installed by an electrician in his house or he may con tract with the seller of the air-conditioner to install the same in his house window, in which case, the charges would be definitely higher being inclusive of the installation of the air-conditioner. Can it be said in such a situation that the seller of the air-conditioner has also provided engineering consultancy services le viable to service tax. A clear answer to the above question is NO . 17. I would also like to reproduce one paragraph from the order of the Dy. Commissioner with approval: Advice and Consultancy mean to give opinion on any subject . Such advice and consultancy are generally understood to be optional in nature and has no statutory force. It is up to the client to accept the advice, consultancy or not. It is in this sense, one has to examine whether the activity or erection, commissioning, installation, construction, etc. as undertaken by M/s. Jyoti Ltd. for sale of their manufactured goods will come under the purview of advice, consultancy or technical assistance. M/s. Jyoti Ltd. are in fact, doing these activities as a part and parcel o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that activity of testing services, etc. is a concomitant and essential job of manufacture of machinery/equipments. A manufacturer is required to carry out such testing service as a part of manufacturing activity. It does not involve any service of 'advice', 'consultancy' or 'technical assistance'. Rather, testing service forms an integral part of 'sale transaction' of manufactured goods. And naturally, without testing, supply of machinery and their erection, commissioning is not complete. Erection of Plant: The notice, M/s. Jyoti Ltd. are engaged in production and clearance of mechanical/engineering and electrical goods to various buyers. They undertake installation, erection of such goods at the site of the buyers. Workmen, engineers and other employees of M/s. Jyoti Ltd., themselves carry out such erection. Erection/installation of such machinery and equipments produced and cleared by the manufacturer themselves are nothing but execution of job and such actual performance of work is a part and parcel of manufacturing activity. It does not involve any advice, consultancy or technical assistance to buyers. The employees, engineers, workmen them ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y to clients. It may thus be seen that suggestion/direction flows from the buyers to the seller in such cases, not the other way round. When materials, equipments/parts are bought by the manufacturer at the instance of the buyer, there is no advice or opinion from seller to buyer. Thus, charges leveled in SCN for inclusion of value of materials and so called services of procurement are not sustainable. Many a times M/s. Jyoti Ltd. is found to have supplied only these bought- out items whose make, specification, standards etc. are clearly specified by the buyers. Jyoti Ltd. do not give any drawings or designs for these boughtout equipments; nor do their engineers/employees inspect the particular equipments at the suppliers' end. It is not broughtout by the Show cause notice that M/s. Jyoti Ltd. have provided any advice or guidance to the buyers for procurement nor they are found to have any say in choosing the suppliers. Supervision and Construction Activities: M/s. Jyoti Ltd. are found to be engaged in not only supplying their own manufactured mechanical/engineering and electrical goods, equipments to the buyers, but also they go to the site of the buyers for erection, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... along with the appeals of other two appellants be allowed as held by Member (Judicial). Sd/- Sd /- (M. Veeraiyan) Archana Wadhwa Member (Technical) Member (Judicial) 21 . [Order per: S.S. Kang, Member (J)]. - Heard both sides. 22. Following difference of opinion is referred to the 3rd Member :- Whether the demand of duty confirmed against the appellants is required to be upheld along with interest and the penalty be reduced as indicated by learned Member (Technical) in respect of M/s. Jyoti Limited or their appeal along with the appeals of other two appellants be allowed as held by Member (Judicial). 23. The appellants filed this appeal against order-in-appeal whereby demand of service tax was confirmed on the ground that the appellants provi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issioning has commenced under the service tax from the year 2003 whereas the work contract came under service tax net in the year 2007. The period in dispute is from July, 1997 to December, 2007. In of the above discussion I find that the appellants are not liable to pay the service tax as consulting engineer in view I of the decision of the Tribunal in the case of Daelim Industrial Co. Ltd. (supra ). The impugned order is set aside and the appeals are allowed.. The matter be placed before the regular Bench for pronouncement of majority decision. Dated 10-12-2007 Sd/- FINAL ORDER (S.S. Kang) Vice-President 27. In view of the majority decision, the impugned order is set aside and all the appeals are allowed with consequential ..... X X X X Extracts X X X X X X X X Extracts X X X X
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