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Bharat Heavy Electricals Ltd. Versus Commissioner of Service Tax

Works contract - composite contract - it was contended that it cannot be vivisected into two parts containing supply of goods and provision of services for the sake of levying service tax - Held that:- prior to the introduction of works contract service from 01.07.2007, composite contracts cannot be vivisected to ascertain the service value of any transaction in order to levy service tax, especially when the law grants no authority. - After considering the submissions made by both the parties an .....

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Per S. S. Garg The present appeal is directed against the order of the Commissioner dated 21.06.2006 confirming the demand for an amount of ₹ 90,51,101/- (Rupees Ninety Lakhs Fifty One Thousand One Hundred and One only) along with interest and penalties under Sections 76, 77 and 78 of Finance Act, 1994. Briefly the facts of the present case are that the appellant is providing services under the category of Consulting Engineer and have obtained Service Tax Registration. On the basis of inte .....

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ntion of statutory provisions. Thereafter a show-cause notice dated 11.05.2005 was issued alleging that the appellants are rendering taxable service of Consulting Engineer Service, Erection, Maintenance or Repair Service, Commissioning & Installation Agency Service and Technical Testing and Analysis Service etc. and are liable to pay service tax under the said activities. Show-cause notice proposed to demand the service tax of ₹ 98,47,811/- (Rupees Ninety Eight Lakhs Forty Seven Thousa .....

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missioning & Installation 4 Erection 9,34,154 95,284 Erection, Commissioning & Installation 5 Commissioning service charges 1,88,033 15,043 Erection, Commissioning & Installation 6 Deputation of Engineers 8,44,290 44,795 Consulting Engineer 7 Installation Final Report 4,50,000 22,500 Consulting Engineer 8 Installation Supervision charges 2,50,000 12,500 Consulting Engineer 9 Supervision charges 10,32,708 51,635 Consulting Engineer 10 Testing charges 13,600 1,088 Consulting Engineer 1 .....

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1 17,71,431 Consulting Engineer 18 Earthing Philosophy 2,10,250 10,513 Consulting Engineer 19 Technical specification 11,76,000 94,080 Consulting Engineer 20 O&M Manual 28,10,000 1,40,400 Consulting Engineer 21 Soil Investigation 20,76,251 1,49,900 Technical Testing & Analysis Services Total 98,47,711 Service Tax already paid although not liable to pay 22,27,713 Outstanding amount still not received by the Noticee 19,50,922 1.2. The appellant filed the reply to the show-cause notice and .....

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the Commissioner of Service Tax vide his impugned order dated 21.06.2006 confirmed the demand to the extent of ₹ 90,51,101/- (Rupees Ninety Lakhs Fifty One Thousand One Hundred and One only) out of the total demand of ₹ 98,47,811/- (Rupees Ninety Eight Lakhs Forty Seven Thousand Eight Hundred and Eleven only) and set aside the demand of ₹ 7,96,710/- (Rupees Seven Lakhs Ninety Six Thousand Seven Hundred and Ten only) and also imposed penalties and interest. 2. Heard both the pa .....

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the primary objective of the agreement was that of sale. He further submitted that the issues involved in the present case is no more res integra and has been settled in favour of the appellant by the Hon ble Supreme Court of India in its judgment in the case of CCE & Cus. Kerala V. M/s. Larsen and Toubro Ltd. reported at 2015-TIOL-187-SC-ST wherein the Hon ble Supreme court has held that the service tax charging section itself must lay down with specificity that the levy of service tax can .....

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and (zzzh) would only be of service contracts simpliciter and not composite indivisible works contracts. The relevant portion of the judgment is as under: 15. A reading of this judgment [second Gannon Dunkerly judgment reported at (1993) 1 SCC 364], on which counsel for the assessees heavily relied, would go to show that the separation of the value of goods contained in the execution of a works contract will have to be determined by working from the value of the entire works contract and deduct .....

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nsofar as they are relatable to supply of labour and services, and the same goes for the profit that is earned by the contractor. These deductions are ordinarily to be made from the contractor's accounts. However, if it is found that contractors have not maintained proper accounts, or their accounts are found to be not worthy of credence, it is left to the legislature to prescribe a formula on the basis of a fixed percentage of the value of the entire works contract as relatable to the labou .....

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table in the works contract to the transfer of property in goods in such contract. This being the case, we feel that the learned counsel for the assessees are on firm ground when they state that the service tax charging section itself must lay down with specificity that the levy of service tax can only be on works contracts, and the measure of tax can only be on that portion of works contracts which contain a service element which is to be derived from the gross amount charged for the works cont .....

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nd held as under: 41. We are afraid that there are several errors in this paragraph. The High Court first correctly holds that in the case of composite works contracts, the service elements should be bifurcated, ascertained and then taxed. The finding that this has, in fact, been done by the Finance Act, 1994 Act is wholly incorrect as it ignores the second Gannon Dunkerley decision of this Court. Further, the finding that Section 67 of the Finance Act, which speaks of "gross amount charged .....

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ng that the said Finance Act lays down no charge or machinery to levy and assess service tax on indivisible composite works contracts, such argument must fail. This is also for the simple reason that there is no subterfuge in entering into composite works contracts containing elements both of transfer of property in goods as well as labour and services. 44. We have been informed by counsel for the revenue that several exemption notifications have been granted qua service tax "levied" b .....

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visected to ascertain the service value of any transaction in order to levy service tax, especially when the law grants no authority. He further submitted that as per the above judgment of the Hon ble Supreme Court the appellant s following services/activities are not liable to tax and to that extent the Order-in-Original is without authority of law. Sl. No. Details of activity Service Tax 1 Annual Maintenance Contract 1,26,700 2 Civil Works 19,32,213 3 Erection 95,284 4 Commissioning service ch .....

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