TMI Blog2017 (7) TMI 687X X X X Extracts X X X X X X X X Extracts X X X X ..... “steel liners/penstocks”. As the dispute is around, the taxability or otherwise of this particular activity done by the assessee, we proceed to examine the same. Towards this end, it would be useful to understand the nature and scope of the said activity - This activity is performed within the excavated tunnel. The tunnel is formed and complete only after the steel liners are put in place and the space between liner and rock is filled with concrete and pressurised cement grout. It is also not disputed that these tunnels have been made in relation to hydro-electric projects as underground passages for conveyance of water. Thus, there is no doubt that the activity of fabricating penstock/steel liners are essential for the completion of tunnels. The work has been performed by the assessee on specific sub contract agreements for specific works detailed therein, the nature of work cannot, but, be otherwise than “Works Contract” and definitely not under “ECIS” as perceived by the department for the period upto March 2010. The nature and scope of the activity performed by the assessee also answers to the scope of works contract defined in Section 65 (zzzza) of Finance Act, 1994 for fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tunnels and irrigation schemes. 2.2 During the relevant period concerning these appeals, the assessee entered into three sub contracts with main contractors who had secured contracts either singly or jointly with assessee by bidding for projects relating to various works in different States. 2.3 Under the respective contracts, the appellant was required to perform and undertake works of designing, supplying, fabrication, inspection, testing, installation and commissioning of pressure shaft liners otherwise called steel liners/penstocks forming part of the respective projects contracted upon by the main contractors. 2.4 Service Tax Department issued periodical demand notices under section 73, alleging that the Appellant was required to discharge service tax liability from January 2005 to March 2010 under the category of Erection, Commissioning or Installation service as defined in Section 65(105) and from April 2010 to March 2012 (covered by 2 show cause notices) under the category of works contract service as defined in section 65(105 (zzzza) of the Act. 3. In adjudication, the concerned authorities confirmed/upheld differential service tax demand as also penal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1994. However, after taxability on works contract service was introduced w.e.f. 01.06.2007, for the same activity, the proposals in the corresponding show cause notices to demand differential duty on same activity under Works Contract Service have been confirmed in the resultant impugned order No.07/2013, dt. 31.01.2013. 3.2 Aggrieved, assessee has filed these appeals. Department also has come in appeal against impugned order No.33/2009, dt. 10.09.2009 against deduction in differential tax liability from ₹ 3,39,07,000/- proposed in related show cause notice to ₹ 2,44,29,558/- confirmed in the impugned order. 3.3 On 13.06.2017, when the matter came up for hearing, on behalf of the assessee, Ld. Advocate Sri K.S. Ravishankar took us through photographs of the works undertaken by them at various stages of completion, submitted alongwith appeal papers, to highlight that the fabrication has been done at site and that such work relates only to tunnel for transportation of water. He made oral submissions, which can be summarised as under: (a) Composite works contracts such as those in the present case could not have been brought within the purview of the service ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble property or goods. (h) Appellant relies on various decisions of the Tribunal in which it has been held that works relating to pipelines and tunnels/dams involving composite contracts or other works contracts would not attract service tax due to the exclusion envisaged in section 65(105(zzzza) in the case of Lanco Infratech Ltd. V. CCE [2015(38) STR 709 (Tri.LB), URC construction P. Ltd. v. CCE [2017(50) STR 147(T). (i) Once the service is excluded specifically from tax net, it cannot be indirectly taxed under some other head as attempted to be done in the impugned orders. (j) Demands are barred by limitation due to the reasons stated in the memorandum of appeal, replies to the show cause notices and the specific grounds urged elaborately in the said pleadings. (k) Given the absence of tax liability, the question of imposition of penalties does not arise. 3.4 In respect of appeal ST/962/2009 filed by department, Ld. Advocate submits that in view of their contentions that there can be no taxability on their activities, the ground of appeal therein that adjudicating authority has wrongly taken lower taxable value which will be of no consequence. 3.5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aim, the adjudicating as well as Commissioner (Appeals) has correctly rejected the refund claim, since service tax was very much liable on the activity carried out by the assessee, hence tax paid by assessee was very much in order and question of refund thereof does not arise. 5.1 Heard both sides and have gone through the facts. 5.2 The department has sought to bring the impugned activity into the fold of Erection, Commissioning or Installation service (ECIS), for the period January 2005 to March 2010 and under Works Contract Service (WCS), from April 2010 to March 2012. For better appreciation of the matter in hand, it would be useful to reproduce the definitions of ECIS and WCS in Section 65 (39a) and 65 (105) (zzzza) respectively of Finance Act, 1994, as under: ECIS: erection, commissioning or installation means any service provided by a commissioning and installation agency, in relation to,- i) Erection, commissioning or installation of plant, machinery or equipment; or ii) Installation of- iii) a) electrical and electronic devices, including wiring or fittings therefor; or b) plumbing, drain laying or other installations for trans ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... scope of work contracted to the assessee, in the case of Khopoli Power Project, is for fabrication and erection of steel liners for Stretch I, Part II New Water Conductor system . In the case of Ghatgar project, the work contracted involves Fabrication and Installation of Steel Liners for Pressure Shaft and Penstock . For the Parbati Project, the work sub contracted is Design, Fabrication and Installation of Pressure Shaft Liners . 5.5 This activity is performed within the excavated tunnel. The tunnel is formed and complete only after the steel liners are put in place and the space between liner and rock is filled with concrete and pressurised cement grout. It is also not disputed that these tunnels have been made in relation to hydro-electric projects as underground passages for conveyance of water. Thus, there is no doubt that the activity of fabricating penstock/steel liners are essential for the completion of tunnels. 5.6 Appellants have contended that Steel Liner (Pressure Shaft liner/ Penstock) is a part and parcel of construction of tunnels that are used as water conductor in hydroelectric projects. IS 4410 (Part 10)-1988 defines the term in rela ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (913)] to the effect that composite contracts involving services and goods covered under four categories i.e. Erection, Commissioning and Installation , Construction of building for Commerce or Industry , Construction of Residential Complexes and Turnkey Projects under section 65(105)(zzzza) are liable to tax only from 01.06.2007. The Hon ble Apex Court in their said judgment also held that the taxability would only be for service contracts simplicitator and not to composite works contracts and that all the services referred to in the sub clauses of Section 65 (105)(zzzza) are any other element in them. 5.10. Interestingly, there exists some confusion on the nature of the work performed by the assessee in the mind of the department. Even while the department was seeking to tax the activity under ECIS, the lower appellate authority in Order dated 14.07.2007 (impugned order for appeal No. ST/412/2007) held that the process of installation of steel liners to pre-excavated tunnels cannot be considered as Erection, Commissioning or Installation of Plant. Following excerpts from the said impugned order makes for interesting reading: Thus, it can be seen that the penstock ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... given for such peremptory change is unconvincing, to say the least. 5.14. Interestingly, in the show cause notice dated 19.09.2011, for the period April 2010 to March, 2011, the same activity which was proposed in the show cause notices issued earlier as ECIS, is suddenly proposed to be covered under the category of Works Contract Service . 5.15. From these discussions, we find that the impugned activity of the assessee was nothing but works contract service in respect of tunnels/dams. We further find that since the works contract was in respect of tunnels for dams/power projects, the same would then be excluded from taxability thereunder in view of the exclusion in Section 65(105)(zzzza) of Finance Act, 1994. 5.16. In the event, all the demands of differential service tax liability confirmed in the proceedings related to the appeals ST/981/2009, ST/1248/2010 and ST/26552/2013 cannot, therefore, sustain and will have to be set aside, which we hereby do. For these very same reasons, the appeals ST/981/2009; ST/1248/2010 and ST/26552/2013 filed by assessee will succeed and they are therefore allowed with consequential benefits if any. 5.17. When there cannot be any ta ..... X X X X Extracts X X X X X X X X Extracts X X X X
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