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Peekayam Engineers Versus Commissioner of Central Excise, Nagpur

2017 (11) TMI 300 - CESTAT MUMBAI

Erection, commissioning and installation service - sub-contract - the appellants are doing the work in the nature of sub-contracting and the main contractor has paid taxes on the entire value - case of appellant is that service tax cannot be demanded from the appellants as it would result I double levy of service tax - services provided within the SEZ - revenue loss or revenue neutrality situation. - Held that: - it is apparent if the main contractor was availing of this notification he coul .....

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t would result in defeating the very purpose of the notification and will also result in loss of revenue to the government - For provision of any output service numerous inputs services are required. For example, a consultant providing consultancy would receives input services in nature of (i) renting of immovable property service (ii) Air Travel services (iii) Business Support Service (iv) Manpower supply service (v) renting a cab services and so on. If the consultant is paying tax on the entir .....

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ontractor and not the owner of the land. Moreover the nature of services provided by the appellants to the main contractor is not the same as those provided by the main contractor to its client. - A perusal of the above circular clearly indicates that the services in respect of which the clarification has been issued relates to the services where the exercise is revenue neutral. In all these cases the main provider of service is put to tax on full value and in those circumstances if the sub- .....

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credit of same would be available to the main contractor - the appellants are liable to pay service tax even when they are providing service to other contractor. - Provision of services in SEZ - denial of N/N. 19/2003-ST or 1/2006-ST - denial on the ground that the appellants had failed to produce necessary documents - Held that: - The appellants have claimed that the commissioner has not given any reasons for denying the benefit. We do not understand what documents are needed in support of .....

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ber (Judicial) And Mr. Raju, Member (Technical) Shri.Bharat Raichandani, Advocate for appellant Shri.M.K. Sarangi, Addl. Comm. (AR) for respondent ORDER Per: Raju 1. The appellant, M/s.Peekayam Engineers were issued notice seeking demand of service tax on the service of erection, commissioning and installation service provided by them. The demand was confirmed by the lower authorities and penalties were imposed on the appellants. Aggrieved by the said order, the appellants are before the Tribuna .....

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e cannot be demanded from the sub-contractor. 2.1 Ld. Counsel further argued that part of the service was provided within the Special Economic Zone (SEZ) and no service tax can be levied on such services. He argued that this point was not taken before the Commissioner, however this being a legal point can be raised at Tribunal stage. He further argued that the Commissioner has examined only one contract and based on his findings only one contract. He argued that the Commissioner should have exam .....

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e particularly pointed out the para 12.3 of the impugned order where according to him the benefit of Notification No.19/2003 and 01/2006-ST has been denied summarily. 2.3 He further argued that though the decision of the Tribunal in the case of Sunil Hi Tech Engineers Ltd - 2014 (36) STR 408 is against them he pointed out that the appeal against the said order has been admitted in the Hon ble High Court of Mumbai as reported in 2015 (40) STR J317. Ld. Counsel relied on the decision of the Tribun .....

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contractor independent of the liability of the main contractor. Ld. AR pointed out that the appellants have paid the service tax while performing similar functions. As an example, he stated that the appellants have paid service tax on sites Khaperkheda, Paras and Ukai site of M/s.Sunil Hi-Tech and did not pay service tax for other sites of M/s.Sunil Hi-Tech (Bhusaval and Simadhari). He argued that the appellants were very well aware of their liability but chose not to pay service tax. 3.1 He fur .....

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ssioning and handing over boiler structure to customers. At best it could be an input service. In this regard he relied on the decision of the Tribunal in the case of Dharampal Prem Chand - 2011 (265) ELT 81 (Tri-Del). Ld. AR further pointed out that failure to disclose the position in conformity with balance sheet in ST-3 return amounts to suppression as has been held in the following decision: a) Reliant Advertising - 2013 (31) STR166 (Tri-Del) b) Vodafone Digilink - 2013 (29) STR 229 (Raj) c) .....

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government or this is a revenue neutral situation. The main contractor is involved in Erection Commissioning and Installation service. In respect of this service the tax liability is governed by the notifications 19/2003-ST and 01/2006-ST which read as follows notifications 01/2006-ST. In exercise of the powers conferred by sub-section (1) of section 93 of the Finance Act, 1994 (32 of 1994) (hereinafter referred to as the Finance Act), the Central Government, on being satisfied that it is necess .....

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responding entry in column (5) of the said Table, of the gross amount charged by such service provider for providing the said taxable service, subject to the relevant conditions specified in the corresponding entry in column (4) of the Table aforesaid : Table S. No. Sub-clause of clause (105) of Section 65 Description of taxable service Conditions Percentage (1) (2) (3) (4) (5) 5. (zzd) Erection, commissioning or installation, under a contract for supplying a plant, machinery or equipment and er .....

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the CENVAT credit of duty on inputs or capital goods or the CENVAT credit of service tax on input services, used for providing such taxable service, has been taken under the provisions of the CENVAT Credit Rules, 2004; or (ii) the service provider has availed the benefit under the notification of the Government of India in the Ministry of Finance (Department of Revenue), No. 12/2003-Service Tax, dated the 20th June, 2003 [G.S.R. 503 (E), dated the 20th June, 2003]. Explanation. - For the purpos .....

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on the inputs and input services (by the sub contractors) has not been allowed, and also for the reason that the sub contractors have already paid duty on the value of inputs and input services. If the appellants contention is accepted it would result in defeating the very purpose of the notification and will also result in loss of revenue to the government. The scheme of Cenvat is designed in such a manner that every service provider is liable to pay service tax. The service receiver, if engage .....

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the input service provider/sub-contractor is not allowed Cenvat Credit to the final service provider. The present case is an example of one such situation. For provision of any output service numerous inputs services are required. For example, a consultant providing consultancy would receives input services in nature of (i) renting of immovable property service (ii) Air Travel services (iii) Business Support Service (iv) Manpower supply service (v) renting a cab services and so on. If the consul .....

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regarding the circular issued by the CBEC in this regard and also the liability under these circumstances. We find that the Tribunal in the case of Sunil Hi-Tech Engineers Ltd. - 2014 (36) STR 408 (Tri-Mum) has observed as follows: 18. I have carefully gone through the various arguments advanced by the ld. Advocate for the appellant, learned AR as also various arguments written by my learned brothers. At the outset, I think it would be appropriate to understand why circulars are issued by the B .....

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the decision of the Hon ble Supreme Court, Hon ble High Court or this Tribunal or for some other reason that the circulars are modified or superseded. However, the circulars are to be applied only as per law as it exists at that point of time and with reference to the commodity/services. This is true even in case of service tax. In 2007 an initiative was taken by the Board so that circulars in respect of various services were consolidated in one single circular, known as master circular. At that .....

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tal work. In such cases, whether service tax is liable to be paid by the service provider known as sub-contractor who undertakes only part of the whole work. A sub-contractor is essentially a taxable service provider. The fact that services provided by such sub-contractors are used by the main service provider for completion of his work does not in any way alter the fact of provision of taxable service by the sub-contractor. Services provided by sub-contractors are in the nature of input service .....

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tax as particular way of implementation may cause undue hardship. Service tax was introduced in 1994 on three services, in 1996 another three services were added and in 1997 additional three services were brought under the service tax net. At that point of time service tax was not covered by Cenvat credit system i.e. credit of input services or inputs was not available while providing any other output service. Around 2002, concept of Cenvat credit was extended to the services and in 2004 it was .....

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main service provider would also be required to pay the service tax. This difficulty was being faced in respect of certain services, three different circulars covering one specified service each were issued during the period 6th June, 1997 to 11th July, 1997. In 1998 certain additional services became taxable. In respect of one such service an additional circular was issued on 7-10-1998. These four circulars are in respect of specific services. These clarifications were not clarifying any legal .....

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ervices, no such circular has been issued in respect of any of the services which became taxable in 2002 or afterwards. Even in respect of services which were taxable before 2002, the earlier circulars became redundant in view of the change in law. Learned Advocate's argument that the old circulars were withdrawn only with the issue of Master Circular on 23-8-2007 is not relevant at all, particularly in view of the fact that the service being dealt in the present case is Commercial or indust .....

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s activity was chargeable to service tax. This is evident from the fact that the appellant was paying service tax before 1-3-2006. From 1-3-3006 the reason for stopping to make payment is only that the main contractor was specifically made ineligible to take credit of input services vide Notification No. 1/2006. In my opinion if law specifically prohibits doing something, the same cannot be circumvented by stopping to pay duty and claiming benefit of circulars which were not issued even in respe .....

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restriction has not been lifted in all these years. This therefore cannot be called as unintentional or unreasonable restriction. In fact, perhaps the position prior to 1-3-2006 was unintentional as the contractors were able to reduce their tax liability by creating more than 2 or 3 levels of sub-contractors. This contention/argument of the ld. Advocate therefore does not hold water. In any case, the Tribunal is required to interpret the law as it exist. We also note that the Notification No. 1/ .....

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EC had issued a circular in this regard. The said decision has been passed after examining the decision in the case of Vijay Sharma (supra) cited by the Ld. Counsel. It is seen that the decision in the case of Vijay Sharma was largely based on the fact that the credit of service tax paid by sub-contractor would be available to the main contractor. It was also based on the fact that sub-broker is also considered as broker, in so far as the client is concerned. Both these factors are missing, in t .....

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4.3 Ld. Counsel relied on the decision of the Tribunal in the case of Akruti Projects (supra), it is seen that the entire findings of the said decision are reproduced below: 5. Having considered the rival contentions, I find that the Notification No.1/2006-S.T. is in confrontation with the charging section. Section 66 of the Finance Act, 1994 and accordingly I hold the same is not applicable in the facts and circumstances of the case so far as the condition relating to not taking of Cenvat cred .....

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rendered in the case of Sunil Hi-tech Engineers Ltd. (supra) by this Tribunal is not binding and held per incuriam, as the same is directly in the teeth of the ruling of the Apex Court and is passed without taking notice of the aforementioned ruling of the Hon ble Supreme Court. It is seen that the decision of the Tribunal in the case of Akruti Projects (supra) essentially relied on the decision of the Hon ble Apex Court in the case of Larsen & Toubro Ltd. - 2006-TIOL-327-HC-HYD-VAT. In par .....

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t between the employer and the contractor. Therefore, there are two works contracts in existence between the three parties mentioned above for carrying out the one and the same task. It was further noticed by the Hon ble High Court that there is no agreement between the employer and the sub-contractor and consequently, there is no legal relationship creating either rights or obligations between them under an agreement. In between the employer and the sub-contractor, in view of the Hon ble High C .....

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under the VAT Act. 4.3 The aforesaid order of the Hon ble High Court was challenged by the State of Andhra Pradesh before the Hon ble Supreme Court, wherein at para 17 of the order dated 26-8-2008 reported in 2008-TIOL-158-SC-VAT, the Supreme Court took notice that the issue before it was whether the turnover of the sub-contractor is to be added to the turnover of the main contractor (L & T). In other words, the question which the Court was required to answer was as to whether the goods supp .....

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rated in the building. As per the Revenue, there are two deemed sales, one between the main contractor and contractee and the other between sub-contractor and the main contractor, in the event of the contractee not having any privity of contract with the sub-contractor. The Hon ble Supreme Court in this ruling held that there is only one sale and only one transaction of the property in the goods and observed as follows : - 19. If one keeps in mind the above quoted observation of this Court in th .....

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d by a sub-contractor, results in a single transaction and not as multiple transactions. This reasoning is also borne out by Section 4(7) which refers to value of goods at the time of incorporation in the works executed. In our view, if the argument of the Department is to be accepted it would result in plurality of deemed sales which would be contrary to Article 366(29A)(b) of the Constitution as held by the impugned judgment of the High Court. Moreover, it may result in double taxation which m .....

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of the contract to a registered sub-contractor, no tax shall be payable on the consideration paid for the sub-contract. Therefore, in our view, the principle to be adopted in all such cases is that the property in the goods would pass to the owner/contractee on its incorporation in the works executed. This principle finds place in sub-section 7(a) of Section 4 of the said 2005 Act. It is seen that the said decision has been passed with respect to the VAT on works contract. The said decision of t .....

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aid case are substantially different. The VAT is levied at the time when the property in goods is passed. In the case of Builders Association of India (supra) the Hon ble Apex Court has observed that in case of works contract when goods are constructed on land belonging to the owner of the land then immediately on such construction, the property of the goods passes to the owner of the land. Thus, when a sub-contractor does construction work on a land, the propriety passes to the owner of the lan .....

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n contractor and not the owner of the land. Moreover the nature of services provided by the appellants to the main contractor is not the same as those provided by the main contractor to its client. 4.4 The appellants are relied on various trade notices issued by various Commissionerate. The following are the trade notices: a) Trade Notice No.7/97-ST dated 04/07/1997, Mumbai Commissionerate-I - "2.4. The services should be rendered to a client directly and not in the capacity of a sub-consul .....

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corator sub-contracts part/whole of his work to another architect/interior decorator, it is clarified that no service tax is required to be paid by the sub-contractor provided that the principal architect/interior decorator has paid the service tax on the services rendered by him to the client and provided the sub-contracting is in respect of the same service category. In other words work is sub-contracted by one architect to another architect. In such cases, if the principal architect pays the .....

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ired to pay service tax on services rendered by it to an advertising agency, even if the advertising agency is also liable to pay service tax on the amount billed to its client for advertising services (which inter alia, includes the amount paid by the advertising agency for such market research services to the market research agency". c) Trade Notice No.1/96-ST dated 31/10/1996 Mumbai Commissionerate: - "6. It has been represented that in many cases the advertising agency gets a docum .....

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m in relation to an advertisement. In this connection, it is relevant to note that taxable service is a service provided to a client by an advertising agency in relation to advertisement in any manner. Client is the advertiser. Therefore, in this case the advertising agency cannot be considered as a client when the definition of taxable service in relation to advertisement is interpreted in proper context. Accordingly, it is clarified that a film producer in this case is not liable to service ta .....

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ax accordingly. d) Trade Notice No.1/96-ST dated 31/10/1996 Mumbai Commissionerate: - 5 In this context, it is clarified that co-loaders provide service to the courier agencies as such. They do not provide directly any service to the customer who gives the documents, goods or articles to the courier agency for their delivery to the consignee. What is chargeable to service tax is the service provided by courier agency to the customer. In this case, the courier agency being not a customer as such, .....

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09/07/2001. Q.1 Whether lending/hiring of Video/Sound Recording equipment come under service tax Ans. The lending/hiring of Video/Sound Recording equipment is in the nature of sub-contracts and because the sub contractors are to providing the services to the customer directly, they are not required to pay the service tax. f) M.F (D/R) Circular No.23/3/97/ST dated 13/10/97 Issue: whether rent and access charges for providing junctions for mobile operation to cellular telephone operators by DOT wi .....

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re required to pay to DOT rent charges on junctions in addition to DOT charges collected at specific rate per unit from their customers. Decision: Cellular phone operators are realizing rent and access charges from their subscribers and as such when cellular companies pay service tax on the amounts received by them from their subscribers it includes rent and access charges and as such to charge again service tax on their charges by DOT will amount to double taxation. Board is of the view that no .....

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