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2018 (2) TMI 1054

ELDCO SIDCUL Industrial Park at Sitarganj in Rajasthan - Revenue entertained a view that the appellants are liable to service tax under works contract service and for the same, gross value which includes the materials supplied also should have been considered by the appellant - case of appellant is that they had separate contracts – one for supply of materials and another for execution of work either for erecting piping and pumping of raw water supply or for effluent treatment for two clients. - Held that: - It is clear that the appellant had shown two contracts both dated 20/08/2007 in respect of Barmer Project. One is claimed to be supply contract and another is claimed to be erection contract. There is a coordination agreement dated 30/08/2007 - The said coordination agreement readwith the supply/erection contracts leads to an apparent conclusion that the intended purpose of both the parties is the supply and erection of raw water piping and pumping system. - While examining the two contracts now contested in the present appeals, we note except for substitution of the word “contractor” for “supplier” the warranty or defects liability condition mentioned in Clause 34 of b .....

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ect discharged service tax on the activity of erection and commissioning of such supply system claiming that the materials like pipes, pumps, motors required for such supply system was separately done under a supply contract. The Revenue entertained a view that the appellants are liable to service tax under works contract service and for the same, gross value which includes the materials supplied also should have been considered by the appellant. Similar is the case for the second project of affluent treatment plant executed at Sitarganj Industrial Park. Here also the appellant admitted the tax liability only on civil work part of the contract claiming that supply contract is separate and the value of supplied materials need not be included for service tax purpose. As such, the central dispute in these appeals is the valuation of contract executed by the appellants for the purpose of discharging service tax. 2. The Original Authority adjudicating 3 show cause notices issued to the appellant, held that the appellants are required to discharge their service tax liability on the aggregate gross amount received which will include amounts for erection work as well as amount for supply o .....

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on of penalties. It is his case that the show cause notice as well as the original order did not justify the existence of ingredients for invoking suppression, willful mis-statement etc. for extended period of demand and for imposition of penalties. 7. The learned AR strongly contested the appeals. He submitted that the coordination agreement dated 30/08/2007 clearly brings out the intend and purport of the whole arrangement between the appellant and M/s Raj West Power Ltd. The appellant had deliberately made two sub-contracts earmarking supply of materials and erection work separately. The fact that the appellant and the service recipient are part of the same group of companies and the wordings of the two agreements alongwith the coordination agreement will make it clear that what is intended by both the parties are the common purpose of execution of raw water piping and pumping system comprising of 184 kms. long pipeline for Lignite Thermal Power Station at Bardesh, Barmer. The terms of the contracts make it clear that both the parties intended a common work and the so called supplier and erection contractor being one and the same the coordination agreement brings out the facts c .....

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Erection Contractor . Para (B), (C) & (D) of the Contract are as under : (B) The RAW WATER PIPING & PUMPING SYSTEM Supply supplier has entered into a contract dated 20/08/2007 with the Owner (the Raw Water Piping & Pumping System Supply Contract ) for inter alia, the manufacture, supply of Raw Water Piping & Pumping System for 8x135 MW Lignite Based Thermal Power Plant at Barmer District in the State of Rajasthan and other related equipment, details of which have been set out in the Raw Water Piping & Pumping System Supply Contract (the Equipment ); (C) The Raw Water Piping and Pumping System Erection Contractor has entered into a contract dated 20/08/2007 with the Owner (the Raw water Piping & Pumping System Erection Contract ) for, inter alia, the erection, commissioning, testing, carrying out performance guarantee tests of the Equipment details of which have been seen in the RAW WATER PIPING & PUMPING SYSTEM Erection Contract …………. (D) The Contractors agree that the Contracts require to be performed in coordination to ensure the smooth delivery, installation and operation of the Equipment . 9. The said coordination agreemen .....

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f the word contractor for supplier the warranty or defects liability condition mentioned in Clause 34 of both the agreements are identical. It clearly establishes that as the supplier and contractor is one and the same the warranty and defect liability is to be on the appellant without any distinction for supply contract or erection contract. The defect liability clause in labour contract also talks about defect in material , bad materials . Materials are supplied in terms of supply contract which also carries same terms. This alongwith the scope of coordination agreement clearly reveals that the scope of composite works contract is clear and should be read together for the purpose of service tax. In fact, perusing both the contracts (supply or erection), we note that the various clauses are verbatim reproduction except for the of words contractor or supplier were suitably substituted. On overall examination the facts and circumstances of the case, we are in agreement with the findings recorded by the Original Authority regarding the composite nature of contract executed by the appellant and the valuation method that should be followed for discharging service tax liability. 11. It .....

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