TMI Blog2018 (7) TMI 1669X X X X Extracts X X X X X X X X Extracts X X X X ..... ct Acts. - Registration under the wrong classification earlier by the assessee will not help the revenue - in the earlier classification of the appellant, the erection, installation and commissioning services, would not preclude them from the benefit under Works Contract Service. The levy of service tax on the works contract, has been the subject matter of the appeal before the Hon’ble Supreme Court in the case of Commr. of Central Excise & Customs, Kerala Vs. Larsen & Toubro Ltd. [2015 (8) TMI 749 - SUPREME COURT], where it has been held that leviability of service tax prior to 1st June, 2007, whereafter Finance Act, 2007, expressly made such contracts liable to service tax is not as per the Scheme of Finance Act, 1994 - the service tax is not leviable on the appellant prior to 01.06.2007 and therefore, the demand is only left for the period from 01.06.2007 to September, 2007. The availment of sale of the materials is not important in the case of Works Contract Service even miniscule portion of the supply of material will render as Works Contract Service. The contract covered by the second agreement is appropriately classifiable under the Work Contract Service under t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... achinery, equipments and the second agreement for works services, namely, erection, installation and commissioning services. The appellant-assessee discharged service tax w.e.f. 01.04.2006 on the second set of agreements relating to erection, installation, and commissioning services by availing benefit of Notification No.19/2003- ST dated 21.08.2003 and Notification No.1/2006-ST dt.01.03.2006. Revenue issued show-cause notice denying the abatement availed under the said Notifications and demanded service tax on the entire taxable value of erection, installation and commissioning services w.e.f. 01.07.2003 to 30.09.2007. 3.1 The ld.Sr.Advocate appearing on behalf of the appellant-assessee, has advanced two-fold argument. At the first instance, he has submitted that in response to the tenders floated by their clients, and on being qualified to undertake the turnkey project as per the tenders, they had executed two separate contracts with each of their clients on the terms and conditions stipulated in the respective contracts. In the first set of contract, it was agreed upon to supply the plants, machinery and equipments and in the second set of contract it was agreed to provide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... involve supply of materials is incorrect. It is his submission that as supply of goods and services are involved in the works and service agreements, consequently, they are entitled to abatement of 67% of the value of the services as on a simple reading of the said Notifications No. 19/2003 ST 01/2006 ST it is clear that the said Notifications refers to a contract for supplying the plant, machinery or equipment and commissioning or installation of the said plant, machinery or equipment . Further, he has pleaded that the demand is barred by limitation as all the facts are within the knowledge of the department and there is no suppression or mis-declaration on the part of the Appellant. 3.2 The ld.Sr.Advocate also submitted that during the material period, the appellant entered into EPC Contracts/Turnkey Contract with their clients as mentioned above. He contested the impugned order rejecting the appellant s contention that from the respective contract agreements, it is evident that each set of agreement, one for supply of equipments and other for erection and commissioning of entire plant by using the equipment were entirely depended and effectively constituted one contract a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the appellant. The total contract as per LOI has been devided into two parts which is as under : TOTAL CONTRACT SUPPLY PART WORKS SERVICES Equipment Accessories Construction Material Service Belt Conveyors Beltings Sampling Equipment Load Out Equipment Vibratory Feeder Dust Suppression Fans Ducting for Dust Suppression Fir Fighting Pumps Piping Chutes Liner Electric Hoist Manual Winch Lifting Tackles EOT Crane Service Lifts Belt Handling Equipment Sub Station Equipment Cables Accessories Pressurisation Air Conditioning Condition Monitoring Equipment Drinking Water Pumps Piping Water Cleaning Pumps Piping Air Compressors Compressed Air Piping Tools Tackles Spares Structural Steel Reinforcement Steel Binding wires CGI Sheets Stainless Steel Cement Sand Chips Bricks Morrum Boulder Ballast Floor Tiles False Ceiling Inserts,bolts,nuts GI She ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es where (a) no credit of duty paid on such goods and materials sold, has been taken under the provisions of the Cenvat Crdit Rules, 2004 ; or (b) where such credit has been taken by the service provider on such goods and material, such service provider has paid the amount equal to such credit availed before the sale of such goods and materials.] 2. This Notification shall come into force on the 1st day of July, 2003. From the perusal of the above Notification, it is clear that the credit can be denied only on the non-fulfilment of conditions (a) (b), which is not the case in the present appeal. Therefore, the appellant is entitled for abatement as contained in the Notification No.12/2003-ST, dated 20.06.2003. This substantiated from the fact that the appellant has paid the VAT on the portion of the materials sold and used in the erection and commissioning of the plant and machinery under Local Taxes Act. 6.3 Considering the nature of the contract entered by the appellants and the services rendered to their clients, it is beyond doubt that they are engaged in providing EPC contracts, which falls under the category of Works Contract Acts. The exclusion of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t from other things, the entire cost of establishment, other expenses, and profit earned by the contractor and would transgress into forbidden territory namely into such portion of such cost, expenses and profit as would be attributable 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 contract less the value of property in goods transferred in the execution of the works contract. This not having been done by the Finance Act, 1994, it is clear that any charge to tax under the five heads in Section 65(105) noticed above would only be of service contracts simpliciter and not composite indivisible works contracts. 20 . We also find that the assessees argument that there is no charge to tax of works contracts in the Finance Act, 1994 is correct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2) reads as follows :- (2) Service tax can be levied on the service component of any contract involving service with sale of goods etc. Computation of service component is a matter of detail and not a matter relating to validity of imposition of service tax. It is procedural and a matter of calculation. Merely because no rules are framed for computation, it does not follow that no tax is leviable. [at para 36] 35 . The aforesaid finding is in fact contrary to a long line of decisions which have held that where there is no machinery for assessment, the law being vague, it would [not] be open to the assessing authority to arbitrarily assess to tax the subject. Various judgments of this Court have been referred to in the following passages from Heinz India (P) Ltd. v. State of U.P., (2012) 5 SCC 443. This Court said :- This Court has in a long line of decisions rendered from time to time, emphasised the importance of machinery provisions for assessment of taxes and fees recoverable under a taxing statute. In one of the earlier decisions on the subject a Constitution Bench of this Court in K.T. Moopil Nair v. State of Kerala [AIR 1961 SC 552] examined the constitut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e view taken in K.T. Moopil Nair [AIR 1961 SC 552] this Court held that a statute is not beyond the pale of limitations prescribed by Articles 14 and 19 of the Constitution and that the test of reasonableness prescribed by Article 304(b) is justiciable. However, in cases where the statute was completely discriminatory or provides no procedural machinery for assessment and levy of tax or where it was confiscatory, the Court would be justified in striking it down as unconstitutional. In such cases the character of the material provisions of the impugned statute may be such as may justify the Court taking the view that in substance the taxing statute is a cloak adopted by the legislature for achieving its confiscatory purpose. In Jagannath Baksh Singh v. State of U.P. [AIR 1962 SC 1563] this Court was examining the constitutional validity of the U.P. Large Land Holdings Tax Act (31 of 1957). Dealing with the argument that the Act did not make a specific provision about the machinery for assessment or recovery of tax, this Court held: (AIR pp. 1570-71, para 17) 17. if a taxing statute makes no specific provision about the machinery to recover tax and the procedure to make ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... [(1974) 2 SCC 306] and D.G. Gose and Co. (Agents) (P) Ltd. v. State of Kerala [(1980) 2 SCC 410] where this Court held that sufficient guidance was available from the Preamble and other provisions of the Act. The members of the committee owe a duty to be conversant with the same and discharge their functions in accordance with the provisions of the Act and the Rules and that in cases where the machinery for determining annual value has been provided in the Act and the rules of the local authority, there is no reason or necessity of providing the same or similar provisions in the other Act or Rules. There is no gainsaying that a total absence of machinery provisions for assessment/recovery of the tax levied under an enactment, which has the effect of making the entire process of assessment and recovery of tax and adjudication of disputes relating thereto administrative in character, is open to challenge before a writ court in appropriate proceedings. Whether or not the enactment levying the tax makes a machinery provision either by itself or in terms of the Rules that may be framed under it is, however, a matter that would have to be examined in each case. (at paras 15-21) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... view that the service tax is not leviable on the appellant prior to 01.06.2007 and therefore, the demand is only left for the period from 01.06.2007 to September, 2007. 6.6 We have also considered the Department s plea that the appellants have themselves registered with the Department w.e.f. 2004 and therefore, they are not entitled for the benefit under the Works Contracts Act in view of the above decision of the Hon ble Supreme Court in the case of Larsen Toubro Ltd. (supra). In this regard, we find that the decision of the Hon ble Bombay High Court in the case of Sheth Sura Engineering Pvt. Ltd. Vs. Union of India reported in 2018 (10) GSTL 239 (Bom.), wherein it has been held that the works contract cannot be vivisected into various components and cannot be taxed under different Act and therefore, erection, commissioning and installation service component of works contract service would not be liable to service tax as deemed was made prior to 01.06.2007. In this case, the appellant-assessee was found to be eligible for the refund. The relevant Paras are reproduced below : 4 .The Supreme Court, considering the scheme around the works contract and or indivisible w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the prescribed rate of ten per cent (10%) on the differential amount. It is now stated before us that the aforesaid figures have been furnished by the assessee himself and, therefore, must be understood not to be authentic. This, indeed, is strange. No dispute has been raised with regard to the correctness of the said figures furnished by the assessee in the show cause notice issued to justify the stand now taken before this Court; at no point of time such a plea had been advanced. 13 . Besides the above, the affidavit of the learned Commissioner, referred to above, proceeds on the basis that the appellant assessee is also liable to pay service tax on the remaining seventy per cent (70%) towards material costs in addition to the 30% of the retreading charges. This is clear from the following averments made in the said affidavit of the learned Commissioner : The relevant bills showed that the Appellant had paid service tax only on the labour component after deducting 70% towards material cost on the gross tyre Retreading charges billed and received for the period from 16-6-2005. In short, they have paid service tax only on the 30% of the tyre Retreading charges rec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and entry (zzzzj). Such a result is difficult to comprehend because entry (zzzzj) is not a specie of what is covered by entry (zzzy). Introduction of new entry and inclusion of certain services in that entry would presuppose that there was no earlier entry covering the said services. Therefore, prior to introduction of entry (zzzzj), the services rendered by the members of the 1st petitioner were not taxable. Creation of new entry is not by way of amending the earlier entry. It is not a carve out of the earlier entry. Therefore, the services rendered by the members of the 1st petitioner cannot be brought to tax under that entry. 6.10 As far as the Department s Appeal is concerned, the same is not sustainable in view of the fact that we have upheld the appeal of the appellant. 7. Accordingly, we hold that the contract covered by the second agreement is appropriately classifiable under the Work Contract Service under the Finance Act, 1994 and not under the Erection, Commissioning and Installation Service, and therefore not chargeable to service tax prior to 01.06.2007. However, for the period starting from 01.06.2007 to 30.09.2007, the appellant has paid the service tax unde ..... X X X X Extracts X X X X X X X X Extracts X X X X
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