TMI Blog2022 (5) TMI 1305X X X X Extracts X X X X X X X X Extracts X X X X ..... le Supreme Court in the case of COMMISSIONER OF SERVICE TAX ETC. VERSUS M/S. BHAYANA BUILDERS (P) LTD. ETC. [ 2018 (2) TMI 1325 - SUPREME COURT] that the free issue or supply of material to the contractor or service provider, are not be clubbed in the gross value for determination of service tax liability. The ruling of Hon ble Supreme Court is applicable in the facts of the case and thus the demand is fit to be set aside - the issue is decided in favour of the appellant-assessee. Appeal allowed - decided in favor of appellant. - Service Tax Appeal No. 85101 of 2016 and 85287 of 2016 - FINAL ORDER NO. A/85501-85502/2022 - Dated:- 18-5-2022 - MR. ANIL CHOUDHARY, MEMBER (JUDICIAL) AND MR. C. J. MATHEW, MEMBER (TECHNICAL) Sh. S. K. Mathur, Special Counsel for the appellant, Sh. Prasad Paranjpe with Sh. Mohit Raval, Advocates for the appellant Sh. Vishal Agarwal Ms. Riya Jindal, Advocates for the respondent ORDER These are cross appeals arising from the common order-in-original. 2. Brief facts of the case are that the appellant-assessee M/s Leighton Contractors (India) Pvt. Limited (now named as M/s Leighton Welspun Contractors Pvt. Limited) having ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e) Further, assessee have not discharged service tax liability under RCM on the services received from foreign based sub- contractors in respect of their contract with RPTL. f) The assessee had utilised cenvat credit on service tax paid under the RCM mechanism, prior to the date of payment of service tax and thus appear to have contravened the provisions of Rule 3(4) of the Cenvat Credit Rules, 2004. g) The assessee appeared to be liable for interest under Section 75 of the Act for late payment of service tax for certain months. h) As per the contract with M/s Cairn Energy India Pvt. Ltd., (tax paid under composition scheme) the assessee has received free material such as bare pipes, CWC pipes, Tie-in-Spool-CWC pipes, Tyco material, etc. However, the landed cost of these materials was not included while arriving at taxable value, leading to short payment of service tax. 5. During the course of investigation, statements were recorded of some of the Officers of the appellant namely Sh. Milind Vadhavkar, Sr. Manager Indirect Taxes, Sh. Shantanu Choudhury, Senior General Manager (Taxation) who inter alia stated that the assessee is mainly engaged in various activities ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... service tax on the sub-contracts with respect to work for BPCL, BORL and IOCL. However, with respect to Jamnagar Project (RPTL) service tax has not been paid under RCM for sub-contract on the same analogy stated above. 8. Similarly, for the financial year 2009-10, no service tax has been paid for sub-contract to M/s Leighton Singapore under RCM, the activity of port being exempt under Notification No. 25/2007-ST with respect to construction of port, off the Coast of Sikka Port Gujarat. It was further stated that though the assessee have paid service tax on contract with other parties, but with respect to work of port for RPTL, Jamnagar Export Refinery Project (they have claimed exemption). The total value of works contract with respect to RPTL works out to Rs.5,64,60,89,497/- approx. and they had neither collected nor paid service tax on the output services provided to RPTL. 9. It was further stated that for construction and installation of SPM Systems they require certain pipes with particular coating. For supply of pipe with coating, they have awarded sub-contract to PSL Limited, and the installation part was done by them. The pipes supplied by M/s PSL Ltd., were connect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are berthed at a particular location in the sea. He further stated that the total systems mentioned above at Sr. No. (i) to (vi) were essential for any SPM system; that the major systems such as buoy, floating hoses, mooring hawser and PLEM were fabricated/ manufactured on shore and were installed offshore; that the pipe lines from the shore to PLEM were normally laid or pulled/ pushed in the sea bed; that the trenching is done and pipe lines are stabilized by process of burying; that in the SPM contracts, their responsibility was engineering/ procurement/ construction installation/ commissioning, depending upon the terms of the contracts; that the activities of the contracts were of highly skilled and technical nature, therefore the execution was majorly handled by them except for some of the bought out items or some minor sub contracts such as survey, NDT (non- destructive testing), FJC (field joint coating) and catering; that the buoy was manufactured/ fabricated by specialised experts like SBM and Blue Waters and were certified by certification agencies like ABS; that the buoy was carried to the site and installed by mooring with chains and anchors; that the mooring s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ith piled foundations depending on the soil conditions and then the equipments are put in place on the piled or similar kind of securing arrangements; that apart from the Engineering, Procurement and Fabrication; the whole operation at offshore for the system installation of SPM facility can be called as Offshore Installation and Commissioning; that generally the SPM systems they have installed, are similar in functional nature and installation of the system (methodologies) may vary slightly depending on the size, specification and quantity of the system; that though he was personally not involved in RTPL, BORL and HPCL projects; from a glance review on the documents he found there were varying scope between the two projects; that the RTPL involved SPM, pipeline, NRP (D) installations including engineering and procurement of some items; whereas in BORL scope limits to installation of SPM and associate pipeline facilities only; that the Cairn scope is full EPC (Engineering, Procurement and Construction) of the marine facilities which included engineering, procurement and construction of the pipelines from the shore to the SPM location, buoy and all associated items, PLEM; that the H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssified the activity of construction and installation of SPM system with respect to work of Kochi Refinery for BPCL under ECIS as per Section 65(39a). 15. So far the activity of construction and installation of SPM system for RPTL is concerned, the assessee has categorised under the head CICS as per Section 65(25)(b)(a). It appeared to Revenue that such classification is not appropriate. It appeared to Revenue that work with RPTL for SPM system involved installation of one crude SPM (SPM-3) with 2 x 48 pipelines to import the crude and two SPM (SPM 4 and SPM 5) with 2 x 30 pipelines each for evacuation of product. It further appeared that the assessee is required to undertake construction, trenching and back filling activities of installation of pipeline and others. As per the definition of the contract, others is defined as other contractors or vendors of the owner (RPTL). Therefore, it appeared that assessee has carried out part activities of installation of pipeline or conduit. It further appeared that the activity of installation is an act of putting an equipment, machinery or plant into its place and making it ready to use. The activity of installation starts after erect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 70, Rule 3(4) of Cenvat Credit Rules (inasmuch as they have utilised service tax on service tax paid under Section 66A in the month prior to the month in which service tax was paid), Section 75 (interest on delay in payment of output tax). Accordingly, show cause notice dated 23.04.2012 was issued requiring to the appellant to show cause as to why- i. The activity of installation of SPM system should not be classified under the category of ECIS instead of CICS. ii. The services provided by sub-contractors located outside India particularly Van Oord Offshore BV, should not be classified under the head Site formation and clearance, excavation and earthmoving and demolition services ; Soil Rock Engineering should not be classified under the category of Scientific and Technical Testing services / Technical Testing and Analysis Service , and the services provided by Indomarine Pte Ltd., Antarah Koh Pvt. Ltd., and Leighton Contractors (Singapore) Pte. Ltd., should not be classified under the head ECIS. Further, service tax was demanded totalling Rs. 173,96,31,110/-. Further, penalty was proposed under Section 77, 76 and 78 of the Act. Penalty was also proposed under Rule ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... existing heads CICS and ECIS, CCS etc. Thus, the appellant is not chargeable to tax under the existing heads for the period prior to 01.06.2007. It was further urged that the composite work executed by the assessee for RPTL cannot be classified under ECIS under any stretch of imagination. The appellant also clarified that the SPM buoy is not a floating platform. The principal purpose of buoy is to float at the specified locations and to provide a convenient means for connection of the ship hawser (thick rope) to the mooring. Buoy hull is circular, all welded steel structure that is sub divided into seven (six radial one central) water tight compartment, separated by radial bulk heads. Alternative radial compartment are filed with foam for buoyancy. When connected with the buoy, the ships are held in a place with the strong connection to the sea bed through the chains and piled foundation to remain floating around the buoy. The SPM system are regarded as instant port since these can be installed in deep waters without any need for construction of jetties. ii. Further, SPM moors a vessel to a single point and allows the vessel to weathervane about that point, in response to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ised for delayed payment of service tax is bad as the appellant has admittedly suo motu deposited interest under Section 75 as applicable, hence there cannot be double jeopardy both for deposit of service tax after some delay and for alleged taking and utilisation of the credit (be for tax paid under RCM). It is also urged that once the interest has been paid the said payment has become regular, and thus no tax can again be demanded on the same on account of utilisation prior to deposit. It was also urged that the show cause notice is bad for demanding service tax of Rs.54,66,92,990/- under RCM, Rs. 1,83,46,919/- on free supplies from M/s Cairn Energy, and Rs.34,27,85,829/- towards interest for delayed payment of service tax and further interest thereon. It was pointed out that the amounts have been paid by the assessee before issue of show cause notice. Show cause notice under Section 73 can be issued only for recovery of any amount due from the assessee. Consequently, the appellant is not liable to any penalty, there being no violation of any provisions of the Act. It is further urged that there is no violation of Rule 3(4) of Cenvat Credit Rules in taking credit of input tax f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the value of free issue of materials supplied by M/s Cairn Energy, by including the same in the taxable value of works contract service, for which tax has been paid under the Works Contract Composition Scheme . The appellant has also appealed against the demand of interest on the cenvat credit alleged to be wrongly utilised during the period August, 2009 to December, 2010. 23. Revenue has filed appeal No. ST/85287/2016 against dropping of demand of service tax for the period October, 2006 to September, 2008 on the work of installation of SPM system, on the ground that the same is classifiable under ECIS and consequently exemption is not available. Revenue has further disputed the dropping of demand of service tax for the period October, 2006 to September, 2008 under RCM in respect of services rendered by the four overseas sub-contractors. 24. First we take up the revenue appeal. Admittedly, the appellant - assessee have been engaged by RPTL in terms of the contract to execute construction and commissioning of SPM systems which are positioned about 25 km from the shore in the sea. For this work the assessee is required to undertake design and engineering which also involves ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned in the State of Gujarat in the Indian Ports Act, 1908, the SPM system does not find mention as an additional port or extension of Sikka Port. He further refers to Section 2(q) of Major Ports Act, 1963, under which port means any major port to which the Act applies within such limits as may from time to time be defined by the Central Government, in the official gazette and until a notification so issued, within such limits as may have been defined by the Central Government. Thus, there is requirement of a notification either by the Centre or the State Government to define a Port within their jurisdiction and no such notification has been advanced by the assessee to claim the benefit of exemption notification for SPM system. Therefore, no exemption can be claimed for the construction and installation of SPM system under the said Notification No. 16/2005-ST read with Notification No. 27/2007-ST. 32. It is further urged that as the appellant had classified similar service for BPCL under the head ECIS , thus, the service provided to RPTL should also be classified under the head ECIS and the assessee have wrongly classified the service under CICS . It is further urged that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) of Major Ports Trust Act, to contend that even if the SPM facility was a port, even then, before notification is issued by the Government notifying the same, the benefit of the exemption notification could not have been availed. We find that this argument is beyond the scope of the show cause notice and further it is factually incorrect, as the limits of Sikka Port where the SPM system has been constructed is notified by the Government of Gujarat, Public Works Department, vide Notification No. IPA/1088-C-1358-M(1). Further, the Gujarat Maritime Board has also issued Notifications dated 31.08.2007, 11.09.2008 notifying each of the SPM system as the landing places for unloading of the imported goods and loading of export goods, within Sikka port. These notifications clearly mention the latitude and longitude of the SPM system and also mention that it is located in the deep sea. 35. In view of our findings recorded as above, we dismiss the appeal filed by the Revenue, and uphold the impugned order. 36. Now we take up the appeal filed by the appellant assessee. The issue involved in the appeal of the assessee are:- i) Whether the appellant is liable to pay interest and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he restriction on the utilisation of the cenvat credit accruing subsequent to the last date of the month or quarter in which the arrear arise, is not applicable to the demand confirmed under Section 11A of the Central Excise Act. Reliance is also placed on the ruling of the Hon ble Supreme Court in the case of Pratibha Processors vs. Union of India -1996 (88) ELT 12 (SC). The facts in Pratibha Processors (supra) was that the goods have been warehoused and had not been cleared within the time permissible under Section 61(1) of the Customs Act. Section 61(2) provides that if the goods are not cleared within the time granted under Section 61(1) of the Act, and the goods are cleared later, then interest as per rule has to be paid on the amount of duty on the warehoused goods. Thus, the Hon ble Supreme Court has clarified that the interest shall be payable on the amount of duty. Thus, where no service tax is due or payable no interest can be demanded in the fact of the present case. Further, appellant has deposited interest on the delayed deposit of tax. 39. As regards the second issue whether the appellant is liable to pay service tax with interest and penalty for not including the ..... 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