Service Tax Appeal No.10535 of 2013
(Arising out of OIO-15/STC/COMMR/BRC-I/2012 dated 19/12/2012 passed by
Commissioner of Central Excise, Customs and Service Tax-VADODARA-I)
Rudra Engineering
VERSUS
C.C.E. & S.T.-Vadodara-I
APPEARANCE:
Shri Anil Gidwani, Advocate for the Appellant
Shri Rajesh Agarwal, Superintendent (AR) for the Respondent
CORAM: HON’BLE MEMBER (JUDICIAL), MR. RAMESH NAIR
HON’BLE MEMBER (TECHNICAL), MR. RAJU
Final Order No. A/ 10063 /2023
DATE OF HEARING: 15.12.2022
DATE OF DECISION: 16.01.2023
RAMESH NAIR
The appellant is in appeal against the impugned order-in-original No.
15/STC/COMMR/BRC-I/2012 dated 19.12.2012 wherein the demand of short
payment of service tax has been confirmed against the appellant.
- The brief facts of the case are that intelligence was received that the
Appellant was wrongly availing abatement of 67% for calculating the
taxable value for payment of service tax as per the provisions of Notification
No. 1/2006-ST dated 01.03.2006 as amended. On this basis inquiry was
initiated and documents were scrutinized. On study of work orders and its
related invoices pertaining to thermal insulation, it was found that the scope
of work of the contract executed by the Appellant are (i) Hot insulation
including supply of LRB and Aluminium Sheet (ii) Cold Insulation with
Thermocol and Aluminium Sheets (iii) Insulation of pipeline with black
superioan sleeve providing and fixing of black superioan sleeve with
cellotape (iv) Insulation with black nitrite rubber foam, sheet, etc.. It
appeared that the service provided by the said service provider of supplying
and applying of thermal insulation falls outside the purview of eligibility
criteria for availing the benefit under Notification No. 1/2006-ST as they
were not supplying plant, machinery, equipment or structures but carrying
out application of thermal insulation material on plant, machinery,
equipment already installed at the factory /business premises of the service
receiver. In this connection statement of Shri Viral Harendrabhai Pandya
Proprietor of the firm was recorded. It also appeared that Appellant have
wrongly classified the service rendered as “Installation of thermal insulation”
as Works Contract Service as the condition of transfer of property as per the
definition did not exist and also the contract was not leviable to tax as sale
of goods. Accordingly, a show cause notice dated 8-10-2012 was issued to
the appellant for demand of service tax of Rs. 69,61,972/- on wrong
availment of abatement and demand of service of Rs. 24,37,017/- for wrong
classification of service and to impose penalty. The matter was adjudicated
and the demand of service tax was confirmed along with interest and
penalty was imposed. Against this order, the appellant is before us.
- Shri Anil Gidwani, learned Counsel the appellant submits that there is no
dispute over the fact that the Appellant was undertaking “erection,
installation and commissioning work”, wherein thermal insualting material
such as (i) Hot insulation including supply of LRB and Aluminium Sheet (ii)
Cold insulation with Thermocol and Aluminium Sheet (iii) Insulation of
Pipeline with black superion sleeve providing and fixing of black superion
with cellotape (iv) insulation with black nitrile rubber foam, sheet, etc. were
being supplied and applied on the equipment, structures etc. The sale price
of the material was not being separately shown in the invoice, however,
substantial VAT/Sales Tax under appropriate scheme and at appropriate
rates were paid. In fact, the approx.. involvement of material in the work
undertaken is about 70% of the total cost. There is no dispute over this fact,
and this was also specifically mentioned in the statements of Shri Viral
Pandya (Proprietor) recorded in the course of the investigation.
3.1 He further submits that the activities undertaken by the appellant
would qualify within the scope of the Notification No. 1/2006 –ST , so as to
be eligible for abatement benefit. The impugned order has not appreciated
this aspect properly, while the appellant has also explained the factual
position even by producing photographs for better understating of the issue.
The Notification No. 1/2006 or for that matter the provisions of Finance Act,
1994 do not define what is “Plant” As such the items supplied by the
appellant not in the nature of consumable, but an item having fairly high
degree of durability. As such, just as in the case of “wires and cables” ,even
the present items qualify as “plant” within the meaning of said items. He
placed reliance decisions of Jawahar Mills Ltd. – 1999(108)ELT 0047 (Tri. LB)
upheld by Supreme Court -2001(132)ELT 3(SC).
3.2 He also submits that items which were sold by the Appellant during
the course of executing work, have been actually purchased by the
customers/ clients and then supplied to the appellant for application, these
items would have definitely qualified as “capital goods” for the
customers/clients. There cannot be any dispute over this. If they qualify as
“capital goods” they automatically become plant/machinery/equipment and
as such, the objection raised in the present matter in this regard cannot
survive any more.
3.3 He argued that it is well documented that they were selling material in
the course of providing the composite service, and the material component
involved therein was approx.. 70% and at the most service tax was to be
paid only on 30% of the value, which represent labour component. As
against this, the appellant has paid service tax on 33% of the value, which is
more than the actual liability. The basic idea behind giving abatement is to
ensure that Service tax is not charged on that value of materials, which are
used together with labour while providing taxable service. Service tax is a
tax on services and not on goods and thus such abatement are given.
3.4 As regards the second issue “works contract service‟ which is made
liable to levy of service tax w.e.f. 01.06.07, he submits that the work
undertaken for the clients, which is in dispute, are to be treated as works
contract for the purpose of Sales Tax Laws and that the appellant also paid
Sales Tax/ VAT on material consumed during the execution of such work in
dispute. The CBEC has clarified in its circular No. B1/16/2007-TRU dated
22.05.2007 that all those contracts which qualifies works contract under the
Sales Tax Laws equally qualify as work contract for the purpose of levy of
Service tax. This is also clear from the definition of taxable service for works
contract as appearing at Section 65(105)(zzzza) of the Finance Act, 1994.
That the work undertaken by the appellant not only attract VAT/Sales Tax,
but are also qualified as “works contract”. The strange reasoning adopted in
the impugned order to hold that “there is no transfer of property” on goods
involved in execution of works is not legally acceptable. The Appellant is also
registered under works contract services and discharging service tax
accordingly since long and no further proceedings have been undertaken
against them for the same nature of work where they regularly discharge
service tax liability under works contract service.
3.5 Without prejudice, he also submits that in any case benefit under
Notification 12/2003-ST is available to the Appellant. He placed reliance on
the following decisions:-
WIPRO GE MEDICAL SYSTEMS PVT. LTD.- 2009(14)STR 43
DELUX COLOUR LAB PVT. LTD.- 2009(13)STR 605
VAHOO COLOUR LAB.-2010(18)STR 548
SOBHA DEVELOPERS LTD.- 2010(19)STR 75
HINDUSTAN AERONAUTICS LTD.- 2010(17)STR 249
3.6 He also submits that in the present matter benefit of “cum-tax” value
was not given to the Appellant which is otherwise available as per law.
- Per contra, Shri Rajesh Agarwal,
departmental authorised
representative relies on the findings in the impugned order.
- Heard both sides and perused the records. The first issue involved in
the present appeal for determination is whether the appellant are eligible to
the benefit of Notification No. 1/2006-S.T., dated 1-3-2006. The relevant
entry specified in said notification reads as follows :
The aforesaid exemption entry is applicable on taxable category viz.
Erection, commissioning or installation, under a contract for supplying a
plant, machinery or equipment or structures and erection, commissioning or
installation of such plant, machinery or equipment or structures. The
Learned Commissioner denied the benefit of said entry to the Appellant on
the ground that Appellant is not supplying plant, machinery, equipment or
structures, but carrying out thermal insulation and hence benefit of 67%
abatement from gross value would not be available to appellant as the
condition laid down in the said Notification are not fulfilled by appellant.
However, we find that in above column (4) of the table which is related to
the “condition” in explanation it clearly used the words “and any other
material sold by the commissioning and installation agency, during the
course of providing erection, commissioning or installation service”. Hence,
in our opinion, it cannot be considered that the said entry is applicable only
on the supply of plant, machinery or equipment or structures. Besides, it is
also applicable on any other material soLearned In the present matter there
is no dispute on the facts that the Appellant is Commissioning and
Installation agency and for providing the taxable services appellant has
provided the thermal insulating materials i.e. Hot insulation including supply
of LRB and Aluminium Sheet, Cold insulation with Thermocol and Aluminium
Sheet, Insulation of Pipeline with black superion sleeve providing and fixing
of black superion with cellotape , insulation with black nitrile rubber foam,
sheet, etc. and on supply of goods appellant also paid sales tax/ VAT. Hence,
in our opinion, the Appellant are eligible to the benefit of the Notification No.
1/2006-S.T., dated 1-3-2006.
5.1 The second issue in the present appeal is wrong classification of
service under Works Contract Service. As per the revenue the appellant –
service provider has wrongly classified the service rendered as „installation of
thermal insulation‟ as „Works Contract‟ in as much as the condition of
transfer of property as per the definition of „Works Contract‟ has not satisfied
& also the contract is not leviable to tax as sale of goods and appellant only
supply the insulation material and used the same towards completion of
thermal insulation. We find that the Works Contract Service was introduced
by the Finance Act, 2007 w.e.f. 1-6-2007 by insertion of sub-clause (zzzza)
in Section 65(105) of the Act. The provision reads as under :
(zzzza) to any person, by any other person in relation to the execution of a
works contract excluding works contract in respect of roads, airports
railways, transport terminals, bridges, tunnels and dams.
Explanation : For the purposes of this sub-clauses, “works contract” means a
contract wherein, –
(i)
Transfer of property in goods involved in the execution of such
contract is leviable to tax as sale of goods, and
(ii)
Such contract is for the purposes of carrying out, –
(a)
erection, commissioning or installation of plant, machinery, equipment
or structures, whether pre-fabricated or otherwise, installation of electrical
and electronic devices, plumbing, drain laying or other installations for
transport of fluids, heating, ventilation or air-conditioning including related
pipe work, duct work and sheet metal work, thermal insulation, sound
insulation, fire proofing or water proofing, lift and escalator, fire escape
staircases or elevators; or
(b)
construction of a new building or a civil structure or a part thereof, or
of a pipeline or conduit, primarily for the purposes of commerce or industry;
or
(c)
construction of a new residential complex or a part thereof; or
(d)
completion and finishing services, repair, alteration, renovation or
restoration of, or similar services, in relation to (b) and (c); or
(e)
turnkey projects including engineering, procurement and construction
or commissioning (EPC) projects.
From the definition of Works Contract Service, it is clear that only specified
categories of works contract are considered for levy of Service Tax under the
said definition. These are enumerated in clauses (a) to (e). We find that in
clause (a) thermal insulation also mentioned and in the present matter
appellant had also paid VAT/ sales tax on goods which is used in installation
of thermal insulation. We find that the impugned activity of the assessee was
nothing but “works contract service”.
- In view of the above clear position of law, we do not find any merit in
the impugned order demanding service tax from appellant. Therefore, the
impugned order is set-aside. The appeal is, accordingly, allowed with
consequential relief if any as per law.
(Pronounced in the open court on 16.01.2023 )
(RAMESH NAIR)
MEMBER (JUDICIAL)
(RAJU)
MEMBER (TECHNICAL)
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