Murthy Engineering Works VERSUS Commissioner of Central Excise & ST, Rajkot

CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL,

WEST ZONAL BENCH : AHMEDABAD

REGIONAL BENCH – COURT NO. 3

SERVICE TAX Appeal No. 10688 of 2013-DB

[Arising out of Order-in-Original/Appeal No 91-COMMR-2012 dated 31.12.2012 passed by Commissioner of Central Excise, CUSTOMS (Adjudication)-RAJKOT]

Murthy Engineering Works

VERSUS

Commissioner of Central Excise & ST, Rajkot

 

APPEARANCE :

Shri Chiranjeev Tandon, Advocate for the Appellant

Shri Rajesh K Agarwal, Superintendent (AR) for the Respondent

CORAM: HON’BLE MR. RAMESH NAIR, MEMBER (JUDICIAL) HON’BLE MR. C.L. MAHAR, MEMBER (TECHNICAL)

DATE OF HEARING: 20.02.2023 DATE OF DECISON: 05.04.2023

 

FINAL ORDER NO. A/10793 / 2023 RAMESH NAIR :

The appellant is engaged in providing service of Fabrication, Erection, Commissioning and Installation services, Maintenance Service etc. and for some time rented their Hydra Crane. They are engaged in fabrication of storage tanks, pipe line works, fabrication of shed/ godown/ structure etc. They are registered with service tax department under the category of Construction Service. As per the nature of activity, their work was to fabricate above mentioned items after receipt of raw material namely, steel plates, angles, pipes etc. from their customers. They usually did not provide any kind of raw materials from their side. They also used some materials/ goods i.e. nut-bolts, gas, welding electrodes for fabrication. They generated bills to the customers entirely for the labour charges which did not include

 

either the value of raw materials supplied by the customers or the items used by them for fabrication of desired works in other words their bill contains only the labour charges as per verbal/ written agreement/ contract between them and their customers. They paid service tax after claiming abatement from the gross amount charged under Notification Nos. 19/2003- ST dated 21.08.2003, 15/2004-ST dated 10.09.2004 and Notification No. 1/2006-ST dated 01.03.2006 for the period 2005-06 to 2009-10 (upto September 2009). The case of the department is that :

• The appellant have mis-declared the service inasmuch as their service includes Erection, Installation and Commissioning whereas the appellant have declared their service under Construction Service;

 

• The appellant have not included the value of material suppliedby their clients in the gross value of the service for payment of service tax thus, they have violated the condition of notifications supra.

 

Accordingly show cause notice dated 14.10.2010 was issued to the appellant wherein total service tax demand was raised on the gross value without allowing the exemption. The Adjudicating Authority vide impugned order-in- original confirmed the demand, interest and penalties, therefore the present appeal is filed by the appellant.

 

2. Shri Chiranjeev Tandan learned Counsel appearing on behalf of the appellant submits that the main issue raised by the department is that in order to avail exemption Notification Nos. 19/2003-ST dated 21.08.2003, 15/2004-ST dated 10.09.2004 and Notification No. 1/2006-ST dated 01.03.2006, the appellant is required to include the value of materials supplied by their clients.In this regard he submits that the issue is no longer res-integra as held in various decisions including in the case of Bhayana Builders (P) Limited, that to avail exemption notifications (supra),

 

the value of material supplied by service recipient need not be included in the gross value. He placed reliance on the following decisions:-

 

• ATR Constructions Pvt. Limited vs. Commissioner Of C. Ex., Ghaziabad [2014 (35) S.T.R. 92 (Tri. – Del.)]

 

• V. Engineering Constructions vs. Commr. of C.C.E. & S.T., Guntur – [2016 (44) S.T.R. 319 (Tri. – Bang.)]
• Commissioner of Service Tax vs. Bhayana Builders (P) Limited [2018 (10) G.S.T.L. 118 (S.C.)]

 

• Union of India vs. Intercontinental Consultants And Technocrats Pvt. Limited – [2018 (10) G.S.T.L. 401 (S.C.)]
• Hindustan Steel Works Construction Limited vs. C.C.E., Raipur [2015 (37) S.T.R. 1022 (Tri. – Del.)]

 

• HarshConstruction  Commr. of C. Ex. & S.T., Surat – [2016

(42) S.T.R. 844 (Tri. – Ahmd.)]

 

• Ninawat Construction Co. vs. Commissioner Of C. Ex., Jaipur-I [2017 (52) S.T.R. 280 (Tri. – Del.)]

 

• As regards the charges of mis-declaration of classification of service, he submits that even though the service is classifiable under Erection, Commissioning and Installation service but same abatement is provided for this service also therefore, the mis-classification will not have any impact on the quantum of duty.He further submits that since the appellant have been paying service tax under bonafide belief that the abatement notifications are available to them, there was no suppression of facts on their part. Therefore, the demand for the extended period is barred by limitation. He placed reliance on the following judgments :-
  • Central Warehousing Corporation vs. Commr. of S.T., Ahmedabad [2016 (41) S.T.R. 106 (Tri. Ahmd.)]

 

• Collector of Central Excise vs. Chemphar Drugs & Liniments – [1989 (40) E.L.T. 276 (S.C.)]
• Commissioner Meghmani Dyes Intermediates Limited – [2013

(288) E.L.T. 514 (Guj.)]

• Cosmic Dye Chemical vs. Collector of Central Excise, Bombay – [1995 (75) E.L.T. 721 (S.C.)]

 

3. Shri Rajesh K Agarwal, learned Superintendent (AR) appearing on behalf of the Revenue reiterates the findings of the impugned order.

 

4. On careful consideration of the submissions made by both the sides and perusal of record, we find that the main charge against the appellant for denial of exemption notifications which provide abatement from the gross value is that appellant have not included the value of materials provided by the service recipient.This issue now is no longer res-integra as in the various judgments including the judgment of Bhayana Builders (P) Limited (supra), the Tribunal has held that for availing abatement under notifications 19/2003-ST  dated  08.2003,  15/2004-ST  dated  10.09.2004  and

Notification No. 1/2006-ST dated 01.03.2006, the value of the material provided by the service recipient to the service provider shall not be included in the gross value for the purpose of charging service tax. The said Larger Bench decision of Bhayana Builders (P) Limited has been upheld by the Hon’ble Supreme Court reported at 2008 (10) GSTL 118 (SC) and is reproduced below:-

“16. In fact, the definition of “gross amount charged” given in Explanation (c) to Section 67 only provides for the modes of the payment or book adjustments by which the consideration can be discharged by the service recipient to the service provider. It does not expand the meaning of the term “gross amount charged” to enable the Department to ignore the contract value or the amount actually charged by the service provider to the service recipient for the service rendered. The fact that it is an inclusive definition and may not be exhaustive also does not lead to the conclusion that the contract value can be ignored and the value of free supply goods can be added over and above the contract value to arrive at the value of taxable services. The value of taxable services cannot be dependent on the value of goods supplied free of cost by the service recipient. The service recipient can use any quality of goods and the value of such goods can vary significantly. Such a value, has no bearing on the value of services provided by the service recipient. Thus, on first principle itself, a value which is not part of the contract between the service provider and the service recipient has no relevance in the determination of the value of taxable services provided by the service provider.

17. Faced with the aforesaid situation, the argument of the Learned Counsel for the Revenue was that in case the assessees did not want to include the value of goods/materials supplied free of cost by the service recipient, they were not entitled to thebenefit of notification dated September 10, 2004 read with notification dated March 1, 2005. It was argued that since building construction contract is a composite contract

 

of providing services as well as supply of goods, the said notifications were issued for the convenience of the assessees. According to the Revenue, the purpose was to bifurcate the component of goods and services into 67% : 33% and to provide a ready formula for payment of service tax on 33% of the gross amount. It was submitted that this percentage of 33% attributing to service element was prescribed keeping in view that in the entire construction project, roughly 67% comprises the cost of material and 33% is the value of services. However, this figure of 67% was arrived at keeping in mind the totality of goods and materials that are used in a construction project. Therefore, it was incumbent upon the assessees to include the value of goods/material supplied free of cost by the service recipient as well otherwise it would create imbalance and disturb the analogy that is kept in mind while issuing the said notifications and in such a situation, the AO can deny the benefit of aforesaid notifications. This argument may look to be attractive in the first blush but on the reading of the notifications as a whole, to our mind, it is not a valid argument.

18. In the first instance, no material is produced before us to justify that aforesaid basis of the formula was adopted while issuing the notification. In the absence of any such material, it would be anybody’s guess as to what went in the mind of the Central Government in issuing these notifications and prescribing the service tax to be calculated on a value which is equivalent to 33% of the gross amount. Secondly, the language itself demolishes the argument of the Learned Counsel for the Revenue as it says ‘33% of the gross amount ‘charged’ from any person by such commercial concern for providing the said taxable service’. According to these notifications, service tax is to be calculated on a value which is 33% of the gross amount that is charged from the service recipient. Obviously, no amount is charged (and it could not be) by the service provider in respect of goods or materials which are supplied by the service recipient. It also makes it clear that valuation of gross amount has a causal connection with the amount that is charged by the service provider as that becomes the element of ‘taxable service’. Thirdly, even when the explanation was added vide notification dated March 1, 2005, it only explained that the gross amount charged shall include the value of goods and materials supplied or provided or used by the provider of construction service.Thus, though it took care of the value of goods and materials supplied by the service provider/assessee by including value of such goods and materials for the purpose of arriving at gross amount charged, it did not deal with any eventuality whereby value of goods and material supplied or provided by the service recipient were also to be included in arriving at gross amount ‘gross amount charged’.
19. Matter can be looked into from another angle as well. In the case of Commissioner, Central Excise and Customs, Kerala M/s. Larsen & Toubro Ltd. – (2016)1 SCC 170 = 2015 (39) S.T.R. 913 (S.C.). This Court was concerned with exemption notifications which were issued in respect of ‘taxable services’ covered by sub-clause (zzq) of clause (105) read with clause (25b) and sub-clause (zzzh) of clause (105) read with clause (30a) and (91a) of Section 65 of Chapter V of the Act. This Court in the aforesaid judgment in respect of five ‘taxable services’ *viz. Section 65(105)(g), (zzd), (zzh), (zzq) and (zzzh)] has held as under :

“23. A close look at the Finance Act, 1994 would show that the fixed taxable services referred to in the charging Section 65(105) would refer only to service contracts simpliciter and not to composite works contracts. This is clear from the very language of Section 65(105) which defines ‘taxable service’ as ‘any service provided”.

Further, while referring to exemption notifications, it observed :

“42 ….Since the levy itself of service tax has been found to be non-existent, no question of any exemption would arise.”

 

It is clear from the above that the service tax is to be levied in respect of ‘taxable services’ and for the purpose of arriving at 33% of the gross amount charged, unless value of some goods/materials is specifically included by the Legislature, that cannot be added.

20. It is to be borne in mind that thenotifications in questions are exemption notifications which have been issued under Section 93 of the Act. As per Section 93, the Central Government is empowered to grant exemption from the levy of service tax either wholly or partially, which is leviable on any ‘taxable service’ defined in any of sub- clauses of clause (105) of Section 65. Thus, exemption under Section 93 can only be granted in respect of those activities which the Parliament is competent to levy service tax and covered by sub-clause (zzq) of clause (105) and sub-clause (zzzh) of clause (105) of Section 65 of Chapter V of the Act under which such notifications were issued.
21. For the aforesaid reasons, we findourselves in agreement with the view taken by the Full Bench of CESTAT in the impugned judgment dated September 6, 2013 and dismiss these appeals of the Revenue.
22. Insofar as Civil Appeal No. 3247 of2015 is concerned, where the assessee is Gurmehar Construction, it may additionally be noted (as pointed out by the Learned Counsel for the respondent) that the assessee was a sole proprietorship concern of Mr. Narender Singh Atwal, who died on February 24, 2014. This is so stated in the counter affidavit filed by the respondent on May 16, 2017 and this position has not been disputed by the Department. This appeal, in any case, has abated as well in view of the judgment of this Court in Shabina Abraham & Ors. Collector of Central Excise & Customs – (2015) 10 SCC 770 = 2015 (322) E.L.T. 372 (S.C.).
23. Asa result, all appeals stand ”

 

 

5. In the above judgment it was categorically held that as per Section 67 ofFinance Act, 1994 only that value which is charged by the service provider to the service recipient shall be considered the gross value. Value of the material supplied by the service recipient since not charged by the service provider, cannot be included in the gross value of the service.  In view of the settled legal position by the Apex Court, charge of the department clearly fails and on that basis exemption cannot be denied.

 

 

6. As regards the charge of mis-declaration of classification, we find that whether the service classified under Construction Service as claimed by the appellant or under Erection, Commissioning or Installation service as held by the Revenue, the abatement of 67% is available in both the categories therefore,the misclassification of service does not have any revenue

 

implications. It is observed that the appellant have rented out Hydra Crane also however, there is no separate working of service tax on the said element.

 

7. As per our above observations, the Adjudicating Authority need to re- quantify the service tax if any arises after allowing the abatement in respect of services of Erection, Commissioning or Installation.Accordingly, the impugned order is set-aside and the appeal is allowed in the above terms, by way of remand to the Adjudicating Authority.

(Pronounced in the open court on 05.04.2023)

 

 

 

(Ramesh Nair) Member (Judicial)

 

 

 

 

(C L Mahar) Member (Technical)

KL