The New Delhi Bench of the Customs, Excise & Service Tax Appellate Tribunal ( CESTAT ) held that Composite Contracts are not taxable under ‘Erection Commissioning and Installation Service’.
Topaz Service Corporation, the appellant is engaged in the activity of supply, fixing, laying of wire cables, pipe and telephone connections for various Government departments including inter-alia Central Public Works Department (CPWD) and Public Works Department (PWD).
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The proceedings were initiated against the appellant vide summons dated 15.12.2010 seeking copy of service tax registration, contracts/agreement awarded by CPWD for providing services in or in relation to Common Wealth Games 2010, challans, ST-3 returns, Balance Sheets for the period 2005-06 to 2009-10.
On investigation, it appeared that the appellant was not paying service tax on the activity of laying of cables/wires. It appeared that the appellant believed that their activity would be chargeable to VAT not Service Tax, and was paying VAT. The Department formed an opinion that the appellant is liable to pay Service Tax in terms of Circular No. 123/5/2010-TRU. On completion of investigations, SCN dated 13.04.2012 invoking extended period of limitation was issued to the appellant demanding Service Tax amounting to Rs.1,17,48,282/- under Section 73(1); interest under Section 75 and imposition of penalty under Section 76, 77 & 78 of the Finance Act, 1994.
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The Commissioner vide Order-in-Original confirmed demand under Section 73(1) along with interest under Section 75; imposing penalty of Rs. 5,000/- under Section 77 and equivalent penalty of Rs. 1,17,48,282/- under Section 78 of the Finance Act, 1994.
The Chartered Accountant for the appellant submitted that the appellant is carrying on the activity of supply, fixing, laying of telephone cables for connections, cables, pipes etc. for
various Government departments like Central Public Works Department and Public Works Department. The other works include inter alia fixing of master console phone system with digital EPBAX, maintenance of telephone intercom networking system at Rashtrapati Bhawan etc.
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The department formed an opinion that the activity carried on by the Appellant would be covered under ‘Erection, Commissioning or Installation Services.” It was submitted that as per the definition of Erection, Commissioning or Installation, it is evident that to attract the taxability under said category, there must be installation of electrical and electronic devices, including wiring or fitting.
It was argued that the activities of the Appellant cannot be classified into a separate category of service, where the prime or dominant nature of contract is laying of cables or pipelines, which is exempt vide Circular 123/05/2010-TRU.
The court observed that there is considerable merit in the contention of the Appellant that composite contracts involving supply of both goods and services could not have been taxed under the category, “Erection, Commissioning and Installation Services” in view of the law laid down by Supreme Court in the L&T case.
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The Two member bench of Binu Tamta, (Judicial ) and Hembika R Priya ( Technical) held that the taxable category “Erection, Commissioning and Installation Services” could only cover pure service contracts within its fold and remanded the case for recalculation of the demand by giving the benefit of abatement to the appellant.
The CESTAT partially allowed the appeal, and also by way of remand for calculating the demand under Works Contract Service by extending the benefit of abatement under the relevant notification. Further upheld the invocation of extended period and hold the appellant liable for penalty under Section 78, which will be based on the reworked quantum of duty.
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