The Ahmedabad Bench of the Customs, Excise, and Service Tax Appellate Tribunal ( CESTAT ) notably ruled that no service tax can be levied under the categories of installation and commissioning charges for machinery imported under the Export Promotion Capital Goods (EPCG) Scheme.
The decision was rendered by CESTAT while hearing two Service Tax Appeals filed against the Commissioner of Central Excise and State Taxes – Daman with the first one being filed by Powerband Industries Pvt. Ltd. (Powerband) and the second filed by Uday Desai.
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The timeline of events follow the issuance of a demand notice to Powerband Industries Pvt Ltd, calling for the payment of service tax on 40% of the gross amount charged by the foreign supplier for the supply of machinery which also included the charges for installation and commissioning.
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Order-In-Appeal passed by the Commissioner (Appeals), Commissioner of Central Excise, Customs and Service Tax-SURAT-I rejected Powerband’s that the installation charges were already included in the assessable value for customs duty since the machinery was imported duty-free under the EPCG scheme. Consequently, service tax was demanded, along with penalties.
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Superintendent Himanshu P Shrimali, appearing for the Central Excise contended that under Section 66A of the Finance Act, 1994, read with Notification No. 24/2012-ST, the company was liable to pay service tax on these charges under the reverse charge mechanism.
Meanwhile A. B. Nawal, appearing for Powerband argued that the installation charges were indeed part of the customs-assessed value of the imported machinery and that any subsequent imposition of service tax would result in double taxation.
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Placing reliance on the decision by the Chennai Bench of CESTAT in Orient Processors Vs. Commissioner of Customs EX. & ST , Tirunelveli (2019) where it was held that erection, commissioning, or installation charges on imported machinery cannot be taxed separately under service tax laws when already accounted for under customs valuation.
The two-member Bench of Judicial Member Somesh Arora and Technical Member C.L. Mahar observed that under the EPCG scheme, the exemption from customs duty is conditional, and in case of any default, duty shall be payable on the declared import value, which includes installation and commissioning charges.
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Averring that the export obligation under EPCG Scheme is linked to total value declared during import, CESTAT held that the Authorities had priorly accepted the value declared by the Appellant as assessable value, inclusive of erection and commissioning.
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In light of all the observations made, the Bench set aside the demand of service tax along with the impugned order passed by the Commissioner (Appeals).
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