Commissioner Of Central Excise, Pune-I vs M/S. Biopharmax India Pvt. Ltd

[Arising out of Order-in- Original No. PI/COMMR/ST/II/2009 dtd. 30/6/2009 passed by the Commissioner, Central Excise, Pune-I]

For approval and signature:

Honble Mr. P.S. Pruthi, Member(Technical) Honble Mr Ramesh Nair, Member(Judicial)

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1. Whether Press Reporters may be allowed to see : No the Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982?

2. Whether it should be released under Rule 27 of the : CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not?

3. Whether Their Lordships wish to see the fair copy : seen of the Order?

4. Whether Order is to be circulated to the Departmental: Yes authorities? =======================================================

Commissioner of Central Excise, Pune-I : Appellants

VS

M/s. Biopharmax India Pvt. Ltd. : Respondent

Appearance

Shri. K.S. Mishra, Addl. Commissioner(A.R.) for the Appellants Shri. Anupam Dighe, Advocate for the Respondent

CORAM:

Honble Mr. P.S. Pruthi, Member (Technical) Honble Mr. Ramesh Nair, Member (Judicial)

Date of hearing: 19/5/2015 Date of decision: 19/5/2015

ORDER NO.

Per : P.S. Pruthi

Revenue has filed this appeal against Order-in-Original dated 30/6/2009 in which the Commissioner confirmed duty amount of Rs. 57,19,730/-, appropriated the same amount as deposited by the appellant, dropped demand of Rs. 67,01,871/- and refrained from imposing penalties under Sections 76, 77 and 78 of the Finance Act, 1994.

2. The appellant entered into a turnkey contract with their client namely M/s. Shreya Biotech Pvt. Ltd. for Erection, commissioning and installation of Insulin Manufacturing Plant in the year 2006. The Contract provided for total payment of Rs. 45,68,12,000/- being contract price to perform all work and services required in connection with the procurement, construction, installation, testing of the work and provide all materials and equipment, machinery, tool, labour transportation etc. Investigation revealed that service tax was liable to be paid on total value of contract price. The Commissioner in adjudication proceedings, relying on the amendment to the contract in 2008 and also the fact that appellant had received the price for the service components of the contract only and the material and equipment were supplied directly by the suppliers to the client, confirmed duty demand of Rs. 57,19,730/-. He dropped demand of Rs. 67,01,871/- which was based on the supply and components portion of the contract.

2. Heard both sides.

3. Initially the client of the appellant had entered into a turnkey contract involving complete supply of material and services. They were under the impression that service tax was not payable on such turnkey projects. Later, the client realized that as their project is a 100% EOU, they could avail the benefits of Custom and Excise duty exemptions on supplies for the 100% EOU and therefore decided to procure the equipments and material themselves. Consequently they amended the contract. We have seen the original contract as well as addendum to the original contract dated 17/10/1996. The addendum clearly shows that payment of direct purchases shall be made by the purchaser (which means client) to suppliers but and subject to contractors(i.e. appellant) authorization in advance.

4. Revenues argument is that suppliers of equipment/materials are approved by the appellant. We note that it is common practice while setting up large plants that the selection of supplier is recommended by the consultant who provides both technology as well as Design Engineering. Only because supplier of components is authorized in advance by the consultant does not mean that purchases were made by the consultant. Further we find nothing wrong in modifying and amending an agreement to suit both parties. What needs to be examined is actual service provided by the appellant. In this case, as a result of the amendment, the actual services provided by the appellant related to services of testing and other related service through which gave their expertise to their client.

4.1 Revenue has filed this appeal on the ground that the Commissioner accepted that M/s. Biopharmaxs claim that only they received Rs. 4,67,29,817/- from M/s. Shreya Biotech Pvt. Ltd for the provision of the service under the category of Erection, Commission and Installation service without causing any verification of official records of the company. We are of the view that such verification is not necessary in the present case. The issue is the amount actually received from their client i.e. M/s. Shreya Biotech Pvt. Ltd for the service provided by the appellant. At the material time service tax was levied on receipt basis. And appellant have paid service tax on the amount received by them from their client M/s. Shreya Biotech Pvt. Ltd which is confirmed by M/s. Shreya Biotech Pvt. Ltd to the Commissioner. Therefore service tax has been correctly paid by the appellant.

4.2 On the issue of penalties which were waived by the Commissioner under Section 80 of Finance Act, Revenue is in appeal on the ground that no sustainable reasoning has been provided. On going through the Commissioners order, we find that he has came to his conclusion on the basis that full liability of Rs. 57,19,730/-. was discharged voluntarily and paid alongwith appropriate interest. We also note that appellant were under a genuine misconception that turnkey projects, i.e. Works Contract projects were not leviable to the service tax as Works Contract came into the fold of service tax on 1/6/2007. Keeping the entire circumstances of the case in view, we find that Commissioner has quite appropriately exercised his discretion under Section 80 on the basis of reasonable cause for waving penalties under Section 76, 77 and 78.

4.3 In view of the above, Revenues appeal is dismissed.

(Dictated in court)

Ramesh Nair Member (Judicial) P.S. Pruthi Member (Technical)

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