Richardson & Cruddas (1972) Ltd vs Nagpur

[Arising out of Order-in-Appeal No: SN/120/NGP/2009 dated 23/04/2009 passed by the Commissioner of Central Excise & Customs (Appeals), Nagpur.]

For approval and signature:

Honble Shri M V Ravindran, Member (Judicial) Honble Shri C J Mathew, Member (Technical)

1. Whether Press Reporters may be allowed to see the Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982? : No 2. Whether it should be released under Rule 27 of CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not? : No 3. Whether Their Lordships wish to see the fair copy of the Order? : Seen 4. Whether Order is to be circulated to the Departmental authorities? : Yes

Richardson & Cruddas (1972) Ltd.

Appellant Vs

Commissioner of Central Excise

Nagpur

Respondent

Appearance:

Shri Vinay Jain, Chartered Accountant for the appellant

Ms. P.V. Sekhar, Dy. Commissioner (AR) for the respondent

CORAM:

Honble Shri M V Ravindran, Member (Judicial) Honble Shri C J Mathew, Member (Technical)

Date of hearing: 19/08/2015 Date of decision: 19/08/2015

ORDER NO: ____________________________

Per: C J Mathew:

M/s Richardson & Cruddas (1972) Ltd, manufacturers of galvanized steel structure, are in appeal before us contesting order-in-appeal no. SN/120/NGP/2009 dated 23rd April 2009 passed by the Commissioner of Central Excise & Customs (Appeals), Nagpur.

2. The appellant is registered as providers of erection, installation and commissioning service, technical testing and analysis service, business auxiliary service, consulting engineering service and for discharge of liability as recipient of goods transport agency service. The appellant undertook construction of power transmission lines from Nagothane to Wadkahal sub-station for the Maharashtra State Electricity Transmission Company Ltd (MSETCL) at an estimated cost of ` 554 crores to be completed within fifteen months from the date of contract i.e., 8th May 2006. The turnkey project was to be executed in accordance with the composite contract comprising supply of components as well as labour. Though appellant discharged service tax liability of ` 22,50,683/- on 5th July 2007, M/s MSETCL refused to reimburse the tax on the ground that the contract, being a composite one, is beyond the ambit of levy of service tax.

3. Thereafter, appellant filed a claim for refund on 8th April 2008 which was rejected by the Deputy Commissioner of Service Tax, Nagpur on the ground that the tax had been legally collected for providing erection, installation and commissioning service. By impugned order, the first appellate authority concurred with the original authority.

4. The appellant is before us contesting the impugned order on the ground that it is not a speaking order as the various submissions made by them had not been considered and disposed off by the first appellate authority. The appellant also claims that it was improper on the part of the first appellate authority to vivisect an indivisible composite contract and subject the presumed value of service therein to tax. It is also contended that the break-up of the contract price in the invoice raised on M/s MSETCL cannot be the basis for assigning a value to the service component of the contract since the contract mandates turnkey execution for a lumpsum consideration with the price break up being intended as indicative for billing schedule and for control of cash flow. The appellant also contends that the works contract service become liable to tax only w.e.f. 1st July 2007 by which the service portion was liable to tax and hence levying of tax on the supposed specific break up in the invoice is also incorrect.

5. From the records it is apparent that the appellant contracted with M/s MSETCL after following due process of tendering which, admittedly, is work to be executed on turnkey basis. Accordingly, while it may comprise performance of a number of services the actual composition of the service is no means susceptible to segregation. Admittedly, turnkey contracts also include supply of goods necessary for execution of the projects. It is a normal practice in such a contract to provide a detailed breakup, with invoices raised to mirror the contents of the payments in the contract, for regular payments to be made to the contractor. Such a break up is a necessary input for management of the finance related to the work itself, especially when a work is executed over a longer period of time. It does not allow for vivisecting a contract. We, therefore, find that the original and the appellate authority have erred in attempting to classify a portion of the work as erection, installation and commissioning service. learned Counsel has drawn our attention to the decision of the Tribunal in Kedar Constructions vs. Commissioner of Central Excise, Nagpur [2015 (37) STR 631 (Tri.-Mumbai)] wherein in para it was held:

5.?We notice that out of the total demand confirmed of ` 2,04,14,368/-, bulk of the demand of ` 1,90,47,124/- pertains to Commercial or Industrial Construction service rendered to Maharashtra State Electricity Transmission Co. Ltd., Maharashtra State Electricity Distribution Co. Ltd., Sunil Hi-Tech, Suraj Constructions, V.B. Bhike, etc. for transmission of electricity. Vide Notification 45/2010-S.T., all taxable services rendered in relation to transmission and distribution of electricity have been exempted from the purview of Service Tax. The expression relating to is very wide in its amplitude and scope as held by the Honble Apex Court in Doypack Systems P. Ltd. - 1988 (36) E.L.T. 201 (S.C.). Therefore, all taxable services rendered in relation to transmission/distribution of electricity would be eligible for the benefit of exemption under the said Notification for the period prior to 27/02/2010.

6. Further the decision of this Tribunal in Noida Power Co. Ltd. vs. Commissioner of Central Excise 2014 (33) STR 383 (Tri.-Del.) was also cited besides Notification 45/2010-ST dated 20th July 2010, which states:

Electricity  Exemption to all taxable services relating to transmission of electricity till 26-2-2010 and distribution of electricity till 21-6-2010 Whereas, the Central Government is satisfied that a practice was generally prevalent regarding levy of service tax (including non-levy thereof), under section 66 of the Finance Act, 1994 (32 of 1994) (hereinafter referred to as the Finance Act), on all taxable services relating to transmission and distribution of electricity provided by a person (hereinafter called the service provider) to any other person (hereinafter called the service receiver), and that all such services were liable to service tax under the said Finance Act, which were not being levied according to the said practice during the period up to 26th day of February, 2010 for all taxable services relating to transmission of electricity, and the period up to 21st day of June, 2010 for all taxable services relating to distribution of electricity;

Now, therefore, in exercise of the powers conferred by section 11C of the Central Excise Act, 1944 (1 of 1944), read with section 83 of the said Finance Act, the Central Government hereby directs that the service tax payable on said taxable services relating to transmission and distribution of electricity provided by the service provider to the service receiver, which was not being levied in accordance with the said practice, shall not be required to be paid in respect of the said taxable services relating to transmission and distribution of electricity during the aforesaid period.

7. The appellant has also cited the decision of the Tribunal in Commissioner of Central Excise & Customs, Vadodara vs. Larsen & Toubro 2006 (4) STR 63 (T) which held in para 31 as:

31.?We have considered the submissions made by both the parties. We find that facts of the present case are squarely covered by the Tribunal decision in the case of Daelim Industrial Co. cited supra and the departments SLP in the case of Daelim Industrial Co. has been dismissed by the Apex Court. Further the decision of the Daelim Industrial has been followed by this Tribunal in the case of M/s L&T Ltd. Its ratio has also been referred to by the Gujarat High Court in the case of Elecon Engineering Co. Ltd. v. Union of India - 2005 (182) E.L.T. 148 (Gujarat H.C.). Further in Ircon International Ltd. v. CCE, Mumbai - 2002 (2) STT 264, Tribunal has held that construction contract could not be subjected to service tax as consulting engineering service, either as a whole or in part and further observed that position remains covered by the decision in the case of Daelim Industrial Co. cited supra. Revenue has not been able to distinguish the present contract from that involved in Daelim case because the contract in the present cases are essentially for construction and not for the services and the services referred to are an integral part of contract.

The contract is a work contract on a turnkey basis and not a consultancy contract. It is well settled by series of case laws that a work contract cannot be vivisected and part of it subjected to tax. The decision in the Associated Hotels case does not lend any support to the revenue as a solitary instance cited by the learned S.D.R. in the case of S. Krishna of Andhra Pradesh High Court has been undone by the Supreme Court in the Guntur Tobacco case cited by the appellants. The 46th amendment to the Constitution has also not made any difference to the decision of Associated Hotels as it was mainly with respect to sales tax which introduced deeming provision which is not the case before us. The Kerala High Court decision in Kerala Colour Lab Association cited supra also does not help revenue as in that case the principal contract was that of service and not of sale of photographic material and therefore it was correctly held that once the taxing event is rendering of service & the entire activity of the assessee answer the description of taxable photography service, it is the service which will be chargeable to service tax & the agreement cannot be considered as that of sale of photographic material.

In the present case, the principal object of the contract is that of construction and not of rendering any service and accordingly service tax cannot be levied on service portion of the contract.

8. In view of the above, we find that the terms of the contract being very clear as an indivisible one, vivisection for the purpose of levying service tax on erection, installation and commissioning service is incorrect. Further, since the project is in relation to transmission and distribution of electricity up to 26th February 2010, the demand for service tax is not correct in law.

9. Accordingly, the appeal is allowed with consequential relief.

(Pronounced in Court) (M V Ravindran) Member (Judicial) (C J Mathew) Member (Technical)

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