By TIOL News Service

MUMBAI, JULY 16, 2015: THE Service tax demand is of Rs. 212.67 Crores with penalties and interest.

The appellant pleads that the activity undertaken in execution of various projects is a works contract;that prior to 01.06.2007, there was no provision in the FA, 1994 to levy service tax on works contract;that power to tax is different from exercising the power to tax by creating a charge and unless there is a charging provision to levy tax and a machinery provision to collect the tax, a tax cannot be levied.

The two Members of the Tribunal did not agree and, therefore, the following difference of opinion came to be referred to the President -

i) Whether a works contract can be vivisected even prior to 01/06/2007 and the service portion discernible in the contract can be subjected to levy of service tax and in the present case, since the discernible service is "erection, installation and commissioning", the said activity is leviable to service tax under section 65(105)(zzd) read with section 65(39a)/65(28) as they stood at the relevant time prior to 01/06/2007 and under section 65(105)(zzzza) on or after 01/06/2007 as held by Member (Technical), and the matter should be remanded back to the adjudicating authority for re-determination of the value of the taxable service by extending the benefit of notification no. 12/2003-ST, 19/2003-ST & 01/2006-ST; and

ii) The limitation of time bar does not apply except in the case of Contract pertaining to Chennai Petroleum Corporation Ltd. as held by the Member (Technical).  

OR

i) Whether a works contract cannot be vivisected prior to 01/06/2007 and subjected to levy of service tax under "erection, installation and commissioning service" as held by Member (Judicial); and

(ii) The demand is time barred as held by the Member (Judicial).

We reported this order as 2013-TIOL-1138-CESTAT-MUM .

The third member on reference has passed an order recently -

On the first question the Member (Technical) observed -

I find that the said issue was referred to a five-Member Bench of this Tribunal and the five-Member Bench of this Tribunal, vide majority decision as reported in 2015-TIOL-527-CESTAT-DEL-LB, has decided the issue. During the personal hearing, the learned counsel for the appellant agreed that the matter is already decided by the Larger Bench of this Tribunal and, therefore, does not require further elaboration by the undersigned. Accordingly, as far as the first issue is concerned, I agree with Member (Technical) that works contract can be vivisected even prior to 1.6.2007 and the service portion discernible in the contract can be subjected to levy of service tax.

On the question of limitation, in a very detailed order running into almost 50 pages, the Member (Technical) examined various submissions made by appellant sprinkled with case laws and concluded against the appellant except in respect of the contract pertaining to CPCL.

Here are some observations from his order -

++ Invocation of extended period of limitation is a mixed question of facts and law. A single fact may change the conclusion in either way. It is, therefore, very important to carefully examine the facts and thereafter apply the relevant provisions of law. One important thing in this case is that service tax on installation and commissioning service was for the first time introduced with effect from 1.7.2003. Service tax on consulting engineering service was introduced in 1998.

++ From the five contracts, it is clear that each of LSTK (lump sum turnkey) contract had three parts and consideration for each of these parts is available. Appellant was fully aware and clear that first part is chargeable to service tax under consulting engineering service w.e.f. 1998 and third part is chargeable to service tax w.e.f. 1.7.2003.

++ In fact, from the layman's angle in projects, like the ones covered by the five contracts in dispute, the whole exercise is nothing but it is the erection, commissioning and installation of a new plant. Thus erection, commissioning and installation is the major or dominant service. In fact, said service passes the test of Dominant Nature in all the five contracts. The consulting engineering service is only a minor portion of such contract. Keeping in view the above factual matrix, in my considered view, there was no bona fide belief on the part of the appellant about the non-taxability of the erection, commissioning and installation part of the LSTK.

++ The appellant was having registration under the category of ‘Consulting Engineering Service'. In the said registration certificate, it had incorporated ‘Installation and Commissioning Service' w.e.f. March, 2004. Even after obtaining registration from March, 2004 for Installation & Commissioning Service, the appellant did not declare the questioned transactions in its ST-3 returns.

++ If it had really carried any bona fide doubt about the taxability of ‘Installation and Commissioning Service', it could have shown it as exempted service in ST-3 returns filed by it from time to time and by not doing so, it has certainly suppressed the material fact from the Department.

++ It is also seen that in 2005, the format of ST-3 returns were amended and the appellant was specifically required to indicate the details of the exempted service. Even if the appellant was having any belief that their activity is not taxable, the least that was expected was to indicate the details in the said column. In the self-assessment regime, it is the responsibility of the assessee to correctly assess the duty and fill up the returns meticulously giving all the information. Leaving blanks the columns relating to exempted service does not indicate bona fide belief on the part of the appellant.

++ If the assessee-appellant has failed to furnish the correct particulars in the ST-3 returns, it will certainly amount to wilful mis-statement and suppression of material fact attracting the extended period of limitation.

++ Any information provided to the relevant jurisdictional authority alone is relevant for deciding an issue by the jurisdictional authority. Providing some information in other jurisdiction is of no consequence whatsoever for the relevant jurisdictional authority. Just because some details were provided at some point of time with reference to some other purpose is of no consequence. An appellant cannot take stand that since details were provided in first lis, court is aware of details. Similarly, if tax authorities are provided with a document with reference to an issue, it cannot be said that information in that document is known to that authority for all the time to come and for all purposes.

++ I find that copies of the relevant contracts were submitted only in 2005 and 2007 vide its letters dtd. 10/02/2005, 07/08/2007 and 08/08/2007 respectively. Therefore, the extended period of limitation has been rightly invoked in the impugned order.

++ After the introduction of self-assessment procedure, it is the responsibility of the assessee to correctly assess his liability. Jurisdictional officer receives only return which contains overall details without supporting documents. The position in the case of service tax is still different as the office may be located in a particular place and services may be provided at various sites all throughout the countries. Thus in case of service tax, assessee has to ensure correct payment of tax. Whole system is based upon the faith reposed in the assessee.

++ As mentioned earlier, the appellants were including the service tax component specifically in respect of consulting engineering service for designing etc. in respect of various contracts. Thus, there was no question of their believing that service tax on the erection, commissioning and installation service will not be applicable in case of lump sum turnkey projects. The dominant nature of such contract is nothing but commissioning and installation. Non-leviability of service tax appears to be more in the nature of arguments advanced by the legal brains.

++ It has also been emphasized that there was uncertainty over the liability of works contract to service tax prior to 01.06.2007. Therefore, the appellant had a bona fide belief that it was not liable to service tax. This plea of the appellant does not hold much water particularly after the 46 th amendment of the Constitution of India in 1982 by inserting Clause (29A) to Article 366 of the Constitution. After this constitutional amendment in various judgments, the Hon'ble Apex Court has held that indivisible Works Contracts can be split up and part of it can be subjected to tax.

++ In the present case, in 2003, when the new service ‘installation and commissioning' was introduced, the appellant themselves were vivisecting the lump sum turnkey contracts and were to collect service tax under the category of consulting engineering service. There was no reason whatsoever not to charge, collect and pay the service tax in similar manner in respect of installation and commissioning service when separate consideration for that service was already available in each of these contracts, and installation and commissioning was the dominant service in these contracts.In my considered view, this is a clear cut case of wilful statement as also suppression of facts.

++ Thus I concur with Member (Technical) on both the points referred to me.

And so the Majority orderis -

++ So far as the first question referred is concerned whether the works contract can be vivisected even prior to 1.6.2007 and the service portion discernible in the contract can be subjected to levy of Service Tax, the same as indicated by the learned third Member is covered by majority decision (five Members Bench) of this tribunal in the case of L&T Ltd. vs. Commissioner of Service Tax, Delhi (supra), the issue stands covered in favour of the Revenue and against the assessee i.e. the indivisible works contract can be split up for the purpose of levy of Service Tax prior to 1.6.2007.

++ As regards the second issue whether limitation of time bar does not apply except in the case of the contracts relating to CPCL as held by Member (Technical) or whether the demand is time barred as held by Member (Judicial), it is held by majority that the demand is not time barred under the facts and circumstances except in relation to works contract with CPCL.

In passing : Some premonition indeed while making the reference.Now, for the computing part…

(See 2015-TIOL-1453-CESTAT-MUM)