Case Law Details
3 M India Limited Vs Commissioner of Central Excise (LTU) (CESTAT Bangalore)
In 3 M India Limited Vs Commissioner of Central Excise (LTU), the CESTAT Bangalore examined whether differential service tax could be demanded by reclassifying services already taxed under “Erection, Commissioning or Installation Service” as “Works Contract Service.”
The appellant was registered with the Service Tax Department for providing services including erection, commissioning and installation services, and maintenance and repair services. During scrutiny of ST-3 returns for the period ending September 2010, the Department observed that the appellant had executed a project for Delhi PWD relating to the Commonwealth Games, 2010 involving supply and installation of retro reflective road signages in New Delhi. According to the Department, the services should have been taxed under Works Contract Service (WCS) at 4% instead of 2%, resulting in a differential service tax demand of ₹25,53,687 along with interest and penalty. A show cause notice dated 19.09.2011 was issued, and the demand was subsequently confirmed by the adjudicating authority and upheld by the Commissioner (Appeals).
Before the Tribunal, the appellant submitted that the work was executed under a Consortium Agreement dated 29.08.2009 involving M/s. Bajaj Electricals Limited and M/s. CBM Industries Limited. Under the agreement, the appellant acted as consortium leader and supplied 3M films and VHB tapes, while other consortium members handled fabrication, erection, installation, and procurement of materials for sign boards.
The appellant argued that it had correctly discharged service tax under the category of “Erection, Commissioning or Installation Service.” The invoices raised in the name of the consortium leader clearly bifurcated the value of goods and services. VAT at 4% had been paid on the material component constituting 80% of invoice value, while service tax at 10.30% had been paid on the remaining 20% representing service value. The appellant claimed exemption on the material portion under Notification No.12/2003-ST dated 20.06.2003 because VAT had already been discharged on those goods.
According to the appellant, the Department incorrectly assumed that tax had been paid under the Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007 at 2% of the gross value and therefore wrongly demanded differential tax at 4%. It was argued that sale and service components were separately identifiable and mutually exclusive, and therefore the reclassification as Works Contract Service was legally unsustainable. The appellant also contended that it had properly disclosed all transactions in ST-3 returns and there was no mala fide intent justifying penalty.
The Revenue supported the findings of the Commissioner (Appeals).
After hearing both sides, the Tribunal identified the core issue as whether differential service tax at 2% could be demanded by treating the services as Works Contract Service. The Tribunal noted that the appellant had consistently classified the activity under “Erection, Commissioning or Installation Service” and had availed the benefit of Notification No.12/2003-ST for exclusion of material value on which VAT was paid.
The Tribunal examined the invoices and found that the appellant had clearly segregated material and service values. VAT was paid on the value of materials and service tax at 10.30% was discharged on the service component. It also observed that the Department had never disputed the admissibility of exemption under Notification No.12/2003-ST nor alleged violation of its conditions.
In these circumstances, the Tribunal held that the authorities had wrongly appreciated the facts by reclassifying the activity as Works Contract Service and demanding differential service tax at 4% under Notification No.07/2008-ST dated 01.03.2008. Since the appellant had correctly discharged service tax on the service portion after availing lawful exemption for the material component, the differential service tax demand was held to be unsustainable.
Accordingly, the Tribunal set aside the impugned order and allowed the appeal with consequential relief as per law.
FULL TEXT OF THE CESTAT BANGALORE ORDER
This is an appeal filed against Order-in-Appeal No.161/2013 dated 03.07.2013 dated 03.07.2013 passed by the Commissioner(Appeals), LTU, Bangalore.
2. Briefly stated the facts of the case are that the appellant are engaged in the erection, commissioning and installation service, Maintenance and Repair Service, for which they are registered with the Department. On scrutiny of their ST-3 returns for the period ending September 2010, it was noticed that the appellant had executed a project for the Delhi PWD in connection with Commonwealth Games, 2010 but failed to discharge appropriate service tax @ 4% on Works Contract Service (WCS) instead of they paid @ 2% during the said period. Consequently, differential tax of Rs.25,53,687/- along with interest and penalty was demanded by issuing a show-cause notice dated 19.09.2011. On adjudication, the demand was confirmed with interest and penalty. Aggrieved by the said order, they filed appeal before the learned Commissioner(Appeals) who in turn rejected their appeal. Hence, the present appeal.
3. At the outset, the learned advocate for the appellant has submitted that during the period July 2010 to September 2010 rendered services under a Consortium Agreement dated 29.08.2009 with M/s. Bajaj Electricals Limited, Mumbi and M/s. CBM Industries Limited, New Delhi for supply and installation of Retro Reflective Road Signages on various roads in New Delhi for the Commonwealth Games, 2010. The scope of work to be executed by the members of consortium has been narrated in the said agreement. The appellant as a Consortium Leader discharged appropriate service tax of Rs.25,53,687/- on installation of the road signages on various roads classifying the services rendered under the category of ‘Erection, Commissioning or Installation’ service. The invoices have been raised in the name of Consortium Leader i.e. the appellant. He has submitted that perusal of the invoices would reveal that service tax at the applicable rate was paid on 20% of invoice value involving service and VAT was paid on 80% of the value of goods shown in the invoices. Consequently, the appellant had claimed exemption on the value of materials used in the services on which VAT has been paid in accordance with Notification No.12/2003-ST dated 20.06.2003. However, the Department misreading the said invoices alleged that the appellant had paid wrongly 2% of the gross amount charged as tax under Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007 when the applicable rate of service tax was 4%, thus differential service tax demand of 2% under the Works Contract Composition Scheme. Even though, the appellant had placed on record the Consortium Agreement dated 29.08.2009, the same was ignored and the differential service tax was confirmed with interest and penalty. He has referred to the Invoices No.5565 dated 29.09.2010, No.3598 dated 30.07.2010, No.3597 dated 30.07.2010 and No.5566 dated 29.09.2010 enclosed with appeal paper book which would clearly show that the appellants have excluded the value of the goods supplied in the course of providing taxable services on which VAT has been paid and service tax was paid on the service portion i.e. 20% of the value @ 10.30% as applicable at the relevant time. Therefore, demanding differential tax on Works Contract Service on a wrong premise is bad in law. Further, he has submitted that the sale and service are mutually exclusive since the appellant has paid VAT on the sale portion of the material supplied along with service and availing exemption on value of material under Notification No.12/2003-ST, therefore demanding service tax considering the services rendered by them in the nature of Works Contract Service is bad in law and not sustainable. Further, he has submitted that since they have paid the service tax correctly and filed ST-3 returns indicating the payment of service tax; therefore, imposition of penalty in absence of any mala fide on the part of the appellant is unsustainable in law.
4. Learned AR for the Reve has reiterated the findings of the learned Commissioner(Appeals).
5. Heard both sides and perused the records.
6. The short issue involved in the present appeal for consideration is whether the appellant are required to pay differential service tax of 2% of the gross taxable value considering the services rendered as Works Contract Service.
7. Undisputed facts of the case are that the appellant are registered, inter alia, with the Department for rendering services under the category of ‘Erection, Commissioning or Installation Service’. They had entered into a Consortium Agreement dated 29.08.2009 comprising of the appellant, M/s. Bajaj Electricals Limited and M/s. CBM Industries Limited. The scope of works are as follows:-
(i) 3 M India Ltd supply of 3M Film and VHB Tapes to the parties for all the signage’s awarded under the Tenders No NIT No.67/EE/PWD M-112/09-10;
(ii) Bajaj Electricals Ltd Purchase of Input Material for manufacture of Sign Boards and structure and fabrication, erection and installation of sign boards at the sites, including completion of Civil Work for road signage awarded under the PED Tenders No 67/EE/PWD M-112/09-10;
(iii) CBM Industries Ltd Purchase of Input material for manufacture of sign boards for the road signage awarded under the PWD Tenders 67/EE/PWD M112/09-10.
8. Being consortium leader, the appellant have paid the service tax for rendering installation of road signages under the category of ‘Erection, Commissioning or Installation Service’. We have perused the invoices enclosed with the paper book wherein the appellant clearly indicated the value of services and the value of material and discharged VAT @ 4% of value of materials and service tax @ 10.30% on the value of services rendered. In these circumstances, considering the services rendered as ‘Works Contract Service’ and referring to Notification No.07/2008-ST dated 01.03.2008 demanding differential service tax under Works Contract Service i.e. @ 4%, in our view, is wrong appreciation of the facts by both the authorities below. Instead of, the appellant has been all along paying service tax on ‘erection, commissioning and installation service’ availing the benefit of Notification No.12/2003-ST dated 20.06.2003. The Department has nowhere disputed the fact of admissibility of benefit of the said Notification No.12/2003-ST alleging non-fulfillment of the conditions of the notification. In these circumstances, since the appellant has rightly discharged service tax on the value of service portion @ 10.30% as applicable after availing benefit of exemption Notification No.12/2003-ST dated 20.06.2003 on the value of materials supplied, differential service tax demand cannot be sustained. In the result, the impugned order is set aside and the appeal is allowed with consequential relief, if any, as per law.
(Order pronounced in Open Court on 24.04.2026)
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