Rudra Engineering Vs C.C.E. & S.T. (CESTAT Ahmedabad)
Service tax cannot be demanded on correct availment of abatement and for discharging the tax liability for ‘Installation of thermal insulation’ under ‘Works Contract Service’
The CESTAT, Ahmedabad in Rudra Engineering v. C.C.E. & S.T.-Vadodara-I [Service Tax Appeal No.10535 of 2013 dated January 16, 2023] has set aside the order demanding Service Tax for alleged wrongly availing abatement and wrong classification of service under Works Contract Service. Held that, the installation of ‘thermal insulation’ is a covered under the definition of “Works Contract Service” and therefore, the Service Tax is not demandable.
Facts:
Rudra Engineering (“the Appellant”) is a Commissioning and Installation agency and undertook “erection, installation and commissioning work”, wherein, the Appellant has provided ‘thermal insualting’ material (“the Goods”) such as:
(i) Hot insulation including supply of LRB and Aluminium Sheet
(ii) Cold insulation with Thermocol and Aluminium Sheet
(iii) Insulation of Pipeline with black superion sleeve providing and fixing of black superion with cellotape
(iv) insulation with black nitrile rubber foam, sheet, etc.
The Goods sold by the Appellant during the course of executing work were purchased by the customers/ clients and then supplied to the Appellant for application.
The Appellant was alleged for wrongly availing abatement at 67% for calculating the taxable value for payment of service tax as per Notification No. 1/2006- Service Tax dated March 1, 2006 (“the Impugned Notification”). An inquiry was initiated and documents were scrutinized wherein, it was found that the supply of Goods and services of and applying of thermal insulation by the Appellant falls outside the purview of eligibility criteria for availing the benefit under the Impugned Notification as the Appellant was not supplying plant, machinery, equipment or structures but carrying out application of thermal insulation material on plant, machinery, equipment already installed at the factory /business premises of the service receiver.
Further, it was alleged that the Appellant had wrongly classified the service as ‘Works Contract Service’ as the condition of transfer of property as per the definition did not exist and also the contract was not leviable to tax as sale of goods. Accordingly, a Show Cause Notice (“SCN”) dated October 8, 2012 was issued to the Appellant for demand of service tax of INR 69,61,972/- on wrong availment of abatement and demand of service of INR 24,37,017/- for wrong classification of service and to impose penalty.
The Revenue Department (“the Respondent”) denied the benefit of the Impugned Notification to the Appellant on the ground that Appellant is not supplying plant, machinery, equipment or structures, but carrying out thermal insulation and hence benefit of 67% abatement from gross value would not be available to Appellant as the condition laid down in the Impugned Notification is not fulfilled by Appellant. The matter was adjudicated and the demand of service tax was confirmed along with interest and penalty vide Order dated December 19, 2012 (“the Impugned Order”).
Being aggrieved, this appeal has been filed by the Appellant.
The Appellant contended that substantial VAT/Sales Tax under appropriate scheme and at appropriate rates were paid. Further, that the activities undertaken by the Appellant are covered under the Impugned Notification therefore, eligible for abatement benefit. Further, the CBEC vide Circular No. B1/16/2007-TRU dated May 22, 2007, has clarified that, all those contracts which qualifies ‘works contract’ under the Sales Tax Laws equally qualify as ‘work contract’ for the purpose of levy of Service tax therefore, the work undertaken by the Appellant not only attract VAT/Sales Tax, but is also qualified as “works contract”.
Issues:
1. Whether the Appellant is eligible to the benefit under the Impugned Notification?
2. Whether the service undertaken by the Appellant comes under the purview of ‘Works Contract Service’?
Held:
The CESTAT, Ahmedabad in Service Tax Appeal No.10535 of 2013 held as under:
