Walchandnagar Industries Limited Vs Commissioner of Central Excise & Service Tax (CESTAT Kolkata)
Walchandnagar Industries Limited (WIL) appealed against a service tax demand imposed by the Commissioner of Central Excise, Shillong, in relation to a composite contract for setting up a cement manufacturing unit. The contract included the supply of machinery and equipment, as well as supervision and commissioning services. WIL contended that they had not provided consulting engineering services and that the demand was not sustainable.
The case revolved around whether WIL had provided consulting engineering services as defined under Section 65(31) of the Finance Act, 1994, and the valuation of the services rendered. The contract primarily involved the supply of goods, with any services provided being incidental. WIL had paid service tax on the supervision and commissioning services based on man-hours used, but the department considered the entire value of bought-out items as taxable for consulting engineer services. However, the tribunal found that the bought-out items’ value cannot be considered as a separate service value and that the demand was not sustainable.
CESTAT Kolkata quashed the service tax demand imposed on Walchandnagar Industries Limited, ruling that the contract primarily involved the supply of goods and any services provided were incidental. The value assigned to the bought-out items sold by WIL cannot be considered as a consulting engineer service. Therefore, the demand was deemed unsustainable, and no interest or penalty was imposed.
FULL TEXT OF THE CESTAT KOLKATA ORDER
The Appellant (M/s.Walchandnagar Industries Ltd – WIL in short) was engaged in setting up of cement manufacturing unit for M/s. JUD Cements Pvt.Ltd. (hereinafter referred to as ‘JUD’) in Meghalaya. JUD entered into a Contract with the Appellant which include supply of basic equipments as well as supervision and erection and commissioning of the manufacturing lines. The Appellant received gross amount of Rs.65,76,56,249/-, towards the value of supply of goods,which include some of the goods manufactured by them. The remaining goods were procured by the Appellant from other sources and sold to JUD at a profit.
2. The Department alleged that the Appellant has provided ‘Consulting Engineering Service’ to JUD, but failed to discharge service tax amounting to Rs.1,81,30,014/- including Education Cess and Higher-Education Cess. Accordingly a Show Cause Notice dated 14.11.2011 was issued to the Appellant demanding Service Tax along with interest. The Notice was adjudicated vide Order-in-Original dated 29.02.2012 by the Commissioner of Central Excise, Shillong, confirming the demands made in the Notice. Aggrieved against this impugned order, the Appellant filed the present appeal.
3. In their submissions, the Appellant stated that they have not provided ‘Consulting Engineering Service’ to JUD. As per the agreement entered by them with JUD on 15.10.2006, they have to provide technical assistance and guidance during erection and commissioning of the cement plant along with supply of necessary machinery and equipments as per the design and lay-out drawn by them.
4. As per the Clause 3.1 of the Agreement, the price schedule for the machine lines, which JUD had agreed to pay the Appellant is as follows:
