Vishwanath Projects Limited Vs Commissioner of Service Tax (CESTAT Hyderabad)
Evidently, from a bare perusal of the contract, it is evident that the purpose of the contract is for providing floodlighting along the Indo Bangladesh Border in the State of Tripura and NOT for transmission and distribution of electricity. Merely because electricity is used in the flood lighting, it does not a project for transmission and distribution of electricity. If this logic is accepted, there could hardly be any service which is rendered by any service provider without use of electricity in some form and for this purpose being connected to the power grid. It could be as simple as connecting computers, running the air conditioners, providing lighting or fans all of which are essential for rendition of services. Merely because they are connected to a grid, the service does not become transmission and distribution of electricity.
FULL TEXT OF THE CESTAT JUDGEMENT
1. This appeal is filed against Order-in-Original No. HYD-EXCUS-003-COM-06- 14-15, dated 29.04.2014. The facts of the case are that the appellant herein is registered with Central Excise Department as a Service Tax provider under the service categories of ‘Works Contract Service’, ‘Goods Transport Agency’ and Erection and Commissioning Services’. During the verification of their accounts by Revenue it was found that they had undertaken the works of execution of some works on which they have not discharged the service tax appropriately. It was also observed that the appellant had received advances from their customers and had not discharged the service tax on taxguru.in such advances. In terms of Section 65(105), taxable service includes the services ‘to be provided’ and hence the service tax had to be paid on the advances also. Thirdly, it was also found that the appellant had paid some amounts towards “goods transport agency” service on which they were supposed to discharge the service tax liability under reverse charge mechanism which they have not done. Accordingly, a show cause notice was issued calling upon the appellants to explain:-
(a) Why an amount of Rs. 1,07,12,000/- should not be demanded as Service Tax from them under “Erection, Commissioning or Installation Services”.
(b) An amount of Rs. 27,63,20,528/- should not be demanded from them as Service Tax under “Works Contract Service”
(c) An amount of Rs. 96,79,347/- should not be demanded from them as Service Tax under “Site Formation & Clearance Service” .
(d) An amount of Rs. 5,94,425/- should not be demanded from them as Service Tax under “Transport of Goods by Road service” under Reverse Charge Mechanism.
(e) An amount of Rs.81,39,131/- of irregularly availed CENVAT Credit should not be recovered from them under Section 73 of Finance Act, 1994 read with Rule 14 of CCR 2014.
(f) Interest as applicable on the above should not be demanded.
(g) Why penalty should not be imposed on them under sections 77 & 78 of the Finance Act, 1994.
2. After following due process, the original authority has confirmed the following only:
i) Service Tax of Rs. 1,07,12,000/- under the category of “Erection, Commissioning and Installation Service”.
ii) An amount of Rs. 5,94,425/- under the category of “Goods Transport Agency Service” of which Rs. 3,34,653/- already paid by the appellant has been adjusted.
iii) Interest under section 75 as above and also on delayed payment of service tax on advances received by them.
iv) Imposed a penalty of Rs. 1,11,13,425/- under section 78 of the Finance Act, 1994.
v) Imposed a penalty of Rs. 5,000/- under section 77 of Finance Act, 1994.
3. Aggrieved by this order, the present appeal has been filed by the appellant.
4. Ld. Counsel for the appellant submits that in the impugned order there was a demand only on three counts – (i) under the head “Erection, Commissioning or Installation Service” with respect to the project which they have undertaken for construction of floodlighting along the Indo-Bangladesh Border, (ii) Demand of mobilization advance which they have received from their clients which was subsequently adjusted in the final bill and (iii) service tax under reverse charge mechanism on the freight paid to the vendors under GTA services. He further submits that in all cases, extended period of limitation was invoked and penalties were imposed.
5. As far as the first demand under “Erection, Commissioning or Installation Service” is concerned, he would take us to the show cause notice and the impugned order to assert that the construction of floodlighting along the Indo-Bangladesh Border in the State of Tripura was given to them by M/s Coastal Projects Private Limited on back to back contract basis. M/s Coastal Projects Private Limited had got this award from the Ministry of Home Affairs, Government of India and they had further sub-contracted the same work to the appellants. A copy of the contract awarded to them is very clear that they were paid a consolidated amount for supply of various equipments as well as their installation and commissioning. There is no separate contract for the service part of it and no separate contract for transfer of goods. Therefore, the entire contract is in the nature of “Works Contract Service”. Works Contract Service, as has been held by the Hon’ble Apex Court in the case of Larsen & Toubro Limited [2015(39)S.T.R. 913 (S.C.)] is a separate specie of contract as known in the commerce and it cannot be equated either with a contract for supply of goods or a contract for provision of service simpliciter. Therefore the Hon’ble Supreme Court held that the charge for works contracts comes only w.e.f. 01.06.2007 when “Works Contract Service” has been inserted in Section 65(105). Prior to this date, it was not chargeable at all. Although the present period is post 01.06.2007, the charge on this account can only be done under the Works Contract Service, it cannot be done under some other heading. Merely because the works contract service has been made a taxable category post 01.06.2007, it does not automatically mean that it can also be charged under any other head after this date. It is a well settled principle that if a service is taxable under one or more categories, the appropriate category as per law has to be selected. As far as the composite work service is concerned, there is only one category in the service tax provision under which it can be charged. For this reason alone, the demand of service tax on Erection, Commissioning or Installation service on this composite works contract does not sustain and needs to be set aside. Charging a works contract under Erection, Commissioning or Installation Service falls beyond the scope of the law. He relied on the following case laws:
a. Mahakoshal Beverages Pvt. Ltd. [2014(33)S.T.R 616 (Kar.)
b. R.K. Construction [2016(41)S.T.R.879 (Tri.-Mumbai).
c. Sai Teja Constructions [2019(7)TMI 575 (CESTAT-Hyderabad).
6. He also argued that the floodlighting along the Indo-Bangladesh Border is essentially linked to transmission and distribution of electricity and hence is exempted vide notification No. 45/2010-ST, dt. 20.07.2010 and Notification No. 11/2010-ST, dt. 27.02.2010. He relied on the following case laws:
i) Shree Ganesh Enterprises vs. CCE [2014(35)S.T.R 348 (Tri.-Bang.)
ii) Sterling Transformers vs. CCE [2014(35)S.T.R (Tri.-Bang.)
iii) Noida Power Co. Ltd. vs. CCE [2014(33)S.T.R 383 (Tri.-Del.)
iv) CCE vs. Sri Rajyalakshmi Cement Products [2017(52)S.T.R 309 (Tri.-Hyd.)
v) CCE vs. Dhanwate Engineering works [2015-TIOL-1447-CESTAT-MUM.]
vi) Kedar Constructions vs. CCE [2015(37)S.T.R 631 (Tri.-Mumbai).
7. Thirdly, he would argue that even if it is assumed that service is taxable, the material value involved in the execution of the contract needs to be excluded in terms of Notification No. 12/2003-ST, dated 20.06.2003 and the demand has been confirmed on the entire value of contract including the goods. As far as the demand of service tax on the freight charges is concerned, the appellant submits that the demand was made based on the amounts indicated in their own books of accounts as they have been paid towards “goods transport services”. The total demand was Rs. 5,94,425/- of which they have paid an amount of Rs. 3,34,653/-. As far as the remaining amount of Goods Transport Agency Services is concerned, he would submit that this amount was not paid by them to any Goods Transport Agency but was only reimbursed by them to their suppliers towards transportation of goods. The actual service of “goods transport agency” was availed by their suppliers and not by them. Therefore, the liability, if any, under Reverse Charge Mechanism lies on their suppliers and not on them. He further argued that the vehicle owners are operators who merely hire the vehicles and do not issue any consignment note and do not get covered by the Goods Transport Agency Service also. As far as the interest on service tax liability on the mobilization advances received by them is concerned, he would submit that these are in the nature of mobilization advances and not in the nature of advance payment for the services. He would submit that the distinction between the two is when they get mobilization advance they have to either pay interest on the mobilization advance or submit a bank guarantee which is not done in advance payments. In their case, they have submitted a bank guarantee and interest was also charged by their customers and therefore this is nothing but a sort of loan given to them and not the payment made in advance for the services rendered. The amount was thereafter adjusted at the time of final settlement of bills and the service tax was duly paid. The case of the Revenue is that the appellant should have discharged the service tax as soon as they receive mobilization advances on the ground that it is an advance payment for the services. However, considering that they have given a bank guarantee and have also paid interest to their customers, the amounts received can only be considered as mobilization advances and there cannot be any service tax liability on such advances. He relies on the following case laws:
i) GJF Construction Company Limited vs. CCE, Hyderabad [2018(8)TMI 323 – CESTAT-Hyderabad].
ii) Thermax Instrumental Limited vs. CCE [2015(12)TMI 12222-CESTAT-Mumbai]
8. He also argued that there is no justification to invoke the extended period of limitation and they had no intention to evade payment of service tax as the entire contract which they have executed is towards an MHA project of floodlighting along the Indo Bangladesh Border which has been subcontracted to them. They would gain nothing by avoiding service tax on such projects. Hence Mens rea is evidently absent and there is no case to invoke extended period of limitation.
9. Ld. DR, on the other hand, reiterates the assertions of the lower authority and asserts that from the extract of costs in the contract it is evident that there are components of supply of materials as well as provision of Erection, Commissioning or Installation Service. The appellant should have submitted the break up of two components which they did not do and hence the demand has been raised on the entire amount of contract. Had the appellant provided the break up of the service component, the demand would have raised on the components only. He would assert that the contract itself appears to be vivisected into two components namely supply of materials and provision of service and if the contract is vivisected, demand can correctly be raised for the ECIS. In the reply to the show cause notice, the appellant themselves have argued that the contract is divisible and they cannot now take a contradictory stand. Therefore, the demand is not hit by ratio of the judgment of Hon’ble Apex Court in the case of Larsen & Toubro (supra). The appellant is eligible for exemption on the material component in terms of Notification No. 12/2003-ST, dated 20.06.2003 and Notification No. 01/2006-ST, dt. 01.03.2006 which they could have claimed by providing the break of the two components – supply of goods and services.
10. As regards the Goods Transport Agency Services, he would submit that it is on record that they have availed the services of Goods Transport Agency and paid the amount for the services. This amount was not disclosed in their returns but was discovered from their books of accounts. The appellant paid part of service tax and declined to pay rest of it on the ground that the amount was paid by them to their suppliers who had availed the GTA services and not to any Goods Transport Agency itself. However, they have not produced any documents to substantiate this assertion and therefore the demand was confirmed on this ground.
11. As far as the interest payable on mobilization advances is concerned, he would assert that the appellant has received the payment for the services in advance and had not discharged the service tax liability on that date and therefore the interest on delay payment of service tax is correctly demanded.
12. On the question of limitation of time, he would assert that the appellant had not disclosed these details in their ST-3 returns and the matter came to light only when the department had conducted investigation.
13. We have considered the arguments on both sides to decide the issues. As far as the demand on the project for construction of floodlighting around Indo Bangladesh Border in the State of Tripura is concerned, it is evident from the records before us that the project was awarded by Ministry of Home Affairs to M/s Coastal Projects Private Limited, A Government of India Enterprise, who have further subcontracted the same to the appellant on back to back basis. The scope of work indicated in the contract is as follows:
“Annexure-1: Scope of work:
2. Flood-lighting along Indo-Bangladesh Border in the state of Tripura between B.P.No. 2254/eRI to 2265
3. Scope of work: M/s Coastal Projects Pvt. Ltd. Limited is responsible for the following works:
