Oswal Cables Pvt. Ltd. Vs Commissioner of Central Excise and Customs (CESTAT Delhi)
Summary: M/s. Oswal Cables Private Limited, engaged in manufacture of power cables and other electrical products and in providing various taxable services, had availed exemption under Works Contract Service by deducting 60% abatement from taxable value received during April 2011 to March 2016. The Department alleged that the appellant had wrongly claimed the Works Contract Service abatement because no transfer of property in goods was involved in execution of the relevant contract. It further alleged that the value of goods supplied free of cost by the service recipient had not been included in the taxable value, resulting in alleged short payment of service tax of Rs.32,55,453/-. Suppression with intent to evade service tax was also alleged.
The appellant had entered into two separate work orders with M/s. Power Grid Corporation of India Limited (PGCIL): one for supply of equipment and material manufactured by the appellant and another for inland transportation, insurance, unloading, handling, storage at site, erection, testing and commissioning of equipment and material for Rural Electrification works in Nagaur District of Rajasthan under RGGVY. The appellant contended that the second contract involved both material and labour and therefore constituted Works Contract Service. It relied upon payment of works contract tax under the Rajasthan VAT Act, the deduction certificate issued by Ajmer Vidyut Vitran Nigam Limited, and discharge of service tax under the Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007.
The original adjudicating authority had dropped the proceedings. Following departmental review, an appeal was filed before the Commissioner (Appeals), who allowed the departmental appeal and confirmed the proposal contained in the show cause notice. The present appeal challenged that order.
Before the Tribunal, the appellant submitted that the second contract also contemplated supply of material and equipment as part of the contractual arrangement and that ownership of material supplied under the supply contract transferred to PGCIL. It argued that the material component exceeded 40% of the total contract value of Rs.3,79,71,500/-, with material stated to have a value of Rs.1,61,92,016/-. Reliance was placed upon Gammon India Ltd. Vs. Commissioner of C.Ex., Cust. & S.T., Nagpur, along with other CESTAT decisions concerning Works Contract Service.
The appellant further argued that the impugned order had travelled beyond the scope of the show cause notice and relied upon decisions of the Supreme Court in Commissioner of C.Ex., Bhubaneswar-I Vs. Champdany Industries Ltd., Commissioner of C.Ex., Nagpur Vs. Ballarpur Industries Ltd. and Commissioner of Customs, Mumbai Vs. Toyo Engineering India Limited. It also contended that free-of-cost material supplied by PGCIL was not includible in assessable value in terms of the Department’s own circulars, including CBIC Circular No. 150/1/2012-ST dated 08.02.2012, and therefore the allegation of suppression and invocation of the extended period of limitation were unjustified.
The Department, on the other hand, submitted that the appellant had itself segregated the arrangement into two portions, namely supply of goods and provision of services. It therefore argued that the appellant was not entitled to Works Contract abatement and was required to discharge service tax on the full value of the second contract. It also pointed out that, after 30.06.2012, the Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007 had been withdrawn and valuation of ongoing contracts was required to be undertaken under Rule 2A of the Service Tax (Determination of Value) Rules, 2006.
The Tribunal examined the statutory definition of Works Contract Service applicable from 01.06.2007 under Section 65(105)(zzzza) of the Finance Act, 1994. It noted that a works contract required transfer of property in goods involved in execution of the contract to be leviable to tax as sale of goods, coupled with the contract being for one of the specified activities, including erection, commissioning or installation of plant, machinery, equipment or structures. The Tribunal also considered the post-Negative List definition under Section 65B(54), effective from 01.07.2012.
The Tribunal observed that transfer of property in goods during execution of the contract was an essential characteristic of Works Contract Service. Although the appellant relied upon clause 3.3 of the service contract to contend that equipment and materials were covered within the scope of work, the Tribunal found that there was no evidence on record establishing transfer of materials while rendering the second ECIS contract.
The Tribunal placed particular emphasis on the fact that two separate contracts had been executed: one contract for supply of goods and materials and another contract for service simpliciter relating to erection, commissioning and installation. The Tribunal held that payment of VAT under the Rajasthan VAT Act did not support the appellant’s case because there was a separate contract for supply of material and no evidence that VAT had been paid in respect of the second service contract.
According to the Tribunal, clause 3.3 of the second contract required the appellant to supply only necessary fixing material while carrying out erection, commissioning and installation, and the appellant had not specified evidence establishing transfer of property in goods under that contract. Further, it was admitted that PGCIL had supplied material free of cost for the ECIS activity. The first contract for supply of goods therefore had no bearing on the second service contract.
The Tribunal also held that goods supplied free of cost by the service recipient could not constitute transfer of property in goods in the manner contemplated by Section 65(105)(zzzza). It additionally referred to the Larger Bench decision in Bhayana Builders Pvt. Ltd. Vs. Commissioner of Central Excise, New Delhi, for the proposition concerning exclusion of the value of free supplies, and noted the clarification contained in CBEC Circular No.1/16/2007 dated 22.05.2007 regarding composite works contracts and the respective levy of VAT/sales tax and service tax.
Ultimately, the Tribunal held that the appellant’s second contract was a service simpliciter contract for Erection, Commissioning and Installation and was not a composite Works Contract Service. Consequently, no question arose of availing the abatement available to Works Contract Service, nor was Rule 2A of the Service Tax (Determination of Value) Rules, 2006 invokable in the manner claimed. The Tribunal further held that the abatement could not be claimed in respect of the separate contract for supply of material. At the same time, it held that the value of free supplies was not required to be included in the assessable value.
The Tribunal therefore upheld the impugned order except to the extent of inclusion of the value of free supplies, if any. The appeal was consequently dismissed.
Cases Discussed:
- Gammon India Ltd. Vs. Commissioner of C.Ex., Cust. & S.T., Nagpur, 2015 (37) STR 225 (Tri.-Mumbai)
- International Metro Civil Contractors Vs. Commissioner of Service Tax, Delhi, 2019 (20) GSTL 66 (Tri.-Del.)
- Real Value Promoters Pvt. Ltd. Vs. Commissioner of CGST & Central Excise, Chennai, Final Order No. 42436-42438/2018 dated 18.09.2018
- M.K. Enterprises Vs. Commissioner of Service Tax Audit Commissionerate, Kolkata, Final Order No. 75380/2025 dated 18.02.2025
- SEW Infrastructure Limited (formerly known as Sew Constructions Limited) Vs. Commissioner of Central Excise, Raipur, Final Order No. 50640/2023 dated 02.05.2023
- Bhayana Builders Pvt. Ltd. Vs. Commissioner of Central Excise, New Delhi, 2013 (32) STR 49
- Commissioner of C.Ex., Bhubaneswar-I Vs. Champdany Industries Ltd., 2009 (241) ELT 481 (SC)
- Commissioner of C.Ex., Nagpur Vs. Ballarpur Industries Ltd., 2007 (215) ELT 489 (SC)
- Commissioner of Customs, Mumbai Vs. Toyo Engineering India Limited, 2006 (201) ELT 513 (SC)
FULL TEXT OF THE CESTAT DELHI ORDER
Present appeal is filed to assail the Order-in-Appeal bearing No. 93/2019 dated 11.03.2019. The briefly stated facts which culminated into the said order are as follows:
1.1 M/s. Oswal Cables Private Limited, the appellant herein, are engaged in manufacture of Power Cables, ABC Cables, ACSR Conductor etc. They are also engaged in providing service under the category of Business Auxiliary Service, Goods Transport Agency Service, Erection Commissioning and Installation and Works Contract Services. The appellant has availed the exemption under Works Contract Service by deducting 60% abatement from the taxable value received during the period from April 2011 to March 2016. Department formed an opinion that as no transfer of property in goods was involved in the execution of the contract nor were included in the taxable value. The abatement of 60% which is available to Works Contract Service has wrongly been availed. Department also observed that even while deducting the said abatement the value of goods supplied free of cost by the service receiver has not been included. The same has resulted in short payment of service tax amounting to Rs.32,55,453/-. The appellant is alleged to have willfully suppressed the material facts from the department with an intent to evade the payment of service tax.
1.2 A Show Cause notice No. 61/2016 dated 05.12.2026 was served upon the appellant proposing service tax amounting to Rs.32,55,453/- to be recovered along with the interest at the appropriate rates and the proportionate penalties. The original adjudicating authority vide Order-in-Original No. 08/2017 dated 04.12.2017 had dropped the proceedings initiated against the appellant. The said order was got reviewed by the departmental committee, vide Order-in-Review No. 18/2018 dated 13.03.2018. The Deputy Commissioner, CGST Division-A, Jaipur was directed to file appeal before Commissioner (Appeals), Jaipur within stipulated period for determination of legality and correctness of the said Order-in-Original. Pursuant thereto, the appeal was filed before Commissioner (Appeals) which was allowed vide Order-in-Appeal No. 93/2019 dated 11.03.2019 confirming the proposal of the impugned show cause notice. Being aggrieved of the said order, the present appeal has been filed.
We have heard Shri B.L. Narasimhan and Shri S.C. Vaidhyanathan, learned Advocates for the appellant and Shri Aejaz Ahmad, learned Authorized Representative for the department.
Learned counsel for the appellant has submitted that the appellant is the manufacturer of power cables, ABC Cables, ACSR Conductors etc. and is also engaged in providing various services. The appellant entered into two separate work orders with M/s. Power Grid Corporation of India Limited (hereinafter referred as PGCIL) namely, (i) Supply of all equipments and material manufactured by the appellants (First Contract); (ii) Contract for inland transportation, insurance, unloading, handling, storage at site, erection, testing and commissioning of all equipment and material for Rural Electrification works in Nagaur District of Rajasthan under ‘Rajeev Gandhi Grameen Vidyutikaran Yojana’ as undertaken by PGCIL. Since the activity involved supply of material as well as labour, the activity was classified as ‘Works Contract Service’. The works contract tax under the provision of Rajasthan Vat Act, 2003 has already been paid by the appellant. The certificate of deduction of the said Works Contract Tax at source has also been issued to the appellant by Ajmer Vidyut Vitran Nigam Limited (hereinafter referred as AVVNL). The service tax liability has also been discharged treating the activity as Works Contract Service i.e. in terms of Works Contract (Composition Scheme for Payment of Service Tax), Rules, 2007. Hence, the activity of the appellant is wrongly denied to be the Works Contract Service.
3.1 The Order-in-Original dated 13.12.2017 has observed that with respect to the contract of December 2008, the appellant since has received free of cost material from PGCIL/the service recipient, the same is not includable in the gross value prior 07.07.2009 in terms of CBIC Circular No. 150/1/2012-ST dated 08.02.2012. The activity of erection, commissioning and installation of plant and machinery for PGCIL was rightly held to be exempted upto 21.06.2010 in terms of Notification No. 45/2010-ST dated 20.07.2010. The review order as well as the order of Commissioner (Appeals) has wrongly denied the activity of appellant to be Works Contract Service. The payment of VAT has also not been considered while arriving at the said conclusion. The second contract is held to be a service contract of service simplicitor under the category of Erection, Commissioning and Installation Services.
3.2 Learned counsel further impressed upon that present dispute pertains only to the second contract. It is submitted that from the second contract also, it is quite clear that apart from rendering services material/equipment were also sold by the appellant as the part of the contract. As and when the appellant supplied the material under supply contract agreement, the ownership of material used to get transfered to PGCIL. Hence, the activity of Works Contract Service is eligible for the abatement in terms of aforementioned composition scheme. CBIC Circular dated 22.05.2007 also classifies the activity of Erection, Commissioning and Installation to be classified under the category of Works Contract Service. The material used in that second contract is more than 40% of the total contract value of Rs.3,79,71,500/- (value of material is 1,61,92,016/-). Learned counsel has relied upon the decision of Gammon India Ltd. Vs. Commissioner of C.Ex., Cust. & S.T., Nagpur 2015 (37) STR 225 (Tri.-Mumbai), wherein also two similar contracts with PGCIL were executed for supply and erection of electricity transmission lines. The assessee therein had discharged the VAT liability. The second contract was held to be Works Contract Service. Learned Counsel has also relied upon the following decisions:
(i) International Metro Civil Contractors Vs. Comm. of S.T., Delhi reported as 2019 (20) GSTL 66 (Tri.-Del.)
(ii) Real Value Promoters Pvt. Ltd. Vs. Commissioner of CGST & Central Excise, Chennai, vide Final Order No. 42436-42438/2018 dated 18.09.2018-CESTAT Chennai
(iii) M.K. Enterprises Vs. Commissioner of Service Tax Audit Commissionerate, Kolkata, vide Final Order No. 75380/2025, date 18.02.2025 – CESTAT Kolkata
(iv) SEW Infratructure Limited (formerly known as Sew Constructions Limited) Vs. Commissioner of Central Excise, Raipur, Final Order No. 50640/2023 dated 02.05.2023 – CESTAT New Delhi
3.3 The order under challenge is also alleged to have traveled beyond the scope of show cause notice. The same is prayed to be set aside also in the light of the following decision:
(i) Commissioner of C.Ex., Bhubaneswar-I Vs. Champdany Industries Ltd. reported as 2009 (241) ELT 481 (SC)
(ii) Commissioner of C.Ex., Nagpur Vs. Ballarpur Industries Ltd.,2007 (215) ELT. 489 (SC)
(iii) Commissioner of Customs, Mumbai Vs. Toyo Engineering India Limited, 2006 (201) ELT 513 (S.C.).
3.3 Finally it is submitted that value of free issue material supplied by PGCIL is not includible in terms of department’s own Circular D.O.F. No. 334/13/2009-TRU, dated 06.07.2009 and CBEC Circular No. 150/1/2012-S.T. dated 08.02.2012. Hence the allegation of suppression of facts has wrongly been raised. The appellant was otherwise making adequate disclosures in their returns and other statutory records. The impugned show cause notice has wrongly invoked the extending period of limitation. In light of these submissions, the order under challenge is prayed to be set aside and the appeal prayed to be allowed.
While rebutting these submissions, learned Departmental Representative at the outset has reiterated the findings arrived at in the impugned order in appeal.
4.1 Learned Departmental Representative has further submitted that the appellant had already segregated the work order into two portions i.e. one for the supply of goods and another for the provisions for service portion. Therefore, the appellant was not entitled for any abatement as per Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2002 and was required to pay service tax on full value of the second contract as per provisions of Section 24 of the Sevice, Tax (Determination of the Values) Rules, 2006.
4.2 Learned Departmental Representative further submitted that there were two methods provided for discharging of service tax liability arising from works contract service up to 30.06.2012, one is provided under Rule 2A in the Service Tax (Determination of Value) Rules,2006 and the other was provided under the Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007, which has been withdrawn w.e.f. 01.07.2012 and in view of the Board’s Circular No.162/13/2012-ST dated 06.07.2012, valuation of ongoing contracts which were being determined under erstwhile Work Contract Composition Scheme, 2007 was to be done as per Rule 2A of the Service Tax (Determination of the Values) Rules, 2006. Therefore, application of the Work Contract Composition Scheme, 2007 which was already rescinded for the period after 30.06.2012 is not legally correct. With these submissions, the appeal is prayed to be dismissed.
Having heard the rival contentions and perusing the entire records, we observe and hold as follows:
5.1 In the present case, the allegations are that the PGCIL had supplied material free of cost to the appellant while the appellant had provide services of ‘Erection, commissioning and Installation’ for PGCIL which has not been included in assessable value. The appellant paid service tax after taking abatement on the amount of consideration received from PGCIL, however, without including the value of free supplied materials by the PGCIL. The another allegation is that, the services provided by the appellant did not fall under the ambit of Works Contract Service.
5.2 Foremost we peruse the definition of works contract which came into effect from 01.06.2007. The service was defined in Section 65(105)(zzzza) of the Finance Act, 1994 as under:
65(105) (zzzza) to any person, by any other person in relation to the execution of a works contract, excluding works contract in respect of roads, airports, railways, transport terminals, bridges, tunnels and dams.
Explanation.—For the purposes of this sub-clause, “works contract” means a contract wherein,—
(i) transfer of property in goods involved in the execution of such contract is leviable to tax as sale of goods, and
(ii) such contract is for the purposes of carrying out,—
(a) erection, commissioning or installation of plant, machinery, equipment or structures, whether pre-fabricated or otherwise, installation of electrical and electronic devices, plumbing, drain laying or other installations for transport of fluids, heating, ventilation or airconditioning including related pipe work, duct work and sheet metal work, thermal insulation, sound insulation, fire proofing or water proofing, lift and escalator, fire escape staircases or elevators; or
(b) construction of a new building or a civil structure or a part thereof, or of a pipeline or conduit, primarily for the purposes of commerce or industry; or
(c) construction of a new residential complex or a part thereof; or
(d) completion and finishing services, repair, alteration, renovation or restoration of, or similar services, in relation to (b) and (c); or
(e) turnkey projects including engineering, procurement and construction or commissioning (EPC) projects;
5.3 With effect from 01.07.2012 (post Negative list concept) work contract gets defind under sub clause (54) of clause Section 65B of the Finance Act, 1994 to mean a contract wherein transfer of property in goods involved in the execution of such contract is leviable to tax as sale of goods and such contract is for the purpose of carrying out construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, alteration of any movable or immovable property or for carrying out any other similar activity or a part thereof in relation to such property.
5.4 It can be seen from the above reproduced definition of works contract that the property in the goods should be transferred during the execution of the contract and the activity should be specified in (a) to (e) above for it to be called as ‘Works Contract’. It may further be seen that the activity of erection, commissioning or installation of plant and machinery is also classifiable under the category of works contract services provided the activity involves transfer of property in the goods during the execution of such activity. Appellant has relied upon clause 3.3 of the Service contract entered between the appellant and M/s. PGCIL which reads as follows:
3.3 The scope of work under this contract shall also include all such items, equipment and materials which are not specifically mentioned in the Bidding documents and/or your bid but are necessary for the successful completion of the scope of work under the Contract for Rural Electrification in Nagaur District of Rajasthan under RGGVY, as detailed in the Bidding Documents unless otherwise specifically excluded in the Bidding documents and its subsequent clarifications/amendments, if any, or in this Letter f Award including its Annexures.
5.5 But it is an admitted fact that the material has been supplied either by recipient, M/s. PGCIL free of cost or by appellant being manufacturer also, though the appellant has claimed that according to Second Contract (service Contract) material used in execution of such contract is more than 40% of total contract value. But there is no evidence on record to prove transfer of materials (as mentioned in the Para A10 of the written synopsis) while rendering ECIS contract (The second one service contract). The plea of payment of Work Contract Tax under provisions of VAT Act of Government of Rajasthan also does not support the case of appellant for the reason that there was a separate contract between the party for supply of material and there is no evidence that VAT has been paid with respect to second contract of service simpliciter. For the said reason reliance on CBIC Circular dated 22.05.2007 is not acceptable in the given facts and circumstances of this appeal.
5.6 The second contract for service simpliciter for Erection, Commissioning and installation was separately executed on 03.12.2008 itself. When the clause 3.3 as mentioned above in light of aforestated facts of two separate agreement been executed, one being supply of goods simpliciter and another being for service simpliciter, it get clear that under the said clause appellant had to supply only necessary fixing material while performing the activity of erection, commissioning and installation of such plant/machinery/equipment that also has nowhere been specified by the appellant. On the contrary it is the admitted fact that for ECIS, PGCIL has provided material free of cost. Therefore, the activity carried out by the appellant with reference to second contract, is a service simpliciter contract under erection, commissioning/installation services. The first contract for supply of goods and material is a separate contract which has no bearing on this second contract.
5.7 From the above definition of Works Contract Service transfer of property in goods while providing service is the characteristic of one composite contract to be called as Works Contract Service. The goods supplied free of cost by the service recipient cannot be called as transfer of property in goods, the way it is required under Section 65(105)(zzzza) of the Finance Act. Otherwise also value of such goods is not includable as was held by the decision of Larger bench of this Tribunal in the case of Bhayana Builders Pvt. Ltd. Vs. Commissioner of Central Excise, New Delhi reported as 2013 (32) STR 49. CBEC Circular No.1/16/2007 dated 22.05.2007 has also clarified as under:
9.1 For Works Contract Service the contract is a composite contract for supply of goods and services. A composite works contract is vivisected and,-
(i) VAT/sales tax is leviable on transfer of property in goods involved in the execution of works contract [Art. 366(29A) of the Constitution of India], and
(ii) service tax will be leviable on services provided in relation to the execution of works contract.
9.9 Various trade and industry associations have raised apprehension in respect of classification of a contract either under the newly introduced works contract service or under erection, commissioning or installation and commercial or residential construction services.
6. In view of the entire discussion, it is held that appellant has service tax liability with respect to second contract for service simpliciter of Erection, Commissioning and Installation and that the same is not the composite contract of Works Contract Service. It is held that no question arises for availment of abatement on service contract arises which is available to works contract nor Rule 2A of Service Tax (Determination of Value) Rules, 2006 is invokable nor abatement can be availed on the separate contract of supply of material, the first contract and that the value of free supply is not to be included in the assessable value. Accordingly, no infirmity is found in the findings of Commissioner (Appeals) where he held that it is evident that two separate contracts were been executed, one for supply of material and other for service.
In totality of above discussion, we hereby uphold the impugned order except to the extent of inclusion of the value of free supplies, if any. The order is accordingly upheld. The appeal is consequently dismissed.
[Order pronounced in the open court on 12.08.2026]
