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Judgment
This appeal is directed against order in original No 07/PR. COMMR/ST-II/PK/2015-16 dated 30.06.2015 of the Principal Commissioner Service tax Mumbai II. By the impugned order Commissioner has held as follows:
(a) I order that the classification of services received by Mumbai Railway Vikas Corporation Ltd (MRVC) from the three foreign service providers, M/s Siemens AG Germany, M/s Siemens Austria & M/s SAS Sculfort France, would fall within the definition of "erection, commissioning or installation services" under Sec 05 (105) (zzd) read with Sec 65 (29) & Sec 65 (39a) of the of the Finance Act, 1994.
(b) I confirm the demand of service tax to the extent of Rs.3,17,18,820/- (Rs.Three Crores Seventeen Lacs Eighteen Thousand Eight Hundred Twenty only) u/s 73(2) of the Finance Act 1994 & order MRVC to pay the same in terms of the provisions of Sec 66A read with Sec 68 of the Finance Act 1994, I proceed to appropriate the service tax already paid by MRVC to the above extent.
(c) I order for recovery of interest on the aforesaid service tax of Rs 3,17,18,820/- (Rs. Three Crores Seventeen Lacs Eighteen Thousand Eight Hundred Twenty only) from MRVC u/s Sec 75 of the Finance Act 1994.
(d) I drop the demand to the extent of Rs. 18,83,876/-(Rupees Eighteen Lacs Eighty Three Thousand Eight Hundred Seventy Six only) in respect of service tax payable on reverse charge basis under Sec 66A, in respect of services received/ payment made prior to 18-4-2006.
(e) I refrain from imposing any penalty on MRVC u/s 76, 77 & 78 of the Finance Act, 1994.
(f) This order is issued without prejudice to any other action that may be taken against MRVC under the Finance Act 1994 or under the provisions of any other Act for the time being in force in India.
2.1 Appellant (M/s Mumbai Railway Vikas Corporation Ltd, a body corporate constituted by the State Government of Maharashtra & Indian Railways (IR)) is Public Sector Undertaking under the Ministry of Railways.
2.2 Intelligence was gathered by DGCEI, Mumbai Zonal Unit which indicated that Appellant received various taxable services from different service providers located outside India. Since such service providers did not have any office in India, Appellant as recipient of such services, were liable to discharge service tax under reverse charge mechanism, which was not discharged by them. DGCEI called for related information in respect of services received the appellant from the service providers located outside India vide letter dt 24.03.2008 in response to which MRVC, vide reply dated 18.02.2009 submitted, inter alia, copy of Contract Agreement dated 16.09.2005 with M/s Siemens AG, Germany in joint venture with Siemens Ltd, Navi Mumbai, copies of the ST-3 Returns & copy of the ST Registration Certificate. Further investigations were undertaken and vide letter dated 17.12.2009 requested DGCEI requested appellants to provide the details of the services received from Siemens AG in joint venture with Siemens Ltd, Navi Mumbai in response to which, appellant informed in they had received the services of "Installation & Commissioning" from Siemens AG, Germany for a consideration of Rs. 18,32,11,150/- involving Service Tax liability of about Rs 1.83 crores; that they had also received similar services from Siemens, Austria & M/S SAS Sculfort, France against consideration of Rs. 7,31,831- with Service Tax liability of Rs. 75,3787- They also submitted the copies of invoices raised by Siemens AG. Germany.
2.3 As per SCC (Special Conditions of Contract clause 19 (GCC (General Conditions of Contract) Clause 33. Page 140) of the Contract.
a. "GCC33.1: Bidders / Siemens AG in joint venture with Siemens Ltd, Navi Mumbai) shall be responsible for all taxes duties, license fees & other levies imposed outside India as well as for all taxes levied within India in connection with delivery of goods at site & providing incidental services including commissioning.
b. GCC 33.3 - Sales Tax Works Contract Tax, Service Tax, Octroi, if any payable under the Indian Laws in respect of the transactions between the purchaser (MRVC) & the supplier Siemens AG in joint venture with Siemens Ltd , Navi Mumbai) shall be reimbursed by the purchaser, subject to production of documentary evidences wherever applicable.
2.4 Appellant vide their letter dated 20.09.2010 informed that
i. They entered into a Contract with joint venture of Siemens AG, Germany & Siemens Ltd, Navi Mumbai. The responsibility of each of the joint venture partners was clearly defined & various stage of payment indicated.
ii. Apart from the liability of Rs. 1.83 crores which they had already reported earlier, they also had fresh liability between April 2010 to July 2010 & after taking into account this liability the Total Service Tax liability works out as Rs. 3,35,27,764/-
iii. In order not to breach the provisions of law they had decided to discharge their Service Tax liability & submitted Challans bearing nos 50041 dated 27.08.2010, 50006 dated 28.08.2010, 50007 dated 28.08.2010, 50067 dated 31.08.2010, 50081 dt 06.09.2010 evidencing payment of service tax of Rs. 3.35,27,764/- under reverse charge mechanism for "Erection, Commissioning or installation service.
iv. While one of the contractor i.e., Siemens Ltd, Navi Mumbai had discharged the service lax liability, the other partner, Siemens AG, Germany had not done so.
2.5 They submitted copies of Contract dt 18.12.2008 with Siemens, Austria & Contract dt 27.04.2009 with SAS Sculfort, France.
2.6 After completion of investigations and scrutiny of the contracts, Additional Director Genera!, DGCEI, Mumbai Zonal Unit issued Show Cause Notice dated 13.10.2010 , seeking to classify the services received by appellants from foreign service providers under the category of Erection, Commissioning or Installation, consequent recovery of service tax of Rs 3,36,02,696/- under proviso lo Sec 73 (1) of the Finance Act 1994 u/s 66A of FA 1994; levy of interest u/s Sec 75; penalty u/s 76,77 & 78 of Finance Act, 1994.
2.7 This show cause notice was adjudicated by the Principal Commissioner by the impugned order referred in para 1, supra. Aggrieved by the impugned order appellants have filed this appeal.
3.1 We have heard Shri Mehul Jivani, Chartered Accountant for the Appellant and Shri S K Hattangadi, Assistant Commissioner, Authorized Representative for the revenue.
3.2 Arguing for the appellants learned Chartered Accountant submits,-
Ø The three contracts under consideration are composite and indivisible contracts for supply of goods and the services incidental to the supply of goods. Hon'ble Supreme Court has in the case of Larsen and Tubro [2015 (39) STR 913 (SC)] held that the
Ø Works contract in respect of railways is specifically excluded from the scope of the levy of service tax. The contract is composite in nature i.e. turnkey projects involving design, development, manufacture, supply of goods as well as providing incidental services. Thus the service falls under the category of 'works contract services' and services related to 'railways' are excluded on the said category and therefore the services received by the appellants will not be liable to Service Tax under any of the category u/s. 66 of the Finance Act, 1994. This view is supported by the following decisions
o Delhi Metro Rail Corporation Ltd. [2018 (4) TMI 845 - CESTAT NEW DELHI]
o ETA Engineering Pvt. Ltd [2016 (43) S.T.R. 547 (Tri. - Del.)]
o M.M. Constructions, Kiran Udyog (Kiran Infra Engs. Ltd.) [2017 (1) TMI 1385 - CESTAT, NEW DELHI]
o IRCON International Ltd [2017 (4) TMI 1086 -CESTAT NEW DELHI]
o International Metro Civil Contractors [2019 (20) G.S.T.L. 66 (T-Del.)]
o Kumagai Skanska Hcc Itochou Group [2015 (12) TMI 1669 - CESTAT, NEW DELHI]
Ø Hon'ble Karnataka High Court in the case of Turbotech Precision Engineering Pvt. Ltd 2010 (18) S.T.R. 545 (Kar.), held that the activities of Design development, design review, installation and commissioning and technology transfer undertaken are in the nature of work contract. This has been affirmed by Hon'ble Supreme Court reported in 2015 (39) S.T.R. 913 (S.C.).
Ø The Commissioner has not disputed that contract' is composite in nature i.e. involving both supply of goods as well as services and thereby falls under works contract. However he has held that the definition of 'works contract service' excludes the contract in respect of railways and hence the said service would primarily mean i.e. in the first place on account of exclusion clause in the definition itself go out of the scope of the 'works contract services' i.e., only such turnkey projects or EPC contracts not pertaining to railways could be considered to fall under the definition of 'works contract service'.
Ø The observations of the Commissioner are contrary to decision of Hon'ble Karnataka High Court in case of BMR Corporation Limited reported in [2013 (29) S.T.R. 469 (Karnataka)], wherein it has been held that the contract entered into by M/s. Bangalore Metro Rail Corporation Limited in relation to the execution of the works contract' in respect of railways is not taxable u/s. 66 of the Finance Act, 1994.
Ø Tribunal has consistently held that once a particular service is excluded from the scope of taxable service where it is classifiable, than it cannot be taxed under any other category.
o IBM India Pvt Ltd [2010-TIOL-167-CESTAT-BANG] o Federal Bank Ltd. 2008 (10) S.T.R. 320 (Tri-Bang)
Ø Railway contracts are specifically excluded from the works contract service and once a particular service is excluded from the scope of a taxable service, where it is classifiable, then it cannot be taxed under another category. Therefore, the interpretation taken by the Commissioner is not as per the law.
Ø Without prejudice to the above, fitting of the dual voltage equipments such as Micro processor controlled converter, inverter, auxiliary converter, filters and other electronic equipments required for the rake is the process of manufacture of the train, undertaken by India Railway. The job of Foreign Service provider is of installation, commissioning and testing and not of manufacture of the train. As submitted above the electronic equipment 3 phase asynchronous induction motor that associates IGBT, Based, micro processor controlled converter, inverter, auxiliary converter and filters etc. which will be required for the said dual voltage system, will be supplied by the supplier. The process of fitting the said equipment is nothing but a process of the manufacture and therefore service tax on the same cannot be levied and therefore contention of the commissioner is incorrect. Reliance placed on the decision in the case of Oracle software India Ltd. [2010 (250) ELT 161 (SC)]
Ø The impugned service will not fall under the category of Erection, Commissioning or Installation services, as has been held in the following decisions
o Webel Technology Ltd. [2018 (19) G.S.T.L. 467 (Cal.)]
o Indian Oil Tanking Ltd. 2010 (18) S.T.R. 577 (T-Mum)
o Diebold Systems (P) Ltd, 2008 (9) S.T.R. 546 (T-Chennai)
Ø The actual performance of the service of 'erection, commissioning or installation' of plant, machinery or equipment will be covered under the said category and in the present case actual work has been done by the staff of Indian railway and not be foreign service provider. In the present case actual work has been done by the staff of Indian railway and not be foreign service provider. The said fact has also been admitted by the Commissioner in his Order in para 69 & 72, wherein he has held that the commissioning, testing and trial of rakes in Mumbai has been done by the staff of Indian Railways and the Engineers of Foreign Service providers have merely done the supervision of the same.
Ø In the case of M/s LNV Technologies Pvt Ltd 2019 (2) TMI 212 - CESTAT Chennai, it has been held that Supervision of erection and commissioning cannot be equated with civil work of erection and commissioning or installation of plant and machinery and when assessee has not done actual commissioning activity than service tax cannot be demanded.
Ø Without prejudice to the above, it is further submitted that only the operationalizing of installed plant, machinery or equipment is taxable as commissioning whereas in the present case activities of operationalizing has been done with respect to whole train and not of only installed items. In the present case, the train cannot be regarded as civil structure and therefore act of putting bogie part into the train may not be regarded as installation. Therefore, the activities done at Mumbai may not be regarded as commissioning, as Commissioning stage will commence only after installation which is not the case here.
Ø The activities done at Chennai and Mumbai are in the nature of testing and may not be regarded as Commissioning and therefore not liable to service tax.
Ø Even if the activities done at Mumbai are regarded as commissioning then also supervision of the Commissioning or initial operation may not be taxable under Erection, commissioning or Installation service:
Ø CBEC vide Trade Notice No. 53-C.E. (Service Tax)/97, dated 4-7-1997 of the New Delhi Commissionerate has clarified that Supervision of commissioning and initial operation will fall under consulting engineer. Further MRVC rely upon the judgment in the case of PRODORITE ANTICORROSIVE LTD. 2008 (12) S.T.R. 618 (Tri. - Chennai), wherein tribunal has held that Supervision of testing and initial operations and technical services covered under Consulting Engineer service as per departmental clarification.
Ø Under Section 99 of Finance Act, 2013, liability of Railways to Service Tax unenforceable as same has provided retrospective exemption to levy and collection of service tax in respect of all taxable services provided by the Indian Railways. Appellant came into existence by way of Memorandum of Understanding between the Government of India (Ministry of Railways) and Government of Maharashtra, wherein it has been specified that MRVC will be deemed to be a Railway company under the provisions of Indian Railways Act, 1989. Further in the Member (Engineering) Railway Boards letter No. 95/PL/17/4.Pt.I dated 01-04-2001 it has been clarified that the MRVC shall be treated as Railway Construction Organization of Ministry of Railways. Therefore MRVC will be considered as an part of Indian railway and therefore as per section 99 of the Finance act, liability of Railways to Service Tax unenforceable.
Ø In this case, the Commissioner has dropped the penalty levied under Section 76, 77 and 78 of the Finance Act,1994. Therefore, the appellant submits that once the penalty has been dropped extended period cannot be invoked.
o Royal Travels 2011 (21) S.T.R. 31 (Tri. - Ahmd.)
o Agarwal Trading Co. 2016 (44) S.T.R. 479 (Tri. - Del.)
o Franke Faber India Ltd. 2017 (52) S.T.R. 155 (Tri. - Mumbai)
o Mahesh Kumar Sharma 2017 (49) S.T.R. 239 (Tri. - Del.)
Ø Appellant is a Government Undertaking and therefore, there is no malafide intention to evade duty and thus, extended period is not invokable. The appellant relies on following judgments -
o Bharat Yantra Nigam Ltd. 2014 (36) S.T.R. 554 (Tri.-
o Rajasthan Renewable Energy Corpn. Ltd. 2017 (51)
o Best Undertaking [2007 (213) E.L.T. 202 (Tri - Mumbai)
Ø The demand for the period upto September 2009 is beyond the normal period and thus, demand amounting to Rs 1,03,46,762/- is time barred.
3.2 Arguing for the revenue, learned authorized representative submits,-
Ø The issue involved in this case is taxability under reverse charge mechanism in respect of certain services provided to Appellants by the service providers located outside India & not having office in India, when the contract of supply is a divisible contract due to the supply of goods and supply of service separately.
Ø Prima facie the case of Larsen & Toubro Ltd [2015 (39) STR 913 (SC)] is that of an Indivisible Contract, whereas this subject matter is of a Divisible Contract for the following reasons
o As per para 2.0 (B) of the Contract there is a contract of supply of goods and services. Further at the same place 2.0(B) (iii) it is specifically stated that "In addition to Commissioning of two prototype rates, supervision of commissioning on 12 rakes (12-car) production (iv) supply of documents, designs and drawings (v) supply of software tools (vi) training the personnel, (vii) supply of spare parts (viii) modifications required (ix) incidental services as listed in the schedule of requirement at clause 1.5 above." These facts clearly indicate that the contract is for supply of goods and for supply of services. These supplies are also separated value wise as per the Contract and as per their own submission dated 13/4/2010.
o As per the table in the contract under the head Brief particular of the goods and services which shall be supplied provided by the supplier is indicated. The breakup of prices in the above table itself indicates that the contract is divisible in nature.
o Under the heading of General Conditions of Contract), under definition in Para 1.1, (b) the contract Price means the price payable to the supplier under the contract for the full and proper performance of its contractual obligations.
o There is not a single obligation but several separate obligations of supply of goods and supply of services as detailed in the contract and specifically also at clauses (c) (d). The goods and services are also separately defined.
o In para 13.1 (a) of General Conditions of Contract, performance or supervision of on-site assembly and/or start-up of the supplied goods mentioned. in Para 17 at the same place, the clause states that the prices charged by the supplier for goods delivered and services performed under the contract are restricted to the same quoted in bid. Thus it is evident that the contract is divisible.
o On the special condition of contract at para 8 installation of equipments and supervision are separately dealt with. Separate clauses for training incorporated in the contract.
o In special condition of contract the taxes and duties are bifurcated which clearly elicit that this contract is divisible in nature for supply of goods as well as supply of services.
o Invoices also mention that charges for installation & commissioning were made
o the money was paid in foreign currency and the bifurcation of prices for supply of goods and supply of services is separately mentioned.
Ø In the OIO, the Learned AA has discussed threadbare vis a vis the SCN, facts on record and most importantly the clauses and the conditions of the contract (gen & special) which clearly state that
o Para 8 (a) (iv) of the Special Conditions of Contract which pertains to Commissioning (Supervision) ibid (para 71)...
o para 72 evinces that the consideration for commissioning, testing, service trials and supervision of commissioning, testing and service trials was undertaken under the supervision of foreign service provider's engineers consideration was paid in foreign currency.
o para 73, the table clearly elucidated that the Appellant vide their letter dated 14 09-2010 to DGCEI shown that the payments were made in foreign currency to the foreign service providers specifically on account of commissioning charges including testing of the dual voltage EMU) rakes at Chennai and Mumbai.
o para 74, the main activity of the foreign service provider was commissioning and testing was merely one of the activities under the umbrella of commissioning.
o para 90 and para 91 discusses about the role of Siemens AG, Germany has been described as service provider and not a manufacturer of trains. As per clauses of SCC and GCC page 140 of the contract ...ibid
Ø Going through the SCN, O1O, and case laws placed on record, the most important conditions of the contract it is well established that the foreign service provider is responsible to discharge the service tax liability in respect to services rendered in India for which by virtue of Sec 66Aof the FA1994, the service recipient is vicariously responsible.
Ø In case of Balmer Lawrie and Company Ltd [2019-TIOL-126-CESTAT-KOL] (para 1&9) tribunal has upheld the order demanding service tax under the category of installation and commissioning services.
Ø In the case of Larsen and Tubro [2015 (39) STR 913 (SC)], Hon'ble Apex Court was concerned with levy of Service Tax on indivisible work contracts, prior to the introduction on 1st June 2007. The period involved in the present dispute is for the period 2005 to 2010. Since the provisions of law have been changed from 1st June 2007, the appeal needs to be dismissed for the period after June 2007.
4.1 We have considered the impugned order along with the submissions made in appeal, during the course of arguments and in the written submissions made.
4.2 The issue for consideration is whether during the period of dispute, i. e. 2005 to 2010, whether in contract for supply of goods and services incidental to the supply of goods, the services portion can be segregated and subjected to levy of Service Tax. In the present case we are concerned with the three contracts entered by the appellant with foreign suppliers namely, M/s Siemens AG Germany, M/s Siemens Austria & M/s SAS Sculfort France.
4.3 As per the learned Chartered Accountant the issue is squarely covered in their favour by decision in the case of Delhi Metro Rail Corporation Ltd. 2018 TIOL 1556 - CESTAT DEL, tribunal has held as follows:
'5. On perusal of the case records, we find that the contract awarded by the appellant is composite contract, involving both supply of material and for execution of the assigned job. Thus, as per the judgement of Hon'ble Supreme Court, in the case of Larsen & Toubro - 2015 (39) STR 913 (SC, such activities should be taxable under the category of works contract service. Since, such service was brought into the tax net w.e.f. 01.06.2007, the appellant cannot be taxed under any other category of service prior to such date. Since the appellant admittedly provide works contract service and the definition of works contract service specifically excludes railway from its purview for levy of Service Tax, the activities provided pursuant to the contract even after 01.06.2007 cannot be taxed under the work contract service. We find that in an identical situation, this Tribunal in the case of M.M. Constructions, Kiran Udyog (supra) has held that Service Tax demand cannot be fastened against the appellant under works contract service. The relevant paragraphs in the said decision are extracted herein below:-
"9. Admittedly, in all the cases before us the contracts for providing services of erection, installation and supply of materials either to DMRC/Indian Railways are composite in nature. This fact is not in dispute. In such situation, it is clear that there can be no tax liability on such contracts prior to 1.6.2007, on which date the 4 ST/1010-1011,1024, 1023, 1118, 1119/2011 (DB) new tax entry "Works Contract Service" was introduced in the Finance Act, 1994. For the period post 1.6.2007, the services rendered to railways were excluded from the scope of the service tax liability under "Works Contract Service". The exclusion is with reference to works contract in respect of, among other things, railways, bridges, etc. DMRC - Metro Rail Project is also excluded under the category of railways. Reference can be made to the decision of the Tribunal in case of ETA Engineering Pvt. Ltd. - 2016 (43) STR 547 (Tribunal-Delhi) and in case of Kumagai Skanska HCC Itochou Group Vs. CST, Delhi vide Final Order No.53833/2015 dated 28.12.2015. As such, "Works Contract Service" provided to Indian Railways as well as DMRC are excluded for tax liability.
In view of the above discussions and the law laid down by the Hon'ble Supreme Court in case of Larsen & Toubro Ltd. (supra), the impugned orders confirming service tax liability on the appellants/assessees are legally not sustainable. Accordingly, the same are set aside. The appeals by the appellants/assessees are allowed. For the same reasons, the appeals filed by the Revenue are not sustainable and the same are dismissed."
In view of the above settled position of law, we do not find any merits in the impugned order. Accordingly, after setting aside the same, we allow the appeal in favour of the appellant."
4.4 In the case of ETA Engineering Pvt. Ltd [2016 (43) S.T.R. 547 (Tri.-Del.)] tribunal in similar circumstances held as follows:
"4. Proceedings were initiated by the several show cause notices alleging that the appellant had provided erection, commissioning or installation services (ECIS) under Section 65(39a) of the Finance Act, 1994. Works contract service was introduced as a taxable service and was defined in Section 65(zzzza), w.e.f. 1-6-2007. The appellant's contention that works contract services were not taxable under ECIS prior to 1-6-2007 was negated by the Commissioner. The appellant's contention that services provided to Railways are excluded from the ambit of works contract service, in view of exclusionary clause in the preamble portion of the definition of WCS was also negated, on the ground that the appellant was not constructing a rail line for running the metro rail but was only providing services for environmental control systems and tunnel ventilation systems which would not, according to ld. Commissioner, amount to services provided to Railways.
In the view of the decision of the Supreme Court in C.C.E. & Cus., Kerala v. Larsen & Toubro Ltd. - 2015 (39) S.T.R. 913 (S.C.), composite works contracts involving rendition of services coupled with deemed supply of goods by accretion are not taxable services prior to 1-6-2007, either under commercial or industrial construction service, construction of complex service, or erection, commissioning or installation service. Works contract is defined and enumerated to be a taxable service with effect from 1-6-2007 by insertion of Section 65(105)(zzzza) of the Finance Act, 1994. This service was defined as a service provided or to be provided "to any person, by any other person in relation to the execution of a works contract, excluding works contract in respect of ....... railways ........ That the service provided by the appellant clearly fell within the ambit of works contract service as defined in Explanation (ii)(a) of Section 65(105)(zzzza) is not in dispute. However, since the works contract in respect of railways is excluded by the specific and unambiguous exclusionary clause in Section 65(105)(zzzza) of the Act, the reasoning and conclusion by the ld. adjudicating authority that only works contracts pertaining to constructing of railway lines for railways is excluded is clearly erroneous and amounts to legislation rather than adjudication on a true, fair and good faith of interpretation of the provision. The reasoning in the impugned order is thus misconceived and invites invalidation. We therefore, quash the impugned order with the declaration that since the appellant had provided an excluded species of works contract service to DMRC, no tax is leviable."
4.5 In case of M.M. Constructions, Kiran Udyog (Kiran Infra Engs. Ltd.) 2017 (1) TMI 1385 - CESTAT, NEW DELHI, following has been held
"9. Admittedly, in all the cases before us the contracts for providing services of erection, installation and supply of materials either to DMRC/Indian Railways are composite in nature. This fact is not in dispute. In such situation, it is clear that there can be no tax liability on such contracts prior to 1.6.2007, on which date the new tax entry "Works Contract Service" was introduced in the Finance Act, 1994. For the period post 1.6.2007, the services rendered to railways were excluded from the scope of the service tax liability under "Works Contract Service". The exclusion is with reference to works contract in respect of, among other things, railways, bridges, etc. DMRC - Metro Rail Project is also excluded under the category of railways. Reference can be made to the decision of the Tribunal in case of ETA Engineering Pvt. Ltd. - 2016 (43) STR 547 (Tribunal-Delhi) and in case of Kumagai Skanska KCC Itochou Group Vs. CST, Delhi vide Final Order No.53833/2015 dated 28.12.2015. As such, "Works Contract Service" provided to Indian Railways as well as DMRC are excluded for tax liability.
In view of the above discussions and the law laid down by the Hon'ble Supreme Court in case of Larsen & Toubro Ltd. (supra) the impugned orders confirming service tax liability on the appellants/assessees are legally not sustainable. Accordingly, the same are set aside. The appeals by the appellants/assessees are allowed. For the same reasons, the appeals filed by the Revenue are not sustainable and the same are dismissed"
4.6 From the above decisions it is evident that in all the cases the tribunal has placed reliance on the decision of the Hon'ble Apex Court in the case of L & T [2015 (39) STR 913 (SC)] wherein Hon'ble Apex Court has specifically held as follows:
"24. A close look at the Finance Act, 1994 would show that the five taxable services referred to in the charging Section 65(105) would refer only to service contracts simpliciter and not to composite works contracts. This is clear from the very language of Section 65(105) which defines "taxable service" as "any service provided". All the services referred to in the said sub-clauses are service contracts simpliciter without any other element in them, such as for example, a service contract which is a commissioning and installation, or erection, commissioning and installation contract. Further, under Section 67, as has been pointed out above, the value of a taxable service is the gross amount charged by the service provider for such service rendered by him. This would unmistakably show that what is referred to in the charging provision is the taxation of service contracts simpliciter and not composite works contracts, such as are contained on the facts of the present cases. It will also be noticed that no attempt to remove the non-service elements from the composite works contracts has been made by any of the aforesaid Sections by deducting from the gross value of the works contract the value of property in goods transferred in the execution of a works contract.
In fact, by way of contrast, Section 67 post amendment (by the Finance Act, 2006) for the first time prescribes, in cases like the present, where the provision of service is for a consideration which is not ascertainable, to be the amount as may be determined in the prescribed manner.
We have already seen that Rule 2(A) framed pursuant to this power has followed the second Gannon Dunkerley case in segregating the 'service' component of a works contract from the 'goods' component. It begins by working downwards from the gross amount charged for the entire works contract and minusing from it the value of the property in goods transferred in the execution of such works contract. This is done by adopting the value that is adopted for the purpose of payment of VAT. The rule goes on to say that the service component of the works contract is to include the eight elements laid down in the second Gannon Dunkerley case including apportionment of the cost of establishment, other expenses and profit earned by the service provider as is relatable only to supply of labour and services. And, where value is not determined having regard to the aforesaid parameters, (namely, in those cases where the books of account of the contractor are not looked into for any reason) by determining in different works contracts how much shall be the percentage of the total amount charged for the works contract, attributable to the service element in such contracts. It is this scheme and this scheme alone which complies with constitutional requirements in that it bifurcates a composite indivisible works contract and takes care to see that no element attributable to the property in goods transferred pursuant to such contract, enters into computation of service tax.
In fact, the speech made by the Hon'ble Finance Minister in moving the Bill to tax Composite Indivisible Works Contracts specifically stated :-
"State Governments levy a tax on the transfer of property in goods involved in the execution of a works contract. The value of services in a works contract should attract service tax. Hence, I propose to levy service tax on services involved in the execution of a works contract. However, I also propose an optional composition scheme under which service tax will be levied at only 2 per cent of the total value of the works contract."
Pursuant to the aforesaid speech, not only was the statute amended and rules framed, but a Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007 was also notified in which service providers could opt to pay service tax at percentages ranging from 2 to 4 of the gross value of the works contract.
It is interesting to note that while introducing the concept of service tax on indivisible works contracts various exclusions are also made such as works contracts in respect of roads, airports, airways transport, bridges, tunnels, and dams. These infrastructure projects have been excluded and continue to be excluded presumably because they are conceived in the national interest. If learned counsel for the revenue were right, each of these excluded works contracts could be taxed under the five sub-heads of Section 65(105) contained in the Finance Act, 1994. For example, a works contract involving the construction of a bridge or dam or tunnel would presumably fall within Section 65(105)(zzd) as a contract which relates to erection, commissioning or installation. It is clear that such contracts were never intended to be the subject matter of service tax. Yet, if learned counsel for the revenue is right, such contracts, not being exempt under the Finance Act, 1994, would fall within its tentacles, which was never the intention of Parliament.
Finally, in para 31, the Delhi High Court holds :-
"The contention of the petitioners that the impugned notifications override the statutory provisions contained in Section 65(105), which defines the term "taxable service", Section 66, which it is claimed is a charging section, and Section 67, the valuation provisions of the Finance Act, 1994, has to be rejected. We have, as already stated above, rejected the argument of the petitioners on bifurcation/vivisect and held that as per the provisions of Section 65(105)(zzq) and (zzzh), service tax is payable and chargeable on the service element of the contract for construction of industrial and commercial complexes and contract for construction of complexes as specified and in case of a composite contract, the service element should be bifurcated and ascertained and then taxed. The contention that the petitioners are paying sales tax or VAT on material in relation to execution of the contract under composite contracts for construction of industrial/commercial complexes and construction contracts as specified under Section 65(105)(zzq) and (zzzh) therefore fails. The contention that there was/is no valid levy or the charging section is not applicable to composite contracts under clauses (zzq) and (zzzh) of Section 65(105) stands rejected. But the petitioners have rightly submitted that only the service component can be brought to tax as per provisions of Section 67 which stipulates that value of taxable service is the "gross amount charged" by the service provider for such services provided or to be provided by him and not the value of the goods provided by customers of service provider and the service tax cannot be charged on the value of the goods used in the contract."
We are afraid that there are several errors in this paragraph. The High Court first correctly holds that in the case of composite works contracts, the service elements should be bifurcated, ascertained and then taxed. The finding that this has, in fact, been done by the Finance Act, 1994 Act is wholly incorrect as it ignores the second Gannon Dunkerley decision of this Court. Further, the finding that Section 67 of the Finance Act, which speaks of "gross amount charged", only speaks of the "gross amount charged" for service provided and not the gross amount of the works contract as a whole from which various deductions have to be made to arrive at the service element in the said contract. We find therefore that this judgment is wholly incorrect in its conclusion that the Finance Act, 1994 contains both the charge and machinery for levy and assessment of service tax on indivisible works contracts.
It remains to consider the argument of Shri Radhakrishnan that post 1994 all indivisible works contracts would be contrary to public policy, being hit by Section 23 of the Indian Contract Act, and hit by Mcdowell's case.
We need only state that in view of our finding that the said Finance Act lays down no charge or machinery to levy and assess service tax on indivisible composite works contracts, such argument must fail. This is also for the simple reason that there is no subterfuge in entering into composite works contracts containing elements both of transfer of property in goods as well as labour and services.
4.7 Authorized representative after referring to table on page 116 of the paper book, argued that from what has been stated in that table, the contract under consideration is not a composite contract, but a divisible contract. Therefore the case on hand is distinguishable from the case of L & T decided by the Hon'ble Apex Court and the decisions of Tribunal referred to above.
4.8 For considering the argument of the Authorized representative, we refer to the relevant provisions of the contract.
"I THIS CONTRACT AGREEMENT is made the 16th day of September 2005.
BETWEEN
1) Mumbai Railway Vikas Corporation Limited (A PSU of Govt. of India, Ministry of Railways), 2nd Floor Churchgate Station Building, Churchgate Mumbai -400020 India (hereinafter "The Purchaser") of the one part and
2) JV of M/s Siemens A G (Lead Partner) Transportation Systems TSTR, Werner Von Siemens Strasse 69, Earlangen D 91055, federal Republic of Germany & M/s Siemens Ltd India (Partner) Navi Mumbai, Sector 2 Plot 2, Khargar Node Navi Mumbai -410210, India) (hereinafter called "the Supplier") of the other part.
II WHEREAS the purchaser desires to engage the supplier for "Design, Development, Manufacture, Supply, Testing and Commissioning of 25 KV AC/ 1500 V DC Duel Voltage microprocessor control IGBT based 3-phase propulsion system and equipments as per respective specification for Broad Guage EMU Rolling Stock" viz
(a) 101 sets (9 car sets) Equipments, to enable Indian Railway to manufacture EMU Rolling Stock as per RDSO design shell and bogie at ICF, Chennai in India
(b) The supply of goods and services under this contract also include
i. In addition to two prototype rakes, supervision of installation of equipments on 12 rakes (12-car) of series production.
ii. Supply of consumables for initial period of 6 months service and items required for commissioning of the goods supplied.
iii. In addition to Commissioning of the two prototype rakes, supervision of commissioning on 12 rakes (12-car) of series production.
iv. Supply of documents, design and drawings,
v. Supply of software tools
vi. Training of the personnel
vii. Supply of spare parts,
viii. Modifications required incidental services as listed in the schedule of requirements.
The details of the above are given in the Schedule of Requirements at Appendix-I And has accepted a bid by the supplier for the supply of those goods and services in the sum of Euro Eight Eight Seven Four Nine Five Two Six Plus Indian Rupee Four Four Six Zero Four Three Three Three Four Four [EURO-88,749,526 Plus INR- 4,460,433,344] (Contract price in Words and Figures) (hereinafter called "the Contract price") and the supplier has agreed to such engagement upon and subject to the terms and conditions herein after appearing.
Brief Particulars of the goods and services, which shall be supplied/ provided by the Supplier are as under.
S No
Brief Description of Goods and Service
Quantity to be Supplied
Total Price
Delivery Terms
EURO
INR
1
Design, Development, Manufacture, Supply, Testing, Commissioning of Equipments as per Schedule 'A" of RDSO's Specification No ELPS/SPEC/EMU /5-(ReV-4) OF August 2003 and Schedule of Requirement Breakup as per Price Schedule
A
Schedule I
Goods Dual Voltage EMU Equipments) and Maintenance Spares (based on Purchaser's Experience) Supplied from abroad
101 Sets (9 car EMU) Or 303 Motor Coaches - 162 DTC,
49,078,55
0
CIF Chennai or CIF Mumbai (whichever applicable)
B
Schedule 2
Goods Dual Voltage EMU Equipments) and Maintenance Spares (based on Purchaser's Experience) Supplied from within the Purchaser's Country
444 TC Or 75 Sets (12-car) = 1 set (9 car)
26,363,270
4,359,905,304
EX W
C
Schedule 3
Local Transportation, Insurance and other Services incidental to delivery
0
22,217,172
D
Schedule 4
Commissioning including Service Trials and Incidental Services
13,060,946
69,078,899
E
Schedule 5
Additional Spares (based on Bidder's Experience)
246,756
9,231,969
CIF Chennai or CIF Mumbai (whichever applicable)
Total Value
In Figures: EURO88,749,526 INR4,460,433,344
In Words: Euro Eight Eight Seven Four Nine Five Two Six + Indian Rupee Four Four Six Zero Four Three Three Three Four Four.
Appendix-3 GENERAL CONDITIONS OF CONTRACT
Definitions In this Contract, the following terms shall be interpreted as indicated
a. "The Contract" means the agreement entered into between the Purchaser and the Supplier, as recorded in the Contract Form signed by the parties, including all attachments and appendices thereto and all documents incorporated by reference therein.
b. "The Contract Price" means the price payable to the Supplier under the Contract for the full and proper performance of its contractual obligations.
c. "The Goods" means all of the equipment machinery and/ or other materials which the Supplier is required to supply to the purchaser under the Contract.
d. "The Services" means those services ancillary to the supply of the Goods, such as transportation and insurance , and other incidental services such as installation, commissioning, provision of technical assistance training and other such obligations of the Supplier covered under the Contract.
Appendix-4 SPECIAL CONDITIONS OF CONTRACT.
Payment (GCC Clause 16):
11.1 Substitute Clause 16.1 of the GCC by the following
GCC 16.1 Payment shall be made in the currency or currencies, specified in the Contract in the following manner.
GCC 16.1.1
I Payments:-
(a) Stage 1 Payment
20% percent of the total value of the contract after Signing of Contract & Submission of a bank guarantee for equivalent amount valid for 60 days beyond the expected date of supply of goods. B G for Stage 1 Payment shall be furnished by the bidder within 2 weeks of signing of contract.
Where the Contract Price is composed of a combination of currencies the payment shall be made and the Bank Guarantee shall be furnished in the same combination and in the same proportion of currencies
The Stage 1 payment bank guarantee shall be at the Suppliers option in the form of Bank Guarantee from.
· A Nationalized/ Scheduled bank in India or
· A foreign bank operating in India under the approval of the Reserve Bank of India, or
· A foreign bank located in any eligible country counter guaranteed by a Nationalized/ Scheduled bank in India
The term " Scheduled Bank" ...
The format of the bank guarantee....
(b) Stage II Payment for equipments
75% (seventy five percent) CIF/ EXW value of the relevant portion of the contract price for "set of Equipments" on inspection and proof of dispatch on submission of documents listed at para 4 below.
(c) Stage III payment for equipments
After satisfactory trials of the 2 prototype rakes, 5% CIF/ EXW value of the equipments shall be paid within 30 days of the submission of Bills along with requisite documents including commissioning certificate by IR. This will apply to all rake sets (9-set) of equipments.
However, if the manufacture of these rakes is delayed beyond 12 months from the date of receipt of equipment at the IR's manufacturing facility the payment will be released."
4.9 In the Notification of Award, issued by the Appellant vide letter dated 02.05.2005, following has been stated:
"4.0 We confirm having accepted your offer submitted vide letter No F-0513_EMU_Bombay_MVRC-10 dated 20.05.2004 read in conjunction with all specifications, terms and conditions of the Bidding Documents, subsequent letters/ clarifications and award the Contract for i.e. work of Design, Development, Manufacture, Supply, Testing and Commissioning of 25 KV AC/ 1500 V DC Duel Voltage microprocessor control IGBT based 3-phase propulsion system and equipments as per respective specification for Broad Guage EMU Rolling Stock.
Total Contract Price for the entire scope of work under the Contract shall be EURO- 88,749,526 Plus INR-4,460,433,344 (Euro Eight Eight Seven Four Nine Five Two Six Plus Indian Rupee Four Four Six Zero Four Three Three Three Four Four).
4.10 The above excerpts from the contract show that the contract is not a contract for supply of services simplicitor but is contract for the supply of goods and incidental services. The contract is not divisible as urged by the learned authorized representative. The contract price includes cost of all items included in the scope of work, technical specifications, specific requirements, drawings and/ or under any other heads of Contract Documents and to complete the subject work on turnkey basis, irrespective of whether all the items for Engineering, Supply and Erection are categorically listed out/ brought out elsewhere or not. The contract price includes cost of all works which are deemed to be performed, executed and supplied by the Supplier as stipulated in the Contract and assigned to various available heads and categories in the price schedule referred to by the authorized representative.
4.11 The terms used "divisible contract" and "indivisible contract" need to be further looked into, Merriam Webster defines the phrase "divisible contract" - a contract containing agreements one of which can be separated from the other so that one part may be valid or enforceable although another is void or so that a right may accrue on one and not on another.
"Divisible contract." Merriam-Webster.com Dictionary, Merriam-Webster, https://www.merriam-webster.com/dictionary/divisible%20contract. Accessed 25 Oct. 2021. Black Law Dictionary states divisible contract - "That which is susceptible of being divided. One which is in its nature and purposes susceptible of division and apportionment, having two or more parts in respect to matters and things contemplated and embraced by it, not necessarily dependent on each other nor intended by the parties so to be. Horseman v. Horseman, 43 Or. 83, 72 Pac. 698" (Black Law Dictionary, Henry Campbell Black, M A 1990)
On page 985, of the Black's Law Dictionary (8th Edition, 2004) following is stated.
severable contract: A contract that includes two or more promises each of which can be enforced separately, so that failure to perform one of the promises does not necessarily put the promisor in breach of the entire contract. - Also termed divisible contract; several contract. See SEVERABILITY CLAUSE. Cf. joint contract. [Cases: Contracts 137, 171. C.J.S. Contracts §§ 297, 349-354.]
"A severable contract ... is one the consideration of which is, by its terms, susceptible of apportionment on either side, so as to correspond to the unascertained consideration on the other side, as a contract to pay a person the worth of his services so long as he will do certain work; or to give a certain price for every bushel of so much corn as corresponds to a sample." Ivan Horniman, Wharton's Law Lexicon 215 (13th ed. 1925).
On page 977, it states:-
engineering, procurement, and construction contract. A fixed-price, schedule-intensive construction contract - typically used in the construction of single-purpose projects, such as energy plants - in which the contractor agrees to a wide variety of responsibilities, including the duties to provide for the design, engineering, procurement, and construction of the facility; to prepare start-up procedures; to conduct performance tests; to create operating manuals; and to train people to operate the facility. - Abbr. EPC contract. - Also termed turnkey contract. See SINGLE-PURPOSE PROJECT.
4.12 Commissioner has in his order observed as follows:
"66. I observe that the noticees were entrusted with the task of conversion of 1500 Volt DC system for suburban railway section on Central Railway & Western Railway to 25,000 Volt AC; that in the transition Phase, Dual Voltage 1500 VDC / 25000 V AC equipment will be required to be fitted in suburban EMU trains. I also observe that in order to undertake the project they entered into an agreement dt 16-9-2005 with a joint venture of Siemens AG Germany & Siemens Ltd, India "for the design, development, manufacture, supply, testing & commissioning of 25 KV AC / 1500 V DC, dual voltage microprocessor control IGBT based 3 phase propulsion system and equipments as per respective specification for broad gauge EMU rolling stock to be built at integral Coach Factory, Chennai, India".
I observe that the SCN dt 13-10-2010 alleged that the services received by the noticees from M/s Siemens AG Germany, pursuant to the aforesaid contract were covered under the category of erection, commissioning or installation & that since the service provider, M/s Siemens AG Germany did not have any office or establishment in India, it was the responsibility of the noticees to discharge the service tax liability under Sec 66A of the FA 1994 on reverse charge mechanism,
I observe that the basis of the demand in the SCN is the agreement dt 16-9-2005. Furthermore, on going through the Annexure to the SCN which quantified the demand, & the bills / journal voucher entries referred to in the said Annexure, I observe that demand was raised primarily on the services listed in the Special Conditions of Contract in the said agreement, par 8 (a) (iii) therein which pertains to installation of equipments (supervision) and para 8 (a) (iv) which pertains to Commissioning (Supervision). Accordingly, I observe that para 8(a) (iii) states as follows:
"The equipment supplied by the supplier stall be listed on new EMU rakes by the start of ICF a Chennai. The supplier shall depute Engineers to supervise the installation at ICF of 12 rakes (12 car & 2 prototype 12-car rakes to ensure proper installation and pre-commissioning. Required drawings & installation instructions shall .... . Suppliers Engineers shall also ensure testing of EMU rakes fitted with supplied equipment .... The supplier shall also supply special tools, testing & measuring instruments required for installation of the equipments."
On going through the above clause it is clear that the foreign service provider was required to supervise the installation of the rakes at ICF to ensure proper installation & pre-commissioning. Furthermore, they were also required to ensure testing of the EMU rakes fitted with the supplied equipments at ICF. Hence, it is clear that the said activity of the foreign service provider would be covered under the category of erection, commissioning or installation.
I observe that Para 8 (a) (iv) of the Special Conditions of Contract which pertains to Commissioning (Supervision) states as follows:
"Commissioning, testing & service trials of two prototype 12-car rakes in Mumbai & supervision of commissioning, testing & service trials of twelve, 12-car EMU rakes manufactured from supplied equipments in Mumbai is the responsibility of supplier and he should make appropriate arrangements as mentioned in clause 5.12 & 5.13 of Chapter 5 of the Technical Specification (VOL-II of the bid document).
EMU rakes manufactured at ICF shall be transported to Mumbai on their own wheels but on their own power. The pre-commissioning testing of rakes at ICF & the commissioning, testing, trials of rakes in Mumbai shall be carried out by the staff of ICF, CR& WR under the supervision of supplier's Engineers. The supplier shall ensure that all equipments supplied by him and filled on the EMU rakes perform satisfactorily. In case any of the supplied equipment fails or malfunctions, supplier shall arrange its expeditious replacement under warranty obligations so that commissioning of the rakes is not delayed.
Special tools, testing & measuring instruments required for pre-commissioning testing of rakes at ICF & commissioning, testing & service trials in Mumbai shall also be supplied by the supplier.
To the extent possible, the basis facilities like space, water & electricity shall be supplied by IR free of charge within IR's premises.
Testing & commissioning charges shall be inclusive of the number of visits of supplier's engineers & other requisites for testing & commissioning.
Supplier shall be responsible for arranging ticket, visa, permit, foreign exchange etc for his Engineers & the purchase shall bear no responsibility in this regard except issuance of recommendatory letter(s) for arranging the visa. The supplier shall be responsible for paying taxes, if any, etc including income tax & surcharge on income tax as applicable to his engineers and supervisors."
On going through the above stipulations, it is clear that the foreign service provider was responsible for the Commissioning, testing & service trials of two prototype 12-car rakes in Mumbai & supervision of commissioning, testing & service trials of twelve, 12-car EMU rakes manufactured from supplied equipments in Mumbai ... ... ..." I note that though it was stipulated that the commissioning, testing, trials of rakes in Mumbai shall be carried out by the staff of ICF. CR & WR, I note that the said activity was to be undertaken under the supervision of the foreign service provider's engineers for which consideration was paid in foreign exchange (Euros) by the noticees to the foreign service provider.
Though the noticees have elaborately sought to explain that the activity conducted by the foreign service providers was merely testing of the brakes of the train and other incidental services and & attempted to distinguish the said activity with that of the commissioning of the suburban train system in Mumbai, 1 observe that the clauses in the agreement as detailed above as well as the description of the scope of the work in the bills raised by the foreign service providers belies the claim of the noticees since the above documents clearly state the main activity of the foreign service providers was commissioning of the suburban train system (including testing). Thus, I believe that testing was merely one of the activities under the umbrella of commissioning.
I also observe that the activity of setting up of the suburban train system in Mumbai was entrusted to the foreign service providers by the noticees ultimately resulted in the activity of commissioning the train system properly without any chances of accidents & thus 1 hold that the activity of the foreign service provider, provided to the noticees would be covered under the category of erection, commissioning or installation,
Furthermore. I am of the opinion that the process of erection, installation or commissioning normally involves the following three steps ...
Drawing and designing for erection and installation; Carrying out the actual work of erection & installation & Commissioning of the installed item.
On going through the agreement dt 16.9-2005, it is clear that all the aforesaid activities were undertaken by the foreign service provider. Hence, for this reason also, I have no hesitation in concluding, that the services received by the noticees were under the category of erection, commissioning or installation services.
On going through the reply of the noticees, I note that the contention of the noticees was that the services rendered by the foreign service providers was in the nature of Works Contract Services IWCS). i.e. turnkey project / EPC Contract which would primarily be covered under the category of WCS & that WCS in r/o railways was specifically, excluded from the levy of ST. In this connection, I observe from opening clause of the definition ACS under Sec 05 (105) (zzzza) that the said Category of service means taxable services provided by to be provided to any person, by any other person in relation to the execution of works contract, excluding works contract in respect of roads, airports, railways, transport terminals, bridges, tunnels & dams. Hence, I observe that the said service would primarily i.e., in the first place on account of the exclusion clause in the definition itself, go out of the scope of works contracts services, i.e., only such turnkey projects / EPC contracts not pertaining to railways could be considered to fall under the definition of ECS not vice versa. To elaborate, it does not in any way mean that the services received by the noticees were invariably classifiable under WCS and that by virtue of the exclusion clause would not be taxable. In other words, it means that there was no question of considering the services received by the noticees, in the first place under the category of WCS at all, even if the same were in the nature of turnkey projects / EPC contracts, since the said service in relation to railways was prima facie, excluded. All the other subsequent clauses in the definition of WCS, whether the services were in the nature of turnkey projects / EPC contracts etc would come into play, if and only if the works contract did not pertain to roads, airports, railways, transport terminals, bridges, funnels & dams and not vice versa. Furthermore, the fact that the services would not be covered under WCS did not mean that the services could not be covered under any other category at all, if otherwise of exempt. In the instant case, i observe that during the material time, though the category of WCS excluded services in relation to railways, the said definition of WCS did not stipulate that services in relation to railways was not taxable / exempt. Consequently, on examination of the nature of the services rendered, it would necessarily mean that the said services were covered the suitable category."
4.12 A combined reading of clauses contained in the agreement/contract and along with the definitions and explanations given as per the dictionaries referred above we do not find ourselves in agreement with the submissions made by the authorized representative that the contract, under consideration is a "divisible' contract, which could have been vivisected to charge the service tax in respect of certain portion attributable to supervision undertaken by the foreign service provider as per the contract. Further we also do not find ourselves in agreement with the findings recorded by the Commissioner whereby he holds that the contract was not a turnkey contract incorporating all the activities specified in the contract as one complete whole.
4.13 in case of Sentinel Rolling Shutters and Engineering Co. (P) Ltd. v. CST 1978 (4) SCC 260 wherein the Hon'ble Supreme Court was considering whether it was possible to break-up one contract into two segments - one for sale of goods and the others for providing services. The Court observed that:
"The Revenue learned heavily on the provision in the contract that the delivery of the goods shall be ex-works and once the delivery of the goods is effected, no claim for rejection shall be entertained and relying on this provision, the Revenue contended that under the contract the rolling shutters were to be delivered by the assessee to the company ex-works, that is, at the works of the assessee and the property in the rolling shutters passed to the company as soon as they were delivered and hence it was a contract for sale. ... The true nature of the contract cannot depend on the mode of payment of the amount provided in the contract. The parties may provide by mutual agreement that the amount stipulated in the contract may be paid at different stages of the execution of the contract, but that cannot make the contract one for sale of goods if it is otherwise a contract for work and labour. ... The payment of the amount due under the contract may be spread over the entire period of the execution of the contract with a view either to put the manufacturer or contractor in possession of funds for the execution of the contract or to secure him against any risk of non-payment by the customer. That cannot have any bearing on the determination of the question whether the contract is one for sale or for work and labour."
4.14 Commissioner has in para 87 of impugned order observed as follows:
"87. The Noticees submitted that the activities done at Chennai & Mumbai were in the nature of testing & could not be treated as commissioning, that the real nature of the transaction had to be seen than the words used in the contract. I hold that this contention of the noticees is not acceptable since the services provided by Siemens AG, Germany were in accordance with the contract. The vouchers / invoices raised & payments made against such invoices were also in accordance with the contract. In the invoices also it was mentioned that the charges are for installation & commissioning. Therefore, the contention of the noticees that the services provided was of testing only cannot be accepted at later date. It is further observed that the decision of Supreme Court in State of Andhra Pradesh vs Kone Elevators India Ltd 2005 (181) ELT 156 SC relied upon by the noticees in support of their said contention has already been overruled in the case reported as 2014 (34) STR 641 SC/2014 (304) ELT 161 SC, therefore not helpful to them."
Commissioner has stated that earlier decision rendered by the Apex Court as reported at {2005 (181) ELT 156 SC] has been overruled, by the later judgement, However, Commissioner has failed to consider what has been stated by the constitutional bench of Hon'ble Apex Court while over-ruling the said decision. Para 64, of this decision, is reproduced below:
64.Coming back to Kone Elevators (supra), it is perceivable that the three-Judge Bench has referred to the statutory provisions of the 1957 Act and thereafter referred to the decision in Hindustan Shipyard Ltd. (supra), and has further taken note of the customers' obligation to do the civil construction and the time schedule for delivery and thereafter proceeded to state about the major component facet and how the skill and labour employed for converting the main components into the end-product was only incidental and arrived at the conclusion that it was a contract for sale. The principal logic applied, i.e., the incidental facet of labour and service, according to us, is not correct. It may be noted here that in all the cases that have been brought before us, there is a composite contract for the purchase and installation of the lift. The price quoted is a composite one for both. As has been held by the High Court of Bombay in Otis Elevator (supra), various technical aspects go into the installation of the lift. There has to be a safety device. In certain States, it is controlled by the legislative enactment and the rules. In certain States, it is not, but the fact remains that a lift is installed on certain norms and parameters keeping in view numerous factors. The installation requires considerable skill and experience. The labour and service element is obvious. What has been taken note of in Kone Elevators (supra) is that the company had brochures for various types of lifts and one is required to place order, regard being had to the building, and also make certain preparatory work. But it is not in dispute that the preparatory work has to be done taking into consideration as to how the lift is going to be attached to the building. The nature of the contracts clearly exposit that they are contracts for supply and installation of the lift where labour and service element is involved. Individually manufactured goods such as lift car, motors, ropes, rails, etc. are the components of the lift which are eventually installed at the site for the lift to operate in the building. In constitutional terms, it is transfer either in goods or some other form. In fact, after the goods are assembled and installed with skill and labour at the site, it becomes a permanent fixture of the building. Involvement of the skill has been elaborately dealt with by the High Court of Bombay in Otis Elevator (supra) and the factual position is undisputable and irrespective of whether installation is regulated by statutory law or not, the result would be the same. We may hasten to add that this position is stated in respect of a composite contract which requires the contractor to install a lift in a building. It is necessary to state here that if there are two contracts, namely, purchase of the components of the lift from a dealer, it would be a contract for sale and similarly, if separate contract is entered into for installation, that would be a contract for labour and service. But, a pregnant one, once there is a composite contract for supply and installation, it has to be treated as a works contract, for it is not a sale of goods/chattel simpliciter. It is not chattel sold as chattel or, for that matter, a chattel being attached to another chattel. Therefore, it would not be appropriate to term it as a contract for sale on the bedrock that the components are brought to the site, i.e., building, and prepared for delivery. The conclusion, as has been reached in Kone Elevators (supra), is based on the bedrock of incidental service for delivery. It would not be legally correct to make such a distinction in respect of lift, for the contract itself profoundly speaks of obligation to supply goods and materials as well as installation of the lift which obviously conveys performance of labour and service. Hence, the fundamental characteristics of works contract are satisfied. Thus analysed, we conclude and hold that the decision rendered in Kone Elevators (supra) does not correctly lay down the law and it is, accordingly, overruled.
In our view as per the above decision, the contract which is an composite contract for the supply of the goods and services, satisfy the characteristics of a work contract.
4.15 The view taken by us is also consistent with view expressed in the earlier decisions as follows:
Ø Daelim Industries reported [2003 (155) E.L.T. 457 (Tri.-Del)], affirmed at [2004 ( 170 ) E.L.T. A181]
Ø Larsen and Toubro Ltd. [2004 (174) E.L.T. 322 (T)]
Ø Rolls Royce Industrial Power (I) Ltd. [2004 (171) E.L.T. 189 (Tri.-Del.)]
Ø And the decisions referred by us in para 4.3 to 4.6, supra.
4.16 Authorized representative has argued that even following the decision of the Apex Court in case of L & T the service tax should be levied in the present case under the category work contract services from 1st June 2007. The definition of Work Contract Service as introduced from 1st June 2007, read as follows:
"Section 65 (105) (zzzza) of Finance Act, 1994
"Taxable Service" means any service provided or to be provided 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 air-conditioning 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
f. commissioning (EPC) projects;
The said definition do not state that the contracts, of railway do not fall within the scope of work contract service but state that the work contract services, in respect of railways, are excluded from taxable category as defined by the said section. The work contract has been defined by the explanation, and any contract which satisfies to the requirements specified therein will fall under the category of work contract. However if the said contract falls within the exclusion category the same cannot be taxed under the said taxable category. Since the work contracts in respect of railways have been excluded from the definition of taxable service the same cannot be taxed under this category. The appellant being public sector under taking of Ministry of Railway, and the project undertaken is for Railways, cannot be subject to tax in this category even after 1st June 2007.
4.17 Thus we do not find any merits in the impugned order and set aside the same following the earlier precedents on the issue.
5.1 In view of the discussions as above the appeal is allowed.
(Order pronounced in the open court on 27.10.2021)