Category of service under which laying of pipeline falls.

PJ/CASE LAW/2015-16/2789

Case:-COMMISSIONER OF S.T., MUMBAI VS HYUNDAI HEAVY INDUSTRIES CO. LTD.

Citation:-2014 (33) S.T.R. 111 (Tri. - Mumbai)

Brief Facts:-This is Revenue’s appeal against Order-in-Original No. 09/STC/SJS/2006, dated 23-11-2006 passed by the Commissioner of Service Tax, Mumbai.
The respondent, Hyundai Heavy Industries Co. Ltd., Mumbai entered into an agreement with M/s. ONGC dated 17-3-2003 for laying of submarine pipelines, for the transport of petroleum crude oil from Bombay High and Bassein Field Offshore sites. The scope of the work as per the agreement was as follows :
“Whereas, the company is desirous of carrying out work of laying of submarine pipelines and Topside modification works of Mumbai High and Bassein Pipeline Project (hereinafter referred to as the ‘Work’ or ‘Works’ and more particularly defined in the Clause 1.1.35 of the General Condition of the Contract) on turnkey basis at its Mumbai High and Bassein Field Offshore Sites, the work covered under the contract to include but not limited to surveys (pre-engineer, pre-construction/pre-installation and post-installation), design, engineering, procurement, fabrication, anti-corrosion and weight removal and disposal of unutilized riser clamps and existing risers along with some portion of submarine pipelines which is required to be removed for aligning the new pipeline with new riser, transportation, installation, hook-up, testing and pre-commissioning, commissioning assistance and supply of 10 No. each of coated pipes (anode fitted) of sizes 8” and 10”.”
The department was of the view that the said activity undertaken by the respondent is exigible to Service Tax under the category of ‘Commissioning and Installation Service’ and accordingly issued a notice dated 1-10-2006 demanding Service Tax of Rs. 3,36,33,940/- for the period 1-7-2003 to 31-3-2004. The notice was adjudicated and the Commissioner held that laying of pipeline, as part of the turnkey projects, would not come under the category of ‘Commissioning and Installation Service’ and might be classifiable under ‘Commercial Construction Service’ which came into force w.e.f. 16-6-2005. He also noted that though ‘Construction Service’ came under the tax net w.e.f. 10-9-2004, the said service also would not include within its scope laying of long distance pipeline. In other words, the Commissioner held that during the impugned period laying of pipeline was not a taxable activity. Accordingly, he dropped the demand.
Revenue is aggrieved of the same and is in appeal before the Tribunal.

Appellant contentions:- It is argued on behalf of the Revenue that the respondent actually provided a bundle of services including ‘Commissioning and Installation Service’ and the laying of pipeline would be covered under ‘Commissioning and Installation of Plant, Machinery or Equipment’ which came under the tax net w.e.f 10-9-2004 and therefore, dropping of the demand by the Commissioner is not sustainable in law. The learned Commissioner (AR) appearing for the Revenue reiterates these grounds.

Respondent contention:-None appeared for the respondent, Hyundai Heavy Industries Co. Ltd.

Reasoning of Judgment:-We have carefully considered the rival submissions.
During the period of demand Section 65(39A) of the Finance Act, 1994 provided that :
“(39A) ‘Commissioning or Installation’ means any service provided by a commissioning and installation agency, in relation to commissioning or installation of plant, machinery or equipment.”
Therefore, the activity covered under the tax net is only ‘commissioning or installation of plant, machinery or equipment’. This Tribunal in the case of Indian Hume Pipes Co. Ltd. - 2008 (12) S.T.R. 363 held that pipes or pipeline does not come under the category of ‘plant, machinery or equipment’ and, therefore laying of pipeline does not come within the scope of ‘Commissioning or Installation Service’. In any case, laying of pipelines has been specifically covered under ‘Commercial Construction Service’ which came into effect from 16-6-2005. During the impugned period, the activity of laying of pipeline was not covered under the ‘Commissioning and Installation Service’. Therefore, we do not find any infirmity in the Commissioner’s order dropping the demand.
In view of the above, we do not find any merit in the Revenue’s appeal and the same is dismissed. Consequently the respondent would be eligible for relief, if any, in accordance with law.

Decision:-Appeal dismissed.

Comment:-The essence of this case is that when the activity of laying pipelines was specifically included under ‘Commercial or Industrial Construction Service’ w.e.f. 16.6.2005, it cannot be classified under ‘Commissioning and Installation Service’ prior to 16.06.2005. Consequently, the appeal was allowed by concluding that laying of pipelines was not leviable to service tax prior to 16.06.2005.

Prepared By: Meet Jain

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PJ/CASE LAW/2015-16/2789

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