Laying of GRP pipes - whether Erection, Commissioning & Tnstallation service?

PJ/Case Laws/2011-12/1320

Case: M/s Strategic Engineering Pvt. Ltd. Manamadurai v/s Additional Commissioner Central Excise, Madurai

Citation: 2011-TIOL-547-HC-MAD-ST

Issue:- Laying of GRP pipes before 16.06.2005 – not covered under ‘Erection, Commissioning & Installation’ service.

Issue raising pure question of law – Writ petition against Adjudication order maintainable even when alternative statutory remedy available.

Brief Facts:- Petitioner-company were engaged in manufacture of FRP Pipes falling under Chapter No. 7014.00 of the Central Excise Tariff. Petitioner were also carrying on the business of laying of GRP Pipes to its customers and were receiving labour charges from them. The GRP Pipes are laid inside the trench in case of underground-buried construction. The buried pipe laying activity involves trenching, bedding and laying inside the trench and aligning appropriately. The pipe lowering into the trench is executed by two men using ropes and anchored to stakes. Erection of pipes involves connecting the laid pipes and subjecting the pipes to carry fluids. This activity is done by the customers as per their own needs and requirements.

Department issued show cause notice to the Petitioner demanding service tax by categorising labour charges under ‘Erection, Commissioning & Installation’ service and the service rendered to non-resident clients by Petitioner was categorised under ‘Scientific or technical Consultancy service’.

The Adjudicating Authority confirmed the demand. Petitioner filed writ petition under Article 226 of the Constitution against the impugned order.

Appellant’s Contention: - With regard to maintainability of writ petition, the petitioner has placed reliance on judgment of the Division Bench of the High Court, in the case of Sri Palani Dhandayuthabani Devasthanam vs. Commercial Tax Officer, Palani Circle II, Palani [2001-(ST4)-GJX-0280-MAD.] in support of the contention that after the admission of the writ, the court should normally hear the case on merit.

Petitioner has submitted that the service provided by them did not fall under the head 'Commissioning and Installation services'. For this reference was made to the definition given under Section 65(28) of the Finance Act 1994 as it stood before amendment.

Respondent’s Contention:- Revenue contended that as per the contract order dated 12.09.2003, the petitioner was to render the services of fabrication, erection, alignment and hydro-testing of GRE piping at the LGN Terminal Site, Hazira of M/s. Petron Engineering Constructions Ltd. GRP Piping is an integral part of a plant or extension of a plant which includes machinery. The said piping was to provide fluid for the operation of the plant and machinery at the above mentioned site. Without the impugned piping, the plant comprising machinery is not complete and cannot be commissioned for operation of the intended purpose. Therefore, the contention of the petitioner that laying of pipes is not a plant, machinery or equipment is not sustainable.

It was submitted that service tax was levied on "commissioning and installation of plant, machinery and equipment" with effect from 01.07.2003. The general practice in the trade and industry is that 'erection, commissioning and installation' are contracted as a composite package. The Central Board of Excise and Customs vide Circular No.80/10/2004-ST dated 17.09.2004 had clarified that in case of a composite contract for erection, commissioning and installation, the erection charges would be taxed as part of commissioning and installation service.

Reasoning of Judgement:- On the issue of maintainability of writ petition the High Court held that at this stage it would not be appropriate to relegate the petitioner to alternative statutory remedy as the Revenue was asked to file counter on the merits of the case. It was also noted that the issue involved was purely legal issue, the Court can decide the case on merits.

On merits, it was noted that the laying of GRP pipe did not fall under Section 65 (28) of the Finance Act, 1994.

After perusal of amended provisions i.e. new Section 65 (39a), it was held that plumbing, drain laying or other installations for transport of fluids etc., was included in the definition of 'erection commissioning or installation', for the first time, on 16^th June 2005.

The High Court noted that the Revenue had raised the demand by treating the work of the petitioner to be execution of works contract. Accordingly, it was held that the plea of the respondent is to be rejected as the work contract was first time included under service tax net w.e.f. 1^st June 2007 under Section 65 (105) (zzzza) of the Finance Act, 1994.

The High Court in the end held that from the facts it is clear that the demand raised against the petitioner is not sustainable in law, as the period for which the demand has been raised does not cover the services of the petitioner for imposition of service tax. It was held that the show cause notice as well as the impugned order were the outcome of misreading of provisions of the Finance Act, 1994, which are not sustainable. Impugned order is quashed.

Decision:- Writ petition allowed.

Comment:- This is very good decision wherein it was held that if the definition is amended and its area is expanded then the addition will be effective from that day only. Further, it falls under another category and this is effective from particular date then the demand can be made from that date only. This is very good decision.

But we have come across certain decision wherein the Tribunal is saying that if the work is coming under “work contract” then earlier it was covered under “commercial construction activity”. Hence the service tax is payable under that category. Though in certain other decisions, it has held that if it is covered under works contract which has come into force from 1.6.2007 then it is not chargeable to duty under any other category prior to 1.6.2007.

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PJ/Case Laws/2011-12/1320

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