Stay/Dispensation of pre-deposit of service tax on the activity of Laying, connecting, joining pipeline of water projects

PJ/ Case Laws/2012-13/1281

Case:- SURINDRA ENGINEERING CO. LTD. versus COMMOSSIONER OF C. EX., MUMBAI

Citation:- 2012 (27) S.T.R. (Tri. – Mumbai)

Brief Facts:-The appellant is engaged in manufactures of pipes and are also service tax assessee in respect of GTA service. They undertook manufacture and supply of pipes to Maharashtra Jeevan Pradhikaran and as per the contract entered into with the said Organisation, apart from the supply of pipes, they were also required to undertake the activity of laying, connecting, jointing pipeline of water projects till the stage of testing and commissioning of raw and pure water by pumping machineries. The department was of the view that the said activity came under the category of "erection, installation and commissioning service" as defined under Section 65(105)(zzd) of the Finance Act, 1994 and service tax was payable on the said service. Accordingly, a show-cause notice was issued to the appellant demanding a service tax of Rs. 7,62,26,657/- on the total contract value of 75,36,01,409/- received by the appellants during the period from 2003-2004 to 2006-2007 vide show-cause notice invoking the extended period of time under the provisions of Section 73 of the Finance Act, 1994. The show-cause notice also proposed recovery of interest on the service tax under Section 75 thereof and penalties were also proposed under Sections 76 and 78 of the Finance Act.

Appellant Contentions:- The appellant relied upon following cases:

Ø Indian Hume Pipe Co. Ltd. v. C.C.E., Trichy, reported in 2008 (12) S.T.R. 363 (Tri.-Chennai)

Ø Larsen & Toubro Ltd. v. CST, reported in 2011 (01) LCX 0154 = 2011 (22) S.T.R. 459 (Tri.-Ahmd.)

Ø CST Bangalore v. Turbotech Precision Engineering Pvt. Ltd., reported in 2010 (18) S.T.R. 545 (Kar.)

In case of Indian Hume Pipe Co. Ltd. v. C.C.E., Trichy, it was held by the Tribunal that laying of pipes for use in water supply projects will not come under the category of erection, commissioning and installation service and, therefore, service tax is not payable on the said activity under the category of erection, commissioning and installation. The Appellant further submits that a similar issue came up before the Ahmedabad Bench of the Tribunal in Larsen & Toubro Ltd. v. CST in which it was held that the activity of laying pipeline for water supply projects were sought to be categorized under the category of commercial or industrial construction service and it was held that the said activity was not for commerce or industry and, therefore, service tax cannot be levied on laying of pipelines for water supply projects under commercial or industrial construction service. The Appellant also relies on the judgment of the hon'ble High Court of Karnataka in the case of CST Bangalore v. Turbotech Precision Engineering Pvt. Ltd wherein a dispute arose as to whether the activity of design development, design review, installation and commissioning and technology transfer would come under the category of Consulting Engineer service or not and the said activity involved not only supply of goods but also supply of services. The Hon'ble High Court held that the activity undertaken was in the nature of a woks contract and hence, not leviable to service tax under the category of Consulting Engineer. The Appellant argues that, in their case also, the activity undertaken includes not only supply of goods but also supply of services and, therefore, the activity undertaken by them would rightly come under the category of works contract and not under the category of erection, commissioning and installation service. The Appellant submits that while confirming the service tax demand, the Commissioner has taken into account the entire value of the contract, which is for supply of goods as well as service and abatement has been given only for the period from March 2006 to March 2007 in terms of notification No. 01/06, dated 1-3-2006. He submits that they have discharged VAT/Sales Tax liability on the goods supplied and, therefore, the value of the goods has to be excluded while computing the duty demand which has not been done in the instant case and, accordingly, the demand confirmed is bad in law. The Appellant Counsel also relies upon the Circular No. 123/5/2010-TRU, dated 24-5-2010 wherein it has been clarified that if an activity does not result in emergence of erected, installed and commissioned plant, machinery, equipment or structure or does not result in installation of an electrical or electronic device, the same is outside the purview of erection, commissioning and installation service. In the case cited supra, it has been clearly held that laying of pipeline will not amount to commissioning of a plant, machinery or equipment or structure and, therefore, the activity undertaken by the client does not come under the category of erection, commissioning and installation service. The appellant is in extreme financial difficulties and they have an accumulated loss of more than Rs.38 Crores as on 31-3-2011 and hence, the appellant prays for-complete waiver of pre-deposit of dues adjudged.

Respondent Contentions:- The Respondent submits that the order of the Tribunal in the Indian Hume Pipe Co. Ltd., has been appealed against before the hon'ble High Court of Madras and the same has been admitted and, therefore, no precedential value can be given to the said judgment. As regards the contention of the appellant that the value of the goods supplied have been included while demanding the service tax, the Respondent submits that the appellant has not furnished data relating to the value of the goods supplied and the adjudicating authority has directed jurisdictional Assistant Commissioner to provide abatement in terms of the Notification No. 01/06 dated 1-3-2006. Therefore, the inclusion of value of goods supplied while computing the demand for service tax is on account of non-furnishing of required data by the appellant with supporting evidences. The Id. JCDR also relies on the judgment of the Tribunal in the case of VED Contractors Pvt. Ltd. v. C.C.E., Delhi- II, reported in 2011-TIOL-1008- CESTAT-DEL wherein while considering the stay application in a case relating to works contract, it was held that while determining the value of the taxable service the value of material provided by the contractor has to be included in the assessable value. He further submits that as per the judgment of the Hon'ble Apex High Court in the case of C.C.E., Guntur v. Sri Chaitanya Educational Committee reported in 2011 (22) S.T.R. 135 (A.P.) while considering the stay application, the appellate Tribunal has to consider statutory guidance provided under Section 35F of Central Excise Act, 1944 and also keep in mind the twin requirements provided therein i.e. consideration of undue hardship and imposition of conditions to safeguard revenue interest. He has also relied upon the decision of the Tribunal in the case of Alstom Projects India Ltd. v. CST, Delhi, reported in 2011-TIOL-459- CESTAT-Del = 2011 (23) S.T.R. 489 (Tri-Del.), wherein it was held that services covered under works contract service is taxable even prior to 1-6-2007 if the service is provided therein came under the purview of stand alone service as defined under Section 65(105) of the Finance Act, 1994 and, therefore, if any of the services rendered comes under the category of taxable service prior to 1-6-2007, service tax is liable to be paid on such service even though the whole service may come under the category of work contract after 1-6-2007. In the light of these submissions, the respondent submits that the appellant should be put to terms.

Reasoning of Judgement:-We have considered the submissions made by both the sides. The facts of the present case are more or less identical with the facts in the Indian Hume Pipe Co. Ltd. case cited supra wherein it was held that laying of pipeline for water supply projects will not come under the category of erection, commissioning and installation service. Though the department has filed an appeal before the hon’ble High Court of Madras against the said decision, no stay has been obtained by the "department in respect of the said decision. Further, the Board's own Circular dated 24-5-2010 makes it absolutely clear that unless the activity undertaken results in the emergence of an "erected, installed and commissioned plant, machinery, equipment or structure", the activity will not come under the category of erection, commissioning and installation service. Laying of pipelines cannot be construed as a plant, machinery or equipment or structure. Further, the said circular also clarifies that laying of cables under or alongside road or railway tracks, etc. is not a taxable service under Section 65(105) of the Finance Act, 1994. If laying of cables cannot be a taxable service, adopting the same logic, the laying of pipeline also cannot be construed as a taxable service. Thus, the appellant has made out a prima facie case for grant of waiver of pre-deposit of the dues adjudged in the impugned order. It is also to be noted that while confirming the demand of service tax, the Commissioner has included the value of goods supplied on which ST/VAT has been paid, and no efforts has been made to arrive at the value of the services provided, which is an infirmity in the order and if the value of the goods supplied is excluded, the demand would come down substantially. Further, it is noticed that the appellant has huge accumulated loss as on 31-3-2011 as per their balance sheet and, therefore, if they are asked to make any pre-deposit it would result in undue financial hardship. Taking into account all the facts and circumstances of the case, we are of the view that the appellant has made out a prima facie case for grant of full waiver of dues adjudged. Accordingly, we grant waiver of pre-deposit of full amount of dues adjudged and stay recovery thereof during the pendency of the appeal.

Decision: -Appeal Disposed off.

Comment:It is observed that a case referred by the appellant, that is almost on the same grounds cannot be rejected to be considered on the grounds that the Revenue has filed a further appeal in High Court and not even stay has been granted to the Revenue in respect of such appeal.

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PJ/ Case Laws/2012-13/1281

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