Whether laying of pipeline taxable under erection, commissioning and installation service?

Case:- CCE, MUMBAI Vs SURINDRA ENGINEERING CO LTD

Citation:-2014-TIOL-2007-CESTAT-MUM

Brief facts:-Both the Revenue and the appellant has filed appeal against order-in-original No. 21/STC/BR/09-10 dated 07/01/2010 passed by Commissioner of Service Tax, Mumbai. While the appellant is aggrieved of the confirmation of service tax demand on the appellant under the category of erection, installation and commissioning services to the extent of Rs. 7,62,26,657/-. Revenue is aggrieved of the re-computation of the service tax demand done by the adjudicating authority taking into the account the abatement available in terms of Notification No. 1/06 dated 01/03/2006. Since both the appeals arise out of the same order, we take them up together for consideration and disposal.

The facts arising for consideration in this case are as follows:-

The appellant M/s. Surindra Engineering Co. Ltd. are manufacturers of pipes and are also service tax assessees in respect of GTA services. 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 for water supply projects till the stage of testing and commissioning of raw and pure water by pumping machinery. 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 with effect from 01/07/2003. Accordingly, a show-cause notice dated 16/10/2008 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 invoking the extended period of time under the provisions of Sections 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 said Finance Act.

The case was adjudicated by the Ld. Commissioner vide the impugned order wherein he confirmed the duty demand of Rs. 7,62,26,257/- by categorising the activity undertaken by the appellant under "erection, commissioning and installation service". The Ld. Commissioner also directed the jurisdictional Assistant Commissioner to calculate the admissible abatement under Notification No. 1/06 dated 01/03/2006 as per the documentary evidences for the period from March 2006 to March 2007. Interest on the service tax confirmed was demanded under Section 75 and penalty under Section 76 of the Finance Act, 1994 @ Rs. 100/- every day during which the assessee failed to pay the service tax was imposed till 17/04/2006 and with effect from 18/04/2006, the penalty was imposed @ Rs. 200/- per day for failure of payment of service tax subject to the overall ceiling of service tax demanded i.e. Rs. 7,62,26,257/-. The Ld. Commissioner further imposed a penalty of Rs. 8.00 crores on the appellant under Section 78 of the Finance Act for not paying the tax by suppressing the fact with intent to evade the same. The appellants are before Tribunal against the impugned order.

Appellant’s contention:-The Ld. Counsel for the appellant submits that in an identical set of circumstances in the case of Indian Hume Pipe Co. Ltd. Vs. CCE, Trichy, reported in 2008 (12) STR 363 (Tri-Chennai) 2008-TIOL-1665-CESTAT-MAD, this Tribunal had held 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 Ld. Counsel further submits that a similar issue came up for consideration before the Ahmedabad Bench of the Tribunal in Larsen & ToubroLtd., Vs. CST, reported in 2011-TIOL-218-CESTAT-AHM.In that case the activity of laying pipeline for water supply projects were sought to be categorised under "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 Ld. Counsel further relies on the judgment of the hon'ble High Court of Karnataka in the case of CSTBangalore Vs. Turbotech Precision Engineering Pvt. Ltd., reported in 2010 (18) STR 545 (Kar)2010-TIOL-498-HC-KAR-ST 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 as 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 work contract and hence, not leviable to service tax under the category of Consulting Engineer. The Ld. Counsel 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 Ld. Counsel submits that while confirming the service tax demand, the Ld. Commissioner has taken into account the entire value of the contract, which is for supply of goods as well as services and abatement has been given only for the period from March 2006 to March 2007 in terms of notification No. 01/06 dated 01/03/2006. 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 Ld. Counsel also relies upon the Circular No. 123/5/2010-TRU dated 24/05/2010 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 of equipment or structure and, therefore, the activity undertaken by the client does not come under the category 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 learned Counsel also relies on the decision of this Tribunal in the case of CCE, Rajkot Vs. PSL Ltd. - 2013 (31) STR 570 (Tri-Ahmed)wherein it was held that laying of separate pipelines or laying of coated pipes for water supply projects would not come within the purview of "erection, commissioning or installation service" and merit classification under "construction service".

Respondent’s contention:- The Ld. JCDR on the other hand submits that the order of the Tribunal in the Indian Hume Pipe Co. Ltd., has been appealed against the 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 Ld. JCDR 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 01/03/2006. 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 Ld. JCDR also relies on the judgment of the Tribunal in the case of VED Contractors Pvt. Ltd., Vs. CCE, Delhi -IIreported 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. The JCDR further submits that as per the judgement of the hon'ble apex High Court in the case ofCCE, Guntur Vs. Sri Chaitanya Educational Committee reported in 2011 (22) STR 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. The Ld. JCDR has also relied upon the decision of the Tribunal in the case of Alstom Projects India Ltd., Vs. CST, Delhi,reported in 2011-TIOL-459-CESTAT-Del wherein it was held that services covered under works contract service is taxable even prior to 01/06/2007 if the service is provided therein came under the purview of a standalone 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 a taxable service prior to 01/06/2007, service tax is liable to be paid on such service even though the whole service may come under the category of works contract service after 01/06/2007. In the light of these submissions, the Ld. JCDR submits that the appeal filed by the appellant be dismissed.

The learned Additional Commissioner (AR) appearing for the Revenue submits that the decision of the Tribunal in the case of Indian Hume Pipes Company has been appealed against by the department before the Hon'ble High Court of Bombay and the appeal of the department has been admitted. Therefore, the said decision is in jeopardy and hence, reliance cannot be placed on the said decision by the appellant to canvas its case. However, he fairly concedes that no stay has been obtained against the decision from the Hon'ble Bombay high Court. He further submits that as regards the direction of the adjudicating authority to the jurisdictional Assistant Commissioner to provide abatement in terms of Notification No. 01/06 dated 01/03/2006, the demand has been made on the value inclusive of the materials inasmuch as the appellant failed to furnish the required data with supporting evidences and therefore, the entire contract value should have been taken for the purposes of assessment, which the adjudicating authority has failed to do. Accordingly, it is submitted that the impugned order in so far as the confirmation of demand be upheld and in so far as it relates to re-computation of demand by granting abatement under Notification No. 01/06 dated 01/03/2006 be set aside.

Reasoning of judgment:- The facts of the present case are more or less identical with the facts in the Indian Hume Pipes 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 24/05/2010 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. 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.

They also note that the same view was taken by this Tribunal in the case of Hyundai Heavy Industries Co. Ltd. 2013-TIOL-1370-CESTAT-MUM wherein it was held that laying of submarine pipelines would not come within the purview of erection, commissioning and installation service. Further, in the case of PSL Ltd.this Tribunal noted that laying of pipelines for water supply projects would come under the "construction service" and since only commercial construction is liable to service tax and the pipelines for water supply are not commercial activities, the same would not be taxable. Thus, it may be seen that this Tribunal has consistently been holding the view that the activity of laying of pipelines would not come within the purview of "erection, commissioning and installation service" and it would be more appropriate classifiable under "Commercial or industrial construction service". This was the view taken by this Tribunal in the case of Lalit Constructions Vs. CCE, Raigad - 2012 (27) STR 138 (Tri-Mum).Though some of these decisions have been appealed against by the Revenue, no stay has been obtained against these final decisions given by this Tribunal. Therefore, following the ratio of these decisions, in the present case also, they hold that laying of pipelines would not come within the category of "erection, commissioning and installation service" and therefore, the impugned order is not sustainable in law. Accordingly, they set aside the impugned order and allow the appeal filed by the appellant M/s Surindra Engineering Co. Ltd. Since the impugned order has been set aside on merits, the appeal filed by the Revenue fails and therefore, the same is rejected.

Decision:- Appeal allowed.

Comment:- The analogy of the case is that laying of pipeline for water supply projects will not come under the category of erection, commissioning and installation service. The Board's own Circular dated 24/05/2010 makes it absolutely clear that unless theactivity 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. Pipelines cannot be construed as a plant, machinery orequipment or structure. Further, the said circular also clarifies that laying of cables under oralongside road or railway tracks, etc. is not a taxable service under Section 65(105) of theFinance Act, 1994. If laying of cables cannot be a taxable service, adopting the same logic, thelaying of pipeline also cannot be construed as a taxable service.

Prepared by:- Monika Tak

Comments

PJ/Case Law/2014-15/2391

Post a Comment

Query