Whether service tax leviable on errection separately if custom duty paid on entire value of imported goods?

PJ/Case Law/2013-14/2104

Case:- M/s KOLKATA PORT TRUST Vs COMMISSIONER OF CENTRAL EXCISE, HALDIA

Citation:-2014-TIOL-417-CESTAT-KOL

Brief facts:-This is an Application seeking waiver of pre-deposit of service tax of Rs. 88,47,922/- and equal amount of penalty imposed under Section 78 and penalty imposed under Section 76 (not quantified), of the Finance Act, 1994.

Appellant’s contention:- At the outset, ld. Chartered Accountant for the Applicant submitted that during the period, July, 2005 to April, 2008, they had made payment to one M/s. Fels Cranes Pte Ltd., Singapore, an overseas company, for the service of design, installation & commissioning, testing etc. of 4 Nos. of Rubber Tyred Gantry Cranes (RTYGCs) at the Kolkata Dock System and Haldia Dock Complex and supply of their spares. The contract was for US $62,73,055.66 equivalent to Rs.22.70 crore. The ld. CA further submitted that these cranes were imported and commissioned in the Haldia Dock Complex in the year, 2007. While importing these cranes, the Applicant had discharged the customs duty on the entire value of Rs.22,69,63,666.57 and in this connection, ld. CA referred to the Bill of Entry dated 07.07.2006 (page-120 of the appeal paper book).

The ld. CA has advanced a two-fold argument. It is his submission that since at the time of import, the entire contract of supply of 4 nos. of cranes, were considered as goods and appropriate customs duty had been discharged, therefore, no service tax be leviable on the same. Further, he has argued that in the event, the said transaction is not treated as 'sale', the same may be considered as 'works contract' and levy of service tax on 'works contract' had been introduced with effect from 01.06.2007. The ld. CA further submitted that the principle of law relating to vivisecting of the composite contract of 'works contract' and 'EPC' (Engineering, Procurement and Commissioning Contract) is not settled, as conflicting opinions on the same had been delivered by various Benches of the Tribunal. Recently, the matter has been referred to a Larger Bench of this Tribunal, by the Principal Bench, New Delhi in the case of Larsen and Toubro Ltd., 2013-TIOL-1458- CESTAT-DEL.

Respondent’s contention:- Ld. AR for the Revenue has submitted that in view of the opinion of the Government of West Bengal Commercial Tax Department dated 28.10.2010, the contract executed by the overseas buyer, cannot be considered as 'works contract'. Therefore, the principle of law relating to vivisecting of 'works contract' and 'contract for sale' would not be applicable. Rebutting the argument of the ld. CA that service tax cannot be levied, once customs duty has been paid on the entire value of the goods imported, the ld. AR submitted that as per the Valuation Rules, even though the value relating to errectioning and commissioning are included in the scope of the assessable value of the imported goods, that cannot be itself a ground for non-levy of service tax, in view of the aspect theory laid down by the Hon'ble Supreme Court. The ld. AR for the Revenue further argued that the ld. Commissioner has already considered the submission of the Applicant that since the entire contract involves execution of works as well as supply of goods, accordingly, allowed the benefit of Notification No.1/2006-ST dated 01.03.2006 and confirmed the demand, after allowing the abatement of 67% against the total value of the contract.

Reasoning of judgment:- Prima facie, the bench found that undisputedly, the Applicant had received the service of M/s. Fels Cranes Pte Ltd., Singapore, an overseas company, against a contract for designing, manufacturing, supplying, installing, testing and commissioning of 4 numbers of Rubber Tyred Cranes. The ld. AR for the Revenue has not disputed that applicable customs duty had been discharged on the entire contractual value at the time of import of the said 4 numbers of cranes, which were later commissioned in the premises of the Applicant. We have considered the submission of the ld. AR that an opinion had been obtained by the Applicant from the Government of West Bengal, Commercial Tax Department that the present contract between the Applicant and the overseas supplier is not a 'works contract', but involves 'sale'. Thus, it is the grievance of the Revenue that even though the element of services of errectioning and commissioning was included in the scope of the assessable value while calculating the customs duty, the same cannot be a ground for not demanding the service tax on the service component of the same contract. Prima facie, we find force in the arguments of the. ld. CA for the Applicant for the simple reason that the entire contractual value had been assessed to customs duty, considering the same as goods. Consequently, even if it is considered as 'works contract' comprising the value of goods as well as the services, the principle of vivisecting the contract, at this stage, cannot be considered as the issue had been referred to the Larger Bench. Besides, we find that the Applicant Company being a Government of India Undertaking and the issue, prima facie, being not settled, the Applicant could able to make out a case for total waiver of the dues adjudged. Consequently, pre-deposit of all dues adjudged is waived and its recovery stayed during pendency of the Appeal, Stay Petition allowed.

Decision:- stay granted.

Comment:-The crux of this case is that the issue whether import of goods along with errection and commissioning may be treated as works contract so as to levy service tax has been referred to larger bench. Further, as the applicant is government undertaking and the issue was not settled, the stay application was allowed.

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PJ/Case Law/2013-14/2104

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