Whether service tax leviable when customs duty paid on value of machine imported and there is no separate contract for installation?

PJ-Case law-2013/14-1588

Case:-BHAVIK TERRYAB VERSUS COMMISSIONER OF C. EX., JAIPUR-I

Citation:-2013(30) S.T.R. 435 (Tri.-Del.)

Brief Facts:-The appellant imported textile machinery from Japan, Italy etc. under the cover of contract with foreign exporter and cleared the same on payment of duty on the enrite value agreed upon between the seller and buyer. In terms of said agreement, installation and erection was to be done by foreigner supplier, who sent his technical persons to do the job. Revenue by entertaining a view that such erection, commissioning has been done by the foreign persons who did not have office in India, initiated proceedings against the appellant for confirmation of Service Tax. The said proceedings were initiated by way of issuance of show cause notice dated 19-7-2010 in respect of machinery imported during the period 2005 to 31-3-2009.

During the adjudication, Commissioner dropped the demand for the period prior to 18-4-2006 but confirmed the Service Tax for remaining period. As regards valuation of said services, he observed that the same cannot be determined separately in terms of contract and as such, recourse to Notification No. 19/2003 and Notification No. 1/2006-S.T., dated 1-3-2006 has to be taken for quantifying the value of taxable service. He accordingly confirmed the demand of service tax of Rs. 37,35,730/- along with imposition of penalty of identical amount under Section 78 of the Finance Act, 2994. In addition, penalty also stands imposed under Section 76 of Finance Act.

Appellant Contentions:-The appellant is submits that apart from the fact that foreign exporters are having office in India, they have discharged the customs duty on the entire value of the textile machinery. If that be so, Commissioner was not justified in arriving at a deemed value of services included in the said contract value and to confirm Service Tax. He also submits that notification referred to by the Commissioner is optional notification granting abatement to the persons who is otherwise liable to pay the Service Tax. As such, this deemed arrival of the value of services in terms of said notification was neither warranted nor in accordance with the law. He also assails the demand on the point of limitation.

Respondent Contentions:-The respondent submits that payment of Customs duty on the entire value of the goods has got nothing to do with the payment of Service Tax under the category of installation, erection and commissioning. Two duties are separate duties and the appellant is liable to pay Service Tax on that part of value of contract which relates to the services provided by the foreign persons. He further submits that adjudicating authority was correct in arriving at the value of services in terms of said notification. He accordingly, prays for directing the applicant to deposit the Service Tax amount.

Reasoning of Judgment:- We have considered the submission from both sides and perused the record, we find that there is only one contract between the appellant and the foreign supplier, which relates to the value of textile machinery supplied by him. Such supply of textile machinery includes the work of installation, erection and commissioning. There is no separate payment for the said job, reflected in the contract. The appellants have paid Customs duty by treating the entire value as the value of textile machinery. As such, we are prima-facies of the view that once the appellant segregate the said value into two parts i.e. value of the machinery and value of services, further adoption of the notf. in question for arriving at artificial deemed value of the services for the payment of Service Tax does not arise. These notifications are applicable to the accepted and admitted service provider and grants option to them, the same have no applicability to the facts of the present case.
In view of the foregoing, we are of the view that appellant has good prima facie case in its favour so as to allow the stay petition unconditionally.

Decision:-Stay granted.

Comment:-The essence of this case is that when there is no separate contract for installation of machinery that is imported and the customs duty is paid on total value of the imported machinery, installation will not be leviable to service tax separately.

Comments

PJ-Case law-2013/14-1588

Post a Comment

Query