Composite Contracts Can't Be Taxed Under “Erection, Commissioning And Installation Services”: CESTAT

The Delhi bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) has observed that composite contracts involving supply of both goods and services could not have been taxed under the category “Erection, Commissioning, and Installation Services.”.

The bench of Binu Tamta (Judicial Member) and Hemambika R. Priya (Technical Member) has observed that the taxable category “Erection, Commissioning, and Installation Services” could only cover pure service contracts within its fold. The work order in respect of Chhatrasal Stadium involved supply of material and installation commissioning of the EPABX system. With effect from 01.06.2007 only, the composite contracts would be eligible to tax under the Works Contract Service.

The appellant/assessee is engaged in the activity of supply, fixing, and laying of wire cables, pipes, and telephone connections for various government departments, including the Central Public Works Department (CPWD) and the Public Works Department (PWD). The proceedings were initiated against the appellant via summons dated 15.12.2010 seeking copies of service tax registration, contracts/agreement awarded by CPWD for providing services in or in relation to Common Wealth Games 2010, challans, ST-3 returns, and balance sheets for the period 2005-06 to 2009-10. On investigation, it appeared that the appellant was not paying service tax on the activity of laying of cables/wires.

The appellant believed that their activity would be chargeable to VAT, not service tax, and was paying VAT. The Department formed an opinion that the appellant is liable to pay service tax in terms of Circular No. 123/5/2010-TRU. On completion of investigations, a show cause notice invoking an extended period of limitation was issued to the appellant demanding service tax under Section 73(1).

The department formed an opinion that the activity carried on by the appellant would be covered under “Erection, Commissioning, or Installation Services.”

The interest under Section 75 and the imposition of penalties under Sections 76, 77, and 78 of the Finance Act, 1994. The matter was adjudicated by the Commissioner, confirming demand, interest, and penalty.

The assessee contended that as per the definition of erection, commissioning, or installation, it is evident that to attract the taxability under said category, there must be installation of electrical and electronic devices, including wiring or fitting. In other words, he stated it can be said that the service should be the installation of an electrical or electronic device (i.e., a machine or equipment that uses electricity to perform any other function) with all other activities incidental thereto. However, the appellant had been awarded contracts by government departments or organizations primarily consisting of activities such as the laying of cables rather than the installation of electrical or electronic devices. The appellant had provided the services of laying of cables for pipelines, inclusive of material, whereas the demand raised against the appellant was under the category of erection, commissioning, and installation, which is not maintainable.

The department contended that during the course of investigation or even in their reply to Show Cause Notice, the appellant did not put forth any argument regarding the allegation of forging of VAT returns. It can be safely concluded that the appellant had committed fraud, as they had no ground for rebutting the said allegation.

The tribunal held that the demand will have to be calculated based on the actual turnover figures. It would be appropriate to remand the case for recalculation of the demand by giving the benefit of abatement to the appellant.

Counsel For Appellant: Atul Kumar Gupta

Counsel For Respondent: Manoj Kumar

Case Title: M/s Topaz Service Corporation Versus Commissioner of Central Goods Service Tax

Case No.: Service Tax Appeal No. 59397 Of 2013

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