National Refrigeration And Air Conditioning Engg vs Ludhiana
- Court
- Customs, Excise and Service Tax Appellate Tribunal
CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL
CHANDIGARH
REGIONAL BENCH - COURT NO. I
(1) Service Tax Appeal No. 56862 of 2013
[Arising out of Order-in-Original No. 26/LDH/2012 dated 01.10.2012 passed by the
Commissioner of Central Excise, Ludhiana]
M/s National Refrigeration & Air
Conditioning Engg.
171/13, Shivala Road
Hussainpura, Amritsar, Punjab
……Appellant
VERSUS
Commissioner of Central Excise & ST,
Ludhiana
Central GST Bhawan,
F Block, Rishi Nagar, Ludhiana
Punjab 141001
……Respondent
WITH
(2) Service Tax Appeal No. 60381 of 2016
(3) Service Tax Appeal No. 60383 of 2016
[Arising out of Order-in-Appeal No. LUD-EXCUS-000-APP-25-26-15-16 dated 25.05.2015
passed by the Commissioner (Appeals), Central Excise, Chandigarh I]
M/s National Refrigeration & Air
Conditioning Engg.
171/13, Shivala Road
Hussainpura, Amritsar, Punjab
……Appellant
VERSUS
Commissioner of Central Excise & ST,
Ludhiana
Central GST Bhawan,
F Block, Rishi Nagar, Ludhiana
Punjab 141001
……Respondent
AND
(4) Service Tax Appeal No. 60829 of 2018
[Arising out of Order-in-Appeal No. LUD-EXCUS-001-APP-499-18 dated 05.03.2018 passed
by the Commissioner (Appeals), CGST, Ludhiana]
M/s National Refrigeration & Air
Conditioning Engg.
171/13, Shivala Road
Hussainpura, Amritsar, Punjab
……Appellant
ST/56862/2013 with
2
ST/60381/,60383/2016 &
ST/60829, 61458/2018
VERSUS
Commissioner of Central Excise, Goods &
Service Tax, Jalandhar
CGST Commissionerate
Jalandhar, Punjab
……Respondent
AND
(5) Service Tax Appeal No. 61458 of 2018
[Arising out of Order-in-Appeal No. LUD-EXCUS-001-APP-1018-18 dated 20.04.2018 passed
by the Commissioner, CGST-Audit Commissionerate, Ludhiana]
M/s National Refrigeration & Air
Conditioning Engg.
171/13, Shivala Road
Hussainpura, Amritsar, Punjab
……Appellant
VERSUS
Commissioner of Central Excise, Goods &
Service Tax, Jalandhar
CGST Commissionerate
Jalandhar, Punjab
……Respondent
APPEARANCE:
Shri Sudhir Malhotra, Advocate and Shri A.S. Hasija, Consultant for the Appellant
Shri Aniram Meena and Shri Goverdhan Dass Bansal, Authorized Representatives
for the Respondent
CORAM: HON’BLE MR. SOMESH ARORA, MEMBER (JUDICIAL)
HON’BLE MR. P. ANJANI KUMAR, MEMBER (TECHNICAL)
FINAL ORDER NO. 60592-60596/2026
DATE OF HEARING: 12.10.2026
DATE OF DECISION: 04.11.2026
SOMESH ARORA :
As per the appellant they supplied machinery/equipments/parts etc.
and provided services thereto to Defence, Railways, Airport Authorities &
Government Hospitals etc. under contract/ agreement. The appellant also
undertook civil work such as making of foundation, breaking and making
wall, floor etc. to make it suitable for functioning of air conditioning plant
ST/56862/2013 with
3
ST/60381/,60383/2016 &
ST/60829, 61458/2018
etc. The tender issued by the government specifies the quantum and
specification of plant, machinery, equipment, components, parts etc. to be
supplied. The appellant entered into composite contract involving supply of
both goods and services. The quantity and value of material supplied are
specifically mentioned in the tenders. The tabulated details of appeals dealt
with by use are as follows:
Appeal No. Period OIA No. and
Date
OIO No. and date Service Tax
Demanded
Penalty
imposed
1. ST/56862/2013 01.10.03 to
30.09.08
Not
applicable
26/LDH/2012 dt.
01.10.2012 of Ld.
Commissioner, Central
Excise, Ludhiana
73,15,931/- Rs.
1,46,31,862/-
U/s 78 Rs.
1,000/- U/s 77,
Rs. 200/- per
day or 2% of
tax per month
– U/s 76
2. ST/60381/2016 2010-11 LUD-EXCUS-
000-APP-25-
26-15-16 DT.
25.05.2015
134/ST/ADC/LDH/2011 dt.
30.03.2012
4,19,363/- Rs. 4,19,363/-
U/s 78
3. ST/60383/2016 60383/2016 LUD-EXCUS-
000-APP-25-
26-15-16 DT.
25.05.2015
66/ST/ADC(P)/LDH/2013
dt. 26.08.2013
9,74,056/- Rs. 9,74,056/-
U/s 78
4. ST/60829/2018 2013-14 LUD-EXCUS-
001-APP-
499-18 dt.
05.03.2018
63/AC/ST/ASR/2016-17 dt.
23.02.2017
5,95,576/- Not Applicable
5. ST/61458/2018 01.10.08 to
31.03.10
LUD-EXCUS-
001-APP-
1018-18 dt.
20.04.2018
15/ST/ADC/LDH/11 dt.
31.05.2011
32,38,320/- Rs. 32,38,320-
U/s 78 Rs.
1,000 – U/s 77
1,25,43,246/- 1,92,63,601/-
ST/56862/2013 with
4
ST/60381/,60383/2016 &
ST/60829, 61458/2018
2. The appellant paid VAT/CST on material purchased. Their customers
deducted works contract tax (in short WCT) from the payment made to the
appellant as per provisions of applicable VAT Act.
3. The Ld. Commissioner, Central Excise, Ludhiana vide orders dt.
13.11.2009 (Annexure ‘B’ to appeal paper book refers) demanded Rs.
73,15,931/- along with interest besides imposition of penalty under section
76, 77 & 78 of Finance Act 1994.
The appellant challenged the orders dt. 13.11.2009 to the extent
demand of service tax, interest and imposition of penalties before Hon’ble
CESTAT. The Tribunal vide final order No. ST/158/2011 Cus DB dt.
24.02.2011 in the first round of litigation remanded the case to ld.
Adjudicating authority inter-alia holding as under:-
Para 12
We take note of the submissions made by the learned
Advocate and examined the work orders. We have seen the
one of the work order No. CEWAC-38/2002-2003 wherein
at Serial No. 1 to serial No. 26 ' there is mention of
descriptions of items which have to be supplied by the
appellant but serial No. 27 of the work order, it is clearly
specified the labour charges for erection, commissioning
and testing of the, the amount payable on this account is
5% of amount of the whole of the work order. This fact has
not been examined by the adjudicating authority. We find
that the appellants have placed on record the letter issued
by the Military Engineering Services dated 20-2-2008
wherein paras 2 & 3, it has been clarified as under :
“2. Some of the formations intimated that Service Tax
Deptt. in their area is insisting for the service tax on the
service contracted by the MES for management,
maintenance, repairs, erection and installation services.
The matter was referred to the Ministry of Defence for the
clarification, MOD has clarified the issue as under :
“As per the clarification given by MOF, the basic principle
to be followed with regard to the leviablity of service tax is
whether the building/civil structure is used or to be used
for commerce or industry. Therefore if the repair and
maintenance services are linked with a building/civil
ST/56862/2013 with
5
ST/60381/,60383/2016 &
ST/60829, 61458/2018
structures which are not used for commercial activities,
such service may not be taxable.”
3. As per the clarification issued above if the repairs and
maintenance services are linked with a building/structure
which are not used for commercial activities such service
may not be taxable. Formation concerned may apprise the
Service Tax Deptt.”
Para 13
The repairs and maintenance services are linked with a
building/structure which are not used for commercial
activities such service may not be taxable. As MES (a
Department of Ministry of Defence) is not involved in any
commercial activity, therefore any service rendered to
them is not taxable. This issue has also not been dealt with
by the adjudicating authority. Therefore, the services
rendered to MES during the impugned period are not liable
to service tax. We further find that during the impugned
period, the service tax is leviable on the value of the
service provided. It is admitted fact that the appellants
have not provided service separately and charged service
tax seperataly. Therefore, appellants are entitled for cum
service tax benefit, this aspect has also not been
considered by the adjudicating authority. We find that if
the appellant have to pay service tax, they have to pay the
service tax only on the value of labour charges of erection,
installation & commissioning as per the work, orders as
discussed herein above. This fact has also been ignored by
the adjudicating authority.
Para 14
Therefore, in view of the above, discussion, we find that
the matter needs re-examination by the adjudicating
authority in the light of the discussion and findings
hereinabove. Therefore, it would be appropriate in the
interest of justice that the adjudicating authority shall
examine the issue in view of the above observations and
pass appropriate orders after giving a reasonable
opportunity of hearing to the appellants to present their
case. Therefore after setting aside the impugned order, the
appeal is allowed by way of remand. The stay application
is disposed of in the above manner.
5. The CESTAT vide order dt. 24.02.2011 (Annexure ‘C’ – para 13 refers)
held that services rendered to MES during the period under reference are not
liable to service tax. The service tax is leviable on the value of services
provided. The appellant have not provided services separately and charged
ST/56862/2013 with
6
ST/60381/,60383/2016 &
ST/60829, 61458/2018
service tax separately, therefore, appellant are entitled to cum-service tax
benefit.
It has been further held by the CESTAT that appellant have to pay the
service tax only on the value of labour charges of erection, installation &
commissioning as per the work, orders as discussed.
6. The Ld. Adjudicating authority passed the impugned order dt.
01.10.2012 in stated defiance to Hon’ble CESTAT directions dt. 24.02.2011.
The impugned order dt. 01.10.2012 is reproduction of earlier order dt.
13.11.2009.
7. The appellant received amount of Rs. 19,90,42,972/- (page 26 of orders
dt. 13.11.09 refers) during the period Oct. 2003 to Sept. 2008 in respect of
demand challenged before this bench as under:-
Period Amount
Received
Towards
Supply of
Goods
Amount
Received
Towards Civil
Works
Amount
Received
Towards
Service
Rendered
Work done in
J & K
Gross Amount
Received
1. 2. 3. 4. 5. 6.
01.10.2003 to
31.03.2004
1,48,20,695/-
4,21,269/-
76,897/-
5,42,000/-
1,58,60,861/-
01.04.2004 to
30.09.2004
1,13,94,495/-
3,23,126/-
32,404/-
16,66,704/-
1,34,16,729/-
01.10.2004 to
31.03.2005
2,15,15,633/-
6,25,684/-
6,10,828/-
27,49,209/-
2,55,01,354/-
01.04.2005 to
30.09.2005
80,58,163/-
2,30,262/-
84,756/-
6,24,000/-
89,97,181/-
01.10.2005 to
31.03.2006
1,62,59,864/-
4,63,798/-
1,41,715/-
11,84,992/-
1,80,50,369/-
01.04.2006 to
30.09.2006
2,21,82,112/-
6,47,168/-
7,04,109/-
---
2,35,33,389/-
01.10.2006 to
31.03.2007
1,70,68,964/-
4,91,319/-
3,05,859/-
1,21,347/-
1,79,87,489/-
01.04.2007 to
30.09.2007
1,84,61,035/-
10,38,082/-
23,55,244/-
---
2,18,54,361/-
1,55,63,891/-
8,07,740/-
6,33,417/-
91,52,629/-
2,61,57,677/-
ST/56862/2013 with
7
ST/60381/,60383/2016 &
ST/60829, 61458/2018
01.10.2007 to
31.03.2008
01.04.2008 to
30.09.2008
1,82,33,642/-
3,74,428/-
1,13,314/-
89,62,179/-
2,76,83,563/-
Total
16,35,58,494/-
54,22,876/-
50,58,543/-
2,50,03,060/-
19,90,42,973/-
7.1 The details of work done for MES, Railways, Airports, Government
hospital and in the state of J & K etc. duly certified by Chartered Accountant
along with copies of contract was submitted to the ld. Adjudicating authority
(Annexure ‘D’ to appeal paper book refers). The said certificate reveals that
appellant received an amount of Rs. 14,00,54,298/- from MES, Rs.
1,96,39,742/- from Ordnance Factory, Rs. 32,13,165/- from Railway Rs.
12,32,077/- from Airport, Rs. 99,00,630/- from State Government
Hospitals & Rs. 2,50,03,060/- from State of J & K (i.e. total Rs.
19,90,42,973/-) during the period under reference.
7.2 The Ld. Adjudicating authority failed to appreciate that service tax is
not chargeable on amount of Rs. 14,00,54,298/- received from MES and
Rs. 2,50,03,060/- received for services rendered in the state of J & K (total
Rs. 16,50,57,358/-). The railways and airports are excluded from the levy
of service tax under works contract – section 65 (105)(zzzza). The service
tax was chargeable on the value of services as per order dated 24.02.2011
of Hon’ble CESTAT.
The Ld. Adjudicating authority failed to appreciate that appellant
received an amount of Rs. 50,58,543/- towards service rendered on which
tax has been discharged.
7.3 This Tribunal vide its final order No. ST/158/2011 Cus DB dt. 24.02.2011
had held that appellant have to pay service tax only on the value of labour
charges of erection, installation and commissioning as per work order. The ld.
Adjudicating authority erred in demanding service tax on taxable value
ST/56862/2013 with
8
ST/60381/,60383/2016 &
ST/60829, 61458/2018
arrived by allowing abatement @ 67% from gross amount charged vide Ntfn
No. 19/2003 ST dt. 21.08.2003 valid upto 28.02.2006 and thereafter under
Ntfn. No. 1/2006 ST dt. 01.03.2006; therefore it is submitted by the appellant
that the learned adjudicating authority passed impugned orders without
obeying the orders dt. 24.02.2011 of Hon’ble CESTAT.
7.4 The Ld. Adjudicating authority failed to appreciate that appellant
entered into composite contract with government agencies i.e. for both goods
and services. The value of goods supplied are specifically mentioned in the
tender. The Ntfn. No. 12/2003 ST also stipulates that no service tax is
chargeable on the value of goods and materials sold. The appellant had not
taken any cenvat credit of duty paid on good and material sold. Further, the
appellant had paid sale tax on the material sold, and therefore, goods were
clearly accounted and available on actual basis. The impugned order is
therefore passed in defiance to directions of Hon’ble CESTAT vide order dt.
24.02.2011 is bad in law.
Limitation
8. The Ld. Adjudicating authority failed to appreciate that extended
period of limitation is not invokable in the instant case as there was neither
any mensrea nor any suppression. The appellant did work for government
sector viz. Railways, Defence, Airport Authorities, etc. None of the contract
stipulates levy of service tax accordingly the service tax was not charged.
The service tax chargeable were to be borne by the party and not by the
appellant. There would have been no material loss to appellant for non-
payment of service tax as the same was to be borne by the recipient of
service.
ST/56862/2013 with
9
ST/60381/,60383/2016 &
ST/60829, 61458/2018
The Hon’ble Supreme Court of India in the cases of:
i) CC, CE & ST, Bangalore (Adjudication) Vs. Northern Operating Systems
Pvt. Ltd. 2022 (61)GSTL 129 (SC) held that extended period of limitation not
invokable in absence of any “wilful suppression” of facts, or deliberate
misstatement - Assessee liable to discharge its Service Tax liability for normal
period - Section 73 of Finance Act, 1994.
ii) Uniworth Textiles Ltd. Vs. CCE 2013 (288) ELT 161 (SC) held that mere
non-payment of duties is not equivalent to collusion or willful misstatement or
suppression of facts. The willful/deliberate default is mandatory prerequisite
for limitation of five years, the burden to prove it is on department who makes
the allegation.
iii) Cosmic Dye Chemical Vs. Collector of Central Excise Bombay 1995 (75)
ELT 721 (SC) held that to invoke extended period of limitation under proviso
to Section 11A(1) intent to evade duty on part of appellant has to be proved
and mere mis-statement or suppression of facts is not enough unless it is
willful.
8.1 It is a settled law that extended period of limitation is not invokable
when issue relates to interpretation of statutory provisions.
The Hon’ble CEGAT in the case of K.K. Appachan Vs. CCE 2007 (7) STR
230 (Tri.Bang.) held that larger period of limitation not invokable when issue
relates to interpretation of law.
Penalty:
9. The Ld. Adjudicating authority erred in imposing penalty as there were
neither any mens-rea nor any malafide to draw any unlawful benefit. The
Hon’ble Supreme Court of India in case of CCE Vs. Pepsi Foods Ltd. 2010(260)
ST/56862/2013 with
10
ST/60381/,60383/2016 &
ST/60829, 61458/2018
ELT 481(SC) held that penalty under Section 11AC not imposable when mens-
rea absent.
The section 11AC of Central Excise Act is pari-materia to section 78 of
Finance Act, 1994.
9.1 It is settled law that penalty is not imposable when issue relates to
interpretation of statutory provisions. The Hon’ble Tribunal in the case of
A.G Shibu & Anothers Vs. CC, CE & ST Cochin, 2008 (10) STR 317 (T) held
that penalty under Finance Act 1994 not justified where issue involves
interpretation of law.
9.2. The Ld. Adjudicating authority erred in imposing penalty both under
th
section 76 & 78 of Finance Act. The 5 proviso to section 78 stipulates that
if penalty is payable under this section, the provision of section 76 shall not
apply .
9.3 The Hon’ble Punjab & Haryana High Court in the case of Commissioner
of Central Excise Vs. Pannu Property Dealers, Ludhiana reported at 2011 (24)
STR 173 (P & H), Commissioner of Central Excise Vs. First Flight Courier Ltd.
2011 (22) STR 622 (P & H) & Commissioner of Central Excise Vs. City Motors
2010 (19) STR 486 (P & H) held that penalty both under section 76 & 78 of
Finance Act, 1994 not imposable.
9.4 The Hon’ble Gujrat High Court in the case of Astik Dyestuff Pvt. Ltd. Vs.
CCE 2014 (34) STR (814) if there are contrary decision of High Court, decision
of jurisdictional high court binding.
9.5 The Hon`ble CESTAT Chandigarh vide final order No. 60161-162/2023
dt.09.06.2023 in appeal No. ST/537-538/2011 held that penalty is not
imposable both under Section 76 and 78 of Finance Act, 1994.
9.6 The impugned orders have been passed on surmises and conjectures
without appreciating the facts on records and in defiance to orders dt.
ST/56862/2013 with
11
ST/60381/,60383/2016 &
ST/60829, 61458/2018
24.02.2011 of Hon’ble CESTAT. The Learned A.R. defended impugned order
and reiterated the findings specially para 6.2 to 6.7 of the order.
FINDINGS
10. In the instant case, we find that, in Appeals no. ST/56862/2013, the
show cause notice was issued on 22.04.2009 for the period involved from
01.10.2003 to 30.09.2008. The other matters in the bunch, i.e. Appeals Nos.
ST/60381/2016, ST/60383/2016, ST/60829/2018 and ST/61458/2018,
involve the same party and similar issues. For reference purposes, Service
Tax Appeal no. 56862 of 2013 was taken up for consideration. In the first
round of litigation, the Tribunal issued directions vide order No. ST/158/2011
-Custom DB dated 24.02.2011.
10.1 We find that the matter was remanded by this Tribunal vide order
dated 19.04.2011 for readjudication, with the direction reproduced below, the
direction as follows vide order dated 24.02.2011.
“12. We take note of the submissions made by the learned Advocate and
examined the work orders. We have seen the one of the work order No.
CEWAC-38/2002-2003 wherein at serial no.1 to serial no.26 there is mention
of descriptions of items which have to be supplied by the appellant but serial
No. 27 of the work order, It is clearly specified labour charges for erection,
commissioning and testing of the, the amount payable on this account is 5%
of amount of the whole of the work order. This fact has not been examined
by the adjudicating authority. We find that the appellants have placed on
record the letter Issued by the Military Engineering Services dated 20.2.2008
wherein para 2 & 3, It has been clarified as under:
"2. Some of the formations Intimated that Service Tax Deptt in their area is
insisting for the service tax on the service contracted by the MES for
management, maintenance, repairs, erection and installation services. The
matter was referred to the Ministry of Defence for the clarification, MOD has
clarified the issue as under:
"As per the clarification given by MOF, the basic principle to be followed with
regard to the leviablity of service tax is whether the bullding/civil structure is
used or to be used for commerce or industry. Therefore if the repair and
maintenance services are linked with a building/civil structures which are not
used for commercial activities, such service may not be taxable."
ST/56862/2013 with
12
ST/60381/,60383/2016 &
ST/60829, 61458/2018
3. As per the clarification issued above if the repairs and maintenance services
are linked with a building/structure which are not used for commercial
activities such service may not be taxable. Formation concerned may apprise
the Service Tax Deptt."
13. The repairs and maintenance services are linked with a building/structure
which are not used for commercial activities such service may not be taxable.
As MES (a Department of Ministry of Defence) is not involved in any
commercial activity, therefore any service rendered to them is not taxable.
This issue has also not been dealt with by the adjudicating authority.
authority. /Therefore, the services rendered to MES during the impugned
period are not liable to service tax./ We further find that during the impugned
period, the service tax is leviable on the value of the service provided. It is
admitted fact that the appellants have not provided service separately and
charged service tax separately. Therefore, appellants are entitled for cum
service tax benefit, this aspect has also not been considered by the
adjudicating authority. We find that if the appellant have to pay labour
charges of erection, Installation & commissioning as per the work, orders as
discussed herein above. This fact has also been Ignored by the adjudicating
authority.
14. Therefore, In view of the above, discussion, we find that the matter needs
re-examination by the adjudicating authority in the light of the discussion and
findings hereinabove. Therefore, it would be appropriate in the Interest of
justice that the adjudicating authority shall examine the Issue In view of the
above observations and pass appropriate orders after giving a reasonable
opportunity of hearing to the appellants to present their case. Therefore, after
setting aside the Impugned order, the appeal Is allowed by way of remand.
The stay application is disposed of in the above manners.
10.2 Pursuant to the above, an order dated 01.10.2012 was passed upon
readjudicating "The operative portion of the order is as follows;
“(i) Having regard to the facts and circumstances of the case. 1 confirm
demand of Rs. 73.15.931/- (Rupees seventy-three lacs fifteen thousand
nine hundred and thirty one only) against the Noticee M/s. National
Refrigeration and Air Conditioning Engg., 171/13, Shivala Roud,
Hussainpura Anailsar under Section 73(2) of the Act along with interest at
the applicable rates in terms of Section 75 of the Act.
(ii) I impose a penalty calculated @ Rs.200/- per day or 2% of the Service
Tax per month, whichever is higher, with effect from 18.4.06 to 10.5.2008,
under Section 76 of the Act, subject to the condition that the total amount
of penalty payable under this Section shall not exceed the amount of Service
Tax payable up to 10.05.2008.
(iii) 1 also impose a penalty of Rs 1,46,31,862/-(one crore forty six lacs
thirty one thousand eight hundred and sixty two), Noticee M/S. National
Refrigeration and Air Conditioning Engg. 171/13, Shroud Husspinpura
Amritsar under Section 78 of the Act:
ST/56862/2013 with
13
ST/60381/,60383/2016 &
ST/60829, 61458/2018
(iv) 1 also impose penalty of Rs. 1000/ (one thousand only on the Noticee
M's. National Refrigeration and Air Conditioning Engg. 171/13, Shivala Road,
Hussainpura Amritsar under Section 77 of the Act”.
10.3 The Authorized Representative reiterates the findings of the lower
authority, especially as contained in paragraph 6.3 to 6.27.
“6.3 I have studied the contract under reference and noticed that items appearing
at Sr.No2 and from Sr. No.15 to 27 (except sr. no 22) of the subject Contract refer
to the job and labour charges for services to be carried out by the noticee, whereas
the rest of the Sr. Nos refer to materials and the valuation aspect of materials
supplied. For example, the description of item at sr. no 2 of the said contract is "
first charge of refrigerant and oil up to phase I test", which represents Job work
carried out by the noticee for the said item, on the same lines entry at st. no 26
of the contract represents Job work carried out for civil works and similarly other
entries from sr no 15 to 25 (except sr. no 22) represent job work carried out by
the noticee for the items mentioned against those Serial ríumbers respectively. in
the said contract.
6.4 Therefore, on the strength of above observations, feel that the entry at Sr No
27 of the subject contract i.e " Labour charges for erection, Commissioning
and testing of AC plant up to phase 1 test" is not the single entry which
represents job work carried out, but on the contrary, there are number of such
entries, which fact has escaped the notice of the Hon'ble CESTAT
6.5 I have further noticed that the contracts entered into by the noticee with the
service receivers are composite contracts, as admitted by the noticee in their reply.
As the work under contract was carried out in phases, as is clear from the wording
of item at Sr. No 27 itself, which reflects that 5% charges will be paid up to
completion of work up to phase 1 test, "Labour charges for erection,
Commissioning and testing of AC plant up to phase 1 test" and the entry can not
be taken to represent the charges related to complete work contract Moreover
during the remand proceedings the noticee has not further contested this point
and have not produced any documentary evidence to prove the receipt of separate
charges for goods and services. On the contrary Shri. S. S. Bal, Prop. of the Noticee
who had appeared before the Superintendent Prev. on 06.01.2009 and tendered
a statement under Section 14 of the Central Excise Act, 1944, made applicable to
Service Tax matter vide Section 83 of the Act., had stated amongst others that the
job-work was carried out in stages and that the payments for services were not
made separately, as under.
" that the mode of payment was as per standard proforma /format (RAR)
of the MES department and no separate bills were raised by them;
that these payments were received after deduction or TDS and Works
Contract Tax/VAT "
6.6 In the course of de novo proceedings, the Noticee has contended that the
CESTAT has held that the Noticee was liable to pay service tax only on the value
of labour charges of erection, installation and commissioning. They have submitted
a chart showing details of the amount received towards supply of goods, amount
received towards civil works, amount received towards service rendered and work
done in J & K during the period 01.10.2003 to 30.09.2008.
ST/56862/2013 with
14
ST/60381/,60383/2016 &
ST/60829, 61458/2018
The details can be tabulated as below:-
GROSS AMOUNT RECEIVED: Rs. 19,90,42,973.00
Amount received towards supply of goods: Rs. 16,35,58,393.00
Amount received towards civil works: Rs. 54,22,876.00
Amount received towards service rendered: Rs. 50,58,543.00
Work done in J & K Rs 2,50,03,060.00
6.7 The above contention of the noticee is not admissible, as, the noticee did not
endorse their contention with any documentary evidence during the course of
remand proceedings. On the contrary I have noticed that the Noticee have filed
copies of various Tenders, the perusal of which reveals other aspects of the Work
acceptance orders, e.g. in the case of Supply Order No. RR/2004/45/EO dated
02.02.2004 placed on the Noticee by Ordnance Factory, Chanda, the Noticee have
quoted charges charges on account of supervision for erection & commissioning
amounting to Rs.1,50,000.00, in addition to Rs.2,00,000.00 on account of erection
& commissioning & testing charges. Similarly, in Supply Order No.RR/2004/46/EO
dated 02.02.2004 for Ordnance Factory, Chanda, the charges on account of
supervision for erection & commissioning amounting to Rs.2,00,000.00 have been
mentioned in addition to the mention of Rs.2,25,000.00 on account of erection &
commissioning & testing charges. In certain work orders, there is mention of labour
charges for erection, commission and testing of AC plant up to phase 1 test @ 5%!
Then, there is mention of 07% charges for phase 11 test and 7% charges ducting.
The above factual position indicates that the labour charges said to be of the share
of 5% of the contract amount for erection, commissioning or installation do not
truly represent the service portion. Şuth charges may be on account of labour only,
but the supervision charges, erection and commissioning charges, testing charges
etc received by the Noticee from the recipient of service are required to be taken
into account while adjudging the service tax liability of the Noticee. This fact further
proves that in the other contracts also there is no uniform percentage of total
amount which is attributed towards labour charges.
6.8 The records indicate that the Noticee had entered into composite contracts
for erection, commissioning and installation of various machineries. The erection
is part of erection, commissioning and installation service provided by the Noticee.
So the erection or civil work charges received by the Noticee shall also form part
of the value for the purposes of charging service tax. The Board has accordingly
clarified that in the case of a composite contract for erection, commissioning and
installation, the erection charges would be taxed as part of this category of service.
6.9 The provisions of the Valuation Rules for the determination of value of
services involved in the "erection commissioning and installation services" and
"execution of works contract services" indicate that labour charges are only one of
the ingredients for working out the value of service. Therefore, the labour charges
on account of erection, commissioning and testing of AC plants upto phase 1 test
finding mention in the various orders and claimed by the Noticee do not appear to
be truly representing the service charges involved in the erection, commissioning
or installation of the machinery in question while executing the various work
orders. The Noticee have not placed on record anything regarding determination
of the value in the manner prescribed by law. From the work orders, I observe that
in some cases, the charges on account of supervision for erection & commissioning,
charges on account, of erectioft & commissioning & testing have been mentioned
separately. "Such charges are required to be clubbed along with other charges if
any relating to erection, commissioning or installation charges. Further, in most of
the work orders, the labour charges have been qualified by the use of words
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crection, commissioning or installation and testing upto phase 1. In some orders
as brought out above, testing charges for phase II have been mentioned. In this
connection, I observe that the labour charges on account of testing at all the stages
of testing of machinery carried out by the Noticee are required to be included in
the gross value for the purposes of charging of service tax.
6.10 In this connection, reference is invited to Circular No. B 2/8/2004-TRU
dated 10-9-2004 issued by the Central Board of Excise & Customs which further
clinches the issue. The Board has clarified the distinction between erection and
commissioning/installation. The Board succinctly clarified that erection would refer
to the civil works to installation and commissioning of plant and machinery.
Further, erection involves civil work, which would otherwise fall in the category of
construction services. However, in the case of a composite contract for erection,
commissioning and installation, the erection charges would be taxed as part of this
category of service
6.11 I have observed that this issue was discussed in detail by the previous
adjudicating authority in para 4.11 of the Order In-Original, who had referred the
statement of Shri S.S. Bal, Prop. of the Noticee wherein he had stated that for
payments from the MES Department, no separate bills were raised. As the
payments being made could not be differentiated for goods and services, thus the
Service tax was calculated under the provisions of Notification No. 19/2003-ST
dated 21.08.2003 which grants exemption to the taxable service provided to a
customer in relation to commissioning or installation by a commissioning and
installation agency, from so much of the service tax leviable thereon under section
66 of the said Act, as is in excess of the amount of service tax calculated on a
value which is equivalent to thirty-three per cent of the gross amount charged
from the customer under a contract for supplying a plant, machinery or equipment
and commissioning or installation of the said plant, machinery or equipment. In
other words, the service tax has been demanded only on 33% of the value of total
receipts which represents the receipts for service portion only.
6.12 I further observe that the noticee has placed no further evidence on record
to prove that in case of all contracts only 5% amount of the contract amount is on
account of erection, commissioning or installation charges. Rather this appears to
be an after-thought of the noticee. Therefore, the claim of the Noticee that only
5% of the amount of contract shall be the charges for ascertaining their service
tax liability is not borne out from the records produced before me. On the other
hand, there is sufficient documentary evidence to conclude that 5% share of the
contract amount does not represent the correct service charges portion of the
entire amount. It is only a part of the service charges amount. So the contention
of the Noticee that they are required to pay service tax only on 5% of the value of
contracts cannot be accepted on the face of the above quoted provisions of law of
valuation on the services involved in execution of the works contract.
6.13 On the basis of above discussion, I find that the inference deduced by the
council of the noticee on the basis of entry shown at sr. No.27 in Appendix A of
their contract No CEWAC-38/2002-2003 which led to observations of the Hon'ble
CESTAT in para 12 of the order that service tax should have been demanded from
the noticee on 5% of the total amount is not correct. Therefore, observations of
the Hon'ble CESTAT in its final order are not applicable to the noticee as the noticee
has tried to mislead hon'ble court to wrongly believe that the entry in 27 of their
work order No. CEWAC-38/2002-2003 is a representative entry towards all the
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contracts and that service tax should have been levied on 5% of total value of the
contracts.
6.14 The next issue to be taken up is the observations in para 13 of the CESTAT
order where Hon'ble Tribunal has referred a letter dated 20.02.2008 issued by the
Military Engineering services and has observed that, since the MES are not involved
in any commercial activity, the service provided to them should not be taxable.
6.15 In the course of remand proceedings, the Noticee in their submissions have,
on the basis of above observations of the CESTAT contended that they had received
the amount of Rs. 14,00,54,298/- during the period under reference from MES and
that the Hon'ble CESTAT vide final order dated 24.02.11 under reference has held
that any service rendered to MES during the period under reference is not liable to
service tax.
6.16 1 observe that copy of the letter dated 20.02.2008 supra is already on record.
It has been signed by one Shri Hari Singh, Director (Contractor) for Engineer-in-
Chief. Directorate of Contact Management, Military Engineer Services, New Delhi.
It is reproduced below:-
"LEVIABILITY OF SERVICE TAX ON CONTRACTOR IN MES CONTRACTS
Ref this HQ letter No.33416/Policy/E8 dated 14 Sep.07
Some of the formations intimated that Service Tax Deptt in their area is insisting
for the service tax on the service contracted by MES for management,
maintenance, repairs, erection and installation services. The matter was referred
to the Ministry of Defence for the clarification, MOD has clarified the issue as
under:-
"As per the clarification given by MOF, the basic principle to the followed with
regard to leviability of service is whether the building/civil structure is used or to
be for commerce or industry. Therefore, if the repair and maintenance services are
linked with a building/ civil structures which are not used for commercial activities,
such service may not be taxable."
As per the clarification issued above if the repairs and maintenance services are
linked with a building/civil structure which are not used for commercial activities
such service may not be taxable Formation concerned may apprise the Service Tax
Deptt. accordingly."
6.17 The contents of the letter dated 20.02.2008 supra are unambiguous so far
as the clarification said to be issued by the Ministry of Finance (reproduced in
italics) is concerned. The clarification said to be issued by the Ministry of Finance
(a copy of Ministry of Finance's purported letter is not on record nor is there any
proper reference) purportedly pertains to the repair and maintenance services.
However, in the instant case, the issue is not of demand of service tax on repair
and maintenance services. Rather, the service tax has been demanded on the
erection, commissioning or installation services falling under Section 65(39a) of
the Act and on "services in execution of Works Contract" falling under Section
65(105)(zzzza)of the Act.
6.18 The above quoted service tax entries do not contain any condition that for
the purpose of being exigible to service tax, the service to be provided has to be
used for commercial or industrial purpose. Rather the said condition is in respect
of Commercial or Industrial construction services where in terms of Section
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65(1095)(zzq) the "taxable service" means any service provide or to be provided,
to any person by any other person, in relation to commercial or industrial
construction.
It is further elucidated that the chargeablity of service tax is not person specific
but it is service specific. Therefore, the Notičee as a professional are not chargeable
to service tax but it is the services being provided by them, which are chargeable
to service tax under the proper heading as provided under service tax Act
I have further observed that the issue has been discussed in detail in para 4.21 of
the order in-original where the adjudicationg authority has observed that, "I have
seen the letter referred to by the noticee which is issued by the Military
organization and feel that the letter is not related to services of Erection
Commissioning or installation or work contract."
In view of above discussion I find that the contents of the aforesaid letter although
not but even if issued by MOF can not be generalized to make those applicable to
all other services including the services of Erection Commissioning or installation
or Work contract services provided by the noticee.
6.19 The next issue to be taken up in the remand proceedings is the valuation
aspect of the case. In this regard the observations of the CESTAT are as under:-
"We further find that during the impugned period, the service tax is leviable on the
value of the service provided. It is admitted fact that the appellants have not
provided service separately and charged service tax separately. Therefore,
appellants are entitled for cum service tax benefit; this aspect has also not been
considered by the adjudicating authority. We find that if the appellant have to pay
service tax, they have to pay the service tax only on the value of labour charges
of erection, installation & commissioning as per the work orders as discussed
hereinabove. This fact has also been ignored by the adjudicating authority
6.20 In their reply filed during denovo proceedings the noticee have contended
that the service tax should have been demanded only on the labour charges
received by them and challenged the applicability of Notfn no 19/2003 dated
21.08.2003, vide which ST was demanded after allowing 67% rebate on the total
value of contract, but they have not produced any documentary evidence to
endorse their claim that the charges received by them were inclusive of service
tax amount.
6.21 I have studied the statutory provisions provided under Section 67 of the
Act. regarding valuation of the services provided by the noticee The services of the
noticee has been categorized under Erection Commissioning or installation services
"from 01.10.2003 to 31.05.2007" and under work contract services from
"01.06.2007 το 30.09.2008"in the order in original and the classification aspect of
the SCN is not under remand For the period from 01.10.2003 to 31.05.2007.
provisions of the law for recovery of services tax on the services of Erection,
Commissioning or Installation services, are covered under Section 67 of the Act
read with Notfn no 19/2003 dated 21.08.2003 vide which the value of taxable
services in relation to services provided or to be provided by a commissioning or
installation agency shall be the 33% of the gross amount charged by such agency
from any person receiving erection, commissioning or installation services, as the
noticee were entering into composite contract with service receivers where the
value of goods and services could not be isolated as admitted by the noticee in his
statement tendered.
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6.22 However, with effect from 18.04.2006, the Section 67 was amended and
the Service Tax (Determination of Value) Rules, 2006 notified. In the case of
service of execution of works contract also, the value shall be gross amount
charged for providing such service as per Section 67 of the Act and the Service
Tax (Determination of Value) Rules, 2006.
6.23 Rule 2(A) of the Service Tax (Determination of Value) Rules, 2006 deals
with determination of value of service portion in the execution of a works contract.
It lays down as under:-
(1) Subject to the provisions of section 67, the value of taxable service in relation
to services involved in the execution of a works contract (hereinafter referred to
as works contract service), referred to in sub-clause(zzzza) of clause (105) of
Section 65 of the Act, shall be determined by the service provider in the following
manner:-
(i) Value of works contract service determined shall be equivalent to the gross
amount charged for the works contract less the value of transfer of property in
goods involved in the execution of the said works contract:
Explanation: For the purpose of this rule,-
(a) gross amount charged for the works contract shall not include Value
Added Tax (VAT) or sales tax, as the case may be, paid, if any, on transfer of
property in goods involved in the execution of the said works contact:
(b) Value of works contract service shall include:-
(i) labour charges for execution of the works;
(ii) amount paid to a sub-contractor for labour and services;
(iii) charges for planning designing and architect's fees;
(iv) charges for obtaining on hire or otherwise, machinery and tools used for the
execution of the works contract;
(A) cost of consumables such as water, electricity, fuel, used in the execution of
the works contract,
(vi) cost of establishment of the contractor relatable to supply of labour and
services;
(vii) other similar expenses relatable to supply of labour and service; and
(viii) profit earned by the service provider relatable to supply of labour and
services;
The above provisions of law under work-contract services shows that the value of
services provided should include all the charges received for all the components of
work contract as elucidated from point no (i) to (viii).
6. 24 Regarding extending the cum duty benefit to the noticee, Prefer a
judgment of the Hon'ble Supreme Court in the case of Amrit Agro Industries
Ltd. v. Commissioner of Central Excise, Ghaziabad reported in 2007 (210)
E.L.T. 183 (S.C.) wherein the H'ble Court has held that unless it has been
shown by the manufacturer that the price of the goods includes the excise
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duty payable by him, no question of exclusion of duty element from the
price for determination of value under Section 4(4)(d)(ii) will arise."
The judgment supra of the apex court was relied upon by the CESTAT New Delhi
in its Order No. 600-609/2010-EX [DB] dated 06.08.2010 in Appeal No.
E/3931/2003-EX [DB]. E/1280-1286/2004-EX and E/5530/2004-EX &
E/1509/2008-EX, in the case of M/s. Dhillon Kool Drinks & Beverages Ltd. G.T.
Road, Phillaur, Punjab V/s. CCE, Jalandharin has doserved as under,
“Since this is a case of deliberate evasion of duty and not a case where
short payment is due to some bona fide misunderstandings on the part of
the appellant, the value can not be treated as cum duty value",
6.25 I have further noticed that the allegations of suppression and malafide
alleged against the noticee in the SCN, were proved and confirmed against them
vide 010 No 12/Ldh/09 dated 13.11.09. As the aspect of invoking extended period
under Section 73(1) of the Act is not under remand, the CESTAT in its final order
has admitted the aforesaid allegations, therefore, the ratio of the judgments
referred supra is applicable in the instant case also.
6.26 As regards the issue of valuation and the issue of cum- duty value it was also
discussed in the OIO No 12/Ldh/09 dated 13.11.09 where the adjudicating officer
had discussed the provisions of Section 67of the Act, for providing cum duty benefit
to the noticee but on the other hand he had observed as under,
“However, in the instant case, the Noticee has been maintaining that no
service tax was payable by them. The break-up of the gross amounts
mentioned in various work orders placed by the recipients of service,
there is no mention of the amount of service tax being included in the
gross amount payable to the Noticee. Therefore, the deduction on account
of service tax does not appear to be admissible as claimed by the Noticee."
In view of above discussion, therefore, I find that as the noticee had deliberately
evaded service tax leviable on the services being provided by them, therefore, the
Value of services provided by them can not be treated as cum service tax value.
6.27 Since the Noticee has failed to pay the service tax which they were liable
to pay under Section 68 of the Finance Act, 1994 read with Rule 6 of Service Tax
Rules, 1994 as discussed above, they are liable to penalty under Section 76 of
Finance Act, 1994. Further since they have failed to take registration under Section
69 of the Finance Act, 1994 read with Rule 4 of the Rules, failed to pay service tax
regularly as required under Section 68 of Finance Act 1994 read with Rule 6 of the
Rules and failed to file returns under Section 70 of the Act read with Rule 7 of the
Rules thereby, contravening the provisions of Section 68,69 &70 of the Act read
with Rules 4,687 of Service Tax Rules, 1994 by suppressing the facts with the
interition to evade the payment, of service tax. I also hold them liable to penalty
under Section 77 & 78 of the Finance Act, 1994. No other determination out of the
CESTAT's remand order.”
10.4 We after having gone through the submissions made, the impugned
order, and other materials on record, find that, in the instant case, out of a
demand of Rs.19,90,42,973/-, which was the gross amount received including
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the value of the goods, the Commissioner allowed 67% towards the value of
the goods under the works contract. Whereas the claim of the party was that
as per the tenders, they had actually supplied goods worth Rs. 16,35,58,494
/-. In Annexure D of the paper book, a Chartered Accountant certificate, along
with copies of contracts, has been placed on record indicating amounts
received from various government contractors. It turns out that Rs.
14,00,54,298/- was received from MES, Rs.1,96,39,742/- was received from
Ordnance Factory, Rs.32,13,165/- was received from Railways,
Rs.12,32,077/- from the Authority of the Government Airports, Rs.
99,00,630/- from the State Government Hospital & Rs.2,50,03,060/- from the
State of J&K during the impugned period.
10.5 We find that these are government authorities or government
hospitals, and appropriately, the appellants neither charged any service tax
nor paid the same. We find that in view of the decision of CCE vs. Larsen &
Toubro Limited, as reported in 2015 (39) S.T.R. 913 (S.C.), the tax on the
goods portion could not have been demanded from the party specially when
amount of goods charged to VAT was available. We also find that works
contract became taxable only from 1st June, 2007. In the absence of any
specific section levying service tax on works contracts, the non-existence of a
levying provision for service tax in works contracts prior to that was also noted
by the Hon'ble Supreme Court. The goods portion, which was not liable for
service tax, was indicated and available on record and same having been
subjected to sales tax. Therefore, the value of the goods portion was clearly
deducible from that levy on actual basis rather than any notional.
10.6 We also find force in the submission that barring the amount of Rs.
50,58,543/-, which is stated to be the amount received towards services
rendered, the remaining amount is either in the nature of work done in J&K,
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which is any case is exempt, the services having been provided in J&K or are
services provided towards civil works or to the Government or its organs,
which are either not taxable or exempt. The demand, therefore, on these
counts is not sustainable. However, we find that an amount of Rs. 50,58,543/-
received towards services rendered during the impugned period from October
2003 to September 2008 has been indicated by the party itself as taxable. It
was claimed by the party that the tax on the aforesaid amount of Rs.
50,58,543/- had been duly discharged by them.
10.7 We are in agreement with appellants in relation to the non-taxability of
services provided to the Government and to J&K, as well as the goods portion
indicated of Rs. 16,35,58,494/- indicated as having been subjected to sales
tax in all the contracts. Being the supply of goods, they are also excludable.
10.8 In view of the foregoing, we find substance in the submissions made
by appellants on merits. We also find that, for the period from October 2003
to September 2008, a show cause notice was issued on 22.04.2009, invoking
the extended period. We further find the law was fluid in relation to
composite/works contract and was settled only when the decision in CCE vs.
Larsen & Toubro Limited, as reported in 2015 (39) S.T.R 913 (S.C.), became
available. As various questions of interpretation were settled only by the
Supreme Court in relation to composite/works contract, it cannot be said that
the appellant had any intent to evade tax or had deliberately suppression fact
so as to invoke the extended period or are liable to be subjected to any
penalty.
10.9 In view of the case law cited by the party, as well as the fact that the
supplies were mostly made to the Government or its department, it cannot be
said that the party was trying to enrich itself through any deliberate evasion
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of tax, as supplies to the government were exempt during the relevant time.
And no one from the Government agencies/ department paid any tax.
Considering the whole gamut of evidences as well as factual matrix, we are of
the view that the demands are not sustainable. Consequently, the penalties
are also liable to be set aside.
11. Appeals are allowed with consequential relief.
(Order pronounced in the open court on 04.11.2026)
(SOMESH ARORA)
MEMBER (JUDICIAL)
(P. ANJANI KUMAR)
MEMBER (TECHNICAL)
Kailash