Larsen & Toubro Ltd., (ECC DIVIN) Versus CC, CE & ST, Hyderabad \u2013I, II, CCE, Hyderabad-GST (Vice-Versa)
Service Tax
2019 (1) TMI 381 – CESTAT HYDERABAD – 2019 (24) G. S. T. L. 64 (Tri. – Hyd.)
CESTAT HYDERABAD – AT
Dated:- 7-1-2019
ST\/314\/2009, ST\/351\/2009, ST\/1937\/2010, ST\/25875\/2013, ST\/30275\/2016 – A\/30023-30027\/2019
Service Tax
Mr. M.V. RAVINDRAN, MEMBER (JUDICIAL) And Mr. P. VENKATA SUBBA RAO, MEMBER (TECHNICAL)
\nShri V. Sridharan & Shri G. Prahlad, Advocates for the Appellant.
\nShri P.R.V. Ramanan, Special Consultant for the Respondent.
\nORDER
\nPer: M.V. Ravindran
\nThis appeal is directed against Order-in-Original No. 06\/2009 (ST) dated 20.01.2009.
\n2. The relevant facts that arise for consideration, after filtering out unnecessary details are appellants herein were awarded the contract by M\/s Reliance Industries Ltd., (hereinafter referred as RIL) for construction of Onshore Terminal (hereinafter referred as OT) for the purpose of receiving, processing<\/p>\n
= = = = = = = =<\/p>\n
Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n r receiving and transportation of gas for further distribution and hence it would be exempted from payment of tax. After investigation, lower authorities issued a show cause dated 31.07.2008 directing the appellant show cause as to why the service tax be not demanded for consideration received under the category of commercial or industrial construction services or works contract services or erection commissioning and installation services and finally demanded tax liability under the category of commercial or industrial construction services by applying provisions of Section 65 (A)(2B) of the Finance Act, 1994. Appellant had filed a detailed reply inter-alia contesting the classification on the ground that it is works contract service and the OT is a transport terminal and not liable for tax. Adjudicating Authority after following due process of law, confirmed the demands raised along with interest and also imposed penalties. = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n on' service = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n ial Construction Service” under the head “Exempted Service'' in the ST-3 returns. Therefore, deficiency in the prescribed format of form will not amount to non-disclosure on the part of the appellants. Please refer: = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n a factual backdrop, the Commissioner (Appeals) determined as to whether there was any suppression of facts by the assessee. He disagreed with the adjudicating authority and after referring to all the materials on record, including the RT 12 returns, he held that the department could not have alleged suppression, when all the facts were disclosed in the returns and the assessee specifically claimed that it was not liable to pay any duty. There are figures on record from which appropriate inference could have been drawn by the Revenue. It is, therefore, the department's obligation to investigate and for that purpose, it possessed the requisite powers. If the department fails in that duty, it could not turn around and blame the assessee. = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n 4 (Guj.)] (page 31-37 of the compilation) = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n a percentage specified in the corresponding entry in column (5) of the said Table, of the gross amount charged by such service provider for providing the said taxable service, subject to the relevant conditions specified in the corresponding entry in column (4) of the Table aforesaid: = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n T so far used in 'Commercial or Industrial Construction Service'. There is no dispute from department on the fact that the appellants are not entitled for the benefit of above Notification 1\/2006. = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n le. In a “case” where the CENVAT credit on input\/input service is not taken then the benefit of abatement would be available. The Notification uses the expression “in cases where”. In other words, the Notification does not stipulate that in all cases, the condition of non-availment of CENVAT credit should be satisfied uniformly without exception. Therefore, in respect of a contract where the assessee has not taken input credit prior to 1-3-2006 and input\/input service tax credit on or after 1-3-2006, the assessee would be rightly entitled for the benefit under the Notification No. 15\/2004-S.T. as replaced by Notification No. 1\/2006, dated 1-3-2006. In a case where the assessee avails CENVAT credit, then in such cases the assessee is not entitled for abatement and the service tax liability will have to be discharged on the full value of the contract. There is nothing in these Notifications which prevents an assessee from not availing CENVAT credit and paying service tax on 100% of the c<\/p>\n = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n uded. Negating the contention of the revenue, the Hon'ble Apex Court held that the above argument of the department is not supported by any material. = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n issuing the said notifications and in such a situation, the AO can deny the benefit of aforesaid notifications. This argument may look to be attractive in the first blush but on the reading of the notifications as a whole, to our mind, it is not a valid argument. = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n g at gross amount 'gross amount charged'. = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n care of the proper functioning of the credit scheme. The legislature is aware that goods transport agency sector is an unorganized sector and many of the people do not follow proper invoicing method or maintain proper records etc. In such a case, there is an obvious possibility that the credit chain might snap. Hence, the legislation had prescribed a straight jacket formula that in such cases the service provider shall pay service tax on the amount of 25% of the value subject to the condition that no CENVAT credit is taken. = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n as under: Section 65A. Classification of taxable services. – = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n ken by the appellants in the present matter is a turnkey contract comprising of engineering, erection, installation, commissioning, electrical, mechanical, instrumental, construction, etc. There is no justification or allegation as to how the department has reached a conclusion that the construction is the predominant activity in the transaction. = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n 5 In the present case, the transaction many of the items involve non-taxable services such as = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n s, airports, railways, transport terminals, bridges, tunnels and dams;] = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n s admittedly, the appellants has constructed the terminal as a whole and is not concerned with the laying of pipeline from the terminal to the end users and the said activity is not forming part of the present dispute. It is the terminal that has been constructed and therefore there is no construction of 'pipeline' or 'conduit' per se. = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n cal, instrumental, construction, etc. = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n r commissioning, in absence of any specific inclusion, 'turnkey contracts' cannot be taxed under the category of 'Commercial or Industrial Construction Services.' = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n transport terminal' has not been defined under the Finance Act, 1994 the same has to be understood in their ordinary or commercial parlance. = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n the meaning of terminal in page 347 as under: = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n \nRecirculation of MEG = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n he gas is found in its purest form and does not require any treatment or storage at the Onshore terminal. = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n and dispersal to different destinations. Such inference has been wrongly derived from the said article as the terms used in 'originates', 'terminates', or 'handled' and not 'originates', 'terminates', and 'handled'. The term 'or' cannot be used as 'and' for the purposes of interpretation. = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n included by the “means” clause. = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n ed as follows: = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n ENERIS' IS NOT APPLICABLE IN THE PRESENT CASE. = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n e Board and the Department itself has understood\/ visualized these only as infrastructure projects. = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n : = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n pecified as within the district of Hyderabad. Therefore, according to the said notification, Hyderabad II Commissionerate has no jurisdiction over Kakinada, a port located on the Godavari river near Bay of Bengal. In this regard, we rely on the following decisions: = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n extended period. = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n d from the purview of commercial or industrial construction services is totally wrong as the OT at Kakinada cannot be characterized as transport terminal as indicated in the exclusion clause of definition of the commercial or industrial construction services and OT is nothing but an industrial plant meant to produce compressed natural gas and hence, the said onshore terminal is nothing but a refinery\/plant with various processing facilities whereas the gas is received along with impurities is totally baseless. The natural gas cannot be transported directly from the gas field to the prospective buyer through a pipeline without being treated for impurities. After explaining us the entire process, Learned Counsel requested time for filing written submissions which was permitted and filed which are as under: = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n the construction of OT for RIL but were forced to claim waiver from tax as RIL held a contrary view. Hence, L&T cannot claim any bonafide belief that ST was not payable. = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n ificantly, this period covers the period for which SCN was issued beyond the normal period. Hence, the demand is not hit by limitation. = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n a combination of different services such as, civil construction, laying of pipes, erection, commissioning and installation of equipments. = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n is is an admission of the fact that what happens in the OT is not mere movement of gas through pipeline. OT is the premises where a complex manufacturing process is carried out. = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n ischarging tax on 33% of the value of the total project cost. = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n te cannot be questioned. = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n are unable to agree with this rather novel proposition urged on behalf of the appellant. The submission of the appellant that the Act does not prescribe a mechanism for taking such composite contracts is not correct as, in our view provisions of Section 65A of the Finance Act, 1994, provides necessary statutory guidelines for determining, not only specific taxable category, but also its classification as taxable or non-taxable services. The submission of the appellant on this point seeks to give the word “classification” an unduly narrow meaning. Thus, we are of the view that conclusion as to non-taxability of a composite service can be arrived at only in a situation where it is established that essential character of composite contract is imparted. The argument of appellant, it seems, that essential character of composite contract is imparted by the CICS activities, which are taxable. As such, the contention that entirety of the service provided by the appellant is to be regarded as <\/p>\n = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n Strenuously challenged by appellant contending that the essential character of the composite service was that of ECIS services, we need to look in to that before coming to a conclusion. = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n contract is titled as one for “Construction of onshore terminal and associate facilities” is not determinative of its essential character. Even, as per CBEC clarification (as is in paragraph 11), even ECIS contract may involve some element of civil construction activity necessary for erecting and installing equipments and machines. To us it is clear that on standalone basis some of the services provided herein, were in the nature of ECIS services, while some others, again on a standalone basis, were either construction services falling under the head CICS or were non-taxable services as noted herein above. Since both sides are unanimous in contending that the contract is a composite contract and indivisible one, not amendable to being broken down in to its separate components attracting different tax classifications, it was necessary for the adjudicating authority to have examined which of the two taxable services i.e. ECIS or CICS imparted the essential character to the contract as a<\/p>\n = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n cost of such manpower. In our view this aspect needs consideration except in appeal No. ST\/30275\/2016, to determine the essential character of the service rendered under the composite contract on the aforesaid basis. = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n e terminal is a transport terminal or otherwise arise. We direct that in case the adjudicating authority on remand concludes that the contract is aptly classifiable under the head of CICS and not ECIS, he would also consider whether the Onshore Terminal can be termed as a transport terminal or not. In doing so the adjudicating authority would take into account the ratio laid down by the co-ordinate bench of this tribunal in the case of AFCONS (supra) as also the submissions that the appellant may urge. = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n","protected":false},"excerpt":{"rendered":" Larsen & Toubro Ltd., (ECC DIVIN) Versus CC, CE & ST, Hyderabad \u2013I, II, CCE, Hyderabad-GST (Vice-Versa)Service Tax2019 (1) TMI 381 – CESTAT HYDERABAD – 2019 (24) G. S. T. L. 64 (Tri. – Hyd.)CESTAT HYDERABAD – ATDated:- 7-1-2019ST\/314\/2009, ST\/351\/2009, ST\/1937\/2010, ST\/25875\/2013, ST\/30275\/2016 – A\/30023-30027\/2019Service TaxMr. M.V. RAVINDRAN, MEMBER (JUDICIAL) And Mr. P. VENKATA SUBBA … Continue reading “Larsen & Toubro Ltd., (ECC DIVIN) Versus CC, CE & ST, Hyderabad \u2013I, II, CCE, Hyderabad-GST (Vice-Versa)”<\/span><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[],"tags":[],"class_list":["post-16085","post","type-post","status-publish","format-standard","hentry"],"_links":{"self":[{"href":"https:\/\/goodsandservicetax.in\/GST\/index.php?rest_route=\/wp\/v2\/posts\/16085","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/goodsandservicetax.in\/GST\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/goodsandservicetax.in\/GST\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/goodsandservicetax.in\/GST\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/goodsandservicetax.in\/GST\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=16085"}],"version-history":[{"count":0,"href":"https:\/\/goodsandservicetax.in\/GST\/index.php?rest_route=\/wp\/v2\/posts\/16085\/revisions"}],"wp:attachment":[{"href":"https:\/\/goodsandservicetax.in\/GST\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=16085"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/goodsandservicetax.in\/GST\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=16085"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/goodsandservicetax.in\/GST\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=16085"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}
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\n3. Learned Counsel submits as under:
\nEXTENDED PERIOD IS NOT<\/p>\n
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\nA.3 Firstly, the extended period is not invokable as there was no suppression of facts with intent to evade payment of service tax. The appellants were under a bonafide belief that the said service does not come under the purview of 'Commercial or Industrial Construction' service. This belief is strengthened by the decision of the Commissioner (Appeals II), Hyderabad in the case of IVRCL Infrastructure Projects Limited, Hyderabad vide Order-in-Appeal No. 38&39\/2009 (H-II) ST dated 20.07.2009 wherein it was stated that the activities undertaken for the same project by IVRCL would be exempt from service tax being 'transport terminal'.
\nA.4 Contractually, RIL is liable to pay service tax, hence there cannot be intention to evade.
\nDepartment was aware of the transaction in 21.2.2007.
\nA.5 Secondly, the department was already aware about the said activities at Onshore Terminal as the appellants vide their letter dated 5.3.2007, in reply to the department letter dated 21.2.<\/p>\n
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\n a) Muthiah Chettiar Vs CIT, Madras, [1969 (1) SCC 675] (Page 20- 25 of the Compilation)
\n b) Apex Electricals Pvt. Ltd., Vs UOI, [1992 (61) ELT 413 (Guj.)] (page 15-19 of the Compilation)
\nExemption claimed in return-No suppression
\nA.9 When the appellants have claimed exemption under the ST-3 Returns, the department cannot allege suppression of fact. Reliance is placed upon CCE Vs. Polycab Wires Pvt. Ltd., [2018 (360) ELT 391 (Bom.)] (page 26-27 of the Compilation):-
\n “4. Upon perusal of the appeal paper book and particularly the order under appeal, we are unable to agree. The Tribunal must perform its duty as a last fact finding authority is indeed an unassailable legal proposition. However, it has performed it or otherwise would depend on the facts and circumstan<\/p>\n
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\n 5. That is how the Commissioner (Appeals) approached the matter. The Tribunal endorsed this approach because it found that the same was not vitiated by any error of law apparent on the face of the record. The Tribunal referred to the judgment in the ca<\/p>\n
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\nThere is no legal opinion taken by the appellants
\nA.11 Though there is no allegation or finding on the fact that the appellants have followed the opinion provided by their provider of service. The said legal opinion was provide to M\/s Simplex Industries by their charter. Further, the said opinion also accepts the fact that it is 'transport terminal' however, they applied the principle of noscitur a sociis to held that infrastructure alone will be covered. Firstly, it is not an opinion obtained by the appellants. RIL had obtained opinion from their consultants. In any case, the opinion obtained from charter accountant was in contradiction with the Circular issued in 2005, which provided that roads constructed in private complex were also exempt from service tax.
\nWITHOUT PREJUDICE TO ANY OF THE ABOVE SUBMISSIONS, THE APPELLANTS ARE ENTITLED TO THE BENEFIT OF NOTIFICATION NO. 1\/2006-ST DATED 1.3.2006
\nB.1 Without prejudice to the above subm<\/p>\n
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\nTable
\nSl. No.
\nSub-Clause of clause (105) of Section 65
\nDescription of taxable service
\nConditions
\nPercentage
\n(1)
\n(2)
\n(3)
\n(4)
\n(5)
\n7.
\n(zzq)
\nCommercial or industrial construction service.
\nThis exemption shall not apply in such cases where the taxable services provided are only completion and finishing services in relation to building or civil structure, referred to in sub-clause (c) of clause (25b) of section 65 of the Finance Act.
\nExplanation.- The gross amount charged shall include the value of goods and materials supplied or provided or used by the provider of the construction service for providing such service.
\n33
\nProvided that this notification shall not apply in cases wh<\/p>\n
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\niv) As per the contract, it is a cost-plus contract, whatever cost is incurred by the appellants, the invoice is raised by them on RIL along with mark-up. The contract is service contract, however many of the items such helmet, staging materials, electricity, water, etc. which are used in rendition of output service is being provided by the appellants as well.
\nv) The appellants have not taken any CENVAT credit of duty on inputs or capital goods or the CENVAT credit of service tax on input services, used for providing construction of transport terminal. The same is evident from ST-3 returns of the period in dispute itself.
\nvi) Further, the appellants had also not availed the benefit of Notification No. 12\/2003-ST dated 20.06.2003.
\nB.4 After introduction of Notification 1\/2006, the appe<\/p>\n
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\nB.7 Accordingly, the value of free material supplied by the service receiver is not included in value of taxable service for the purpose of claiming abatement under Notification No. 1\/2006-ST 1.3.2006 in view of decision of the larger bench of the tribunal in case of M\/s Bhayana Builders Pvt. Ltd., Vs. CST[2013-TIOL-1331-CESTAT-DEL-LB] (page 42-57 of the compilation) affirmed by CST Vs. Bhayana Builders (P) Ltd., [2018-TIOL-66-SC-ST] (page 58-64 of the compilation).
\nRelevant portion is reproduced as under:
\n“17. Faced with the aforesaid situation, the argument of the Learned Counsel for the Revenue was that in case the assessees did not want to include the value of goods\/materials supplied free of cost by the service recipient, they were not entitled to the benefit of notification dated September 10, 2004 read with notification dated<\/p>\n
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\n18. In the first instance, no material is produced before us to justify that aforesaid basis of the formula was adopted while issuing the notification. In the absence of any such material, it would be anybody's guess as to what went in the mind of the Central Government in issuing these notifications and prescribing the service tax to be calculated on a value which is equivalent to 33% of the gross amount. Secondly, the language itself demolishes the argument of the Learned Counsel for the Revenue as it says '33% of the gross amount 'charged' from any person by such commercial concern for providing the said taxable service'. According to these notifications, service tax is to be calculated on a value which is 33% of the gros<\/p>\n
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\n19.Matter can be looked into from another angle as well. In the case of Commissioner, Central Excise and Customs, Kerala v. M\/s. Larsen & Toubro Ltd. – (2016) 1 SCC 170 = 2015 (39) STR 913 (S.C.). This Court was concerned with exemption notifications which were issued in respect of 'taxable services' covered by sub-clause (zzq) of clause (105) read with clause (25b) and sub-clause (zzzh) of clause (105) read with clause (30a) and (91a) of Section 65 of Chapter V of the Act. This Court in the aforesaid judgment in respect of five 'taxable services' [viz. Section 65(105)(g), (zzd), (zzh), (zzq) and (zzzh)] has held as under :
\n “23. A close look at the Finance Act, 1994would show that the fixed taxable services referred to in the charging Section 65(105) would refer only to service contracts simpliciter and not to composite works contracts. This is clear from the very language of Section 65(105) which defines 'taxable service' as 'any service <\/p>\n
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\nB.10 Similarly, in the construction industry also work is done through various subcontractors, and the construction industry is also unorganized and subcontractors also do not maintain proper records. In such a case, the service tax paid by the sub-contractor forms part of the cost of the subcontractor which results in distortion of the credit scheme. To take care of such a situation Notification No. 1\/2006 ST dated 1.3.2006 had been issued extending the abatement<\/p>\n
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\n(1) For the purposes of this chapter, classification of taxable services shall be determined according to the terms of the sub-clauses (105) of section 65;
\n(2) When for any reason, a taxable service is prima facie, classifiable under two or more sub-clauses of clause (105) of section 65, classification shall be effected as follows :-
\n(a) the sub-clause which provides the most specific description shall be preferred to sub-clauses providing a more general description;
\n(b) composite services consisting of a combination of different services which cannot be classified in the manner specified in clause (a), shall be classified as if they consisted of a service which gives them their essential character, in so far as this criterion is applicable;
\n(c) when a service cannot be classified in the manner specified in clause (a) or clause (b), it shall be classified under the sub-clause which occurs first among the sub-clause<\/p>\n
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\nC.4 Otherwise also, from the wording of Section 65A (b) of the Finance Act, 1994, it can be inferred that it is applicable only in the cases wherein two or more taxable services are involved. Reliance is placed upon Cox & Kings India Ltd., Vs. CST, 2014 (35) STR 817 (T) (page 91-103 of the compilation). The relevant portion is reproduced as under:
\n“(iii) In our considered view, the provisions of Section 65A have no direct application. This provision provides a guide to the classification of taxable services, where in any circumstances, a taxable service is, prima facie classifiable under two or more sub-clauses of Section 65(105). The prov<\/p>\n
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\n 1. fabrication work,
\n 2. construction of roads,
\n 3. residential complex,
\n 4. guest house for personal use,
\n 5. water supply facility,
\n 6. bridges, etc.
\nC.6 Construction of guest house or residential complex for personal use is not taxable-reliance is placed upon-
\n1. P.B. Rathod Vs. CCE, [2015 (39) STR 650 (T) (Residential Quarters)] (page 104-106 of the Compilation)
\n2. Mittal Construction Vs CCE, [2018 (11) GSTL 334 (T) (Guest House)] (page 107 of the Compilation)
\nC.7 Therefore, the present transaction shall not be governed by Section 65A (b) of the Finance Act, 1994.
\nTHE ACTIVITY UNDERTAKEN BY THE APPELLANTS IS NOT A CONSTRCUTION OF A 'NEW BUILDING' OR 'CIVIL STRUCTURE' OR 'PIPELINE' OR 'CONDUCIT', IN ANY CASE, THERE IS NO ALLEGATION IN THE SHOW CAUSE NOTICE TO THAT EFFECT
\nD.1 Section 65(25b) of the Finance Act, 1994, as amended, defines the term “Commercial or Indust<\/p>\n
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\n[Emphasis supplied]
\nD.2 Section 65(25b) of the Finance Act, includes only those construction services that are rendered for construction of a 'new building', civil structure', 'pipeline' or 'conduit'.
\nD.3 The present activity undertaken by the appellants is not construction of a 'building'.
\nD.4 The word 'building' is defined in various dictionaries as follows:
\n 1. As per New Oxford Dictionary means 'a structure with roof and walls such as house, school, or factory'.
\n 2. As per Webster's Ninth New Collegiate Dictionary means 'a usually roofed and walled structure built for permanent usage.'
\n 3. As per Black's Law Dictionary means 'a structure designed for habitation, shelter, storage, trade, manufacture, religion, business, education and the like. A structure or edifice enclosing a space within its walls and usually, but not necessarily covered with a roof.'
\nD.5 In view of the above dictionary meaning<\/p>\n
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\nD.8 There is no averment in the show cause notice that the activity undertaken in the present case is with respect to any of these items namely 'new building', 'civil structure'. 'pipeline' or 'conduit'. Accordingly to the department, the activity is one of construction of plant. The legislative scheme itself makes a distinction between what is covered under the scope of 'Commercial or Industrial Construction service' and 'Erection, Installation and Commissioning Service'. Activity in relation to Plant is covered under the category of 'Erection, Installation and Commissioning Service' and not under 'Commercial or Industrial Construction services'. Henc<\/p>\n
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\nE.2 In this regard, reference can be made to the definition of 'works contract service' under Section 65 (105) (zzzza) of the Finance Act, 1994 which expressly provides for inclusion of 'turnkey projects' under its ambit. The relevant portion is reproduced as under:
\n (zzzza) “Taxable service” means – any service provided or to be provided to any person, by any other person in relation to the execution of a works contract, excluding works contract in respect of roads, airports, railways, transport terminals, bridges, tunnels and dams.
\n Explanation. – For the purposes of this sub-clause, “works contract” means a contract wherein, –
\n (i) transfer of property in goods involved in the execution of such contract is leviable to tax as sale of goods, and
\n (ii) such contract is for the purposes of carrying out, –
\n (a) erection, commissioning or installation of plant, machinery, equipment or structures, whether pre-fabricated or otherwise, instal<\/p>\n
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\nE.4 In any case, present contract is a composite contract wherein vivisection is not possible in absence of any machinery provision and accordingly, the demand under 'Commercial or Industrial Construction Services' is not sustainable. Reference can be made to CCE, Kerala Vs. Larsen & Toubro Ltd., 2015 (39) STR 913 (SC) (page 69-88 of the compilation).
\n “35. The aforesaid finding is in fact contrary to a long line of decisions which have held that where there is no machinery for assessment, the law being vague, it would [not] be open to the assessing authority to arbitrarily assess to tax the subject. Various judgments of this Court have been referred to in the following passages from Heinz India (P) Ltd. v. State of U.P., (2012) 5 SCC 443.”
\nTHE APPELLANTS ARE NOT LIABLE BE SERVICE TAX UNDER 'COMMERCIAL OR INDUSTRIAL CON<\/p>\n
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\nF.6 The meaning of the term 'terminal' as defined in the following dictionaries:
\na) Chambers 21st Century Dictionary
\nan installation at the end of a pipeline or at a port where oil is stored and from where it is distributed.
\nETYMOLOGY: 19c in adj sense 1; 15c in obsolete heraldic sense: from Latin terminals, from terminus boundary.”
\nb) Illustrated Oxford Dictionary
\n6. an installation where oil is stored at the end of a pipeline or at a port.
\nc) The American Heritage Dictionary of English Language
\na terminus either end of a railroad or other transportation line, a boundary or border
\nd) Cambridge International Dictionary of English
\nthe area or building at a station, airport or port which is used by passengers leaving or arriving by train, aircraft or ship.
\ne) Under the Integrated Planning Act, 1997 (a statute passed under the l<\/p>\n
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\n“The word 'terminal' could refer either to the terminal of the goods or the termini of the Municipality. It is clear that the word 'terminal' refers not to the destination or origin of the goods but to the terminal of the Municipal limits. “Terminal” means end, boundary; situated at or forming the end or extremity of something; situated at the end of a line of railways; forming or belonging to a railway terminus.”
\nF.9 The Supreme Court in the case of Man Mohan Tuli Vs. Municipal Corporation of Delhi (1981) 2 SCC 467 (page 133-143 of the compilation) has held that “Terminal” in connection with transportation means inter alia the fixed beginning or ending point of a given run”.
\nF.10 Thus, the term 'transport terminal' is associated with a storage unit or junction on a transportation line where raw materials are store for example, similar to the present case, a transport terminal on an oil or gas transportation line.
\nTransportation thr<\/p>\n
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\nF.13 The above facilities enable the terminal to carry out processing of natural gas; such processing being activities undertaken to make the said gas transportable. Using the above facilities, the terminal receives gas from the offshore facilities, dehydrates (removal of moisture, free water and MEG) the gas to make it suitable for onward transportation (meeting sales specifications) and feeding the gas into the cross-country transportation pipeline.
\nF.14 All gas transport terminals receiving gas from deepwater offshore wells and transported to customer through cross country pipelines would have same or similar facilities and it is the presence of these facilities that goes to establish that the main activity of the said terminal is transportation.
\nF.15 Taking into consideration the industry practices, it is beyond any doubt that the said onshore terminal of RIL at Gadimoga is a 'transport terminal' which receives natural gas from offshore deepwater fields, <\/p>\n
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\nF.17 Assuming whilst denying that the onshore terminal is considered as a gas processing plant, there is not dispute about the fact that the said facility would be used for transportation of gas through long distance pipelines after processing. Once this is the admitted position, merely because gas is being processed at the said onshore terminal, the same would not take the onshore terminal out of the purview of the definition of a 'transport terminal'.
\nF.18 If the goods are packed, repacked etc. at the freight container stations for onward transportation of the goods to the customers in containers by road, would the same render the container stations as 'industrial plants' and accordingly, would not qualify for the exclusion granted to 'transport terminals'. The answer to the above question is clearly in the negative.
\nThe decision of the Hon'ble CESTAT in Afcons Infrastructu<\/p>\n
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\n3. Concept of 'transport terminal' is exhaustive, it cannot be limited to Airports, railways, bus terminals, etc. There are number of articles including that of Dr. Jean Paul Rodrigue and Dr. Brian Slack that specifically state that 'transportation through pipelines' is a worldwide phenomenon. Some of such articles are as under:
\na. 'Transportation Modes: An Overview' by Brian Slack, Dr. Jean- Paul Rodrigue and Dr. Theo Notteboom (page 43-50 of the Volume-I of the Compilation)
\nb. Illustrated Glossary for Transportation Statistics – 4th Edition (page 66 of the Volume-I of the Compilation)
\nc. Chapter 2:Transporting oil and gas in Northwest Russia http:\/ftp2.bentley.com\/dist\/collateral\/docs\/press<\/p>\n
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\nG.2 Even assuming that the transport terminal constructed by the appellant is not for 'public use or benefit', the exclusion in no manner specifies that it would apply only to 'Governmental or public works'. Even assuming the appellant's activities are not for the purpose of 'public utility' they would still be eligible to the benefit of the exclusion under Section 65(25b) of the Finance Act, 1994.
\nG.3 In Afcons Infrastructure Ltd., Vs. CSE, 2015 (38) STR 194 (T) (page 286-290 of the compilation), construction of viaduct and stations of Delhi Metro Railway Project for Delhi Metro Corporation (DMRC) under turnkey contracts was held to be exempted from 'Commercial or Industrial Construction Services' under the head 'railways' even if it is not part of 'Indian Railways.'
\nG.4 Similarly, while deciding exemption under Exemption Notification No. 25\/2007-S.T shall be given to 'public port' only or 'private ports' can also claim such exemption, CESTAT in P<\/p>\n
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\n“7. After carefully considering the submissions made by both the sides we find that it is an admitted fact by both the sides that the construction of road does not require payment of service tax. The Revenue's only appeal is that construction of driveway cannot be equated with the construction of road in as much as such driveway was not for public utility purpose but the same was in connection with the petrol pump owned by the owner.
\nIn this connection we find that the Board's Circular No. B1\/6\/2005-TRU dated 27-7-05 is to the effect that – “if the contract for construction of commercial complex is a single contract and the construction of road is not recognized as a separate activity as per the contract, then the service tax would be leviable on the gross amount charged for construction including the value of construction of road”. As such it becomes clear that the value of construction of road is to be included in the value of the service only when there is no segr<\/p>\n
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\nH.1 The principle of 'Noscitur a sociis' is not applicable because the said principle is applicable when two or more words which are susceptible of analogous meaning are coupled together; in such a case the two or more words are understood to be used in their cognate sense. They take colour from each other, that is, the more general is restricted a sense analogous to the less general. In the current case, the words used in the definition of 'Commercial or Industrial Construction' are “roads, airports, railways, transport terminals, bridges, tunnels, dams, ports or other ports”. There are no two words in the above group of words, which are susceptible to analogous meaning. Each of the words have a different meaning.
\nH.2 The rule of 'ejusdem generis' is also not applicable to the words covered by the notification because 'ejusdem generis' is a specific application of the broader principle of 'Noscitur a sociis' ; none of the nine words c<\/p>\n
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\nH.6 The above Para issued in the context of the 'Works contract service' would apply in all fours to their case. This is because both under the definition of 'Commercial or Industrial Construction service' as well as 'works contract service', exclusion is available to roads, airports, railways, transport terminals, bridges, tunnels and dams.
\nH.7 In view above, the onshore terminal being constructed by RIL being an infrastructure project, the services rendered by the Appellant is not liable to tax.
\nTHE INFRASTRUCTURAL FACILITIES ARE ANCILLARY AND IN RELATION TO THE ONSHORE TERMINAL
\nI.1 Apart from construction of the onshore gas terminal, the Appellants are also required to undertake certain civil works\/construction for Rural Water Supply (RWS) Scheme at Gadimoga Village.
\nI.2 The activities referred to in clauses (a) to (d) in the above definition of 'commercial or industrial con<\/p>\n
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\n * Construction of Civil works for comprehensive Protected Water Supply Scheme (CPWS) Scheme at Gadimoga village,
\n * Haul Road work, Access Bridge to Workman Colony,
\n * Flyover Bridge, Road widening work etc.
\nI.5 The said infrastructure projects would independently be excluded from the levy of service tax under excluded categories of “road”, “bridge”, “dam” etc.
\nI.6 Without prejudice, the said infrastructure facilities being construed by the Appellants are merely incidental and ancillary to the onshore terminal. It is well settled that incidentals will never determine or decide the classification. In fact, the said incidentals will not influence or alter the classification for the reason that they are not predominant or equally significant to the main activity undertaken by the Appellants i.e. the development of the onshore gas transport terminal.
\nI.7 The onshore terminal and the related infrastructural facilities are so integrally connected and inter linked that the said<\/p>\n
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\n 1. M.S. Engineeers India Pvt. Ltd., Vs CCE, 2014-TIOL-269- CESTAT-DEL (Page 391-394 of the Compilation)
\n 2. Vihar Aahar Pvt. Ltd., Vs. CST, 2013-TIOL-534-CESTAT-AHM (Page 395-396 of the Compilation)
\n 3. CCE Vs. Integral Construction Company- 2010 (17) STR 380 (Tri.-Bang.) (Page 397-398 of the Compilation)
\n 4. Inox Leisure Limited Vs. CST, 2016 (42) STR 497 (T) affirmed by Supreme Court in 2016 (44) STR J276 (SC) (Page 399-405 of the Compilation)
\nJ.2 Therefore, Commissioner, Hyderabad-II commissionerate did not have jurisdiction to demand service tax on the services rendered in Kakinada which fell outside the jurisdiction of Hyderabad-II Commissionerate.
\nINTEREST AND PENALITY NOT PAYABLE
\nK. No interest is payab<\/p>\n
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\nN. No penalty is imposable under Section 78 of the Act as there was no suppression of facts or intention on the part of the Appellants to evade payment of duty; In any case, penalty under both Section 76 & 78 not payable. Reliance is placed upon CST Vs. Motor World – 2012 (27) STR 225 (Kar.) (Page 408-422 of the Compilation).
\nO. Without prejudice, Appellant is entitled to waiver of penalties under Section 80 of the Act.
\nDEPARTMENT APPEAL NO. ST\/314\/2009.
\nThe Assessee is entitled to claim the benefit of cum tax.
\nP. The Order-in-Original has rightly allowed the benefit of cum tax on the count that the Appellant was not collecting any service tax in all the cases of demand of service tax. The cum-tax benefit should be extended to the Appellant and the taxable value quantified by the department was correctly treated as being inclusive of service tax for the purpose of modifying the service tax demand. In support of this reliance is placed on the following:
\n 1.<\/p>\n
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\n1. “The present submissions are pursuant to the hearing held on 11\/9\/2018 in the matter. At the time of the hearing a synopsis was filed on behalf of L&T and the present submissions a<\/p>\n
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\n(iii) Bid document of May 2006 did not contain any mention about tax 'exemption' for the subject services rendered by L&T. The subject clause was introduced only in the Contract dated 18\/10\/2006. Legal opinion from Shri K. Vaitheeswaran was obtained on 23\/10\/2006 i.e. after the signing of the contract.
\n(iv) Legal opinion of Shri K. Vaitheeswaran dated 23\/10\/2006 also clearly indicates that he was of the view that activities within the OT were significant and services in relation to the construction of OT could be a matter of dispute. Shri. Purushottam has pointed out this observation and observed that it was not correct to say that the said opinion endorsed RIL's view.
\n(v) What is pertinent for raising a ST demand is the relevant date as defined in section 73(6) of Finance Act, 1994 and not acquiring knowledge o<\/p>\n
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\n3. Point No. 2: L&T is entitled to the benefit of notification no.1\/2006.
\nSubmissions: In view of the order of the LB of the Tribunal in the case of M\/s Bhayana Builders 'P' Ltd., Vs. CST [2013-TIOL-1331-CESTAT-DEL LB] affirmed by CST Vs. Bhayana Builders 'P' Ltd., [2018-TIOL-66-SCST], appellant's submissions have considerable force. However, the quantum of benefit to be allowed should be subject to verification by the department. Claims as to non-availment of benefit under 12\/2003 and of CENVAT credit would also require to be verified by the original authority.
\n4. Point No. 3. Construction service is not the predominant activity in the present transaction. Hence, classification under CICS is not correct.
\nSubmissions: Officials of L&T have themselves averred that the predominant nature of the contract is construction of OT. Statement of Shri Ud<\/p>\n
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\n(iii) Since L&T is essentially an engineering organization and is better placed to judge which of the activities predominate over others, in terms of work content (i.e. man hours spent) as well as cost the department has accepted the view and practice of classification adopted by them. Essential character and predominance have been regarded for this purpose as synonymous with each other.
\n(iv) There is no authority to say that if certain activity falls in the excluded category provisions of section 65 A(2)(b) is not applicable. Such exclusions do not vitiate the nature of the contract being composite.
\n6. Point No. 5: Activity undertaken is not construction of a new building or civil structure or pipeline.
\nSubmissions: (i) A perusal of the detailed scope of work indicates that the activity of construction of OT involved construction of several<\/p>\n
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\n(iii) The pipelines from the sub-sea facility end at Pig receivers. Thereafter, the well fluids are subject to a complex process of manufacturing gas which have to satisfy stringent quality\/specifications and other bye products. The manufactured gas is significantly different from the input, namely, well fluids. No pipeline runs through the OT. Thus, no movement of goods through a running pipeline is incident in the present case.
\n(iv) The decision of the Mumbai Bench of the Hon'ble Tribunal in the case of Afcons Infrastructure is squarely applicable as far as the issue whether the constructed by L&T for RIL is a transport terminal is concerned. The OT in question is the same as in the present case.
\n8. Point No. 7: Commissioner Hyderabad II has no jurisdiction to demand ST in the instant case.
\nSubmission<\/p>\n
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\n(iv) There was deliberate default on the part of L&T; hence, penal provisions are clearly attracted.
\n(v) Interest liability is similarly attracted as the tax demand is correct and legally justified.
\n10. Point No. 9: Department's Appeal is liable to be dismissed.
\nSubmissions: (i) In terms of clause 8 A (f) of the contract, ST has been taken to be inapplicable and such tax if found applicable later would be paid by RIL. From this provision it emerges that ST was independent of and over and above the contract amount. Given the above facts the amount received by L&T under the contract cannot be regarded as a 'cum-tax' amount. Hence, the abatement allowed by the adjudicating authority on account of this ground was not legal, proper and correct.
\n(ii) Counsel to the appellant also fairly conceded at the time of the hearing that the above stand in department's appeal is just and correct.
\n(iii) Department's appeal, theref<\/p>\n
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\n7. On perusal of the contracts, we find that it is undisputed fact that the contract awarded to appellant is a composite one involving construction, erection, commissioning and installation of plant equipment, structure, instrumental, electrical, etc.,; it is nobody's case that services rendered under contract can be bifurcated activity wise for the tax implication; Revenue Authorities as well as the appellants were unanimous in their submissions that the entirety of the contract is to be taken as a single indivisible contract and taxability thereof or otherwise should be decided. In terms of contract, appellant was to construct a gas processing plant with certain alloyed facilities called as OT.
\n8. The appellant was also to undertake the construction of certain common and infrastructure facility such as helipad; hanger; ATF refuelling facility; Radio room, portable water treatment system, permanent facilities like canteen building, office building, first aid<\/p>\n
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\n11. The appellant has contended that applying the essential character test in terms of Section 65A(2)(b), to the contract awarded to it, the service would be aptly classified under the head of ECIS and not under the head of CICS\/WCS. It has been contended that in any ECIS contract, construction is imperative for the purchase of commissioning and installing the plant, machinery, equipment. Reliance in this regards has been placed on CBEC clarification issued pursuant to the Finance Bill 2004-05 being introduced explaining the scope and ambit of Erection services which was added to the head of Commissioning and Installation services. The relevant extract of the clarification is reproduced here for ease of reference.
\n14. Extension of service tax on installation and commissioning, to erection services:\n<\/p>\n
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\n14. Insofar as appeal No. ST\/30275\/2016 is concerned, the demand has been confirmed under the head WCS. This demand is unsustainable, as admittedly the contract awarded to appellant, is a pure service contract and does not involve any transfer of property in the goods involved in the execution of the contract, which is a prerequisite for taxing any service under the head WCS. The fact that the contract is a pure service contract not involving any transfer of property in the goods involved in the execution of the contract is evident from para 10.1 of the show cause notice dated 31.07.2008, which states that since the contract awarded by RIL did not involve any transfer of property in the goods involved in the execution of the contract such activities fell outside scope of <\/p>\n
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\n16. The assesse has also claimed benefit of exemption in terms of Notification No. 1\/2006-ST dated 1.3.2006 and has also cited the judgement of the Apex Court in the case of Bhayana Builders (supra). We agree that in case the adjudicating authority comes to a conclusion that the activity is taxable under the head of CICS and does not fall in the exclusion of being a transport terminal, then tax only on 33% of the value of the services rendered alone would be payable in terms of Notifica<\/p>\n
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