GAMMON INDIA LTD. Vs. COMMISSIONER OF CENTRAL EXCISE

JUDGEMENT

(1.) M /s. Associated Transrail Structures Ltd. now known as M/s. Gammon India Ltd. (Appellant) are registered under service tax in the category of Works Contract Service, Business Auxiliary Service and GTA Service. They are also engaged in the manufacture and sale of electricity transmission towers and parts thereof. They enter into contracts with large customers for supply of transmission towers as well as for erection, commissioning and installation of such towers. Thus, they are awarded two types of contracts, one for supply of towers and the other for erection and installation. In the present case in dispute they were awarded two contracts by M/s. Power Grid Corporation of India Ltd. The first contract called the Supply Contract was for the supply of all equipment and materials required for the Tower Package A2 for Mewad -Wardha part of 765 KV.S/C Seoni -Wardha -Akola -Aurangabad Transmission System as detailed in the Contract Document. The second contract termed as Service Contract was for providing all the services including detailed survey, tower optimization foundations inland transportation for delivery at site unloading, storage, handling at site, insurance, erection/installation, stringing, testing, commissioning including performance testing in respect of all the equipment supplied under the first contract for complete execution of Tower Package A2 for Mewad -Wardha part of 765 KV.S/C Seoni -Wardha Transmission Line. The appellant, as far as the first contract is concerned, paid excise duty and discharged the Sales Tax/VAT liability on the supply of goods. However, this contract is not the subject matter of dispute in the present case. The dispute is regarding the second contract which is called Service Contract. The period of dispute is April 2008 to March 2012. The Works Contract service under Section 65 (105)(zzzza) of the Finance Act, 1994 was introduced w.e.f. 1.6.2007. At the same time the Works Contract (Composition Scheme for Payment of Service Tax) Rules 2007 was notified vide Notification No. 32/2007 -ST dt. 22.5.2007. The appellants started paying service tax on the Service contracts under Works Contract (Composition Scheme for Payment of Service Tax) Rules 2007. Revenue took the view that the appellant actually entered into composite contracts with M/s. Power Grid Corporation of India Ltd. having two separate parts namely, one for supply of transmission towers i.e. Supply contract and the other is the Service contract. It was held that, as per Rule 2A of Service Tax (Determination of Value) Rules, 2006, the value of Works contract service shall be equivalent to the gross amount charged in the works contract less the value of property in goods transferred, involved in the execution of the works contract. As the appellant had not included the value of goods (i.e. the value of goods involved in the supply contract), which is a condition for eligibility to avail the Composition Scheme, the appellant was not eligible to avail Composition Scheme under which service tax is leviable at 4% of gross value charged in the works contract and hence they were liable to pay service tax at the normal rate of 12.36%. Revenue's view further is that since the Service contract is of the nature of erection, commissioning or installation, it being a service contract only, the appellant had wrongly classified the service under the category of Works Contract service, only to avail the beneficial rate of service tax of 4% under the Works Contract (Composition Scheme for payment of Service Tax) Rules 2007 issued under Notification No. 32/07 dt. 22.5.2007. The appellants were issued 5 show cause notices for various periods mentioned in table below:

(2.) HEARD both sides. Written submissions placed on record by the appellant and Revenue are also considered.

(3.) REVENUE 's stand is briefly stated in the first paragraph also. It is further seen that in the adjudication orders passed by Commissioner, it has been held that the Composition Scheme is applicable only to Works contract involving sale of goods as well as the provision of services and an entirely distinct obligation is created in such composition contracts, that there must be transfer of property in goods involved in the execution of Works contract. According to the Consultant, under Section 67 (1)(i), service tax is to be levied on the gross amount charged by the service provider. Under Rule 2A of the Service Tax (Determination of Value) Rules, 2006, the method is prescribed for determining Value in a Works contract service. It states that the value of the service component of a works contract which is chargeable to tax would 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 contract. An alternative method of payment can be resorted to by adopting the Works Contract (Composition Scheme for Payment of Service Tax) Rules 2007, under which the tax can be paid at the composition rate of 4% on the gross amount charged. Consultant for Revenue states that that for pure labour services, where there is no transfer of property, the classification under Works Contract service is not correct. Further, because the material such as cement and steel used in executing the service contact gets consumed in the process of erection, therefore it cannot be said that there has been transfer of property in goods involved in the execution of the contract. It was stated that there is no sale of any materials to the Power Grid Corporation of India Ltd. because the materials get consumed in the process of erection. Therefore, the appellants are not eligible to avail the Composition Scheme and must pay duty at the normal rate of 12.36% ad valorem. The Commissioner, in his orders relied upon decision of Hon'ble High Court in the case of Modi Zerox Ltd. Vs. State of Karnataka reported at, [1999 (114) STC 424 to support their argument that once the material get consumed, there is no transfer of property. According to the Commissioner in his adjudication order, "where the main object of work undertaken by the payee of the price is not the transfer of a chattel qua chattel, the contract is one for labour and work." Commissioner also relied upon the decision of Hon'ble Supreme Court in the case of Vanguard Rolling Shutters Vs. CST - : (1977) 39 STC 372 (SC) -AIR 1977 SC 1505, in which it was held that where the contract is primarily for supply of materials and the work or service is incidental to the execution of contract, it will be contract for sale.