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Consult Construction

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2017-VIL-116-ALH

M/s BHARAT HEAVY ELECTRICALS LIMITED Vs STATE OF U.P.

U.P. Value Added Tax Act, 2008 - Supply, Erection and Commissioning of Complete Power Plants on turnkey basis - reassessment invoking the extended period of limitation - Section 29(1) and (7), Rule 9 (3) - reassessment proceedings - determination of turnover of sale of goods involved in the execution of work contracts - phrase "reason to believe" – belief of escapement on ground of higher deduction towards labour charges

HELD - While it is true that the at the stage of recording reasons, the petitioner's assessing authority was not required to measure in any exact figures the quantum of escapement, however, at the same time he could not have entertained a bona fide belief of escapement without first comparing the figure of actual deduction availed and the figure which according to him was legally allowable to the petitioner as deduction

For a belief of escapement to arise there must be shown to exist, as a fact, amount of deduction allowed to be an amount more than or in excess of 10% of the value of contract, received or receivable. In absence of such fact allegation the belief of escapement is no belief as to escapement - there neither exists a belief with the assessing authority as to escapement of turnover nor there exist any reason to justify a belief of escapement.

The initiation of reassessment proceedings against the petitioner is based on presumptions devoid of factual basis or reasonable ground germane to the formation of belief regarding escaped turnover – order for reassessment is quashed and writ petition is allowed

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Installation, erection and commissioning charges incurred while assembling final product viz. plastic machinery at customers’ site, not includible while arriving at assessable value u/s 4 of Central Excise Act; Notes that assessee, for convenience, transported all machinery components in unassembled form to customers’ site, and thereafter, assembled / installed them into final product;

SC states, it is obvious that as per Sec 4, transaction value is to be arrived at the time of clearance of goods at factory gate; Hence, all expenses incurred post clearance (that too, after supply of equipment) i.r.o. installation cannot be taken into consideration, holds SC;

Upholds CESTAT’s reliance on apex court rulings in PSI Data System Ltd and Mittal Engineering Works Pvt Ltd, for reversing Adjudicating Authority’s order  : SC

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CESTAT allows 67% abatement benefit under Notification No. 1/2006-ST towards material supplied under “Erection, Commissioning & Installation” service contract; Rejects Revenue contention that change of classification to “Works Contract Service” on customer’s insistence contrary to Rule 3(3) of Composition Scheme and abatement ineligible due to input credit availment; Assessee never changed classification of service and continued to pay tax at full rate on 33% of gross amount, hence Revenue’s claim only an assumption without any basis; Further, relies on coordinate bench ruling in Gammon India to reject Revenue contention that installation activity a ‘pure service’ and supply of material under separate work order only incidental in nature; Allows benefit of Composition Scheme on contracts entered post introduction of “works contract service” w.e.f June 2007 by relying on CBEC Circulars in this regard  : Mumbai Tribunal
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Where activities undertaken by assessee were identifiable separately, such activities couldn’t be termed as 'composite contract'

In the instant case the assessee was involved in the activity of "Construction of Civil Work" as well as "Erection, Commissioning and Installation Services" for setting-up of the power plant. It outsourced the 'Civil Work' on which it did not take any Cenvat credit of input services or capital goods and the sub-contractor had paid the service tax on that activity. For the activity of 'Commissioning and Installation', assessee took the Cenvat credit and discharged its service tax liability accordingly without claiming the benefit of Exemption Notification Nos. 15/2004 or 19/2005 or 1/2006. However, the Department argued that assessee's contract was a composite contract taxable in its entirety under "Erection, Commissioning and Installation Services" and it was liable to pay service tax on entire value.

The Tribunal allowed the stay application with the following observation:

In the case of CCE v. BSBK Pvt. Ltd. (2010) 26 STT 263 (New Delhi - Cestat) the Tribunal held that when the activities undertaken by the applicants were identifiable separately, , the whole of the activity couldn’t be termed as "composite contract". In the instant case also the activities undertaken by the appellants could be identified separately, therefore, following the decision in the case of BSBK Pvt. Ltd. (supra), it was held that the assessee had made out a prima facie case for 100 percent waiver of service tax, interest and penalty. – BHARAT HEAVY ELECTRICAL LTD. V. COMMISSIONER OF SERVICE TAX (Chennai - CESTAT)

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CESTAT, BANGLORE BENCH

ABB Ltd. (vs) Commissioner of Service Tax*, Bangalore

Section 65(29) of the Finance Act, 1994 - Erection, Commissioning or installation service - Period 30-11-2004 to 9-3-2007 - Assessee -company had entered into five contracts with Delhi Metro Rail Corporation (DMRC) for design, manufacture, supply, installation, testing and commissioning of electrical, hydraulic & fire systems at some of metro stations of DMRC - Show-cause notice was issued to assessee demanding service tax from it under category of 'Commissioning and installation services' - Assessee contested show-cause notice contending that all contracts in question were turnkey contracts and, therefore, were not liable for service tax prior to 1-6-2007 - Adjudicating authority did not agree with contention of assessee and confirmed demand along with interest and also imposed penalties - It was found from records that contracts entered into by assessee with DMRC were registered with sales tax authorities for billing under Delhi VAT Act and VAT liability had been deducted from payments made by DMRC to assessee - It was also on record that  tax was deducted at source from bills raised by assessee as per provisions of law, on execution of said projects, but was of supply of material which were either manufactured by assessee or were procured from outside - Whether discharge of VAT and deduction of TDS by DMRC by taking amount from Running Account Bills of assessee would definitely indicate that said contracts had been considered by both parties as works contracts - Held, yes - Whether, therefore, contention of assessee that leviability of service tax under works contract would be effective only from 1-6-2007 was correct - Held, yes - Whether in view of above findings, impugned order, confirming demand and imposing consequent penalties and interest, was incorrect and was to be set aside - Held, yes [Paras 8 and 10]

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