F. No. STC/4-22/O&A/11-12.
OIO in the case of M/s. K. B. Construction P Ltd.
BRIEF FACTS OF THE CASE:
1.1
M/s K. B. Mehta Construction Pvt. Ltd., 509, Milestone, Drive-in-cinema Road, Thaltej,
Ahmedabad (in short ‘M/s KBM’) are providing services as defined under Section 65(105) of the
Finance Act, 1994 (hereinafter referred to as ‘the Act’) under the following categories:
i.
Consulting Engineer,
ii.
Construction services in respect of commercial or industrial buildings and civil
structures,
iii.
Supply of tangible goods for use service,
iv.
Transport of goods by road
v.
Works contract service.
1.2
M/s KBM is registered with Service Tax department having service tax registration No.
AABCK6922HST001.
2.
The officers of Service Tax Commissionerate, Ahmedabad conducted audit of records
for the period 2005-06 to 2007-08 belonging to M/s KBM. During the course of audit it was observed
that M/s KBM had supplied “Hydraulically Self Operated Climbing Formwork System” for the
construction of NDCT Shell at Jharusuguda Site, Orissa against the Purchase Order No.
ECCD/PUR/TPPC/ JHAUSUGUDA/VR/001/2007-08 dated 12.09.2007 of M/s Larsen & Toubro
Limited (herein after referred to as ‘L&T’).
2.1
Perusal of the said purchase order further revealed that M/s KBM was required to fulfill
the following requirements:
*
To prepare and submit a detailed program for entire manufacturing activity including
shipment of the consignment.
*
To depute engineers, workers to project Jharusuguda Orissa Site for erection
commissioning of system and training of workforce on free charge basis.
*
To provide Operation and Maintenance Manual, Spare Parts Manual and Test Certificate.
2.1.1
M/s KBM provided services relating to manufacturing, testing, supplying and
guaranteeing the hydraulically self operated climbing form work to M/s L&T at Jharsuguda site, Orissa.
The services provided by M/s KBM fell under the category of “Construction Services in Respect of
Commercial or Industrial Buildings and Civil Structures Service”.
2.2
During the period 2007-08, they received a payment of Rs. 2,92,88,771/- on account of
the aforesaid services on which they were liable to pay service tax amounting to Rs. 36,20,092/-.
However, till date they have not discharged the said service tax liability.
3.
A letter was issued to M/s KBM by Jurisdictional Range office on 30.12.2009 where in
M/s KBM were asked to pay the service tax dues.
3.1
-
-
M/s KBM vide their letter 03/02/2010 informed that:They had two contracts. The first one was for civil work for “Automatic Hydraulically Self
Operated Climbing Formwork System” and the second one was for making the design of
automatic climbing formwork, making the shutter at site, training during erection, operation and
dismantling, testing, commissioning and supervision during operation for an amount of Rs.
33,00,000/-.
the first contract was for supply of goods and the second contract was for service and they had
already discharged their service tax liability of Rs. 4,07,880/- on service contract. They also
submitted copy of contract.
4.
The Range office again issued letter dated 27.10.2010 and subsequent reminder dated
13.01.2011 to M/s KBM asking them to provide the details of Commercial Construction Services
provided by them to M/s L&T and other parties for services such as manufacturing, testing, supplying
and guaranteeing the hydraulically self operated climbing form work and other construction services
during the period from F.Y. 2008-09 to 2009-10. They were also asked to provide the details of amount
received for such services during the aforesaid period. Further, they were requested to provide copies of
Page 1 of 24
F. No. STC/4-22/O&A/11-12.
OIO in the case of M/s. K. B. Construction P Ltd.
the works contracts/ agreements made during the period 2008-09 to 2009-10. M/s KBM did not submit
any reply to the letters issued by the Range Superintendent.
4.1.
A summons dated 02.02.2011 was issued to M/s KBM to produce the details of service
provided to various parties and amount received for the F.Y. 2008-09 and 2009-10, to produce the
copies of contracts/agreements, income tax returns and profit and loss account for the F.Y. 2008-09 and
2009-10, the income ledger for the F.Y. 2008-09 & 2009-10 and to give statement.
5.
In response to the above summons, Shri Tejas Hashmukhbahi Shah, Accountant of M/s
K.B Mehta Construction Pvt. Ltd. Ahmedabad appeared on 10.02.2011 to give his statement.
5.1
Statement of Shri Tejas Hashmukhbahi Shah, Accountant of M/s KBM recorded on
10.2.2011. Shri Tejas Hashmukhbahi Shah has in his statement interalia he stated that
He has been authorized by the Board of Director’s resolution dated 10.02.2011 to represent on
behalf of the company with Service Tax Department.
they have been providing services i.e Consulting Engineer, Construction Services in respect of
Commercial or Industrial Buildings and Civil Structures, Supply of Tangible Goods for use
Service, Transport of Goods by road and Works Contract Service.
They have various contracts with the clients i.e
a.
Consulting Engineer Service which involved only consultancy and advice only.
b.
Construction Contract which involved only construction labour work for various clients.
c.
Turn key projects in which they were executing contracts with material and labour.
they had provided service to M/s L&T at Jarsuguda Site, Orissa for the services relating to
manufacturing, testing, supplying and guaranteeing the hydraulically self operated climbing
form work as per specification drawing no. 373-F-2045-55207-07 for the construction of NDCT
Shell i.e tower for generating light.
6.1.1
On being asked, he stated that the work order of M/s L&T was for the supply,
construction and for installation and commissioning of the system NDCT shell at Jharsuguda site,
Orissa. He further stated that they have got manufactured rigs from manufacturers of rigs and they have
purchased hardware for formwork shutter and hydraulic jacks from open market. Then they transferred
the rigs, hardware and hydraulic jacks to the Orissa site and then they carried out erection
commissioning and installation at the site.
6.1.2
He was further shown Work Contract ref. no. ECCD/PUR/TPPC/
JHARSUGUDA/VR/001/2007-08 Dated 12/09/2007 of M/s L&T. After reading the same he stated that
they have got the contract of supply of hydraulically self operated climbing formwork system & for the
construction of NDCT shell at Jharsuguda site, Orissa and the scope of work included manufacturing,
testing, supplying and guaranteeing the hydraulically self operated climbing form work as per drawing
no. 373-F 2045-55207-07 for the construction of NDCT Shell. Further he was shown the condition no.
07, 08 and 13. In condition no. 07 of the work contract it has been mentioned “You shall prepare and
submit a detailed programme for the entire manufacturing activity including shipment of the
consignment”. In condition no. 08 it has been mentioned “You will submit weekly progress report
indicating various stages of manufacturing during the currency of contract until final inspection and
dispatch of material” and in condition no. 13 which is relating to Installation & Commissioning wherein
it has been mentioned “ You shall depute your engineers, workers to our project Jharusuguda, Orissa
site, immediately after arrival of the materials for the erection and commissioning of the system and
training of our workforce on free of charge basis.
6.1.3
On further being asked he stated that they had two contracts with M/s L&T, one was
relating to supply of above referred plant and another one was relating to erection job carried out at the
site.
6.1.4
Further he produced Income Tax Balance sheet and profit & loss account for the F.Y.
2008-09 & 2009-10, wherein as per schedule 09 they have shown income from operations such as work
receipt, consulting income, sale of equipments (trading) and reimbursement claimed.
Page 2 of 24
F. No. STC/4-22/O&A/11-12.
OIO in the case of M/s. K. B. Construction P Ltd.
6.15
On being asked about the detail of the income shown in balance sheet he stated that
Income work receipt related to the Income from construction of civil structures, that consulting income
consists income from Consulting Engineer Service which involves consultancy and advice only; that
sell of equipments (Trading) relating to the plant supplied to M/s L&T, Orissa; that reimbursement
claimed was related to purchase of material for and on behalf of M/s Suzlon Infrastructure Services Ltd.
which has been used in the execution of erection of tower at Motisindhoni (Kutch), Gujarat by them. He
further stated that they had a contract for erection of tower with M/s Suzlon Infrastructure Services Ltd.
6.1.5
He further produced reconciliation statement calculating the value realized for the year
2008-09 & 2009-10, copies of some invoices of reimbursement claims and contract copy with M/s
Suzlon Energy Ltd.
7.
Further statement of Shri Tejas Hashmukhbahi Shah, Accountant of M/s K.B Mehta
Construction Pvt. Ltd. Ahmedabad was recorded on 01.07.2011.
7.1
Shri Tejas Hashmukhbahi Shah, Accountant of M/s KBM has in his statement interalia
stated that:
they have been provided contract of civil work by M/s L&T for automatic hydraulically self
operated climbing formwork system for shell of RCC cooling tower at Jharsuguda site, Orissa.
he produced copy of purchase order no.CO2870/EPC00336 dated 21.09.2007 from M/s L&T
vide which they have placed order for two number of Automatic climbing formwork system for
an amount of Rs.7,52,62,500/-.
he also produced copy of purchase order no.CO2870/EPR00479 dated 29.12.2007 from M/s
L&T vide which they placed order for film coated plywood 12mm thick and timber (softwood)
for an amount of Rs.1,11,37,950/-.
he further produced work order no.2015 dated 01.01.2008 from M/s L&T vide which they
placed work order for shutter making with conventional timber and plywood shutters which
includes making the design of the automatic climbing formwork, making the shutter at site,
training during erection, operation and dismantling, testing commissioning and supervision
during operation for an amount of Rs.33,00,000/- plus service tax amounting to Rs.4,07,880/making aggregate total of Rs.37,07,880/-.
after getting the purchase order from M/s L&T they have got manufactured rigs from
manufacturers of rigs and they have purchased hardware for formwork shutter, hydraulic jacks
and plywood and timber shutters from open market. Then they transferred the rigs, hardware and
hydraulic jacks and shutters to the M/s L&T, Ahmedabad and then they carried out Erection
commissioning and installation of climbing formwork with the help of their engineers and
supervisors at the site
they have raised 61
invoices according to the cost of the supply of the materials from
11.01.2008 to 10.10.2008 total amounting to Rs. 8,64,00,448/-. He produced the Annexure for
the above bills raised and copies of the invoices. He stated that they raised two bills amounting
to Rs.37,07,880/- dated 25.06.2008 and 31.01.2009. He produced copies to these bills. He
further stated that they have received total amount for supply as well as erection commission and
installation from M/s L&T .
7.1.1
On being asked, he stated that :they got a contract for construction of pre-cast and post tensioned concrete tower for turbine at
Vill. Motisindhoni (Kutch), Gujarat from M/s Suzlon Infrastructure Services Ltd. (herein after
referred to as “M/s Suzlon”) The scope of work included concept, planning, design, supply,
manufacturing, erection of RCC tower.
they have carried out the construction of the pre-cast and post tensioned concrete tower for
turbine.
as per the agreement an amount of Rs.33,00,000/- was to be paid for project management service
from top of foundation level, top of tabular steel tower level and provision of post tensioned
cable ducts in the foundation and actual expenses incurred for arrangement of site infrastructure,
supply of manpower, tools and tackles, plants and machinery, taxes and duties etc required for
construction of pre-cast concrete tower segments were to be reimbursed.
Accordingly, M/s Suzlon paid them Rs.33,00,000/- plus service tax as applicable.
they reimbursed the actual expenses incurred amounting to Rs.93,30,316/-. He produced the
sample copy of invoices for supply of materials purchased on behalf of M/s Suzlon.
Page 3 of 24
F. No. STC/4-22/O&A/11-12.
OIO in the case of M/s. K. B. Construction P Ltd.
8.
Balance sheet and profit & loss account for the F.Y. 2008-09 & 2009-10, produced by
Shri Tejas Hashmukhbahi Shah revealed that M/s KBM have shown the following income in Schedule
09 of the said document:
Income from
Consulting
Sale of Equipments Reimbursement
Period
operations such as
Income
(trading)
claimed
Work Receipt
2007-08
Rs. 21,91,49,055/Rs. 4232912/Rs.30590649/Rs. 5491177/2008-09
Rs. 17,59,53,946/Rs. 1829413/Rs. 35228409/Rs. 3865787/2009-10
Rs. 5,55,37,740/Rs. 3900929/Rs. 38701/…
8.1
Shri Tejas Hashmukhbahi Shah has in his statement dated 10.2.2011 (already discussed
at para 6 supra) stated that Income- “Work Receipt” related to the Income from construction of civil
structures, Consulting Income consists income from Consulting Engineer Service which involves
consultancy and advice only; Sale of Equipments (Trading) income is relating to the plant supplied to
M/s L&T, Orissa; and Reimbursement Claimed was related to purchase of material for and on behalf of
M/s Suzlon which has been used in the execution of erection of tower at Motisindhoni (Kutch), Gujarat
by them.
9.
It is evident from the above that M/s K. B Mehta got contracts from M/s L&T and M/s
Suzlon for supply of hydraulically self operated climbing formwork system & for the construction of
NDCT shell at Jharsuguda site, Orissa and for erection of tower at Motisindhoni (Kutch), Gujarat,
respectively. Both the contracts are discussed separately.
10.
SUPPLY OF HYDRAULICALLY SELF OPERATED CLIMBING FORMWORK
SYSTEM & FOR THE CONSTRUCTION OF NDCT SHELL AT JHARSUGUDA SITE, ORISSA
10.1
M/s KBM provided a quotation for the design, fabricate, assemble and supply KBM
Hydraulically self – climbing scaffold system and Formwork for the construction of RCC shell of the
Natural Draft Cooling Tower at Jarsuguda Power Project – Orissa. Vide the above quotation, M/s
KBM quoted price of Rs. 4, 40,00,000/- for one complete set plus service tax (on total amount) +
Vat (as applicable) + CST (as applicable) + Excise (if applicable) + Octroi (if applicable). M/s
KBM further quoted that if order for 2nd set is placed with them simultaneously, they offered rebate of
10% in the price of 2nd set and their price for 2nd set would be Rs. 3, 96, 00, 000/- only.
10.1.1
The relevant page of the said quotation is scanned herein below for reference.
Page 4 of 24
F. No. STC/4-22/O&A/11-12.
OIO in the case of M/s. K. B. Construction P Ltd.
10.2
M/s
Larsen
&
Toubro
Ltd
released
a
letter
of
Intent
(Ref:
ECCD/PUR/TPPC/JHARUSUGUDA/VR/001/2007-08) on 12.09.2007 wherein scope of work was
Manufacturing, Testing, Supplying and Guaranteeing the two automatic hydraulically self operated
climbing formwork system. Further, point no. 13 of the said letter of intent clearly mentioned the
following:
“13.
Installation and Commissioning
You shall depute your engineers, workers, to our project Jharasugud, Orissa site, immediately after
arrival of the material for erection, commissioning of system and training of our workforce on free of
charge basis.”
10.2.1
M/s L&T later on issued three purchase orders to M/s KBM vivisecting the contract
awarded into Civil Work and Services. All the three purchase orders are discussed herein below:
a.
PO Number: C02870/EPC00336 dated 21.9.2007: The said purchase was issued for 2
Nos. of Automatic Climbing Form Work System. The value of the said systems have
been shown as Rs.75262500/-.
b.
PO Number: C02870/EPR00479 dated 29.12.2007: The said purchase was issued for
2,200 sq. MM of Film Coated Plywood, 12mm Thick and 3700 Cu.ft of Timber
(softwood). The value of the items mentioned in the PO have been shown as
Rs.11137950/-.
c.
Work Order Number: 2015 dated 1.1.2008: The said work order was issued for the
following scope of work:
“Shutter making. Type: Conventional timber and plywood shutters, Design of the
Automatic Climbing Formwork, Making the Shutter at Site, Training during Erection,
Operation and Dismantling, Testing Commissioning and Supervision during operataion.
The value of the scope of work has been mentioned as Rs. 33,00,000/-. Also, the work
order contains the details of Service Tax payable on such services which is Rs. 407880/(calculated @ 12.36%).
All
the
above
orders
were
prepared
on
ECCD/PUR/TPPC/KHARSUGUDA/VR/002/2007-08 dated 12.9.2007.
the
basis
of
LOI
10.3
Comparison of the details mentioned in the quotation, Letter of Intent, Purchase Orders
and Work Order discussed in para 10.1 and 10.2 supra reveals the following:
a.
M/s. KBM have in their quotation clearly mentioned that they would be
charging Service Tax on the total contract value.
b.
M/s L&T have in their letter of Intent, Purchase orders and Work Order
vivisected the original order into two parts namely:
 Order for Supply of Materials and
 Order for providing Services.
They have by doing so calculated the incidence of Service Tax only on the second part
i.e Order for providing Services. This is quite contradictory to the details contained in the Quotation
issued by M/s KBM.
10.4
Further, M/s KBM have issued invoice No. RA-JLCT-46 dated 23.05.2008 wherein
they have shown payment of Service Tax amounting to Rs. 4,07,880/- on Rs. 33,00,000/- charged on
account of Labour for making shutter material. The said invoice is scanned herein below for reference:
Page 5 of 24
F. No. STC/4-22/O&A/11-12.
OIO in the case of M/s. K. B. Construction P Ltd.
10.4.1
It is evident from the above invoice that the particulars contained in it did not match with
the work order No. 2015 dated 1.1.2008 issued by M/s L&T. It seems that this invoice was issued by
M/s KBM for the sole purpose of payment of Service Tax and thereby getting away from paying actual
Service Tax which they would have paid had they considered the entire value of the contract.
10.5
Thus, the documents titled as supply contract and service contract are nothing but a
colorful device to evade service tax as in reality there is only one contract for supply, erection,
installation and commissioning of two automatic hydraulically self operated climbing formwork system
which is inseparable. A breach of promises of first contract is a breach of second contract and viceversa. It appears that the two contracts survive and die together.
11
In view of the above discussion, M/s KBM is liable to pay service tax on the gross
amount received from M/s L&T for design, fabrication, assembling and construction of Hydraulically
Self – Climbing Scaffold System and Formwork for the construction of RCC shell of the Natural Draft
Cooling Tower at Jarsuguda Power Project – Orissa as the services provided by them fall under the
category of “Commercial or Industrial Construction Service”.
11.1
M/s KBM vide their letter dated 28.07.2011 submitted ledger account and details of
payment received from M/s L&T. The services tax liability amounting to Rs.1,08,52,791/- has been
worked out on the basis of details provided by them. The worksheet for calculation of Service Tax is
appearing as Annexure-‘A’ to this show cause notice.
CONTRACT GIVEN FOR CONSTRUCTION OF PRE-CAST AND POST TENSIONED
CONCRETE TOWER FOR TURBINE AT VILL. MOTISINDHONI (KUTCH), GUJARAT BY M/s.
SUZLON:
12.
M/s KBM got a contract for construction of pre-cast and post tensioned concrete tower
S52-600kW turbine located at Vill. Motisindhoni (Kutch), Gujarat from M/s Suzlon Infrastructure
services Ltd. As per the scope of work mentioned the contract, M/s KBM were required to manage
purchase / delivery / execution of the entire project from top of foundation level to top of tubular steel
shell level including accessories / platforms/ cable clamps / ladders inside the tower. Apart from this,
M/s KBM was also required to perform the following functions:
- Concept planning, design, supply, manufacturing; erection of RCC Tower.
Page 6 of 24
F. No. STC/4-22/O&A/11-12.
OIO in the case of M/s. K. B. Construction P Ltd.
-
Design of Infrastructure required (for the said job) such as casting yard; shuttering; erection
sequence; mix design for concrete etc.
Identification of competent agencies; interacting with them and implementing various
construction aspects in the drawing accordingly.
Planning of temporary internal scaffolding access ways, ladders etc..
12.1
As per Annexure-3 of the agreement, M/s Suzlon was required to make following
payments to M/s KBM:
a. Rs. 33, 00, 000/- under the head “ project management service from top of foundation
level(+0.0) top of tabular steel tower level (74.5 m) and provision of post tensioned cable ducts
in the foundation”
b. Reimbursement of actual expenses incurred for arrangement of site infrastructure, supply of
manpower, tools and tackles, plants and machinery, taxes and duties etc. required for
construction of pre-cast concrete tower segments at site.
12.2
M/s KBM have carried out the construction of the pre-cast and post tensioned concrete
tower for turbine. M/s KBM raised four invoices amounting to Rs. 38,00,000/- (+ service tax) as fees
for construction management and supervision work. They have charged service tax amounting to Rs.
4,69,680/- @ of 12.36%. The details of Invoices issued by them are as follows:
Bill No.
Date
RA-SMST-01
25.10.2007
RA-SMST-02
21.12.2007
RA-SMST-03
13.02.2008
RA-SMST-04
16.5.2010
Particulars
Project: Construction work of Precast and
Post Tensioned Concrete Tower at Modi
Sindhodi, Kutch
1) Fees for Construction Management and
Supervision of work for above mentioned
project
a. Advance
b. Ist Installment
Bill for construction Management and
Supervision charges upto 1st Dec'07 as per
contract agreement
Bill for construction Management and
Supervision charges upto 1st Jan'08 as per
contract agreement
Bill for construction Management and
Supervision charges
as per contract
agreement
Total
12.3.
Total Bill
amount
S.Tax
charged
1200000
148320
1300000
160680
500000
61800
800000
98880
3800000
469680
On being asked by the Department, M/s K. B Mehta produced following documents:
a. ledger account for the F. Y. 2007-08 to 2010-11 of M/s Suzlon
b. Certificate dated 28.07.2011 regarding bills raised for Consulting Services and
Reimbursement expenses and payment received from M/s Suzlon from 01.04.2007 to
31.03.2011.
12.3.1.1
ledger account for the F. Y. 2007-08 to 2010-11 of M/s Suzlon :
Perusal of the ledger account for the F. Y. 2007-08 to 2010-11 of M/s Suzlon reveals that
during the period 2007-08 to 2010-11, M/s KBM received following payments:
Amount Received
(in
Period
Rs.)
2007-08
5803440
2008-09
4248232
2009-10
951187
2010-11
881287
Total
11884146
Page 7 of 24
F. No. STC/4-22/O&A/11-12.
OIO in the case of M/s. K. B. Construction P Ltd.
12.3.1.2
Certificate dated 28.07.2011: The said certificate is scanned herein below for
reference:
12.3.2.1
-
-
Perusal of the above Certificate reveals that:
M/s KBM declared the value on which Service Tax was paid as Rs. 12,00,000/- and Rs.
9,73,181/- in the F.Y. 2007-08 and 2008-09. They paid service tax amounting to Rs
2,68,605/total bill raised on account of consulting and reimbursement was Rs. 1,20,96,999/- (Rs.
44,64,940/- for consulting service and Rs. 76,32,059/- for Reimbursement of expenses.)
they have received payment amounting to Rs. 1,18,84,146/-.
12.4
It is thus evident from the above discussion that M/s K. B Mehta recovered Service Tax
amounting to Rs. 4,69,680/- from M/s Suzlon, but paid only Rs. 2,68,605/- into the Government
Account.
13.
As per sub-section (3) of section 67 of the Finance Act, 1994 as amended,” The gross
amount charged for the taxable service shall include any amount received towards the taxable service
before, during or after provision of such service.”
13.1
Further, it is noticed that inclusion in or exclusion from value of certain expenditures or
costs, have been provided under Rule 5 of the Service Tax(Determination of Value) Rules, 2006,
effective from 19.04.2006. Under sub rule (1) of the Rule 5, it is provided that where any expenditure or
cost are incurred by the service provider in the course of providing taxable service, all such expenditure
or costs shall be treated as consideration for the taxable service provided or to be provided and shall be
included in the value for the purpose of charging service tax in the said service. However, exclusion of
certain expenditure or costs, from the taxable value has been provided under sub-rule (2) of the rule 5
ibid, where the expenditure or costs incurred by the service provide as a pure agent of the recipient of
service, has been allowed to be excluded from the value of the taxable service subject to fulfillment of
conditions (i) to (viii) stipulated therein. None of the conditions is being fulfilled in the instant case
since no such expenditure claimed exclusion has been incurred by M/s KBM as a pure agent of their
clients. These reimbursed expenses incurred by M/s KBM are the expenses necessitated to be incurred
in connection with and related to the taxable service provided by them in the category of Commercial or
Industrial Construction service.
13.2
In view of the above, the reimbursed expenses as claimed exclusion from the taxable
value, is an additional consideration collected / received by M/s KBM from their clients to whom they
Page 8 of 24
F. No. STC/4-22/O&A/11-12.
OIO in the case of M/s. K. B. Construction P Ltd.
provided taxable “Commercial or Industrial Construction service” which should be included in the
value of taxable service for discharging service tax liability. As M/s KBM is doing construction of
commercial and industrial buildings and structures to M/s Suzlon, the reimbursement charges are
nothing but integral part of service provided by them and that the charges should be the part of taxable
service provided by them.
14.
In view of the above discussion, M/s KBM is liable to pay service tax on the gross
amount received from M/s Suzlon contract for construction of pre-cast and post tensioned concrete
tower S52-600kW turbine located at village Motisindhoni (Kutch), Gujarat as the services provided by
them fall under the category of “Commercial or Industrial Construction Service”.
14.1
M/s KBM vide their letter dated 28.07.2011 submitted ledger account and details of
payment received from M/s Suzlon. The services tax liability amounting to Rs.11,62,114/- has been
worked out on the basis of details provided by them. The worksheet for calculation of Service Tax is
appearing as Annexure-‘B’ to this show cause notice.
15.
“Commercial or Industrial Construction” as defined under Section 65(25b) of the
Finance Act, 1994 means —
(a)
construction of a new building or a civil structure or a part thereof; or
(b)
construction of pipeline or conduit; or
(c)
completion and finishing services such as glazing, plastering, painting, floor and wall
tiling, wall covering and wall papering, wood and metal joinery and carpentry, fencing
and railing, construction of swimming pools, acoustic applications or fittings and other
similar services, in relation to building or civil structure; or
(d)
repair, alteration, renovation or restoration of, or similar services in relation to, building
or civil structure, pipeline or conduit, which is —
(i)
used, or to be used, primarily for; or
(ii)
occupied, or to be occupied, primarily with; or
(iii)
engaged, or to be engaged, primarily in, commerce or industry, or work
intended for commerce or industry, but does not include such services
provided in respect of roads, airports, railways, transport terminals,
bridges, tunnels and dams;
And
“Taxable Service” as defined under Section 65 (105) (zzq) of the Finance Act, 1994 means any
service provided or to be provided to any person, by any other person, in relation to commercial
or industrial construction
15.1
The services provided by M/s KBM to M/s L&T and M/s Suzlon fall under the category
of “Commercial or Industrial Construction” in as much as M/s KBM constructed hydraulically self
operated climbing form work for M/s L & T and constructed pre-cast and post tensioned concrete tower
S52-600kW turbine for M/s Suzlon. Also, these contracts were executed with material by M/s KBM.
16.
paras.
M/s KBM has not discharged their Service Tax liabilities as discussed in the foregoing
17.
Thus, it appeared that the said service provider has contravened the provision of;
Section 68 of the Finance Act, 1994 read with Rule 6 of the Service Tax rules 1994 in asmuch-as they have failed to make the payment of Service Tax amounting to Rs.
12014905/- for the period 2007-08 to 2010-11 to the credit of the Government within the
stipulated time limit.
i)
ii)
Section 70 of the Finance Act, 1994 (32 of 1994) read with Rule 7 of the Service Tax
Rules 1994 in as-much-as they have failed to self assess their nature and value of service.
18.
From the evidence, it appeared that M/s KBM had not taken into account the service tax
payable by them for rendering taxable service for the purpose of self assessment and payment of
applicable service tax and thereby not complied with their tax liabilities. It appeared that the deliberate
efforts to miss-declare the abatement value in ST-3 Returns and not paying the correct amount of
service tax is utter disregard to the requirements of law and breach of trust deposed on them is certainly
not in tune with Governments efforts in the direction to create a voluntary tax compliance regime.
Page 9 of 24
F. No. STC/4-22/O&A/11-12.
OIO in the case of M/s. K. B. Construction P Ltd.
19.
All the above acts of contravention of Finance Act, 1994, as amended and Rules made
there under, on the part of M/s KBM appear to have been committed by way of suppression of facts
with intent to evade payment of Service Tax. Further M/s KBM even charged and collected Service Tax
from M/s. Suzlon Infrastructure Services Ltd. but not deposited in Govt. account and, therefore, the said
Service Tax not paid and not deposited in Govt. account is required to be demanded and recovered from
them under the proviso of section 73 of the Finance Act, 1994 by invoking extended period 5 years. All
these acts of contravention of the provisions of Section 68 Section 69 and Section 70 of the Finance
Act, 1994 as amended, read with Rule 4, 6 and 7 of the Service Tax Rules, 1994 appear to be punishable
under the provisions of Section 76, Section 77 and Section 78 of the Finance Act, 1994 as amended
from time to time.
20.
Moreover, in addition to the above contravention, omission and commissions on the part
of the M/s KBM as stated in the foregoing paras, it appeared that, they have willfully suppressed the
facts, with an intent to evade the payment of Service Tax, rendering themselves liable for penalty under
Section 78 of the Finance Act, 1994.
21.
From the evidence, it appeared that the said service provider had not taken into account
all these incomes received by them for rendering taxable services for the purpose of self assessment and
payment of applicable service tax and thereby not complied with their tax liabilities. It appeared that the
deliberate efforts to miss-declare the value of taxable service in ST-3 Returns and not paying the correct
amount of service tax is utter disregard to the requirements of law and breach of trust deposed on them
is certainly not in tune with Governments efforts in the direction to create a voluntary tax compliance
regime.
22.
The failure on the part of M/s KBM to make the payment of service tax attracts penalty
under Sec. 76 in addition to the interest payable under Sec. 75 of the Finance Act, 1994.
23.
Thus vide SCN F.NO. STC/4-49/R-VII/O & A/11-12 dated 10/10/2011 M/s KBM was
directed to show cause to the Commissioner, Service Tax, Ahmedabad as to why :
(i)
Amount of Rs. 9,17,69,244/- received from M/s L&T should not be considered as taxable
value under the category of Construction services in respect of commercial or industrial
buildings and civil structures, as defined under Section 65 of the Finance Act, 1994 and
service tax amounting to Rs. 1,08,52,791/- (One crore eight lacs fifty two thousand seven
hundred ninety one) should not be demanded and recovered from them under the proviso to
Section 73 (1) of the Finance Act, 1994, invoking the larger period of five years as discussed
herein above.
(ii)
Amount of Rs. 1,18,84,146/- received from M/s Suzlon Infrastructure Services Limited
should not be included in the total taxable value under the category of Construction services
in respect of commercial or industrial buildings and civil structures, as defined under section
65 of the finance act 1994 and the Service Tax amounting to Rs. 11,62,114/- (rupees eleven
lacs sixty two thousand one hundred fourteen only) (under the category of Construction
services in respect of commercial or industrial buildings and civil structures, should not be
demanded and recovered from them under the proviso to Section 73 (1) of the Finance Act,
1994, invoking the larger period of five years as discussed herein above.
(iii)
Interest at the appropriate rate on the amount of their service tax liability should not be
recovered from them for the delay in making the payment under Section 75 of the Finance
Act, 1994.
(iv)
Penalty under Section 76 of the Finance Act, 1994 should not be imposed on them in as
much as they failed to determine and pay service Tax and also they collected Service Tax
and not deposited in Govt. account within the stipulated time frame as mentioned
hereinabove.
(v)
Penalty should not be imposed upon them under Section 77 of the Finance act, 1994 for the
failure to file prescribed service tax return within the stipulated time.
(vi)
Penalty should not be imposed upon them under Section 78 of the Finance act, 1994 for
suppressing the value of taxable service provided by them before the Department with intent
Page 10 of 24
F. No. STC/4-22/O&A/11-12.
OIO in the case of M/s. K. B. Construction P Ltd.
to evade payment of Service Tax and also for collecting the Service Tax but not depositing
the same in the Govt. account
DEFENSE REPLY:
24.1
M/s. KBM in their reply dated 20/11/2012 denied all the allegations made in the SCN.
M/s. KBM denied that they have contravened the provisions of section 65, 66, 68, 70 & 73(a) of the
said Act and thereby are liable for service tax & penal action.
24.2
M/s. KBM submitted that the show cause notice is issued in sheer disregard of facts on
record which clearly show that the demand of service tax under the category of “Commercial &
Industrial construction service” is on supply of hydraulically self operated climbing formwork system &
reimbursement of expenses towards the purchase of material, without going to the basic definition,
circular & clarification of the board and is therefore not sustainable on merit. M/s. KBM contented that
there is no fraud, or collusion or willful misstatement or suppression of facts or contravention of any of
the provisions of the Act, or the rules made there under and that there is no intent to evade payment of
service tax on their part and hence the demand is not sustainable on the ground of limitation also as the
SCN is issued after a limitation period of one year from the relevant date. SCN is issued to them on
10.10.2011 and it covers the period from 1.04.2007 to 31-03-2011 which clearly shows that the same is
issued beyond a period of one year from the relevant date.
24.3
M/s. KBM contended that the SCN is vague in its contents. M/s. KBM submitted that
they are providing services as defined under Section 65(105) of the Finance Act, 1994 (hereinafter
referred to as 'the Act') under the categories of (i) Consulting Engineer, (ii) Construction services in
respect of commercial or industrial buildings and civil structures, (iii) Supply of tangible goods for use
service, (iv) Transport of goods by road and (v) Works contract service. M/s. KBM also submitted that
they have filed ST-3 return regularly with the dept. Despite these facts being clearly in the knowledge of
dept since 2005 & onwards, saddling them with the SCN issued in the year 2011 alleging suppression of
the fact is in itself a ground on which the SCN is illegal, unfair and uncalled for. M/s. KBM contended
that the department was having knowledge about the practice adopted by them since 2007 & onwards
and therefore issuing SCN on the same issue in 2011 alleging suppression proves clear contradiction of
the stand taken in the SCN and thus the SCN is capricious. M/s. KBM, therefore requested for dropping
of the proceedings under SCN on the ground of being vague and capricious.
24.4.1
Regarding their liability to pay service tax on the supply hydraulically self operated
climbing formwork system (supply of goods) under the category of commercial & industrial
construction service, M/s KBM, contended as follows:
 M/s. KBM was in receipt of contract from M/s L&T for the supply,
construction and for installation and commissioning of hydraulically self
operated climbing formwork system for the NDCT shell at Jharsuguda site,
Orissa. M/s. KBM has got manufactured rigs from manufacturers of rigs and
they have purchased hardware for formwork shutter and hydraulic jacks from
open market. Then they transferred the rigs, hardware and hydraulic jacks to
the Orissa site and then M/s. KBM carried out erection commissioning and
installation at the site.
 M/s. KBM got the contract of supply of hydraulically self operated
climbing formwork system for the construction of NDCT shell at Jharsuguda
site, Orissa and the scope of work included manufacturing, testing, supplying
and guaranteeing the hydraulically self operated climbing form work as
per drawing no. 373-F 2045-55207-07 for the construction of NDCT
Shell.
 Condition no. 07 of the work contract states as follows:
"You shall prepare and submit a detailed programme for the entire
manufacturing activity including shipment of the consignment"
24.4.2
Vide their reply M/s. KBM furnished copy of the following:
 contract of civil work by M/s L&T for automatic hydraulically self
operated climbing formwork system for shell of RCC cooling tower at
Jharsuguda site, Orissa.
 purchase order no.0O2870/EPC00336 dated 21.09.2007 from M/s. L&T vide
which they have placed order for two number of Automatic climbing formwork
Page 11 of 24
F. No. STC/4-22/O&A/11-12.
OIO in the case of M/s. K. B. Construction P Ltd.


system for an amount of Rs.7,52,62,500/-.
copy of purchase order no.0O2870/EPRO0479 dated 29.12.2007 from M/s.
L&T vide which they placed order for film coated plywood 12mm thick and
timber (softwood) for an amount of Rs.1,11,37,950/-.
work order no.2015 dated 01.01.2008 from M/s. L&T vide which they placed
work order for shutter making with conventional timber and plywood
shutters which includes making the design of the automatic climbing
formwork, making the shutter at site, training during, erection, operation and
dismantling, testing.
24.4.3
M/s. KBM, further stated that after getting the purchase order from M/s. L&T they have
obtained manufactured rigs from manufacturers of rigs and they have purchased hardware for
formwork shutter, hydraulic jacks and plywood and timber shutters from open market. Then
they transferred the rigs, hardware and hydraulic jacks and shutters to the M/s. L&T,
Ahmedabad and then they carried out Erection commissioning and installation of climbing
formwork with the help of their engineers and supervisors at the site.
24.4.4
M/s. KBM also stated that they have raised 61 invoices according to the cost of the
supply of the materials from 11.01.2008 to 10.10.2008 and the total amount comes to Rs.
8,64,00,448/-. They produced the annexure for the above bills raised and copies of the invoices.
They also stated that they raised two bills amounting to Rs.37,07,880/- dated 25.06.2008 and
31.01.2009. They produced copies to these bills. They further stated that they have received total
amount for supply as well as erection commission and installation from M/s. L&T.
24.4.5
M/s. KBM contended that it is clear that two separate contract has been entered with the
M/s. L & T and the same was for Supply of Materials and for providing Services. Both the contracts
were independent & vivesectable clearly. M/s. KBM contended that on the service contract value M/s.
KBM has discharged the service tax. While on the supply of material M/s. KBM has raised bills for the
supply of material & discharged the vat on such sale of goods.
24.4.6
as it under:
M/s. KBM furnished breakup of the sale of material for one complete set and the same is
Formwork shutter set
Rs. 72,00,000.00
Hardware for above
Rs. 90,00,000.00
Rigs 50 Nos- Rs.1,80,00,000.00
Hydraulics Rs_ 98.00,000.00
Total •Price Rs. 4,40,00,000.00
P l us Service Tax (on total amount) + VAT ( as applicable ) + CST as applicable + Excise
( if applicable ) + Octroi (if applicable).
The percentage of taxes shall be as applicable at the time of delivery.
24.4.7
M/s. KBM submitted that if order for 2"" set is placed with them by M/s. L&T
simultaneously, than they offered rebate of 10% in the price of 2 nd set and their price for the
21 ' set would be Rs. 3,96,00,000.00 only with the stipulated exclusions and conditions remaining
unaltered. M/s. KBM contended that the above contract was for supply of goods and it was not a service
contract.
24.5
M/s. KBM contended that the sale of goods by them also not covered by the definition of
deemed sale. M/s. KBM contended that once the contract is reduced into writing the intention of the
parties is to be gathered from the terms used in the said contract. The word used in such written contract
has to be given its ordinary meaning. It is by looking into such contract we have to find out what is the
agreement entered into, what is the consideration paid, what for the said consideration is paid, in order
to understand the nature of the contract entered into between the subscriber and the service provider. So
from this it is very much clear that sale / supply of goods contract cannot be termed as service contract
by any stretch of imagination & demand of service tax on such value has to be dropped.
24.6
M/s. KBM further contended that service tax chargeable on any taxable service is on the
basis of gross amount charged by service provider for 'such’ service provided or to be provided by him,
when provision of service is for a consideration in money [section 67(1) (i)]. Thus, 'such service' means
'taxable service' on which service tax is payable. Service tax is payable only on the amount charged for
service which defined as 'taxable service'. Tax cannot be levied on any other amount charged to
Page 12 of 24
F. No. STC/4-22/O&A/11-12.
OIO in the case of M/s. K. B. Construction P Ltd.
customer. Service Tax is payable on value of taxable service and not on entire value of contract. No
service tax on amounts if it is not related to taxable service. Service tax is payable only on amount
received in relation to services. For example , in relation to services of advertising agency services , it
has been held that cash discounts and incentives received by advertising agency from media is not
includible in ‘value’ as these have no relation to service provided.
24.7
M/s. KBM contended that in the case of indivisible contracts involving sale of goods
plus provision of service, it is difficult to identify service portion. In Bharat Sanchar Nigam Ltd.
v. UOI (2006) 3 SCC 1 = 152 Taxman 135 = 282 ITR 273 = 3 VST 95 = 145 STC 91 = 3 STT 245 =
AIR 2006 SC 1383 (SC 3 member bench), it has been clearly held that price of goods cannot be
included in value of services. Conclusion (E) of the judgment (para 92 of SCC and para 81 of STT and
Taxman) reads as follows, ‘The aspect theory would not apply to enable the value of service to be
included in the sale of goods or the price of goods in the value of service’.
24.7.1
In Imagic Creative Pvt. Ltd v. CCT (2008) 2 SCC 614 = 12 STT 392 = 12 VST 371
(SC), it has been held that service tax and Vat (sales tax) are mutually exclusive. In case of a composite
contract, Vat cannot be imposed on portion relating to value of service.
24.7.2
As an obvious corollary, service tax cannot be imposed on value of material. In fact,
section 67 is clear that service tax can be imposed on 'gross amount charged for such taxable services
provided or to be provided'. Thus, service tax can be imposed only on value of service and not on
material cost at all.
24.7.3
In Kone Elevators v. CST(2007) 10 STT 133 (CESTAT), a prima facie view has been
held that if sales tax/Vat has been paid on components and parts, service tax is not payable on that value
in case of Annual Maintenance Contracts (AMC) [Really, deduction should be permissible even if the
components/spares are supplied free, since service tax is only on gross value of services].
24.7.4
In Super Transports v. CCE(2008) 13 STT 94 (CESTAT), it has been held that value of
material used in retreating of old/used tyres cannot be included in assessable value for purpose of
service tax.
24.7.5
In view of the above M/s. KBM stated that they have correctly paid service tax on the
value of service portion.
24.8.1
In their reply M/s. KBM also contended that the SCN does not indicate the activity
undertaken by the M/s. KBM and on which ground the benefit of Notification No. 12/2003-ST dated
20.06.2003 is denied. The ground on which the substantial benefit is denied is core of the show cause
notice. No reason whatsoever has been mentioned in the show cause notice for denying the benefit of
Notification No. 12/2003-ST. On this ground M/s. KBM has placed reliance on the decision of the
Hon’ble Supreme Court in the case of Amrit Foods V/s CCE 2005 (190) ELT 433 (SC), wherein the
Hon’ble Supreme Court has held that the assessee has to be put on notice as to the exact nature of
contravention for which he is liable. Therefore, the above show cause notice needs to be dropped
forthwith on this ground itself.
24.8.2
M/s. KBM submitted that they have fulfilled all the conditions of Notification No.
12/2003-ST dated 20.06.2003. M/s. KBM placed their reliance on the decision of CESTAT in the case
of Shilpa Color Lab as reported in 2007 (5) STR 423 (Tri.-Bang.). The said decision is confirmed by
Hon’ble Supreme Court as reported in 2009 (14) STR J163 (SC). M/s. KBM contended that their
intention was communicated to the department in various correspondences with department. So they
have been in bonafide belief that they have to pay service tax on services portion (i.e. labour charges)
and claim deduction on material value portion. M/s. KBM placed reliance on the case of Commissioner
v. Savithri Digital Lab - 2011 (24) S.T.R. J25 (S.C.). M/s. KBM contended that for the aforesaid reasons
the allegation raised in the show cause notice that M/s. KBM have not produced any documentary proof
for sale of material is not sustainable and the show cause notice is liable to be dropped on this ground
also.
24.9
Regarding their service tax liability on the reimbursement of expenses for the purchase
of material on behalf of the M/s. Suzlon, M/s. KBM contended that they have worked as a pure agent of
M/s. Suzlon for the supply of material required by them. M/s. KBM contended that the contract for the
service and for reimbursement were separate. M/s. KBM contended that they paid service tax
amounting to Rs 2,68,605/- on the taxable value of value Rs. 12,00,000/- and Rs. 9,73,181/- in the
Page 13 of 24
F. No. STC/4-22/O&A/11-12.
OIO in the case of M/s. K. B. Construction P Ltd.
F.Y. 2007-08 and 2008-09, respectively. M/s. KBM contended that the total bill raised on account of
consulting and reimbursement was Rs. 1,20,96,999/-(Rs. 44,64,940/- for consulting service and Rs.
76,32,059/- for Reimbursement of expenses.) and M/s. KBM have received payment amounting to Rs.
1,18,84,146/-. So the dept’s act to include reimbursement of expenses was untenable. M/s. KBM thus
requested to drop the proceeding in the interest of justice.
24.10.1
M/s. KBM also submitted that the extended period of limitation cannot be invoked in the
present case since there is no suppression, willful misstatement on their part.
24.10.2
M/s. KBM also submitted that they clearly indicated in their ST-3 returns that they are
availing the benefit of Notification/circular No.12/2003-ST. Therefore, question of any suppression,
willful misstatement does not arise. The show cause notice has entirely failed to make out any case of
suppression, willful misstatement.
24.10.3
M/s. KBM contended that it is clear from the statutory provisions that for imposing
penalty under section 77 of the Act it has to be established that there is a short payment of service tax by
reason of fraud, collusion, willful mis-statement, suppression of facts or contravention of any provisions
of the Act or rules made there under with intent to evade payment of service tax. The notice to show
cause has not given any reason whatsoever for imposing the penalty under Section 77 of the Act. The
show cause notice merely alleges that there is suppression. The show cause notice has not brought any
evidence / fact which establish that they have suppressed anything from the department. Hence no case
has been made out on the ground of suppression of facts or willful misstatement of facts with the
intention to evade the payment of service tax. Hence penalty under section 78 of the Act cannot be
imposed. The show cause notice is liable to be dropped on this ground also. M/s. KBM also contended
that they are entitled to entertain the belief that there activities were not taxable and this belief cannot be
treated as suppression from the department. For these M/s. KBM placed their reliance on Hon’ble
Gujarat High Court decision in case of Steel Cast Ltd. 2011 (21) STR 500 (Guj).
24.10.4
M/s. KBM submitted that penalty under Section 76 is not imposable since there is no
short payment of service tax. As per the merits of the case, they are not liable for payment of Service
tax. They submitted that they have always been and are still under the bonafide belief that they are not
liable for payment of service tax. Such bonafide belief was based on the grounds given above. There
was no intention to evade payment of service tax as mentioned in the ground above. Therefore, no
penalty is imposable in the present case.
24.10.5
M/s. KBM contended that section 80 of the Act provides that no penalty shall be
imposed for any failure referred to in sections 76, 77 or 78 of the Act, if it is proved that there was
reasonable cause for the said failure. M/s KBM contended that there was a bonafide belief on their part
that the activities carried out by them are not taxable. Therefore, there was reasonable cause for failure,
their part to pay service tax and to file service tax return. Hence, in terms of section 80 of the Act,
penalties cannot be imposed under Sections 76, 77 and 78 of the Act.
24.10.6
To avoid imposition of the various penalties as proposed in the SCN, M/s. KBM placed
reliance on the falling decisions:
 decision of the Hon'ble Supreme Court
 Hindustan Steel Ltd. v The State of Orissa as reported in AIR 1970 (SC) 253.
 Pushpam Pharmaceuticals Company v CCE as reported in 1995 (78) ELT 401 (SC).
 CCE Vs. Chemphar Drugs and Liniments 1989 (40) ELT 276 (SC).
 decision of Tribunal
 Kellner Pharmaceuticals Ltd. Vs CCE, as reported in 1985 (20) ELT 80.
 The Financers v. CCE, Jaipur - 2007 (8) STR 7 (Tri. Del).
 Commissioner of Central Excise, Ludhiana v. Pannu Property Dealer – 2009 (14) S.T.R.
687 (Tri. - Del.).
 Bharat Wagon & Engg. Co. Ltd. v. Commissioner of C. Ex., Patna, (146) ELT 118 (Tri.
– Kolkata).
 Goenka Woollen Mills Ltd. v. Commissioner of C. Ex., Shillong, 2001 (135) ELT 873
(Tri. – Kolkata).
 Bhilwara Spinners Ltd. v. Commissioner of Central Excise, Jaipur, 2001 (129) ELT 458
(Tri. – Del.).
 ETA Engineering Ltd. vs. CCE, Chennai, 2004 (174) E.L.T 19 (T-LB).
 Flyingman Air Courier Pvt. Ltd. vs. CCE 2004 (170) ELT 417 (T).
Page 14 of 24
F. No. STC/4-22/O&A/11-12.
OIO in the case of M/s. K. B. Construction P Ltd.

 Star Neon Singh vs. CCE, Chandigarh, 2002 (141) ELT 770 (T).
decision of the Hon’ble High Court
 Commissioner Of C. Ex., Chandigarh Vs City Motors 2010 (19) S.T.R. 486 (P & H)
 C C E, Vs M/s First Flight Courier Ltd 2011(22) STR 622 (P&H)
PERSONAL HEARING:
25
Shree Vipul Khandhar, C.A., representing M/s. KBM appeared before me for personal
hearing on 05/12/2012. He gave reply to SCN and requested to drop the case based on the submission
based therein.
DISCUSSION & FINDINGS:
26.
I have carefully gone through the show cause notice, the defence reply submitted by M/s
KBM and the relevant case records.
26.1
It is alleged in the SCN that M/s KBM have not discharged their full Service Tax
liabilities on the contracts allotted to them by M/s Larsen & Toubro Limited (herein after referred to as
‘L&T’) for the construction of NDCT Shell at Jharusuguda Site, Orissa and the contract for construction
of pre-cast and post tensioned concrete tower for S52-600kW turbine located at Vill. Motisindhoni
(Kutch), Gujarat allotted to them by M/s Suzlon Infrastructure services Ltd. (hereinafter referred to as
M/s Suzlon) . The SCN alleges that by artificially dividing the two works into different parts namely:
 Order for Supply of Materials
 Order for providing Services
 Re-imbursement of expenses,
M/s KBM had evaded payment of actual amount of service tax.
26.2
I find that the basic issue to be decided in the present case is as to whether the Contract for
supply of “Hydraulically Self Operated Climbing Formwork System” to M/s Larsen & Toubro Limited for the
construction of NDCT Shell at Jharusuguda Site, Orissa and contract for construction of pre-cast and post
tensioned concrete tower for S52-600kW turbine located at Vill. Motisindhoni (Kutch), Gujarat for M/s Suzlon
Infrastructure services Ltd. were artificially vivisected for the sole purpose of paying less service tax
26.3
M/s. KBM have contended that :
 They had entered into two separate contracts for Supply of Materials and for providing Services
to M/s. L & T Both the contracts were independent & vivesectable. On the service contract
value M/s. KBM had discharged the service tax. While on the supply of material M/s. KBM
raised bills for the supply of material & discharged the VAT on such sale of goods.
 in case of M/s. Suzlon, the contract for the service and for reimbursement for the purchase of
material on behalf of the M/s. Suzlon were separate as they have worked as a pure agent of M/s.
Suzlon for the supply of material required by them.
 sale / supply of goods contract cannot be termed as service contract by any stretch of
imagination & demand of service tax on such value has to be dropped.
 they have fulfilled all the conditions of Notification No. 12/2003-ST dated 20.06.2003
27
Before going into the merits of the case, I briefly discuss the Commercial and Industrial
Construction Service” as below:
27.1
“Commercial or Industrial Construction” service came into existence on 10/09/2004.
27.2
“Commercial or Industrial Construction” as defined under Section 65(25b) of the
Finance Act, 1994 means —
(a)
construction of a new building or a civil structure or a part thereof; or
(b)
construction of pipeline or conduit; or
(c)
completion and finishing services such as glazing, plastering, painting, floor
and wall tiling, wall covering and wall papering, wood and metal joinery and
carpentry, fencing and railing, construction of swimming pools, acoustic
applications or fittings and other similar services, in relation to building or civil
structure; or
Page 15 of 24
F. No. STC/4-22/O&A/11-12.
OIO in the case of M/s. K. B. Construction P Ltd.
(d)
(i)
(ii)
(iii)
repair, alteration, renovation or restoration of, or similar services in relation to,
building or civil structure, pipeline or conduit, which is —
used, or to be used, primarily for; or
occupied, or to be occupied, primarily with; or
engaged, or to be engaged, primarily in, commerce or industry, or work intended
for commerce or industry, but does not include such services provided in respect
of roads, airports, railways, transport terminals, bridges, tunnels and dams;
And
“Taxable Service” as defined under Section 65 (105) (zzq) of the Finance Act, 1994
means any service provided or to be provided to any person, by any other person, in relation to
commercial or industrial construction.
27.3
It is evident from the above definition that the services provided by M/s KBM in relation
to supply of “Hydraulically Self Operated Climbing Formwork System” for the construction of NDCT
Shell at Jharusuguda Site, Orissa and for construction of pre-cast and post tensioned concrete tower for
S52-600kW turbine located at Vill. Motisindhoni (Kutch), Gujarat falls under the category of
“Commercial or Industrial Construction”.
27.4
I now discuss both the projects separately for the sole purpose of arriving at a conclusion
as to what should be the taxable value on which M/s KBM should have discharged the service tax
liability:
SUPPLY OF “HYDRAULICALLY SELF OPERATED CLIMBING FORMWORK SYSTEM”
FOR THE CONSTRUCTION OF NDCT SHELL AT JHARUSUGUDA SITE, ORISSA
28
M/s KBM supplied “Hydraulically Self Operated Climbing Formwork System” for the
construction of NDCT Shell at Jharusuguda Site, Orissa. The first question that immediately comes to
mind is what exactly is a FORM WORK? I find that FORM WORK is the most important, critical and
highly skilled operation carried out in construction. It is as important as good quality controlled concrete
or reinforcement. Plain or reinforced concrete is in plastic state and it attains the desired shape at the
desired location only on temporary support and casing, during the course of time. This casing is termed
as form work. Further, Climbing formwork is a special type of formwork for vertical concrete structures
that rises with the building process. While relatively complicated and costly, it can be an effective
solution for buildings that are either very repetitive in form (such as towers or skyscrapers) or that
require a seamless wall structure (using gliding formwork, a special type of climbing formwork). There
are various types of climbing formwork which are either relocated from time to time, or can even move
on their own (usually on hydraulic jacks, required for self-climbing and gliding formworks).The
climbing formwork structure normally does not only contain the formwork itself, but also usually
provides working space / scaffolds for construction crews. It may also provide areas for machinery and
screens for weather protection, up to being fully enclosed while yet staying modular around a changing
building structure.
28.1
Formwork starts only after the written approval to the detail proposal of the contractor
from the engineer is received. The contractor considers all required materials, tools, plants, labour, etc.
to carry out this item and prices it accordingly.
28.2
In the case on hand M/s KBM provided a quotation to M/s. L & T, for the design,
fabrication, assembly and supply KBM Hydraulically self – climbing scaffold system and Formwork for
the construction of RCC shell of the Natural Draft Cooling Tower at Jarsuguda Power Project – Orissa,
as per drawing no 373 – F2045 – S5207-07 R O. Vide the above quotation, M/s KBM quoted price of
Rs. 4, 40,00,000/- for one complete set plus service tax (on total amount) + Vat (as applicable) + CST
(as applicable) + Excise (if applicable) + Octroi (if applicable). M/s KBM further quoted that if order
for 2nd set is placed with them simultaneously, they offered rebate of 10% in the price of 2 nd set and
their price for 2nd set would be Rs. 3, 96, 00, 000/- only. M/s. KBM have in their quotation clearly
mentioned that they would be charging Service Tax on the total contract value.
28.3
M/s Larsen & Toubro Ltd released a letter of Intent bearing no
ECCD/PUR/TPPC/JHARUSUGUDA/VR/001/2007-08 on 12.09.2007 wherein scope of work was for
Manufacturing, Testing, Supplying and Guaranteeing the two automatic hydraulically self operated
climbing formwork system as per their drawing no 373 – F2045 – S5207-07 R O for the construction of
RCC shell of the Natural Draft Cooling Tower at Jarsuguda Power Project – Orissa. As per the scope of
Page 16 of 24
F. No. STC/4-22/O&A/11-12.
OIO in the case of M/s. K. B. Construction P Ltd.
the work the items are guaranteed for a period of 18 months from the date of commissioning or up to the
safe dismantling of the formwork system / completion of the shell structure. The items to be supplied by
M/s KBM are to be new and selected to perform under the parameters specified in the enquiry and
should be free from defects in design, material and workmanship. Any defect pointed out during the
period of the contract due to inferior quality of raw materials used, faulty workmanship is to be rectified
/ replaced by M/s. KBM free of cost. As per the scope of work defect liability will start from that day
onwards. As per the scope of the work, M/s. KBM has to prepare and submit to M/s. L & T, a detailed
programme for the entire manufacturing activity including shipment of the consignment keeping final
delivery date as indicated in the contract. The programme to be furnished by M/s. KBM is also to
indicate details of stage inspection required as per the approved quality assurance plan and will also
include the final inspection before packing. M/s. KBM is to submit weekly progress report indicating
the various stages of manufacturing during currency of the contract until final inspection and dispatch of
materials. The system being supplied by M/s. KBM is subject to inspection by the service recipient, that
is, M/s. L & T or any third party at M/s. KBM’s end. M/s. KBM has to give one weeks time for M/s. L
& T to arrange for the inspection. Any defects pointed out during inspection are to be rectified /
replaced by M/s. KBM free of cost. The system being supplied by M/s. KBM is to confirm to M/s. L &
T’s specification. All required relevant test certificates for raw materials, components, tests, trials,
mockups, demo test is to be furnished by M/s. KBM along with the supplies. After inspection and
obtaining dispatch clearance from M/s. L & T, M/s. KBM is to arrange to dispatch the materials to M/s.
L & T’s job site.
28.4
Based on the aforementioned letter of intent M/s L&T issued three purchase orders to
M/s KBM vivisecting the contract awarded into Civil Work and Services. The three purchase orders are
as follows:
(1)
PO Number: C02870/EPC00336 dated 21.9.2007: The said purchase was issued
for 2 Nos. of Automatic Climbing Form Work System. The value of the said
systems have been shown as Rs.75262500/-.
(2)
PO Number: C02870/EPR00479 dated 29.12.2007: The said purchase was issued
for 2,200 sq. MM of Film Coated Plywood, 12mm Thick and 3700 Cu.ft of
Timber (softwood). The value of the items mentioned in the PO have been shown
as Rs.11137950/-.
(3)
Work Order Number: 2015 dated 1.1.2008: The said work order was issued for
the following scope of work:
“Shutter making. Type: Conventional timber and plywood shutters, Design of the
Automatic Climbing Formwork, Making the Shutter at Site, Training during
Erection, Operation and Dismantling, Testing Commissioning and Supervision
during operataion. The value of the scope of work has been mentioned as Rs.
33,00,000/-. Also, the work order contains the details of Service Tax payable on
such services which is Rs. 407880/- (calculated @ 12.36%).
28.5
Scrutiny of the details mentioned in the quotation, Letter of Intent, Purchase Orders and
Work Order reveals that M/s. KBM have in their quotation clearly mentioned that they would be
charging Service Tax on the total contract value; whereas M/s L&T have in their letter of Intent,
Purchase orders and Work Order vivisected the original order into two parts namely; Order for Supply
of Materials and Order for providing Services. They have by doing so calculated the incidence of
Service Tax only on the second part i.e. Order for providing Services. This is quite contradictory to the
details contained in the quotation issued by M/s KBM.
28.6
M/s KBM have issued invoice No. RA-JLCT-46 dated 23.05.2008 wherein they have
shown payment of Service Tax amounting to Rs. 4,07,880/- on Rs. 33,00,000/- charged on account of
labour for making shutter material. It is revealed from the invoice that the particulars contained in it
did not match with the work order and the invoice was issued by M/s KBM for the sole purpose of
payment of Service Tax. To me it appears that the documents titled as supply contract and service
contract is a camouflage to evade service tax as in reality there is only one contract for supply, erection,
installation and commissioning of two automatic hydraulically self operated climbing formwork system
which is inseparable. A system comes into existence upon assembly of its components. In the case on
hand the structure called hydraulically self – climbing scaffold system and formwork constructed by
M/s. KBM for M/s. L & T came into existence upon assembly of the components like formwork shutter,
hardware, rigs and hydraulics.
Page 17 of 24
F. No. STC/4-22/O&A/11-12.
OIO in the case of M/s. K. B. Construction P Ltd.
29.
Perusal of the letter of intent dated 12.9.2007 reveals the following:
a. M/s L&T vide letter of intent dated 12.09.2007 confirmed the manufacturing, testing, supply and
guaranteeing the hydraulic self operating climbing form work as per their specification and
drawing for construction of NDCT Shell at Orissa. This means that the entire fabrication of the
form work was to be carried out strictly as per the design and specification and there was no
scope of providing goods and materials directly purchased from the market or manufacturer to
M/s L & T without subjecting them to some fabrication or manufacturing or workmanship.
b. The RA bills issued by M/s KBM revealed that the description of the materials shown as
supplied has been mentioned as rig items, shutter hard ware etc. Had M/s KBM supplied the
materials in their original form, they would have certainly mentioned the actual description in
their RA bills. However, since M/s KBM carried out necessary fabrication, manufacturing and
workmanship on the said goods so that they could form a part of the entire form work system,
they had no other option but to address them as a part / component of shutter, rigs or hydraulics.
c. The items shown as supplied were not supplied in their original form and they were subjected to
relevant tests, trial, mockups etc the certificates for which were later on provided by M/s KBM
to M/s L&T.
29.1
It is evident from the above discussion that goods shown as supplied by M/s KBM were
actually subjected for some fabrication and manufacturing activity. Hence, the said goods form a part
of the whole contract for supply of two automatic hydraulically self operated climbing formwork system.
Only after the goods are inextricable and essentially linked to the construction / creation of the completed
facilities – construction of formwork system, complete in every detail comes into existence and
therefore it forms an integral part of the "Construction Services – Commercial or Industrial”. Thus, I do
not find that M/s. KBM had received separate contracts embodied in a single document. It is evident
from the documents, as mentioned above, that the contract was a composite contract which involved
providing of services of construction of formwork system which involved designing, detailed
engineering, supply, testing, and other technical assistance, erection, installation, commissioning,
for a consideration of specified amounts and the intention of the recipients of the service is quite
clear from the contract, and that is to receive a formwork system, a completed facility, complete
in every detail. I am convinced that the original contract was vivisected by M/s KBM for the sole
purpose of evading appropriate service tax leviable thereon.
CONSTRUCTION OF PRE-CAST AND POST TENSIONED CONCRETE TOWER FOR
TURBINE AT VILL. MOTISINDHONI (KUTCH), GUJARAT, M/S. SUZLON
30.
Now I take up the issue of contract for construction of pre-cast and post tensioned
concrete tower for turbine at vill. Motisindhoni (Kutch), Gujarat, M/s. Suzlon:
30.1
I find M/s KBM got a contract for construction of pre-cast and post tensioned concrete
tower S52-600kW turbine located at Vill. Motisindhoni (Kutch), Gujarat from M/s Suzlon Infrastructure
Services Ltd. The scope of work / contract stipulated that M/s KBM were required to manage purchase
/ delivery / execute the entire project from top of foundation level to top of tubular steel shell level
including accessories / platforms / cable clamps / ladders inside the tower. M/s KBM had to perform the
following functions also:
- Concept planning, design, supply, manufacturing; erection of RCC Tower.
- Design of Infrastructure required (for the said job) such as casting yard; shuttering; erection
sequence; mix design for concrete etc.
- Identification of competent agencies; interacting with them and implementing various
construction aspects in the drawing accordingly.
- Planning of temporary internal scaffolding access ways, ladders etc..
30.2
As per Annexure-3 of the agreement, M/s Suzlon was required to make following
payments to M/s KBM:
a. Rs. 33,00,000/- under the head “ project management service from top of foundation level(+0.0)
top of tabular steel tower level (74.5 m) and provision of post tensioned cable ducts in the
foundation”
Page 18 of 24
F. No. STC/4-22/O&A/11-12.
OIO in the case of M/s. K. B. Construction P Ltd.
b. Reimbursement of actual expenses incurred for arrangement of site infrastructure, supply of
manpower, tools and tackles, plants and machinery, taxes and duties etc. required for
construction of pre-cast concrete tower segments at site.
30.3
M/s KBM carried out the construction of the pre-cast and post tensioned concrete tower
for turbine. M/s KBM raised four invoices amounting to Rs. 38,00,000/- (+ service tax) as fees for
construction management and supervision work. They have charged service tax amounting to Rs.
4,69,680/- @ of 12.36%. The details of invoices are mentioned in the show cause notice.
30.4
During investigation, perusal of the ledger account for the F. Y. 2007-08 to 2010-11 of
M/s Suzlon produced by M/s. KBM has revealed that during the said period M/s KBM received
following payments:
Period
Amount Received
(in Rs.)
2007-08
5803440
2008-09
4248232
2009-10
951187
2010-11
881287
Total
11884146
30.5
The certificate dated 28.7.2011 produced by M/s. KBM has revealed that they have
received total payment amounting to Rs. 1,18,84,146/- from Suzlon against Rs. 1,20,96,999/- for
which invoices were raised by them on account of consulting and reimbursement (Rs. 44,64,940/- for
consulting service and Rs. 76,32,059/- for Reimbursement of expenses).
30.6
As per clause 8 of the agreement M/s KBM and M/s. Suzlon, the contract value is as per
annexure 3 of the agreement. Annexure 3 states that the total value of the work done includes the
amount for project management services and reimbursement of expenses and the total value of the work
done would be arrived at towards the end of the project. The reimbursement of the expenses incurred by
M/s. KBM is to be supported by material delivery challans and documents. This implies the cost of
material used / consumed in providing the service or for making provisions for the service is being
reimbursed. The annexure further specifically mention reimbursement of expenses incurred for
arrangement of site infrastructure, supply of manpower, tools and tackles, plant and machineries. So the
material required for the service are provided / supplied and used by M/s. KBM. Similarly manpower
tools and tackles, plant and machineries required for the service are provided / supplied and used by
M/s. KBM. Without the materials used and without the arrangement of site infrastructure, supply of
manpower, tools and tackles, plant and machineries services cannot be provided by M/s. KBM nor can
M/s. KBM make provision for providing the service. Since M/s. KBM has received the total gross
amount of Rs. 1,18,84,146/- from M/s. Suzlon for providing the service and for making provision for
providing the service, M/s. KBM is liable to pay service tax on it.
31
Valuation of taxable services is governed by Section 67 of the Finance Act, 1994 (as amended).
The section has undergone changes by virtue of amendments over the years and more particularly in
2006 w.e.f. 18.04.2006 providing for inclusion and exclusion of some specific payments and costs with
far reaching effect. Section 67 provides for valuation of taxable services provided by different service
providers for charging of the service tax. Determination of value of services for all type of services
should be made as per the provisions of this section. The basic highlights of Section 67 are:





Where the consideration for provision of any service is entirely in money, then the gross
amount charged by the service provider for such service provided or to be provided by him
would be relevant for valuation. [Section 67(1)(i)]
Where the consideration for provision of any service is not wholly or partly consisting of
money, then service tax would be payable on such amount in money which with the addition
of service tax charged, is equivalent to the consideration. [Section 67(1)(ii)]
Where the consideration for provision of any service is not ascertainable, the value of such
service would be determined in terms of the Valuation Rules. [Section 67(1)(iii)]
Where the gross amount charged for service provided or to be provided is inclusive of
service tax payable, the value of such taxable service would be such amount which with the
addition of tax payable, is equal to the gross amount charged. [Section 67(2)]
Gross amount charged for the taxable service shall include any amount received towards the
taxable service before, during or after provision of such service. [Section 67(3)]
Page 19 of 24
F. No. STC/4-22/O&A/11-12.
OIO in the case of M/s. K. B. Construction P Ltd.

Value of taxable service will be determined in terms of the Valuation Rules subject to the
provisions of sub-sections (1), (2) and (3) of section 67 of the Act. [Section 67(4)]
31.1
It is evident from above that , Sub-section (3) of section 67 of the Finance Act, 1994, as
amended, mandates that the gross amount charged for the taxable service shall include any amount
received towards the taxable service before, during or after provision of such service.
31.1.1
Inclusion in or exclusion from value of certain expenditures or costs, have been provided
under Rule 5 of the Service Tax(Determination of Value) Rules, 2006, effective from 19.04.2006.
Under sub rule (1) of the Rule 5, it is provided that where any expenditure or cost are
incurred by the service provider in the course of providing taxable service, all such expenditure or costs
shall be treated as consideration for the taxable service provided or to be provided and shall be included
in the value for the purpose of charging service tax in the said service.
However, exclusion of certain expenditure or costs, from the taxable value has been
provided under sub-rule (2) of the rule 5, where the expenditure or costs incurred by the service provide
as a pure agent of the recipient of service, has been allowed to be excluded from the value of the taxable
service subject to fulfillment of conditions (i) to (viii) stipulated therein.
31.2.
None of the conditions have been fulfilled by M/s. KBM in the instant case. No
expenditure has been incurred by M/s KBM as a pure agent of their clients. These reimbursed expenses
incurred by M/s KBM are the expenses necessitated to be incurred in connection with and related to the
taxable service provided by them in the category of Commercial or Industrial Construction service. M/s
KBM is doing construction of commercial and industrial buildings and structures to M/s Suzlon, the
reimbursement charges are nothing but integral part of service provided by them and hence the charges
should be part of taxable service provided by them. The reimbursed expenses is an additional
consideration collected / received by M/s KBM from their clients to whom they provided taxable
“Commercial or Industrial Construction service” and the same is required be included in the value of
taxable service for discharging service tax liability.
31.3
On the above issue I take support from decision of CESTAT in the case involving M/s
Pioneer Services Vs Commissioner of Service Tax, Chennai, as reported in 2012-TIOL-949-CESTATMAD, wherein it is held that “According to Rule 5(1) of Service Tax (Determination of Value) Rules,
2006, any expenditure or cost that are incurred by the service provider in the course of providing
taxable service are to be included in the value of the taxable service for the purpose of charging service
tax”.
31.4
I also take support from decision of CESTAT (Larger Bench) in the case involving M/s
Shri Bhagavathy Traders Vs Commissioner Of Central Excise, Cochin, as reported in 2011-TIOL-1155CESTAT-BANG-LB, wherein it is held that “What are costs for input services and inputs used in
rendering services cannot be treated as reimbursable costs. There is no justification on legal authority
to artificially split the cost towards providing services partly as cost of services and the rest as
reimbursable expenses”.
31.5
I also take support from decision of CESTAT in the case involving CCE, Chandigarh Vs
M/s Team S&S as reported in 2011-TIOL-33-CESTAT-DEL, wherein it is held that “Expenses
reimbursed cannot be excluded from gross value of taxable service: The gross value takes into its fold
entire cost of service enabling that to be performable. Therefore, by no stretch of imagination neither
the arrangements of the parties nor their mutuality or nomenclature or format of their agreement and
mode of discharge of consideration shall prevail on the law relating to service tax. Legislature
accordingly intend that the gross value of the service shall be the measure of value for taxation whether
paid as consideration directly or by reimbursement of expenses relating to providing of taxable
service”.
31.6
In view of the above discussion, I find M/s KBM is liable to pay service tax on the gross
amount received from M/s Suzlon contract for construction of pre-cast and post tensioned concrete
tower S52-600kW turbine located at Vill. Motisindhoni (Kutch), Gujarat as the services provided by
them fall under the category of “Commercial or Industrial Construction Service”.
Page 20 of 24
F. No. STC/4-22/O&A/11-12.
OIO in the case of M/s. K. B. Construction P Ltd.
32.
M/s KBM have in their defence reply also mentioned that they had rightly availed the
benefit of notification no 12/2003 –ST dated 20.6.2003. In this regard I refer to the following circular
and judgements:
32.1
CBEC circular no. 87/05/2006-ST dated 06/11/2006 issued from F. No. 137/128/2006CX-4 provides the condition for availing exemption under notification no 12/2003-ST dated
20/06/2003. As per the said circular exemption would not be available to such goods / consumables
which have been consumed during the process of providing the service as the same are not available for
sale. The relevant portion of the said circular is produced herein below:
2.
The issues have been examined. As regards, the issue relating to sale of spare parts and
consumables, notification No. 12/2003-ST. dated 20.06.2003, exempts service tax to the extent of
value of the goods and materials sold by the service provider to the service recipient, if
documentary proof of such sale exists and no credit of excise duty paid on such spares or
consumables have been taken. It may, however be pertinent to note that for availing such
exemption, the goods must be sold and consequently, they must be available (whether
independently or as a part used for repair of a vehicle) for sale. In other words, the exemption
would not be available to such consumables which have been consumed during the process of
providing service and are not available for sale.
32.1.1
In the instant case it is seen that the goods supplied by M/s KBM were incorporated /
consumed / used in the creating completed facilities and hence the exemption under notification no
12/2003-ST dated 20/06/2003 is not available to M/s. KBM. Therefore the value of the goods is
required to be included in the gross amount charged by M/s. KBM for provision of service for the
purpose of paying service tax.
32.2
I take support from the decision of The CESTAT (Larger Bench) in the case involving
AGGARWAL COLOUR ADVANCE PHOTO SYSTEM Versus COMMR. OF C. EX., BHOPAL as
reported in 2011 (23) S.T.R. 608 (Tri. – LB) wherein it was held that as regards the Valuation (Service
Tax) - Cost to make services reach consumer - All of them are includible in valuation of services,
since Service tax is destination based consumption tax - Section 67 of Finance Act, 1994.
It was also held that “For the purpose of Section 67 of the Finance Act, 1994, the value of
service in relation to photography would be the gross amount charged including cost of goods and
material used and consumed in the course of rendering such service. The cost of unexposed film etc.
would stand excluded in terms of Explanation to section 67 if sold to the client. The value of other
goods and material, it sold separately would be excluded under exemption Notification No.12/2003 and
the term 'sold' appearing there-under has to be interpreted using the definition of 'sale' in the Central
Excise Act, 1944 and not as per the meaning of deemed sale under Article 366 (29A) (b) of the
Constitution”.
32.3
I also take support from the decision of The CESTAT in the case involving Impact
Communications Versus Commissioner of Service Tax, New Delhi as reported in 2012 (28) S.T.R. 156
(Tri. – Del) wherein on the issue of valuation CESTAT has held as under;
Valuation - Inclusion of cost of material used in construction of floats and stalls
reimbursed by principals - Eligibility to Exemption Notification No. 12/2003-S.T. - HELD : Not a
situation where materials procured from market supplied to principal in same form - Procurement of
material from market, making objects necessary for rendering services and use for rendering impugned
services - Section 67 of Finance Act, 1994. [2011 (23) S.T.R. 608 (Tri.-LB) relied on].
32.4
It is evident from the above discussion that the value of goods and materials consumed during the
provision of service should be included to the taxable value for purpose of calculation of service tax. In the
instant case M/s KBM have not considered the value of goods and materials shown as supplied by them but were
actually used in providing the services. Hence, the benefit of notification 12/2003-ST dated 20.6.2003 is not
available to them.
It is evident from the above discussion that M/s KBM have in connivance with
M/s L&T and M/s Suzlon vivisected the composite contracts so that they can get away by
paying less service tax. The procedure of vivisecting the contract into supply portion and
service portion is nothing else but a colorable device to defeat the statutory service tax
provisions and to avoid payment of service tax.
33
Page 21 of 24
F. No. STC/4-22/O&A/11-12.
OIO in the case of M/s. K. B. Construction P Ltd.
My above findings are further strengthened by the judgement of Hon’ble Supreme
Court in the case of M/s Mc DOWELL AND COMPANY LTD Vs COMMERCIAL TAX
OFFICER, ANDHRA PRADESH as reported in 2002-TIOL-40-SC-CT . In the said case the
Apex Court has observed that “Tax planning may be legitimate provided it is within the
framework of law. It is the obligation of every citizen to pay the taxes honestly without resorting
to subterfuges”.
“Colorable devices cannot be part of tax planning and it is wrong to encourage or
entertain the belief that it is honorable to avoid the payment of tax by resorting to dubious
methods”.
33.1
34.
Now comes the issue of invoking the extended period and imposing of penalty
under Section 78 of the Finance Act, 1994. Before going to the merits of the case, I refer to the
judgment in the case involving Aircel Digilink India Ltd. v/s Commissioner of Central Excise,
Jaipur, as reported in 2006 (3) STR 386 (Tri.-Del) and the case involving Bharti Cellular Ltd.
v/s Commissioner of Central Excise, Delhi, as reported in 2006 (3) S.T.R. 423 (Tri.-Del). In
both the cases, the Hon. Tribunal upheld invocation of extended period after taking note of the
fact that appellants had not disclosed certain details and mode of computation in their ST-3
details and that there was nothing on record to suggest that appellants ever approached the
office of the service tax authorities to ascertain the details of their liability to pay the service tax.
Similarly, in case of Insurance & Provident Fund Department v/s. Commissioner of Central
Excise, Jaipur-I, 2006 (2) S.T.R. 369 (Tri.-Del.), Hon. Tribunal held that non-disclosure of full
amount of premium collected would attract invocation of extended period. The ratio of the
above judgments can be applied to the present case also as M/s KBM had kept the Department
in dark about its activities and had not only suppressed the material facts from the department
but has also failed to comply with law and procedures, including payment of actual service tax.
34.1
M/s. KBM has quoted some judgments in their defense reply against invocation of
extended period and under imposition of various penalties proposed in the SCN. I find that the
ratio of these cases is not available to M/s. KBM as they are an assessee under service tax since
long and are well aware of the rules and regulation governing the imposition of service tax on
the taxable service provided by them. I find that the investigation have conclusively revealed
that M/s KBM had not taken into account the service tax payable by them for rendering taxable
service for the purpose of self assessment and payment of applicable service tax and thereby not
complied with their tax liabilities. There is a deliberate effort to mis-declare the value in ST-3
Returns and not paying the correct amount of service tax in utter disregard to the requirements
of law and breach of trust deposed on them is certainly not in tune with Governments efforts in
the direction to create a voluntary tax compliance regime. All the above acts of contravention on
the part of M/s KBM have been committed by way of will-full suppression of facts with intent
to evade payment of Service Tax. M/s KBM even charged and collected Service Tax from M/s.
Suzlon Infrastructure Services Ltd. but not deposited in Govt. account and, therefore, the said
Service Tax not paid and not deposited in Govt. account is required to be recovered from them
under the proviso of section 73 of the Finance Act, 1994 by invoking extended period of 5
years. I find that M/s KBM have contravened the provisions of Section 68 Section 69 and
Section 70 of the Finance Act, 1994 as amended, read with Rule 4, 6 and 7 of the Service Tax
Rules, 1994. All these acts of contravention of the provisions of Section 68 Section 69 and
Section 70 of the Finance Act, 1994 as amended, read with Rule 4, 6 and 7 of the Service Tax
Rules, 1994 appear to be punishable under the provisions of Section 76, Section 77 and Section
78 of the Finance Act, 1994 as amended from time to time.
As regards imposition of simultaneous penalty, I place reliance on the judgment of
Hon’ble High Court of Kerala in the case of Assistant Commissioner of Central Excise v.
Krishna Poduval as reported at [2006] 3 STT 96 (KER) which is aptly applicable to the present
case. I find that the imposition of penalty under sections 76 and 78 of the Act is for non
payment of service tax and suppression of value of taxable service respectively which are two
distinct and separate offences attracting separate penalties. I find that the said assessee has
committed both the offences and therefore penalties under section 76 and 78 of the Finance Act,
34.2
Page 22 of 24
F. No. STC/4-22/O&A/11-12.
OIO in the case of M/s. K. B. Construction P Ltd.
1994 are imposable on M/s KBM for the period upto 9.5.2008 as the present SCN covers the
period 2007-2008 to 2010-2011.
As regard imposition of penalty under Section 77 of the Finance Act, 1994, I find
that M/s KBM has filed the ST-3 returns in the prescribed format but have declared less taxable
value. I have already imposed penalty under Section 78 of the Finance Act, 1994 for
suppression of taxable value which is the very basis of the show cause notice. Therefore, no
separate penalty is imposable on the said assessee under Section of 77 of the said Act
34.3
As regards their contention for invoking Section 80 of the Finance Act, 1994 for
waiver of penalty, I find that M/s KBM have not produced any reasonable cause for the failure
to pay service tax. In order to pay less service tax, they have purposefully vivisected the
composite contracts into service portion and supply portion and paid service tax on the service
portion. They have by resorting to this practice tried to evade payment of service tax. Therefore,
I consider it appropriate to hold M/s KBM liable to penalty under Section 76 and 78 of the
Finance Act, 1994.
34.4
35
Having regard to the facts and circumstances of the case as discussed
hereinbefore, I pass the following order.
ORDER
i.
I consider the amount of Rs. 9,17,69,244/- received from M/s L&T as taxable value
under section 67 of the Finance Act, 1994 under the category of construction services in
respect of commercial or industrial buildings and civil structures, as defined under
Section 65 of the Finance Act, 1994 and the service tax amounting to Rs. 1,08,52,791/(One Crore Eight lakhs Fifty Two Thousand Seven Hundred Ninety One only) leviable
on it is herby confirmed and ordered to be recovered from M/s. KBM under the proviso
to Section 73 (1) of the Finance Act, 1994, invoking the larger period of five years as
discussed above.
ii.
I consider the amount of Rs. 1,18,84,146/- received from M/s Suzlon Infrastructure Services
Limited as taxable value under section 67 of the Finance Act, 1994 under the category of
construction services in respect of commercial or industrial buildings and civil structures, as
defined under Section 65 of the Finance Act 1994 and the Service Tax amounting to Rs.
11,62,114/- (Rupees Eleven lakhs Sixty Two Thousand One Hundred Fourteen only) leviable on
it is hereby confirmed and ordered to be recovered from M/s. KBM under the proviso to Section
73 (1) of the Finance Act, 1994, invoking the larger period of five years as discussed above.
iii.
Interest at the appropriate rate on the amount of their service tax liability amounting to Rs.
1,20,14,905/- (Rs. 1,08,52,791/- + Rs. 11,62,114/- = Rs. 1,20,14,905/-) as mentioned herein
above is ordered to be recovered from M/s. KBM under Section 75 of the Finance Act, 1994 for
the delay in making the payment.
iv.
I impose a penalty of Rs. 200/- (Rupees two Hundreds Only) per day or at the rate of 2% of the
service tax amount per month, whichever is higher, subject to maximum of the outstanding tax
amount, from the date on which such tax was due till 09.05.2008 or the actual payment of
outstanding tax amount, whichever is earlier, under the provisions of Section 76 of the Finance
Act, 1994, as amended, for failure to pay Service Tax within the stipulated period as required
under the provisions of Section 68 (1) of the Finance Act, 1994 read with Rule 6 of the Service
Tax Rules, 1994, as amended.
v.
I do not impose penalty under Section 77 of the Finance Act, 1994.
vi.
I also impose a penalty of Rs. 1,20,14,905/- (Rupees One Crore Twenty Lakh Fourteen
Thousand Nine Hundred and Five only) upon M/s. KBM under Section 78 of the Finance Act,
1994 for suppressing the value of taxable services provided by them before the Department with
intent to evade payment of service tax. In the event of M/s. KBM opting to pay the amount of
service tax along with all other dues as confirmed and ordered to be recovered, within thirty
Page 23 of 24
F. No. STC/4-22/O&A/11-12.
OIO in the case of M/s. K. B. Construction P Ltd.
days from the date of communication of this order, the amount of penalty liable to be paid by
them under Section 78 of the Finance Act, 1994 shall be 25% of the said amount. However, the
benefit of reduced penalty shall be available only if the amount of penalty is also paid within the
period of thirty days from the communication of this order; otherwise full penalty shall be paid
as imposed vide this order.
(Tejasvini P. Kumar)
Commissioner
Service Tax, Ahmedabad.
F. No: STC / 4 – 22 / O & A / 11 – 12.
BY RPAD
Date: 28/ 03/2013.
To
M/s K. B. Mehta Construction Pvt. Ltd.,
509, Milestone, Drive-in-cinema Road,
Thaltej,
Ahmedabad
Copy to:
(1)
(2)
(3)
(4)
The Chief Commissioner, Central Excise & Service Tax, Ahmedabad Zone, Ahmedabad.
The Deputy Commissioner, Service Tax, Division- II, Ahmedabad\
The Supdt. AR-VI, Service Tax Division II, Ahmedabad
Guard File.
Page 24 of 24