Lhek “kqYd,oa dsUnzh; mRikn “kqYd vk;qDrky;] dsUnzh; mRikn “kqYd Hkou] jsl dkslZ] fjax jksM jktdksV-360001 office of the commisioner of customs & central excise race course ring road, rajkot-360001



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#31515

OIO No. 53/JC/2011

dated 14/12/2011








lhek “kqYd ,oa dsUnzh; mRikn “kqYd vk;qDrky;] dsUnzh; mRikn “kqYd Hkou]

jsl dkslZ] fjax jksM jktdksV-360001

OFFICE OF THE COMMISIONER OF CUSTOMS & CENTRAL EXCISE

RACE COURSE RING ROAD, RAJKOT-360001

F.No V.ST/15-58/Adj./2006

By RPAD/HAND DELIVERY

Ekwy vkns”k Lka.

Order in Original NO.

53/JC/2011


vkns”k dh frfFk

Date of Order:-


14.12.2011

tkjh djus dh frfFk

Date of Issue:-

14.12.2011


vkns”kdrkZ dk uke :

Passed by:



,e- KkulqUnje

संयुक्त आयुक्त

ds0 m-0 “kqYd vk;qDrky;]

jktdksV


ds lanHkZ esa :

In the matter of



M/s. Surya Ceramic,

National Highway 8 A,

Dhuva – Wankaner


dkj.k crkvksa uksfVl la- &frfFk

Show Cause Notice No. & Date.



V.RJT-II/AR-Wankaner/Addl.Commr/98/2007

Dated : 07.08.2007


1- ;g izfrfyfi ml O;fDr dks futh mi;ksx ds fy, fu%'kqYd nh xbZ gSA ftls ;g tkjh fd;k x;k gSA

1. This copy of order is granted free of charges to the person to whom it is issued.
2- bl vkns'k ls ;fn dksbZ O;fDr vlarq"V gS rks bl vkns'k ds fo:) fuEufyf[kr dks vihy dj ldrk gSA&vk;qDr ¼vihy½ lhek ,oa dsUnzh; mRikn 'kqYd] jsl dkslZ fjax jksM jktdksVA

2. Any person deeming himself aggrieved by this order may appeal against this order to the Commissioner (Appeals), Customs & Central Excise, Central Excise Bhavan, Race Course Ring Road, Rajkot.


3- vihy dk QkeZ ,l-Vh-&4 nks izfr esa Hkjk tk, ,oa mlds lkFk fu.kZ; dh izfrfyfi ;k lsokdj fu;e] 1994 dh dye 8 esa fofufnZ"V vuqlkj vkns'k ds fo:) vihy dh izfrfyfi gksuh pkfg,A

3. The Appeal should be filed in form ST-4 as per Rule 8 of Service Tax Rules, 1994 and it shall be signed by the person as specified in Rule 3 (2) of the Central Excise (Appeals) Rules, 2001.


4- ikVhZ }kjk bl vkns'k dks O;fDrxr izkIr fd, tkus dh rkjh[k ls ;k Mkd }kjk izkfIr dh rkjh[k ls rhu eghus ds vanj vihy Qkby dh tkuh pkfg,A

4. The appeal should be filed within three months from the date of receipt of this order. [Section 85 of the Finance Act, 1994].


5. blds lkFk fuEufyf[kr dkxtkr gksuh pkfg,A

5. The appeal should be accompanied by:


¼v½ ,slk vkns'k dh izfrfyfi ;k nwljs dh d izfrfyfi ftl ij uhps n'kkZ, v?khu fu/kkZfjr dksVZ dh Qhl LVsEi gksuh pkfg,A

(a) Copy of this order which should bear court fee stamp as prescribed under Schedule 1 of Article 6 of the Court Fee Stamp Act, 1870, as under:

(i) ;fn lCtsDV eSVj dh jde ;k ewY; ;k ewY; 50 :i; ;k 50 :i;s ls de gks rks :i;s 00-25 gksA


  1. If the amount or value of subject matter is rupees fifty or less, then Rs.0.25;

(ii) ;fn lCtsDV eSVj dh jde ;k ewY; ;k ewY; 50 :i; ;k 50 :i;s ls v/khd gks rks :i;s 00-50 gksA

(ii) If such amount exceed Rs.50, then, Rs.0.50 paisa.


¼c½ vihy izfrfyfi ftl ij :i;s 2-50 dh dksVZ Qh LVsEi gksuh pkfg,A

(b) A copy of the appeal should also bear a court fee stamp of Rs.2.50.


6. lsok dj ]naM ¼isuYVh½ vkfn ds Hkqxrku dk izek.k A

Proof of payment of duty, penalty etc., should also be attached to the original form of appeal.


Brief facts of the case:

M/s. Surya Ceramics, 8-A National Highway, Dhuva, Wankaner, hereinafter referred to as "the noticee") are engaged in the manufacture of Ceramic Tiles falling under Chapter 69 of the Schedule to the Central Excise Tariff Act, 1985 and are holding Central Excise Registration No. AAHFS3995FXM001.



  1. Intelligence gathered by the officers of Central Excise Division - II - preventive, Rajkot indicated that the noticee had imported certain machineries like Pressing Machine and Dryer Loading Machine etc. from Hong Kong and the installation of the same were carried out by the technicians provided by the said foreign suppliers. It was also gathered that no service tax was paid by the noticee on the services of installation provided by the supplier of the imported machinery. Therefore, the factory premise of the noticee was visited on 22.01.2006 by officers of Central Excise, Division II and the machineries and the documents were verified.

  2. On physical verification, it was found that the noticee had imported various machineries, as detailed below. As admitted by the Director of the noticee, the installation of these machineries was carried out with the help of technicians provided by the foreign supplier company, who had no establishment or office in India.




Supplier

Description of machine

Value of Machine

Installation Charges

Assessable Value for S-Tax in Rs.

Service Tax and Edu. Cess payable

Notification

No.


Modena Machinery International Ltd., Hong Kong

Pressing Machine

95900 USD

Not shown separately

1388670 (33% of contract value)

138867 2778

19/2003

-do-

Dryer Loading Machine

259595 USD

Not shown separately

3750472 (33% of contract value)

375047 7500

19/2003

Total










5139142

524192






  1. Rule 2 (d) (iv) of the Service Tax Rules, 1994 stipulates that where taxable service provided by a person who has established business or a fixed establishment from which the service is provided or has his permanent address in a country other than India, and such service provider does not have any office in India, the person who receives such service and has his place of business, fixed establishment, permanent address or as the case may be, usual place of residence in India, is liable to pay service tax.

  2. The services of "Commissioning or Installation" are covered under Section 64 to 96-I of the Finance Act, 1994, with effect from 01.07.2003. "Commissioning" was also included in this category of services with effect from the Finance Bill of 2004. The definition of "erection, commissioning or installation, as given in Section 65 (39a) reads as:

"Erection, Commissioning or Installation" means any service provided by a commissioning and installation agency, in relation to-




  1. erection, commissioning or installation of plant, machinery or equipment; or

  2. installation of—­



  1. electrical and electronic devices, including wiring or fittings thereof; or

  2. plumbing, drain laying or other installation for transport of fluids; or

  3. heating, ventilation or air-conditioning, including related pipe work, duct work and sheet metal work; or

  4. thermal insulation, sound insulation, fire proofing or water proofing; or

  5. lift and escalator, fire escape staircases or travelators; or

  6. such other similar services."



  1. As per definition given at Section 65 (105) (zzd), "taxable service" means any service provided or to be provided to a customer, by an erection, commissioning and installation agency in relation to commissioning or installation.

  2. Section 65 of the Finance Act, 1994, as amended, is charging section for the purpose of Service Tax which specifies that there shall be levied a tax (hereinafter referred to as the service tax) at the rate of ten per cent of the value of the taxable services referred to in sub-clauses (a) (zzd) of clause (105) of Section 65 and collected in such manner as may be prescribed (The rate of service tax was 8% before 10-09-2004).

8. A statement dated 22.01.2006 of Shri Liladharbhai Shivjibhai Patel Partner of the Notices firm was recorded under Section 14 of the Central Excise Act, 1944 before the Superintendent (PI), Central Excise Division - II, Rajkot, wherein he stated that they have purchased various machineries from China, Hongkong under various contract viz., (1)Contract No. CM24185B dated. 18.09.2004 for purchase of Dryer Loading machine W2700L3M, Biscuit Kiln W2700mm/L71.610m, Biscuit Kiln Unloading machine
W2700L2.5M, Gloss Kiln unloading machine W2700L6.5M, Gloos Kiln W2700mm/L69.440m and Gloss Kiln unloading machine W2700L2.5M (2) Contract/proforma Invoice No. CM 25026 dated.31.01.2005 for purchase of YP Press, Take off Table, magnetic Plate and Magnetic Control Board for mould; that third machine imported under contract No. KEXINDA SC572-2005 dated. 10.01.2005 was very small no technicians were required, that though they had installed the machineries with the help of their workers the foreign suppliers sent one or two person for the purpose of inspection and supervision of machineries so that the installation of the machineries could be done in proper way; that installation started in May 2005 and completed in June 2005, that the technicians were accommodated in hotel and they had not paid any additional amount; that they have made all the transaction through Bank; that the amount as per contract/invoice was only paid, that the amount shown in contract included the installation charges, that copies of debit advice issued by bank would be submitted within two days, that installation of machinery stated at st. no 1 was done during May-2005 to June-2005 and another machinery was installed thereafter, that installation if all machineries was completed in November, 2005.

9. The definition of "Erection, Commissioning and Installation Agency cover all services and not restricted to advice, consultancy and technical assistance. Thus, it will include not only the advice, consultancy or technical assistance provided in erection, commissioning and installation but will also include the services rendered in respect of erection, commissioning and installation. From above, it appears that the above service provider is not having any office or establishment or permanent address in India and therefore, the noticee was liable to pay the Service Tax on installation services received by them, as per Rule 2 (d) (iv) of the Service Tax Rules, 1994. The details of machineries, as per contract and the condition of installation, invoices and payment made; are enclosed herewith as Annexure-A.



  1. Now, for the determination of value of services, it is observed that price is inclusive of installation charges and no separate charges for the services of installation have been mentioned either in contract or in invoices. Thus, Notification No. 12/2003-ST dated 20.06.2003, which provides for exemption to taxable service to the extent of value of goods and material sold by the service provider to the recipient of service, would not be available to the Noticee. Therefore, Notification No. 19/2003-ST dated 21.08.2003 would be applicable in the instant case. Notification No. 19/2003-ST provides for exemption to the extent of 67% of total value (gross amount charged from the customer under a contract for supplying plant and machinery or equipment and commissioning or installation of the said plant and machinery). Therefore, in view of Notification No. 19/2003-ST, service tax is leviable on 33% of total contract value.

  2. From above, it appears that the noticee has contravened the following provisions:




  1. Section 68 of Finance Act, 1994 read with Rule 6 of Service Tax Rules, 1994 in as much as they failed to pay the Service Tax on the services of installation.

  2. Section 69 of Finance Act, 1994 read with Rule 4 of the Service Tax Rules, 1994 in as much as they failed to register themselves for the purpose of Service Tax.

  3. Section 70 of Finance Act, 1994 read with Rule 5 and Rule 7 of Service Tax Rules, 1994 in as much as they failed to maintain proper records and file required returns.

  1. The noticee has never declared to the department regarding installation services received by them from a foreign company against the payment, with a sole intention to evade the payment of service tax. Therefore, the proviso to Section 73 of the Finance Act, 1994 is invoked and extended period is applicable in the case, making the noticee liable to penal action under Section 78 of the Finance Act, 1994.

  2. Therefore, the noticee was required to show cause to the
    Additional Commissioner, Central Excise & Customs, Rajkot having his office at 6th Floor, "Central Excise Bhavan", Race Course Ring Road, Rajkot, within 30 days from receipt of this Notice, as to why:




  1. The service tax Rs. 5,24,192/- (Rs. 5,13,914/- S. Tax + Rs. 10,278/- Edu. Cess) should not be recovered under Section 73 of the Finance Act, 1994 along with interest as chargeable under Section 75 of the Finance Act, 1994.

  2. Penalty should not be imposed upon them under Section 78 of the Finance Act, 1994.


DEFENCE SUBMISSION:


  1. The main grounds of the defence made in the noticee’s letters dtd. 26.09.07, 11.12.08 ,26.12.08 and 26.04.2011 are as under:




  1. The installation was carried out by their person under presence/ Supervision of the person of foreign supplier hence it can not be said that installation was carried out by the technician sent by suppliers. The demand was issued based on Rule 2(1) 9d)(iv) which is nothing but definition of “person liable for paying the service tax.” Liability to pay service tax comes into play only when acts provide for levy of service tax. Work of Installation of the machineries was carried out between period from May, 2005 to June, 2005 i.e. prior to insertion of Section 66A of the Finance Act, 1994 with effect from 18.04.2006 (relevant )charging section) Hence there was no charging section for charging the service tax on services received from out side India. Section 66A is not invoked in the SCN and hence in absence thereof demand can not be sustained.




  1. The so called services were provided in the month of May, 2005 and June, 2005. Whereas show cause notice was issued on 07.08.2007. As per the provisions of Section 73(1) ibid if any service tax is short levied then notice is to be issued within one year. However, department has issued the SCN by invoking proviso to Section 73 ibid alleging that they had never declared to the department regarding installation services received by us from foreign company against the payment, with a sole intention to evade payment of duty. Being a manufacturer they have availed CENVAT Credit of CVD paid on such imported machineries and shown the same in the monthly returns viz. ER-1. Hence extended period can not be invoked and hence SCN is time-barred.




  1. In support of their plea that service tax on said service when provided by foreign supplier not having office/establishment in India and received in India is leviable from 18.04.06 only, they have relied upon following judgments.




  1. FOSTER WHEELER ENERGY LTD. Versus COMMR. OF C. EX. & CUS., VADODARA-II - 2007 (7) S.T.R. 443 (Tri. - Ahmd.)

  2. COMMISSIONER OF CENTRAL EXCISE, RAIPUR Versus JINDAL STEEL & POWER LTD. -2008 (11) S.T.R. 14 (Tri. - Del.)

  3. COMMISSIONER OF C. EX., LUDHIANA Versus BHANDARI HOSIERY EXPORTS LTD. - 2008 (11) S.T.R. 151 (Tri. - Del.)

  4. PRABHAT K. TYAGI Versus COMMISSIONER OF C. EX. (APPEALS-I), BANGALORE - 2008 (10) S.T.R. 240 (Tri. - Bang.)

  5. UNITECH LIMITED Vs COMMISSIONER OF SERVICE TAX, DELHI -  2009-TIOL-293-HC-DEL-ST

  6. S.R. Balitoboi & Associates, S.R. Batliboi & Co. versus Union of India & Others reported in 2010-TIOL-376-HC-DEL-ST.

DISCUSSION AND FINDINGS:

15. I have carefully gone through the facts of the case on record including the show cause notice and the various defence replies. I find that the noticee had imported machineries which were installed/ commissioned by technicians of the suppliers who were not having office/establishment in India, before 18.04.06. It appeared that the services provided falls under taxable service of "Erection, Commissioning or Installation, as defined in Section 65 (39a) of the Finance Act, 1994. It appeared that the noticee being a service recipient was liable to pay tax on the services received as provided under Rule 2 (1) (d) (iv) of the Service Tax Rules, 1994.

16. It is seen that the period of provision of service was prior to the period 18.4.2006. The issue whether the tax liability on taxable services provided by a non resident or a person located outside India to a recipient in India on reverse charge basis is applicable from 1.1.2005 or from 18.4.2006 has been clarified by the Board instruction from file no F.No 276/8/2009-CX 8A dated 26.9.2011.

Sub: Applicability of service tax on taxable services provided by a non-resident or a person located outside India to a recipient in India-reg.


Kind attention is invited to instruction F No. 275/7/2010-CX8A, dated 30.6.2010, wherein the Board had communicated its view that services tax on a taxable service received in India, when provided by a non-resident/person located outside India, would be applicable on reverse charge basis with effect from 1.1.2005, and that the ratio of judgement in M/s Indian National Shipowners Association (INSA) case [2009 (13) STR 235 (Bom)] would not apply to such cases. Further, direction was issued to field formations to defend the levy of service tax on such services for the period on or after 1.1.2005, as post INSA judgment, it has been held by the High Courts/Tribunal in a large number of cases, applying ratio thereof, that service tax on such services is leviable only w.e.f. 18.4.2006. However, the appeals filed by the department before the Hon’ble Supreme Court, for defending the levy of service tax on such services w.e.f. 1.1.2005, have been dismissed recently (subsequent to the issuance of said instruction dated 30.6.2010) in the following cases.


  1. SLP (C) No. 29539 of 2010 in CCE Vs Bhandari Hosiery Exports Ltd

  2. SLP (C)No. 18160 of 2010 in CST Vs Unitech Ltd

  3. SLP (C) No. 34208/09 of 2010 in UOI Vs S R Batliboi & Co.

  4. SLP (C)No. 328/332 of 2011 in UOI Vs Ernst & Young

  5. SLP (C) No. 25687-25688/2011 in CCE Vs Needle Industries

  6. SLP (C) No. 25689-25690/2011 in UOI Vs SKM Engg Products

Further, Review Petition No. 1686 of 2011 filed in the case of Bhandari Hosiery has also been dismissed by the Hon’ble Supreme Court vide order dated 18/8/2011.


2. In view of the aforementioned judgments of the Hon’ble Supreme Court, the service tax liability on any taxable service provided by a non resident or a person located outside India, to a recipient in India, would arise w.e.f. 18.4.2006, i.e., the date of enactment of section 66A of the Finance Act, 1994. The Board has accepted this position. Accordingly, the instruction F No. 275/7/2010-CX8A, dated 30.6.2010 stands rescinded.”

17. As discussed above I find that in this case, the services were provided prior to the period of 18.04.06 i.e. prior to enactment of Section 66A. Hence as clarified by the Board instruction quoted above no demand of service tax arises in this case and the show cause notice needs to be setaside.

18. In view of the above discussion, I pass the following order:

ORDER

I drop the proceedings initiated vide show cause No. V.RJT-II/AR-WNR/Addl.Commr./98/2007 dated 07.08.07.


(M. GNANASUNDARAM)

JOINT COMMISSIONER
F. No. V-ST/15-58/ADJ/06
Bv Reqd. Post AD
To,

M/s. Surya Ceramic,

National Highway 8 A,

Dhuva - Wankaner.


Copy to:

(i) The Assistant Commissioner (RRA), Central Excise, HQ, Rajkot.

(ii) The Assistant Commissioner, Central Excise Division-ll, Rajkot.

(iii) The Superintendent, Central Excise AR- Wankaner.



(iv) Guard file.

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