Oio no. 54/JC/2011 Dated 14/12/2011



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OIO No. 54/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/15-54/Adj./2006

By RPAD/HAND DELIVERY

Ekwy vkns”k Lka.

Order in Original NO.

54/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. Varmora Granito Pvt. Ltd.,

National Highway 8 A,

Dhuva - Wankaner


dkj.k crkvksa uksfVl la- &frfFk

Show Cause Notice No. & Date.



V.RJT-II/AR-WNK/Addl.Commr./101/2007

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 Varmora Granito Pvt. Ltd., 8-A National Highway, Dhuva, Wankaner, hereinafter referred to as "the noticee") are engaged in the manufacture of Vitrified Ceramic Tiles falling under Chapter 69 of the Schedule to the Central Excise Tariff Act, 1985 and are holding Central Excise Registration No. AABCV7523 MXM 001.



  1. Intelligence gathered by the Officers of Central Excise Division – II, Preventive, Rajkot indicated that the noticee had imported certain machineries like Kiln Polishing Headline, Ceramic Tiles Polishing Production Line, Ball Mill with Rubber Lining, Storage Unit Type Technoroll, Dryer etc. from China, Italy and Hongkong 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 13.10.2005 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.

Foshan De Ke mechanical and Electrical Equipment Co. Ltd., Guangdong, China

Ceramic Polishing Machine

USD 47,823.80

No separate Charges mentioned

6,89,301/- (33% of contract value)

68,930/-, 1.379/-

19/2003

Sacmi Hong Kong Ltd., Hong Kong

Fast Single Layer Roller Kiln

USD 285,000

No separate charge mentioned

42,79,576/- (33% of Contract value)

4,27,958/- 8,559/-

19/2003

De Ke mechanical and Electrical Equipment Co. Ltd., China

Ceramic Tile Polishing Production Line

USD 140000

No separate charge mentioned

20,41,347/- (33% of Contract Value)

2,04,135/- 4.083/-

19/2003

De Ke mechanical and Electrical Equipment Co. Ltd., China

Ball Mill with Rubber Lining

USD 89200

No separate charge mentioned

12,84,293/- (33% of contract value)

1,28.429/- 2,569/-

19/2003

Technofeirari SPA, Italy

Storage Unit Type Technoroll

EURO 47500

Excluded

--

--

--

SACMI Cooperativa Meccanici Imola Italy

Press with Kiln feeding unit & Unlaoder

EURO 313,810

No separate charge mentioned

57,37,004/- (33% of Contact Value)

5,73,700/- 11,474/-

19/2003

SACMI Cooperativa Meccanici Imola Italy

Vertical Fast Dryer

EURO 126,000

No separate charge mentioned

23,07,5237-(33% of Contract Value)

2,30,7527-4,6157-

19/2003

 

 

 

 

TOTAL

16,33,904/- 32,679/-

 




  1. Rule 2(1) (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) of the Finance Act, 1994 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 66 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 09.01.2006 of Shri Varmora Jagjivanbhai Ganeshbhai, Director of the Noticee 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 and Italy under various contract viz., Contract No. KIXINDA QT 664-2005 dated 30.03.2005 for purchase of Ceramic Polishing Machine, Contract No.HK 213 ACO-04 for Fast Single Layer Roller Kiln, Contract No. KEXINDA SC 153A2003 for Polishing Production Line, Contract Mo KEXINDA SC 154A-2003 dated 26.11.2003 for Ball Mill with Rubber Lining, Confirmation No. OF/031 OF 16.01.2004 for Storage Unit Type Technoroll, Contract No./Agreement No. CPINO 3141 Dated 11.12.2003 for Power Feder, Kiln Feeding Unit, Kiln unloader and Contract No CPINO4003 dated 13.01.2004 for Dryer; that though they had installed the machineries with the help of their workers the foreign suppliers had send one or two person for the purpose of inspection and supervision of machineries so that the installation of the machineries should be done in proper way; that they had not paid any additional amount; that they have made all the transaction through Bank; that they installed the Biogas Gasifire with the help of their own labours.

9. The definition of "Erection, Commissioning and Installation Agency covers 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 referred service providers are 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 (1)(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 21.08.2033 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 Section 68 of Finance Act, 1994 read with Rule 6 of Service Tax Rules, 1994 n as much as they failed to pay the Service Tax on the services of
    installation.

  1. 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.

  2. 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 Said Noticee was asked 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. 16,66,583/- (Rs. 16,33,904/- S. Tax + Rs. 32,679/- Edu. Cess) should not be recovered under Section 73 of the Finance Act, 1994 alongwith 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:

14. Authorized representative of the firm Sh. J.V.Patel vide letter dtd. 19.11.07 and other letter dtd. 01.12.08 furnished their defence reply to the show cause and denied any liability to pay service tax mainly on the ground as under:


(A) SCN issued on the basis of Rule 2(1) (d)(iv) whereas in virtue of Section 68(2) of the Finance Act, 1994 taxable service provided by any person from a country other than India and received by any person in India under section 66A of the Act, has been notified under Section 68(2) vide Notif. 36/2004-ST dated 31.12.04 which is effective from 01.01.05. As rule is subservient to the Section liability to pay service tax by service recipient is from 01.01.05 only. Except for machinery Sr. No.1 of the Table in SCN, all the machinery were installed before 01.01.05 as evidenced from Chartered Engineer Vide his certificate dated 26-08-2004 and Installation certificate issued by the department on 08-10-2004. Machineries mentioned at Sr. NO. 1 was installed in month of August-2005. Similar views were taken in the following cases:

  1. M/s Aditya Cement Versus Commissioner of C.Ex. Jaipur-II as reported in 2007(7) S.T.R.-153 (CESTAT, Principal Bench, New Delhi;

(ii)M/s Inspat Industries Ltd. Vs. CCE, Raigadh as reported in 2007(8) S.T.R. 282 (CESTAT Mumbai)

(B) The department has no evidence in their possession to prove that any technicians had in fact, assisted the Noticee in installation of this machine.

(C) The Installation certificate was issued by the department on 08-10-2004 and also preventive visited and inspected machineries and relevant records on 13.10.05 it is clear that department had knowledge of the facts. Hence the department could well have issued a Notice for the normal period i.e. before August 2006. Thus the SCN is time barred.

(D) While clearing of the machinery from Customs, the department had considered whole contract value as a value of the goods and charged customs duty accordingly. Hence it can be said that no part of contract value is for service of installation of the machineries.

(E) As the present SCN is not sustainable on merit as well as legality, there is no question of penal interest and penalty in the matter.

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 18.10.04 and in one case in month of AUG-2005. 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 set aside.

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./101/2007 dated 07.08.07.

(M. GNANASUNDARAM)

JOINT COMMISSIONER

F. No. V-ST/15-54/ADJ/2006

By Regd. Post AD:


To,

M/s. Varmora Granito Pvt. Ltd.,

National Highway 8 A,

Dhuva - Wankaner.

Copy to:

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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