TIOL-DDT 2001
12.12.2012
Wednesday

EPC (Engineering, Procurement and Construction) and Turnkey - these two are now most dreaded words among many civil contractors undertaking works for Government. They are fully engaged in trying to know as to what constitutes an EPC contract and a Turnkey contract and whether they are one and the same or they are different and if so, what is the difference etc. The purpose is not for improving any technical skills in execution of the project, but to know if some Show Cause Notices are waiting for them demanding service tax. The determining factor whether service tax is applicable on works undertaken for water supply projects undertaken / irrigation works contracted by Government depends on whether the contracts are executed as EPC or Turnkey projects, according to the Department and this view already has the support of a Tribunal judgement.

Prior to 01.06.2007, though at some places, demand notices were issued for payment of service tax on the activities of laying of pipelines for drinking water supply projects undertaken by classifying the service under "Commercial or Industrial Construction Service / Erection, Commissioning or Installation Service", these demands were successfully contested by the assessees with favourable judgements in case of Indian Hume Pipes 2008-TIOL-1665-CESTAT-MAD and Nagarjuna Construction Company Ltd 2010-TIOL-789-CESTAT-BANG. It was held that drinking water supply projects run by Gujarat Water Supply and Sewerage Board are not leviable to service tax either under Commercial or Industrial Construction service or under Works Contract Service.

The essence of the definition of "Commercial or Industrial Construction" service is that the projects like Drinking water supply and other irrigation works undertaken by the Government cannot be treated as primarily for the purpose of commerce or industry as also clarified by the CBEC in Circular No 116/10/2009 -ST., Dated: September 15, 2009.

However, a new line of argument has emerged for the cases post 01.06.2007, with the advent of "Works Contract" service. Ingenious departmental officers have started a new interpretation that the above works, like Drinking water supply etc undertaken as EPC/Turnkey contracts are leviable to service tax as they are covered under sub-clause (e) of the Explanation given under Section 65(105)(zzzza) of the Finance Act, 1994. According to them, these contracts, if executed as EPC/Turnkey contracts, cannot be classified under sub-clause (b), i.e., Commercial or Industrial Construction Service, to enjoy the exclusion, by virtue of being "non-commercial" in nature. If they are classified under sub-clause (e) as EPC/Turnkey projects, even if they are for non-commercial purpose, service tax will be applicable.

But, is this the real intention of the legislature? If we see the position from 01.07.2012, all the above works like laying of pipelines for water supply etc are exempted under Notification No 25/2012 ST dated 20th June 2012 and upto 01.06.2007, the demand was held to be not sustainable owning to these projects being non-commercial in nature. However, the problem remains for the period from 01.06.2007 to 30.06.2012.

In case of 2012-TIOL-613-CESTAT-BANG, the Tribunal has rejected the appeals of the assessees by holding that the services undertaken under Trunkey/EPC contracts are squarely covered by clause (e) of Explanation to; Section 65(105)(zzzza) of the Finance Act, 1994 and cannot be classified under clause (b) of the Explanation.

However, it could not have been a conscious decision of the legislature to tax these works like laying of pipelines for drinking water etc, as can be seen from the position prior to 01.06.2007 and past 01.07.2012 and the liability in between these two dates was only due to fortuitous circumstances.

Fortunately, for canals, Notification No.41/2009-ST Dated 23.10.2009 provided exemption in execution of a works contract in respect of canals, other than those primarily used for the purposes of commerce or industry, from the whole of service tax. The same is also exempted in Negative services arena i.e. with effect from 01.07.2012 onwards. However, during the intervening period i.e. 01.06.2007 and 22.10.2009 , there was no exemption for ‘Canals'.

Hence, a Section 11C notification in respect of contracts undertaken for Drinking Water supply project and Canals would put to rest the uncertainty surrounding these projects.

Indian Economy: Transforming The Elephant Into A Tiger

IN terms of size, the Indian economy is an elephant. It is also herbivores by habit given its democratic structure, unlike the carnivore habits of tigers and dragons. In terms of speed, many people have a misconception that elephants can't run or walk fast. The fact is that elephants can walk as fast as 25 miles per hour, while tigers can run only a shade faster. Bengal tigers can run at 35 mph, but for short spurts and they can't keep this pace for long.

RBI Deputy Governor says,

It is not axiomatic that one should try transforming the elephant into a tiger. Yes, we could do with an added bit of speed but what we should really aim at is developing a tiger's killer instinct. These, together with a better use of our anatomy or resources, both human and capital, would help us achieve what the dragons and the tigers have achieved, perhaps, with a smaller downside. For this to happen, in my view, we need to take the following six steps:

1. Preserve Demographic Dividends by investing in human capital

2. Improve productivity and efficiency

3. Revive infrastructure investments and harness natural resources better

4. Improve governance at every level

5. Enforce Accountability in all walks of life

6. Make finance more responsive to real sector and promote inclusive growth

Don't Spend All Your money in March

DURING March, you will find a mad rush for spending money in Government offices. They are stingy throughout the year and spend all their money in March in buying all kinds of useless things. Last year's carpets are peeled off, chairs and tables are thrown out, new air coolers and air-conditioners are bought - because they have to exhaust their grants. What they were doing for eleven months is a mystery.

Now, the Government has requested all the Departments to ensure that in March 2013, the expenditure should not be more than 15% of the Budget Estimates and it should not be more than 33% in the last quarter.

MoF Dept of Economic Affairs F. No. 21(I)/PD/2005, Dated: December 05 2012

Jurisprudentiol – Thursday's cases

Central Excise

Penalty & Interest - In SCN, no allegation of any fraud, collusion, wilful mis-statement, or suppression of fact or contravention with intent to evade payment of duty has been made - In absence of such allegation, there was no scope of invoking provisions of Section 11AB & 11 AC: HC

THE penalty can be applied only by taking aid of Section 11AC of the Central Excise Act, 1944 where there is collusion, wilful mis-statement or suppression of fact or contravention of any of the provisions of the Act with intent to evade payment of duty. In the show-cause notice, all that has been alleged is mis-statement or wrong classification, but no allegation of fraud, collusion, suppression or intention to evade lawful duty has been made. Therefore, for the selfsame reason, penalty also cannot be imposed.

Income Tax

Whether valuation of closing stock at market price is permissible only in cases where business is discontinued and not where business carried on by partnership firm is taken over by successor company without any interruption on conversion of firm into company - NO: ITAT

THE; issues before the Bench are - Whether valuation of closing stock at market price is permissible only in cases where the business is discontinued and not where the business carried on by the partnership firm was taken over by a successor company without any interruption on conversion of firm into company and Whether the provision of section 40A(3) is attracted only when there is actual payment of cash from one person to another and not where transaction takes place only as part of exchange. And the answers favour the assessee.

Customs

REFUND - Limitation - it would be in interest of justice to treat letter dated 06.9.2006 as refund claim - After all, whole amount had been deposited but related goods have undisputedly not arrived in India: CESTAT

IMPORTED 1000 units of Heat Detectors on 30.8.2006 and cleared under RMS on payment of duty - CHA noticed that the number of heat conductors in the package was 100 as against 1000 units and sought for refund of duty paid relating to 900 units vide letter dated 6.9.2006 - The department vide letter dated 13.10.2006 informed the importer to file a claim in proper format - Importer filed claim on 28.7.2007 - Original authority as well as appellate authority rejected claim - Held: It is not in dispute that the original authority has accepted the short landing of imported goods - In the peculiar facts and circumstances, the CHA who has been duly authorised by the importer has sought for refund vide letter dated 6.9.2006 - This fact is not in dispute - Nevertheless, in the facts of the present case, it would be in the interest of justice to treat the letter dated 06.9.2006 as refund claim - After all, the whole amount had been deposited but the related goods have undisputedly not arrived in India.

See our columns Tomorrow for the judgements

Until Tomorrow with more DDT

Have a Nice Day

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