By TIOL News Service

KOLKATA, MAR 12, 2015: THIS is a single order deciding 51 appeals.

The Background : The Ministry of home affairs entered into Memorandum of Understanding ( MoU ) with govt. agencies viz. M/s EIL and M/s NPCC for construction of Border Outposts (BOP). In the said agreements/ MoUs , EIL and NPCC were described as executive agencies and for carrying out the said work, the executive agencies were entitled to 10% of the project cost as their charges/fees. The executive agency, in turn, floated tenders and appointed qualified contractors/sub-contractors for execution of the said job of construction of border outpost. The service tax Department, issued demand notices to the executive agencies as well as to the contractors/sub contractors, demanding service tax under the category of "erection, commissioning or installation service" as defined under Sec. 65( 39a ) read with Sec. 65(105)( zzd ) of the Finance Act, 1994. On adjudication, the demand notices have been confirmed and penalties imposed on the respective appellants by the adjudicating authority.

Brief Facts in respect of one appellant : M/s. Mackintosh Burn Ltd., during the relevant period i.e.2007 -08 to 2009-10, were issued work Order by M/s. National Project Construction Corporation Ltd., Silchar ( NPCC Ltd.), for construction of Border Out Posts (BOP) for Border Security Force ( BSF ) and road along Indo-Bangladesh Border under packages MZ -18, MZ -19, MZ-L3 and MZ-L5 in the State of Mizoram. Broadly, under the work Orders, the contractors were required to supply tools, plants etc. as required for the said Project; besides the job comprises of clearing of jungles, vegetation, grasses, trees, removal of rubbish, preparation of sub-base by excavating earth, dressing of camber consolidated with road-roller, providing (supplying) and fixing of security fencing with posts and barbed wire, by supplying cement, sand, grit-bricks and by carrying out the foundation work, pavement work, centering, shuttering, providing(supplying) and fixing of gate etc.

Show cause-cum-demand notice for Rs.45 ,34,434 /- towards Service Tax was issued on 13.06.2011 for the period, 2007-08 to 2009-10, alleging that the activity of construction of border-fencing with road along Indo-Bangladesh Border, is chargeable to service tax under the category 'Erection, Commissioning or Installation Services, as defined under section (39a) read with Section 65(105)( zzd ) of the Finance Act, 1994. The Commissioner has confirmed the demand and imposed penalty equivalent to the service tax, under Section 78 of the Finance Act, 1994, and also penalty of Rs.5 ,000 /- under Section 77 of the Act.

The Tribunal heard elaborate arguments from several advocates and the Special Counsel for Revenue.

The Tribunal noted that in these appeals there are two categories, namely (i) the Executive Agencies; and (ii) the contractors who had carried out the work, consequent upon the agreement between them and the Executive Agencies for undertaking the respective works relating to the construction of BOPs which include Fencing of the Boarder. The service receiver in this case, is Ministry of Home Affairs ( MHA ) who had appointed M/s. NPCC and M/s. EPIL for execution of the Project of Construction of BOPs . The said executing Agencies and the Contractors/sub-contractors in turn, appointed by the Executive Agencies, for carrying out various works are the service providers.

The Issue : The core issue as noted by the Tribunal is, whether the activity/service of 'Border Fencing', across Indo Bangladesh Border, is a service fall under the definition of Erection, Commissioning or Installation as prescribed at Section ( 39a ) of Sec.65 of the Finance Act, 1994 or otherwise. The ld. Commissioner taking recourse to the definition of 'fence', as mentioned under various dictionaries, observed that fence unambiguously refers to structure and accordingly concluded that since fence is a structure, the service of erection of fence satisfies the definition of Erection, Commissioning or Installation Service. It is his reasoning that the activity of erection, commissioning or installation is not to be read cumulatively, but to be read alternatively.

Findings : From a reading of the provisions of the Statute, the Tribunal found that initially, service tax was levied on the activity of commissioning or installation in relation to plant, machinery or equipment. Later the word erection was added to the same and the activity of Erection, Commissioning or Installation in relation to plant, machinery and equipment, was subjected to service tax, when rendered by a commission or installation agency. Commissioning or installation agency is defined at clause (29) of Sec.65 to mean any agency providing services in relation to Erection, Commissioning or Installation. The expression, structure-pre fabricated or otherwise added subsequently.

The Tribunal referred to the Board Circular No. 80/10/2004 dt. 17.09.2004 which at para 14 clarified as:

"14. Extension of service tax on installation and commissioning, to erection services :

Service tax was levied on commissioning and installation of plant, machinery and equipment w.e.f . 1-7-2003. The general practice is that erection, commissioning and installation are contracted as a composite package. There have been a number of doubts and queries regarding the distinction between erection and commissioning/installation. Erection would refer to the civil works to installation/commissioning of a plant or machinery. In this years budget, the scope of service tax under installation and commissioning is being extended to include erection also. Erection involves civil works, which would otherwise fall under the category of construction services. However, in case of a composite contract for erection, commissioning and installation, the erection charges would be taxed as part of this category of service.

The Tribunal observed, “ In the aforesaid Circular, it is made amply clear that even though erection is a civil work, but in a composite contract for Erection, Commissioning or Installation Service, an erection charge would be taxed as part of the commissioning or installation Service. Thus, the legislators are fully aware of the situation that the activity of erection, though fall under the category of Construction Service, but in a composite contract, the charge collected on this account would also be taxed under the category of Erection, Commissioning or Installation Service. To add further, it could safely be inferred that it was not the intention of the legislature to tax the activity/service of erection separately in relation to the objects of levy viz. plant, machinery or equipment, but it is a necessity to be taxed being carried out along with commissioning or installation service, and when the charges thereof are composite. Therefore, it would be incorrect to interpret that after addition of the expression, structure-pre-fabricated or otherwise to the existing list of objects of levy of plant, machinery or equipment, it brought significant change in the said entry so as to result an interpretation that activity of erection of structure standing alone, would be leviable to service tax. On the contrary, the purpose for which the word erection was inserted continued to be the same as was applicable to plant, machinery or equipment even after addition of the expression structure-pre-fabricated or otherwise.”

The Tribunal also referred to Circular No. 123 /5/2010 - TRU dt.24.05.2010 at para2 ( ii) as:

"(ii) Under Erection, commissioning or installation services, the activities relevant to the instant issue are (a) the erection, commissioning and installation of plant, machinery, equipment or structures; and b) the installation of electrical and electronic devices, including wiring or fitting there for. Thus, if an activity does not result in emergence of an erected, installed and commissioned plant, machinery, equipment or structure or does not result in installation of an electrical or electronic device (i.e. a machine or equipment that uses electricity to perform some other function) the same is outside the purview of this taxable service."

The Special Counsel for Revenue argued that the aforesaid Circulars issued by Board should not be read as statutes and are merely clarificatory in nature. Of course the Tribunal did not agree and held that the circulars issued by the Board explaining/clarifying the meaning of Erection, Commissioning or Installation Service, cannot be ignored, while interpreting the same and applying it to the facts and circumstances of the present case.

Is the expression structure-pre fabricated or otherwise applicable to border fencing, even if it could loosely be described as structure ? : The Tribunal observed, "the structure pre-fabricated or otherwise would refer to both civil as well as mechanical structures. It cannot be denied that Commissioning or Installation Service was earlier in relation to plant, machinery, equipment etc., and to avoid confusion, in a composite contract involving civil work, the word, erection, has been added and to bring more clarity, the word, structure pre-fabricated or otherwise, has been added subsequently. If it is read in the context of plant, machinery, equipment, the expression Structure pre-fabricated or otherwise, in most of the cases, would refer to mechanical structure whether fabricated at site, or brought in pre-fabricated condition for erection, commissioning or installation, but it would also include civil structures necessary for erection, commissioning or Installation of plant, machinery, or equipment. Thus, fence, even though a structure, cannot be read in isolation but has to be read along with erection, commissioning or installation and also with the objects of service tax levy i.e. Plant, machinery or equipment. ”

Held : the activity/service of erection of border fencing-structure standing alone would not be subjected to service tax under clause ( 39a ) of Sec.65 , but ought to be along with the activity of commissioning or installation, in a composite contract. Appeals allowed.

(See 2015-TIOL-457-CESTAT-KOL)