By TIOL News Service

NEW DELHI, AUG 11, 2015: A Service Tax demand of Rs.20,44,221/- has been upheld by the Commissioner(A) under the category of "Erection, Installation and Commissioning Service" (ECIS) in respect of HVAC systems (air conditioning systems) installed by the appellant in the premises of various customers.

So, the appellant is before the CESTAT.

Incidentally, the lower appellate authority set aside the penalty on the ground that there was enough scope for a doubt regarding levy of service tax itself with reference to ECIS based on Work Order involving supply of goods as well as service and, therefore, he set aside the penalties imposed by invoking the provisions of Section 80 of the FA, 1994. And, therefore, the CCE, Indore is also before the Tribunal.

The appellant submitted that -

+ The service was rendered under Works Contract which became taxable only with effect from 01.06.2007 and, therefore, during the impugned period, service tax was not leviable under ECIS.

+ It installed HVAC/air conditioner system, which became part of the ECIS with effect from 16.06.2005 and, therefore, during the relevant period, which is 01.07.2003 to 31.03.2005, the service was not covered under the scope of ECIS.

The AR countered this submission by stating that the service rendered was covered within the main part of the definition as it existed prior to 16.06.2005 as the appellant did the installation and commissioning of a plant and moreoverin view of the Larger Bench decision in Larsen & Toubro Ltd. & Other Vs. CCE & ST, Indore 2015-TIOL-527-CESTAT-DEL-LB , the service rendered under a works contract was vivisectable. As regards the Revenue appeal, it is pleaded that in view of the willful mis-statement and suppression of facts on the part of the appellant there was no justification for invoking Section 80 and dropping the mandatory penalty u/s 78 ibid.

The Bench after considering the submissions observed that the very fact that the Larger Bench had to be set up to decide the issue whether the service rendered under Works Contract was leviable to service tax prior to 01.06.2007 if the service inherent in the works contract was a taxable service is sufficient to sustain the impugned O-in-Ainsofar as dropping the penalty u/s 78 ibid is concerned.Further in view of the apex court decision in Continental Foundation Jt. Venture 2007-TIOL-152-SC-CX , the extended period could not have been invoked and, therefore, as the SCN was issued on 19.07.2005, part of the impugned demand (which covers the period 01.07.2003 to 31.03.2005) is also hit by time bar.

The Bench, thereafter, reproduced the definition of ECIS as it existed during the material period-

Prior to 16.06.2005:

(39a) "erection, commissioning or installation" means any service provided by a commissioning and installation agency in relation to erection, commissioning or installation of plant, machinery or equipment:"

W.e.f 16.06.2005:

(39a) "erection, commissioning or installation" means any service provided by a commissioning and installation agency, in relation to:-

(i) Erection, commissioning or installation of plant, [machinery, equipment or structures, whether prefabricated or otherwise]; or

(ii) Installation of-

(a) Electrical and electronic devices, including wirings or fittings therefor; or

(b) Plumbing, drain laying or other installations for transport of fluids; or

(c) Heating, ventilation or air-conditioning including related pipe work, ductwork and sheet metal work; or

(d) Thermal insulation, sound insulation, fire proofing or water proofing; or

(e) Lift and escalator, fire escape staircases or travelators: or

(f) Such other similar services;]"

The submission of the AR that the service rendered by the appellant would be covered under the definition of ECIS as it existed prior to 16.06.2005 since the service rendered involved not merely installation, but also commissioning while in the definition with effect from 16.06.2005 [in clause (ii) thereof] only installation of air-conditioning is covered was shredded by the Bench by making the following observations -

++ It is seen that with effect from 16.06.2005 clause (i) of Section 65(39a) ibid inter alia covers erection, commissioning and installation of plant and machinery or equipment, which were the only aspects covered under ECIS prior to 16.06.2005.

++ Thus the definition of ECIS prior to 16.06.2005 covered even less than what is covered under clause (i) of the definition of ECIS with effect from 16.06.2005 in-as-much-as under the clause (i), erection, commissioning or installation of structures have also been covered.

++ If installation of air-conditioning plant was covered under the scope of clause (i), then there was no need to add clause (ii)(c) which covers inter alia installation of air-conditioning including related pipe work, duct work and sheet metal work.

++ From this analysis, it unequivocally follows that installation of air-conditioning is not covered under the scope of clause (i) of Section 65 (39a) as it exists from 16.06.2005 and if it is not covered under the said clause (i) then it could not have been covered under definition of ECIS under Section 65 (39a) ibid as it existed prior to 16.06.2005 because that definition (as stated earlier) was less wide in scope than the scope of coverage under clause (i) of Section 65 (39a) with effect from 16.06.2005.

++ As regards Revenue's contention that only installation of air-conditioning is covered under clause (ii) of Section 65 (39a) and therefore commissioning of air-conditioning would be covered under the scope of Section 65 (39a)(i) (and by implication under ECIS as it existed prior to 16.06.2005), suffice to say that clause (i) covers erection, commissioning or installation of plant, machinery, equipment or structures and therefore if commissioning of air-conditioning is covered under the scope of the said clause (i), then even the installation thereof would be covered under the same clause, because it is not possible to harmoniously interpret the clauses (i) and (ii) of Section 65(39a) to conclude that while installation of air-conditioning would be covered under clause (ii) its commissioning would be covered under clause (i).

Adverting to the Board Circular No. 62/11/2003-ST, dated 21.08.2003 and the latter Circular No. B1/6//2005-TRU, dated 27.07.2005 issued after expansion of definition of ECIS (w.e.f 16.06.2005), the Bench further commented -

Thus, the later circular makes it absolutely clear that the scope of ECIS was expanded by including specified installation services such as installation of air-conditioning including related pipe work, duct work and metal sheet work. Although Board circular is not binding on the quasi-judicial authorities, it is clear that the later circular of the Board dated 27.07.2005 in a way revised the opinion expressed in its earlier circular dated 21.08.2003. A careful perusal of definition of ECIS also reveals that sub-clause (i) is separated from sub-clause (ii) by "or". Thus, clauses (i) and (ii) represent an "either or" situation, meaning thereby that what is covered in sub-clause (i) is not covered in clause (ii) and vice versa. So as installation of air-conditioning is expressly covered under clause (ii), it cannot be covered under clause (i) and as clause (i) covers everything covered by the definition of ECIS prior to 16.06.2005 it was outside the scope thereof (i.e. ECIS prior to 16.06.2005).

Taking support of the Tribunal decision in Glaxo Smithkline Pharmaceuticals Ltd. Vs. CCE, Mumbai-IV 2004-TIOL-786-CESTAT-MUM , the Bench concluded -

“In the present case, when, clause (i) of ECIS definition with effect from 16.06.2005 covered everything which was covered by definition of ECIS prior to 16.06.2005 it has to be held that what is contained in clause (ii) of the ECIS definition was not covered under the ECIS definition prior to 16.06.2005.”

Holding that the demand is not sustainable, the appeal filed by the assessee was allowed and consequently the Revenue appeal was dismissed.

(See 2015-TIOL-1662-CESTAT-DEL )