By TIOL News Service

MUMBAI, APRIL 26, 2018: DURING the course of CERA audit, it was observed that the appellant had received an amount as advance payment in the month of December 2007 against consulting engineering services to be provided to Rashtriya Ispat Nigam Ltd. (RINL).

Show cause notice was issued demanding service tax along with interest and also for imposition of penalties.

The demand was confirmed by CST, Mumbai and so the Appellant is before the CESTAT.

It is submitted that they had entered into three contracts with RINL separately for design, manufacture and supply of plant, machinery and equipment with auxiliary and installation of wire rod mills. Furthermore, contract No.1 and 3 were for design and installation of the plant while agreement No. 2 was for supply of materials. That agreement No.2 since is related only for supply of plant, machinery and equipment on back-to-back basis, on this value service tax liability does not arise. And as for the tax liability in respect of agreements No 1 and 3, since they had discharged the tax liability on the advance amounts received along with interest, the penalty imposed should be set aside.

The AR supported the order and submitted that the appellant, being in the organized sector, should have discharged the service tax liability on their own without waiting for the audit party to point out the errors. Furthermore, agreement No.2 specifically states that the appellant shall be responsible for the functioning of the plant and machinery procured and delivered in execution of the contract awarded to them and which makes it clear that the value for the plant and machinery also needs to be included for calculation of service tax liability.

The Bench considered the submissions and observed that the lower authorities were correct in stating that the appellant being in the organized sector should have discharged the service tax liability on receipt of the amount as an advance from RINL (in the matter of invoice no. 8 and 10 i.e. agreements no. 1 & 3). The penalties were upheld to the said extent.

As regards the service tax liability on the amount of 10% received as advance for agreement No.2, the CESTAT observed -

++ On detailed examination of the said agreement, we find that the said agreement provides for supply of plant, machinery, equipment and various other accessories. Appellant has raised an invoice for receipt of an advance of 10% for the supply of materials, plant etc. for wire rod mill No.2. This being an advance received by the appellant in terms of agreement No.2 for supply of the materials, we find that the Revenue's case against the appellant is unacceptable.

++ In our considered view, agreement No.2 is for supply of materials and cannot, by any stretch of imagination, be considered as an agreement for rendering services and the amount of advance received against this agreement, cannot become part of the value for demand of service tax liability.

The appeal was disposed of.

(See 2018-TIOL-1330-CESTAT-MUM)