By Puloma Dalal, Jayesh Gogri, Chartered Accountants
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Whether service tax under reverse charge is applicable on the services of erection & commissioning of an imported machinery by foreign party’s technicians where no separate consideration was mentioned in the agreement towards installation?
Facts:
The appellant imported textile machinery form Japan, Italy etc. under a contract with the foreign exporter and discharged duty thereon. The agreement also included installation and erection to be done by the foreign supplier who would send his technical persons to do the job.
Revenue initiated the proceedings on the installation and erections done by foreign technical personnel and confirmed the demand of Rs. 37,35,730/- for the period post 18-04-2006 on the basis of the valuation done with recourse to Notification No. 19/2003-ST dated 21-08-2003 and Notification No. 1/2006-ST dated 01-03-2006 along with imposition of penalties u/s. 76 and 78. The appellant contended that the foreign exporter had office in India in which case service tax liability would not fall upon the recipient of services. Also, they had discharged customs duty on the entire value of the textile machinery and that the notifications referred to by the Commissioner were optional granting abatement to the persons who are otherwise liable to pay the service tax. The revenue stated that payment of customs duty on the value of the goods has got nothing to do with the payment of service tax. The said duties were separate duties and the appellant was liable to pay service tax on that part of the value of contract which related to the services provided by the foreign persons. They further contended that the adjudicating authority was correct in arriving at the value of services in terms of said notifications.
Held:
The Hon. Tribunal, granting stay unconditionally, held that, there being only one contract between the appellant and the foreign supplier, such supply of textile machinery included the work of installation, erection and commissioning. Further, customs duty was paid on the entire value in the agreement and as such, it was not proper to artificially segregate it into two parts i.e. value of the machinery and value of services. Further, the adoption of notification for arriving at the artificial deemed value of the services was also not proper inasmuch as the said notification provided option to the assessee to seek abatement of 67% in the value of services for payment of service tax and the same have no applicability to the facts of the present case.
