1 OIO No. 07/STC/AHD/ADC(JSN)/2013-14

1 OIO No. 07/STC/AHD/ADC(JSN)/2013-14

BRIEF FACTS OF THE CASE

M/s. Eagle Scale Manufacturing Works, located at Plot No. 140/141, Industrial Estate, Opp. Noble Nagar, Nr. Kotarpur Water Works, Sardarnagar, Ahmedabad-382475 (hereinafter referred to as ‘M/s ESMW’/ the said service provider) are providing taxable services falling under the taxable categories (i) Erection, Commissioning & Installation & (ii) Transport of Goods by Road as defined under clause 39(a), 50(b) and Section 65 of the Finance Act, 1994 respectively and taxable under sub-clause (i) zzd & (ii) zzp of clause 105 of Section 65 of the Finance Act, 1994 respectively and having Service Tax Registration bearing No. AAWPP5396ASD001 dated 27.03.2012 , amended vide S.Tax Registration No.AAWPP5396ASD001 dated 14.09.2012. They are also registered with Central Excise Department vide registration No. AAWPP5396AEM002 dated 29.12.2010 and are also availing the facility of CENVAT credit as provided under Cenvat Credit Rules, 2004.

2.An information was received vide letter F.No. IV/13-02/Eagle/PI-I/09-10 dated 12.09.2011 from the Additional Commissioner (Prev.), Central Excise, Ahmedabad-II that during the course of Central Excise investigation against M/s. Eagle Scale Manufacturing Works, located at Plot No. 140/141, Industrial Estate, Opp. Noble Nagar, Nr. Kotarpur Water Works, Sardarnagar, Ahmedabad-382475 conducted by the Officers of Central Excise, Ahmedabad-II Commissionerate, it was revealed that the unit might have evaded liability of service tax payment on the amount collected as Job Work Charges towards the maintenance & repairing services for the year 2009-10 and also the said unit did not appear to have been registered with Service Tax department.

3.On the basis of the said information, an inquiry regarding payment of service tax on the service provided by M/s. ESMW was initiated to ascertain their service tax liability. Accordingly, M/s. ESMW submitted certain documents like Balance Sheet, Profit & Loss Accounts, sample copies of Bills / Invoices of their sales/trading/ job work alongwith the details of Sales Accounts vide their letter dated 05.12.2011, 06.03.2012 & 25.09.2012. During the course of examining the aspect of discharge of service tax liability it was noticed that M/s. ESMW had provided services under the categories of (i) Erection, Commission or Installation & (ii) Repair & Maintenance Service to their various customers , but had not paid service tax on the said services.

4.Scrutiny of the financial records of M/s. ESMW and verification of ledgers / bills / invoices / documents with the service tax returns filed by the service provider revealed that :

1. The said Service Provider M/s. ESMW were engaged in manufacturing and installation of Electronic & Mechanical Weigh Bridges and was also engaged in the manufacturing and trading of weighing scales of different capacities and its spare parts.

1. They were also engaged in repairing, servicing and maintenance of the old electronic / mechanical weigh bridges and were issuing Labour Bills for Job work and were paying service tax under the category of Erection, Commission & Installation service and showing the same in their periodical ST-3 returns from time to time.

5.Further verification and scrutiny of the ledgers, Balance Sheets etc. with the ST-3 returns filed by the service provider revealed that they had charged and collected the gross amount including material and installation charges for sale of their electronic / mechanical weigh bridge, during the period from 1.10.2007 to 04.12.2010, but failed to pay service tax at the rate specified in section 66 of the Financial Act, 1944 read with Rule 6 of the Service Tax Rules, 1994 in the category of Erection, Commission & Installation Service as defined under Section 65 (39a) and taxable under Section 65 (105) (zzd) of the Finance Act, 1994.

Erection, Commissioning & Installation service under Section 65 (105) (zzd) of the Finance Act, 1994

6.On scrutiny of the relevant bills / invoices, sales register, sales details of weigh bridge and relevant documents, it was noticed that the service provider M/s. ESMW had issued bills / invoices for electronic / mechanical weigh bridge and recovered the gross amount towards their bills / invoices inclusive of installation charges for erection, commission and installation of weigh bridges installed at customer’s premises / sites for the period from 01.10.2007 to 04.12.2010, but they had not discharged the Service Tax liability on the incomes received from sales and installation of their electronic / mechanical Weigh Bridges. It further revealed from the relevant documents submitted by M/s. ESMW that they had issued bills for gross amount but not segregated the value of goods and material sold with taxable service or installation charges recovered by them from their client / customers. Thus, their bills / invoices did not specifically indicate the value of goods and materials sold with their taxable service. The image of the a Bill / Invoice No. 38 dated 10.01.2009 of Rs. 7,77,000/- issued in the favour of M/s. Escort Engineering, Ahmedabad for supply of electronic / mechanical weigh bridge with installation, transportation and stamping issued by M/s. ESMW is scanned here in below for reference :

7.Further, they submitted few copies of purchase orders received from their customers / clients for supplying electronic / mechanical weigh bridges. The scrutiny of the said purchase orders reveals that they clients / customers have given orders for completion of total work. The rates given in orders are inclusive of erection, fitting of weigh bridge, stamping charges and transportation charges. The image of a such purchase order No. 89 dated 24.01.2009 given by M/s. Aditya Forge Ltd., 415, GIDC, Por-Ramangamadi-391243, Dist- Vadodara to M/s. ESMW for supply of 40 Ton Capacity Fully Electronic Weighbridge Pitless Type is scanned herein below for reference, in which at the below site of the purchase order remarks has been shown that rates are inclusive of Erection and fitting of weighbridge, Govt. Stamping Charge and transportation charge will be borne by M/s. ESMW.

8.Further from their books of accounts i.e. Balance Sheet and Central Excise Returns ER-3 for the year 2010-11 and 2011-12 submitted by them, it was revealed that they hadregistered with Central Excise Department and started paying Central Excise Duty from 05.12.2010 on the gross value of their bills/invoices issued towards sales of their electronic/mechanical weighbridges.

9.As per the provision of Section 65 (39a) of the Finance Act, 1994, the term “Erection, Commissioning & Installation” defined is reproduced below :

“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 pre-fabricated or otherwise” or

(ii) installation of—

(a) electrical and electronic devices, including wirings or fittingstherefor; or

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

(c) heating, ventilation or air-conditioning including related pipe work, duct work

and sheet metal work; or

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

(e) lift and escalator, fire escape staircases ortravelators; or

(f) such other similar services(Section 65(39a) of the Finance Act, 1994 to any person.

10.In view of the above, it appeared that M/s. ESMW had provided/ rendered the services by way of installation of electrical / electronic devices, including wirings or fittings of electronic / mechanical weigh bridge at the site of client / customer premises. Therefore, it appeared that they were engaged in the business of providing taxable service under the taxable category of “Erection, Commissioning or Installation services”, and charging and collecting the amount for the service rendered by them which was taxable for service tax on the gross taxable amount charged and received.

11.On further verification of the related bills / invoices and documents, it was noticed that the service provider M/s. ESMW had issued bills / invoices and recovered the gross amount for the period from 01.10.2007 to 04.12.2010 inclusive of installation charges for which they had not discharged the Service Tax liability on the incomes received from sales and installation of their electronic / mechanical Weigh Bridges which was taxable under the taxable service category "Erection, commissioning or Installation”. From the documents like Bills / Invoices submitted by M/s. ESMW it appeared that there was no specific indication regarding the value of goods and materials sold with their taxable service or there was no specific indication of the value of the installation charges recovered by them from their customers.

12.The Notification No. 12/2003-ST dated 20.06.2003 exempts so much of the value of all the taxable services, as is equal to the value of goods and material sold by the service provider to the recipient of service, subject to condition that “there is documentary proof specifically indicating the value of the said goods and materials”.

13.It appeared that the benefit of exemption Notification No. 12/2003-ST dated 20.06.2003 could not be extended / granted to M/s. ESMW as the documents submitted by them do not specifically indicate the value of goods and material sold with their taxable service, thus there was no documentary proof which separately indicated the value of goods and material sold while providing the service to the service recipient.

14. Further, Notification No. 01/2006-ST dtd. 01.03.2006 (Exemption from value of taxable service – Abatement) exempts the taxable services of sub-clause (zzd) of the Clause 105 of the Section 65 of the Finance Act, 1994 from so much of the service tax leviable as is in excess of the service tax calculated on a value which is equivalent to 33% of the gross amount charged by the service provider for providing the taxable service, subject to condition that the gross amount charged from the recipient of service shall include the value of the (plant, machinery, equipment, structures) parts and any other material sold by the commissioning and installation agency during the course of providing erection, commissioning or installation service.

15.From the above, it appeared that for the period from 01.10.2007 to 04.12.2010 they had charged and recovered the gross amount from their client / customers which included the value of the equipments, structures and materials sold during the course of erection, commissioning or installation of their electronic / mechanical weigh bridge at the site of customers premises.

16.In view of the above and Exemption Notification No. 01/2006-ST dated 01.03.2006, it appeared that they were liable to pay the service tax on the taxable value @ 33% of the gross amount charged and recovered for their sales of electronic / mechanical weigh bridges. The taxable sales @ 33% of gross amount charged and collected after deducting of export sale and taxes for the period from 01.10.2007 to 04.12.2010 is shown as under :

Sr. No. / Year / Gross sales of Weigh bridges with installation charges collected
Rs. / Export Sales & sales of goods other than weigh bridge Rs. / Total Taxes viz. VAT / CST/C.Ex. paid on sale of Weigh Bridges Rs. / Net Sales of weigh bridge including installation charges collected
Col.No. (3-4-5)
Rs. / Taxable value @ 33% (Calculation shown as per the Part-I to IV of Annexure-“A”)
1 / 2 / 3 / 4 / 5 / 6 / 7
1 / 2007-08 (01.10.2007 to 31.03.2008 / 8450870 / 3684710 / 313360 / 4452800 / 1469424
2 / 2008-09 / 17771314 / 5230550 / 439904 / 12100860 / 3993284
3 / 2009-10 / 15731947 / 3509650 / 579909 / 11642388 / 3841988
4 / 2010-11 (01.04.2010 to 04.12.2010) / 15448436 / 0 / 1150158 / 14298278 / 4718432

17.The year wise total taxable value of taxable service “Erection Commission and Installation “ arrived on which they have not paid service tax as per the foregoing paras, and the service tax liability calculation on appropriate rate , shown in Annexure A .

18.In view of the above , it appeared that M/s. ESMW had not assessed the tax due on the taxable service namely Erection, Commissioning or Installation provided by them and not paid the service tax of total amounting to Rs. 15,37,477/- (Basic S.Tax. Rs. 14,92,697/- + Education Cess Rs. 29,854/- + Higher Education Cess Rs. 14,926/-) during the period from 01.10.2007 to 04.12.2010 and thereby violated the provisions of Section 68 read with Rule 6 and Section 70 of the act read with Rule 7 of the Service Tax Rules, 1994 along with Section 75 of the Finance Act, 1994.

Management, Maintenance or Repair falling under Sectin 65 (105) (zzg) of Finance Act, 1994.

19.On scrutiny of the relevant bills / invoices, sales register, sales details and relevant documents, it was noticed that the service provider M/s. ESMW had issued Labour bills / invoices under the description “repairing, servicing, maintaining, stamping charges of old weigh bridges and weigh bridges scales” and the said income had been mentioned as “Job Work” income in their books of accounts for the period from 01.10.2007 to 31.03.2012 for which they had not discharged the Service Tax liability under the head of "Management, Maintenance or Repairs” Service on the incomes received from Job Work.

20.As per the provision of Section 65 (64) of the Finance Act, 1994, the term “Management, Maintenance or Repair” defined is reproduced below :

“management, maintenance or repair” means any service provided by—

(i) any person under a contract or an agreement; or

(ii) a manufacturer or any person authorised by him, in relation to,—

(a) management of properties, whether immovable or not;

(b) maintenance or repair of properties, whether immovable or not; or

(c) maintenance or repair including reconditioning or restoration, or servicing of any goods, excluding a motor vehicle;]

21.On verification of their Books of Account, Balance Sheet, Profit & Loss Account, Ledger Accounts, Bills of Labour Charges for Job Work submitted by M/s. ESMW it was noticed that services provided/ rendered by M/s. ESMW by the way of Repairing and servicing of old electronic and mechanical weigh bridge and weigh bridge scales are engaged in the business of providing service under the taxable category of “management, maintenance or repair” service falls under Section 65 (105) (zzg) of the Finance Act, 1994. The amount as mentioned below received towards the labour charges for job work for the period from 01.10.2007 to 31.03.2012 is liable for service tax payment under the head of taxable category “Management, Maintenance & Repairs Service” :

Sr.No. / Year / Amount received for job works
(Rs.)
01. / 2007-08 (from 01.10.2007 to 31.03.2008) / 1,82,058
02. / 2008-09 / 2,82,132
03. / 2009-10 / 16,98,958
04. / 2010-11 / 7,73,160
05. / 2011-12 / 10,26,376

22.On verification of Balance Sheet, Ledger Accounts it was noticed that in addition to the above they have received income of Rs. 2,87,200/- and shown as “Erection & Commissioning Income (Service Tax)” in the Balance Sheet for the year 2011-12. On further verification of the Bills / invoices issued for the said income, it has been noticed that the bills issued for Labour work / job work charges for providing the service of Repairing and servicing of old electronic and mechanical weigh bridge and weigh bridge scales and the said income had been received and shown as “Erection & Commissioning Income (Service Tax)” in their books of account. It was also noticed from their bills / invoices and ST-3 returns of 2011-12 that they had paid service tax of Rs. 37,729/- on the above said amount under the head of taxable category “Erection, Commission or Installation”. Thus it was noticed that services provided/ rendered by M/s. ESMW by the way of Repairing and servicing of old electronic and mechanical weigh bridge and weigh bridge scales and issued the bills under the head of taxable category “Erection, Commission or Installation” were actually provided the service under the taxable category of “Management, maintenance or repair” service falls under Section 65 (105) (zzg) of the Finance Act, 1994. In view of the above, it appeared that the amount of Rs. 2,87,200/- was taxable as “Management, Maintenance or Repairs Services”, in addition to the amount shown in the table above at Para 23.

23.In view of the foregoing paras, it appeared that the Service Provider was engaged in the business of providing the taxable services under the categories of (i) Erection, Commissioning & Installation falling under Section 65 (105) (zzd) & (ii) Management, Maintenance or Repair falling under Sectin 65 (105) (zzg) of Finance Act, 1994 and was charging and collecting the taxable amount for the services rendered but they had failed to pay service tax on the amount charged and collected from their clients/ customers under the taxable services as discussed in foregoing paras. Such amount collected towards providing the taxable services had also not been fully declared/ reflected in their ST-3 returns filed by them at the relevant time with the Service Tax department.

24.A Statement of Shri Kashirambhai S. Patel, Proprietor of M/s. ESMW was recorded on 10.10.2012 under Section 14 of the Central Excise Act, 1944 read with Section 83 of Finance Act, 1994, wherein he interalia deposed that: they are engaged in Manufacturing and selling different capacity of fully automatic Electronic and Mechanical Weigh Bridges and also engaged in maintaining, repairing and servicing of old Electronic and Mechanical Weigh Bridges Scales; that they are holding license for manufacturing, repairing and dealership of weighing scales/weigh bridge; that they are also engaged in the trading activities of the platform and other electronic weighing scales.

25.He further stated that they had registered with Central Excise department having registration No. AAWPP5396AEM002, since they crossed the SSI exemption benefit on 05.12.2010; after getting Central Excise registration, they were continuously availing CENVAT Credit facility on duty paid on input goods and capital goods from 05.12.2010 and provided copy of Central Excise Registration Certificate, Central Excise Returns ER-3 for the period from 01.10.2010 to 31.03.2012; that their firm is registered with the Service Tax department and they are holding Service Tax Registration No. AAWPP5396ASD001 since 27.03.2012, for the taxable category of (i) Erection, Commission & Installation, (ii) Transport of goods by Road and (iii) Works Contract Services and provided the copy of the said registration certificate; that they are not known that their activities were falling under taxable service therefore they have not taken registration prior to 27.03.2012 but when they came to know from their consultant, they have immediately taken service tax registration on 27.03.2012 and paid service tax for our service activities related to Maintenance, Repairing and Servicing of old weighbridges and weighing scales & Erection, Commissioning and Installation with interest as follows :

S.No. / G.A.R.-6 Challan No. & Date / S.Tax Amount Rs. / Interest Amount Rs. / Total Amount of Challan Rs.
01 / 00909 dated 27.03.2012 / 65,270/- / 16,668/- / 81,938/-
02 / 00141 dated 05.04.2012 / 37,729/- / 81/- / 37,810/-
03 / 00526 dated 17.04.2012 / 0 / 2,373/- / 2,373/-
Total Rs. / 1,02,999/- / 19,122/- / 1,22,121/-

26.He further stated that as per customers requirement they provide Electronic / Mechanic Weigh Bridges for that generally they have received verbal orders from their customers; that no contract has been assigned / made with any of our customers for sale of their Electronic / Mechanic Weigh Bridge, as per the requirement of their client they provide electronic / mechanical weigh bridge with installation at their site, no separate charges of the installation of the said electronic / mechanical weigh bridge have been received by them from their client; that the bills regarding the sale of electronic / mechanical weigh bridge includes total amount of goods i.e. electronic / mechanical weigh bridge alongwith installation charges; that generally they have received 20% to 40% amount in advance and received remaining amount immediately after completion of erection, commissioning and installation of electronic / mechanical weigh bridge.