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By Vinay Jain, Chartered Accountant & Sachin Mishra, Advocate

1. Whether the activity of receipt of goods at the Railway Siding, unloading the said goods from the railway wagon, transporting to the storage facility of client and again loading the same onto the trucks for its further transportation to the ultimate customer is leviable to service tax under the head ‘Clearing and Forwarding Agency Services’?

Facts & Pleadings: M/s. B.P.T. Polymers Pvt. Ltd. (hereinafter referred to as the ‘Appellant’) was appointed by M/s. Oswal Chemical and Fertilizers Ltd., Shahjahanpur (hereinafter referred to as ‘Oswal’) for providing services such as receipt of goods dispatched by Oswal at the Railway Siding, unloading the said goods from the railway wagon, transporting to the storage facility of Oswal and again loading the same onto the trucks for its further transportation to the ultimate customer.

The department alleged that the said activities performed by the Appellant for Oswal was leviable to service tax under the head ‘Clearing and Forwarding Agent Services’ as defined under Section 65 (25) of the Finance Act, 1994 as the Appellant was not only arranging for transportation of material from the railway siding to godown and then from godown to customers of Oswal, the Appellant was also providing for loading of material from the godown.

The Appellant on the other hand contended that the Appellant had carried out the activity of renting of the godown to Oswal and the other activities under question ware not covered within the definition of ‘Clearing and Forwarding Agent Services’ in view of the clarification issued by CBEC vide Circular dated 10-7-1997.

Judgment: The Hon’ble CESTAT held that the most significant aspect of the activities expected to be performed by the ‘Clearing and Forwarding Agent’ is the receipt of the goods dispatched by the principal from their factory, warehousing the same and arranging to dispatch the goods as per the directions of the principal, along with invoicing the same to the ultimate customers. However, the CESTAT held that the activities expected to be carried out by the Appellant in the present case do not comprise of any of the aforementioned activities. Therefore, the Appellant had not acted as an agent of Oswal though they have been entrusted with the responsibility of receiving the goods at railway siding and storing the same in the godown as also loading of the same onto the truck.

B.P.T. Polymers Pvt. Ltd. vs. C.C.E. Indore, CESTAT, New Delhi decided on 12-6-2018 in Appeal No. ST/638/2011-
DB.

B.P.T. Polymers Pvt. Ltd.

2. Whether the department is correct in demanding service tax on works contract services under the category ‘Erection, Commissioning or Installation Services’ for the period prior to 1-6-2007? Whether benefits of Works Contract Composition Scheme can be denied for failure to satisfy the conditions of Rule 3 of the Works Contract (Composition Scheme) Rules, 2007?

Facts & pleadings: M/s. Shakti Enterprises, M/s. Shiba Electronics and M/s. Smart Electronics (hereinafter referred to as ‘the Appellants’) executed various activities in the form of turnkey contracts for Rajasthan Government in connection with provision of traffic signals in different parts of the States. The work included management, maintenance and repair of traffic signals poles/lights and installation/commissioning of surveillance cameras at various road intersections.

Revenue demanded service tax for the period October 2005 to 31st May 2007 under the category of ‘Erection, Commissioning or Installation Service’ and for the period w.e.f. 1-6-2007, after the introduction of the works contract service under Section 65(105)(zzzza), under ‘Works Contract Services’. The department further argued that the benefit of Composition Scheme cannot be extended to the Appellants since they have not complied with the provision of Rule 3(3) of the Works Contract (Composition Scheme) Rules, 2007.

The appellant on the other hand contended that the contracts executed for the Rajasthan Government were turnkey contracts which involved the supply of material along with providing the contracted activities. Such services were rightly classifiable only under ‘Works Contract Services’ w.e.f. 1-6-2007 and in the light of the decision of the Hon’ble Supreme Court in the case of Larsen & Toubro Ltd. – 2015 (39) S.T.R. 913 (S.C.), such composite contracts cannot be charged to service tax under any other category prior to the introduction of ‘Works Contract Services’. Further, for the period post 1-6-2007, the Appellant paid the service tax under the head ‘Works Contract Services’ by availing the benefit of Composite Scheme. The Appellant further submitted that the fact of submitting of an option to the Department under Rule 3(3) of the Works Contract (Composition Scheme) Rules, 2007 was only procedural in nature and the same was complied with prior to making payment of service tax under Works Contract Scheme which was done prior to the issue of show cause notice.

Judgment:  The CESTAT held that for October 2005 to 31st May 2007, the demand of service tax under ‘Erection, Commissioning or Installation Service’ is not sustainable on the count that the contracts in dispute were in the form of turnkey contracts which involved supply of the materials necessary for carrying out the work of installation and maintenance of surveillance cameras, street lights etc. and consequently, classifiable under ‘Works Contract Services’ defined under Section 65(105)(zzzza). The CESTAT followed the decision of Hon’ble Supreme Court in the case of Larsen & Toubro Ltd. (supra) to held that such composite works contract are liable to payment of service tax only under ‘Works Contract Services’ only w.e.f. 1-6-2007. On the second issue, the CESTAT held that requirements under Rule 3(3) of the Works Contract (Composition Scheme) Rules, 2007 are merely procedural in nature and cannot come in the way of extending the benefit of composition scheme even if the Appellants have exercised such option belatedly.

M/s. Shakti Enterprises vs. CCE, Jaipur, CESTAT, New Delhi decided on 26-6-2018 in the Final Order No. 52360- 52364/2018

M/s. Shakti Enterprises

Note: The Whole decisions can be downloaded from the CTC website www.ctconline.org under Knowledge Centre.

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