P. Karthikeyan, Technical Member - The Indian Hume Pipes Co. Ltd. (IHPL), Thanjavur, manufactures pre-stressed concrete pipes (PSC) and clears to Tamil Nadu Water Supply and Drainage Board (TWAD) for use in water supply projects. The department collected details of works contracts executed by IHPL for TWAD during the period 1-7-2003 to 30-9-2006. After due process of law, the Commissioner found that the assessee had rendered taxable services under the category ‘Commissioning or Installation’ during 1-7-2003 to 9-9-2004 and ‘Erection, Commissioning or Installation’ during the period 10-9-2004 to 30-9-2006. The activity of erection/commissioning/installation of the pipelines and related structures was undertaken in respect of plants and was liable to service tax. As there was no evidence that some other contractor had paid service tax on the bills raised by the assessee, the Commissioner demanded service tax of Rs. 1,78,23,890 (including education cess), interest due thereon under section 75 of the Act, imposed penalties at the rate of 2 per cent per month/Rs. 200 per day till the date of payment of tax under section 76 of the Act, penalty of Rs. 1,000 under section 77 of the Act and penalty of Rs. 1,78,23,890 on IHPL under section 78 of the Act.

2. The instant appeal challenges the above order. It is submitted that the notice did not specify the activity sought to be taxed under the entry ‘erection, installation or commissioning service’. During 1-7-2003 to 30-9-2006, definition of installation or commissioning agency had undergone several changes.

From 1-7-2003 to 16-6-2005 :

Levy on ‘commissioning or installation’ service was effective from 1-7-2003. Installation or commissioning service was defined under section 65(105)(zzd) of the Act as any service provided to a customer by a commissioning or installation agency in relation to installation or commissioning of plant, equipment or machinery. It is claimed that the appellants’ activity was not covered under the definition of the term ‘installation or commissioning’ service. As per the Law Lexicon the word ‘installation’ meant the bringing of an entire piece of plant on to a site and putting of parts, piece by piece, pipe by pipe, bolt by bolt, weld by weld, until it gradually became one whole. The term ‘commissioning’ meant the commencement of an item which had been installed (Webster’s Ninth New Collegiate Dictionary).

(a)In the instant case, the pipeline was not being installed or commissioned by the appellants. The appellants did not bring readymade pipeline to the site for installation. The appellants put together parts of pipeline, pipe by pipe, bolt by bolt, weld by weld until it gradually became one whole. This was not installation.

(b)The appellants did not put the pipeline into action. Commissioning could be undertaken of electrical equipments or systems such as air conditioning systems etc. Further, the pipes laid could not be treated as equipment, machinery or plant. Therefore, the activities carried out were not covered by the definition of commissioning and installation.

(c)The civil work undertaken with brick and mortar by the appellants was not included in the above definition as the term ‘erection’ was included only after 10-9-2004. No service tax could be demanded from the appellants for the period from 1-7-2003 to 10-9-2004, in the absence of ‘erection’ in the entry.

3. The Commissioner had not given any finding as to how the appellants’ activity would be covered by the terms ‘installation’ and ‘commissioning’. The Commissioner relied on CBEC Circular No. 62/11/2003-ST, dated 21-8-2003 to suggest that the clarification "installation of a Booster pump, Air conditioner, Water filter, Water heater etc. would be covered in the definition and be taxable as all these things are machinery or equipment" and decided that activity of laying pipelines would be covered under taxable head of ‘erection, installation or commissioning’ service. This was erroneous.

3.1 A pipeli