Service tax cannot be levied by artificially bifurcating the installation and commissioning component from a consolidated, non-vivisectable invoice for imported machinery, especially when customs duty has been paid on the total invoice value.

[Order per: A.K. JYOTISHI ]

M/s Rehman Khan Tobacco Enterprises Pvt Ltd (hereinafter referred to as the appellant) are in appeal against OIO dt.18.10.2016, whereby, service tax amount of Rs.1,45,48,159/- has been confirmed along with equal penalty (Impugned Order). The issue is regarding non-payment of service tax under the category of ‘Erection, Commissioning & Installation Service’ (ECIS) on Reverse Charge Mechanism (RCM) during the period 2010-11 to 2013-14.

The brief facts of the case are that the appellants are engaged in certain activities of tobacco packing and exporting, for which they have a factory. It was noticed by the department that they had remitted foreign currency towards the payment of cost of machinery and charges for erecting, commissioning and installation during the years 2010-11 to 2013-14. On further enquiry, it was noticed that these payments were made to service providers of countries other than India, who have no office situated in India and hence, the cost and charges of installation of imported machinery were leviable to service tax under RCM in view of the provisions under Taxation of Services (Provided from Outside India and Received in India) Rules, 2006. Since, admittedly, the machines were imported by them, which got installed by the foreign supplier in their factory premises and certain amounts were paid towards these activities, they were leviable to service tax under RCM. The department computed the service tax liability based on the information furnished by the appellant. The Adjudicating Authority has mainly taken a stand that since they have made specific payment towards erection, commissioning and installation charges of imported machinery and therefore, the said service, when provided from abroad, would attract service tax under RCM.

Learned Advocate for the appellant has mainly contested that the said levy is bad in law as the foreign supplier of the machinery, who was the actual manufacturer of equipment, was also under an obligation for installation of machinery in India at the appellant’s place and therefore, the said company cannot be considered as agency providing service falling under section 65(105)(zzd) and therefore, the said provision of service cannot be covered within the taxable service. He further submitted that since the entire import has taken place under EPCG licenses and entire value of machinery and equipment paid to foreign supplier including installation cost was already considered for calculating Customs Duty for the purpose of fixing the export obligation under EPCG and therefore, it would not attract service tax. He has relied on the judgments passed by Coordinate Bench at Ahmedabad in the case of Rahil Air Bubbles Pvt Ltd Vs CCE & ST, Rajkot [Final Order No. A/11894/2019 dt.17.09.2019 (Tri-Ahm)] and in the case of CCE & ST, Silvasa Vs Aaldihra Textool Engineers Pvt Ltd [Final Order No. A/11744-11745/2022 dt.28.11.2022]. It was also submitted that tax has been demanded by artificially bifurcating the total invoice value of the machinery, which includes cost of installation by applying the same Notification No.19/2003-ST dt.21.03.2003 levying tax on the 33% of the total invoice value. He has also contested the invocation of extended period on the ground of bonafide belief that they were not liable to service tax on the value of installation charges, which is part of total invoice value on purchase of imported machinery and equipment and that is why the appellant had not registered and also not declared the cost of import, installation charges, etc., in the ST3 return. He has relied on various judgments of the Hon’ble Supreme Court, as under.

a) Tamil Nadu Housing Board Vs CCE [1995 (74) ELT 9]

b) Anand Nishikawa Co Ltd Vs CCE, Meerut [2005 (188) ELT 149]

c) Uniworth Textiles Ltd Vs CCE, Raipur [2013 (288) ELT 161]

d) Cosmic Dye Chemical Vs CCE, Bombay [1995 (75) ELT 721]

On the other hand, learned AR has reiterated the findings of the adjudi