THE HONOURABLE SRI JUSTICE P.SAM KOSHY AND THE HONOURABLE SRI JUSTICE NARSING RAO NANDIKONDA CENTRAL EXCISE APPEAL No.327 of 2010

11.02.2026 Between:

The Commissioner of Central Excise & Customs, Hyderabad …Petitioner/Appellant A N D M/S.Blue Star Limited, Secunderabad …Respondent JUDGMENT : (per Hon’ble Sri Justice NNR,J)

Heard Mr.A.Rama Krishna Reddy, Learned Standing Counsel for Central Board of Indirect Taxes and Customs (CBEC) for the appellant and Mr.Karan Talwar, learned counsel for the respondent. Perused the record.

2. This appeal is filed under Section 35(G) of Central Excise Act, 1944/130 of Customs Act, 1962 against the order passed in Appeal No.Service Tax/09/2007 in CESTAT’S Common Final order No.1268/2007, dated

12.11.2007 on the file of the Customs, Excise and Service Tax Appellate Tribunal, South Zonal Bench at Bangalore, wherein the learned Tribunal set aside the order-in-original No.05/2006-Service Tax, dated 28.09.2006 on the file of Commissioner of Customs and Central Excise, Hyderabad.

3. The brief facts of the case which led to filing the present appeal are that the appellant herein i.e, The Commissioner of Central Excise & Customs, Hyderabad-II Commissionerate issued notice vide OR No.04/2006-ST- Hyd-II, dated 20.01.2006 to respondent herein i.e., M/s.Blue Star Limited, Secunderabad, alleging short payment of Service Tax to the tune of Rs.6,71,37,411/- for the period 01.07.2004 to 30.09.2005 under Section 73 of Finance Act, 1994 along with interest, and penalty under Section 76 of Finance Act, 1994. The ground on which the notice was issued that the respondent has not reflected the true value of the taxable services namely, ‘Supply’, ‘Installation’ and’ Commissioning’ and consequently short paying of Service Tax and also alleged in the notice that a consolidated bill for supply, installation and commissioning of Air Conditioning Systems has been issued. The value of taxable service was determined as a percentage of the bill value varying from 2% to 9% of the gross amount on invoices by indicating certain amounts as installation charges without any verifiable basis. The notice proposed to extend the benefit of notification No.19/2003 ST. dated 21.08.2003 to the respondent herein and recalculate the Service Tax payable on that basis.

4. In reply to the said notice, the respondent herein gave reply to the show cause notice on 08.06.2006, which are reiterated herein below for read reference:

i) no service tax is demandable on the works contract as per the provisions of Sales Tax Act. Further, that works contract cannot be vivisected in order to levy service tax as held in recent decision in the case of Daelim Industrial Company(2003-155-ELT-457-TRIDEL), this decision was contested by the Department at the Apex Court which has been dismissed (2004-

TIOL-66-SC-ST);

ii) notification No.19/2003 is optional as stated so in the Notification itself; it is a settled law that assesses have an option to avail the exemption under the Notifications whichever is beneficial to them;

iii) M/s Blue Star Ltd., have correctly availed the benefit of Notification No.12/2003, dt.20-06-

2003 which gives concession to pay Service Tax by excluding the value of the goods and materials used while providing commissioning and installation services.

iv) they have paid the service tax correctly on the commissioning and installation charges excluding the value of goods and materials sold.

v) they have furnished all the details with regard to payment of service tax and they did not fail to disclose any information to the department which was required under the law.

vi) penalty cannot be imposed if the issue relates to interpretation of exemption notification. They have also cited several case laws in respect of their above contentions.

vii) most unlikely event of our above contention, not acceptable to you, they reserve right to claim the benefit of Notification No.19/03 by which they are liable to pay service tax only on 33% of the gross value mentio