On Works Contract Services for the Installation of Thermal Insulation, Service Tax Abatement is Eligible

Fact and issue of the case

The brief facts of the case are that intelligence was received that the Appellant was wrongly availing abatement of 67% for calculating the taxable value for payment of service tax as per the provisions of Notification No. 1/2006-ST dated 01.03.2006 as amended. On this basis inquiry was initiated and documents were scrutinized. On study of work orders and its related invoices pertaining to thermal insulation, it was found that the scope of work of the contract executed by the Appellant are (i) Hot insulation including supply of LRB and Aluminium Sheet (ii) Cold Insulation with Thermocol and Aluminium Sheets (iii) Insulation of pipeline with black superioan sleeve providing and fixing of black superioan sleeve with cellotape (iv) Insulation with black nitrite rubber foam, sheet, etc.. It appeared that the service provided by the said service provider of supplying and applying of thermal insulation falls outside the purview of eligibility criteria for availing the benefit under Notification No. 1/2006-ST as they were not supplying plant, machinery, equipment or structures but carrying out application of thermal insulation material on plant, machinery, equipment already installed at the factory /business premises of the service receiver. In this connection statement of Shri Viral Harendrabhai Pandya Proprietor of the firm was recorded. It also appeared that Appellant have wrongly classified the service rendered as “Installation of thermal insulation” as Works Contract Service as the condition of transfer of property as per the definition did not exist and also the contract was not leviable to tax as sale of goods. Accordingly, a show cause notice dated 8-10-2012 was issued to the appellant for demand of service tax of Rs. 69,61,972/- on wrong availment of abatement and demand of service of Rs. 24,37,017/- for wrong classification of service and to impose penalty. The matter was adjudicated and the demand of service tax was confirmed along with interest and penalty was imposed. Against this order, the appellant is before us.

Shri Anil Gidwani, learned Counsel the appellant submits that there is no dispute over the fact that the Appellant was undertaking “erection, installation and commissioning work”, wherein thermal insualting material such as (i) Hot insulation including supply of LRB and Aluminium Sheet (ii) Cold insulation with Thermocol and Aluminium Sheet (iii) Insulation of Pipeline with black superion sleeve providing and fixing of black superion with cellotape (iv) insulation with black nitrile rubber foam, sheet, etc. were being supplied and applied on the equipment, structures etc. The sale price of the material was not being separately shown in the invoice, however, substantial VAT/Sales Tax under appropriate scheme and at appropriate rates were paid. In fact, the approx.. involvement of material in the work undertaken is about 70% of the total cost. There is no dispute over this fact, and this was also specifically mentioned in the statements of Shri Viral Pandya (Proprietor) recorded in the course of the investigation.

He further submits that the activities undertaken by the appellant would qualify within the scope of the Notification No. 1/2006-ST , so as to be eligible for abatement benefit. The impugned order has not appreciated this aspect properly, while the appellant has also explained the factual position even by producing photographs for better understating of the issue.

The Notification No. 1/2006-ST or for that matter the provisions of Finance Act, 1994 do not define what is “Plant” As such the items supplied by the appellant not in the nature of consumable, but an item having fairly high degree of durability. As such, just as in the case of “wires and cables” ,even the present items qualify as “plant” within the meaning of said items. He placed reliance decisions of Jawahar Mills Ltd. – 1999(108)ELT 0047 (Tri. LB) upheld by Supreme Court -2001(132)ELT 3(SC).

He also submits that items which were sold by the Appellant during the course of executing work, have been actually purchased by the customers/ clients and then supplied to the appellant for application, these items would have definitely qualified as “capital goods” for the customers/clients. There cannot be any dispute over this. If they qualify as “capital goods” they automatically become plant/machinery/equipment and as such, the objection raised in the present matter in this regard cannot survive any more.

Observation of the court

05. Heard both sides and perused the records. The first issue involved in the present appeal for determination is whether the appellant are eligible to the benefit of Notification No. 1/2006-ST dated 01.03.2006 . The relevant entry specified in said notification reads as follows :

S. No.	Sub Clause of Clause ( 105 ) of Section 65	Description of service	Conditions	Percent age
(1)	(2)	(3)	(4)	(5)
5.	Erection, commissioning or installation, under a contract for supplying a plant, machinery or equipment or structures and erection, commissioning or installation of such plant, machinery or equipment or structures.	This exemption is optional to the commissioning and installation agency Explanation. – The gross amount charged from the customer shall include the value of the plant, machinery, equipment, parts and any other material sold by the commissioning and installation agency, during the course of providing erection, commissioning or installation service.	This exemption is optional to the commissioning and installation agency Explanation. – The gross amount charged from the customer shall include the value of the plant, machinery, equipment, parts and any other material sold by the commissioning and installation agency, during the course of providing erection, commissioning or installation service.	33

The aforesaid exemption entry is applicable on taxable category viz. Erection, commissioning or installation, under a contract for supplying a plant, machinery or equipment or structures and erection, commissioning or installation of such plant, machinery or equipment or structures. The Learned Commissioner denied the benefit of said entry to the Appellant on the ground that Appellant is not supplying plant, machinery, equipment or structures, but carrying out thermal insulation and hence benefit of 67% abatement from gross value would not be available to appellant as the condition laid down in the said Notification are not fulfilled by appellant. However, we find that in above column (4) of the table which is related to the “condition” in explanation it clearly used the words “and any other material sold by the commissioning and installation agency, during the course of providing erection, commissioning or installation service”. Hence, in our opinion, it cannot be considered that the said entry is applicable only on the supply of plant, machinery or equipment or structures. Besides, it is also applicable on any other material so Learned In the present matter there is no dispute on the facts that the Appellant is Commissioning and Installation agency and for providing the taxable services appellant has provided the thermal insulating materials i.e. Hot insulation including supply of LRB and Aluminium Sheet, Cold insulation with Thermocol and Aluminium Sheet, Insulation of Pipeline with black superion sleeve providing and fixing of black superion with cellotape , insulation with black nitrile rubber foam, sheet, etc. and on supply of goods appellant also paid sales tax/ VAT. Hence, in our opinion, the Appellant are eligible to the benefit of the Notification No. 1/2006-ST dated 01.03.2006

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Rudra-Engineering-Vs-C.C.E-CESTAT-Ahmedabad-1