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F. No: STC/4-86/O&A/11-12.OIO in the case of M/s. Corrtech International P. Ltd.

M/s Corrtech International Pvt. Ltd., 22, Second Floor, Dhara Centre, Vijay Char Rasta, Navrangpura, Ahmedabad (hereinafter referred to as ‘M/s CIPL’) are registered with the Service Tax Department and having Service Tax Registration No. AAACC0134GST001 under the category of Erection, Commissioning and Installation, Works Contract Service, Consulting Engineer, Commercial or Industrial Construction Service, Maintenance or Repair Service & Transport of Goods by Road.

2. The officers of audit section of Service Tax Commissionerate had conducted the audit of the records of M/s CIPL. The officers while reconciling the figures shown in the ST-3 returns filed by M/s CIPL with the figures shown in their Audited Balance Sheet and Books of Accounts for the year 2006-07, noticed that the figures shown in ST-3 returns were less than the figures shown in Books of Accounts and as a result Service Tax was short paid by M/s CIPL to the tune of Rs.7,28,258/- which is required to be recovered from them with interest. Details thereof were worked out by audit officers as detailed in revenue para -01 of the audit report No. 109/2008-09.

3. When pointed out, M/s CIPL did not agree with the objection. They contended that the department while calculating the value of the net taxable income has not considered the effect of the closing and opening balances of retention money and security deposit, which is held back by the customers from their bill. The retention money and security deposit is the part of the value of the service contract which is generally retained by the customers according to the terms of payment and is very well defined in the contract itself.

4. The Superintendent of Service Tax, AR-VI, Div-II, Ahmedabad issued a letter dated 27.07.2010 followed by a reminder letter dated 16.11.2010 to the M/s CIPL to pay the service tax along with interest as pointed out by the Audit. They were also requested to submit Balance sheet for F.Y.2007-08 to 2009-10 and Debtor’s and Creditor’s ledger for F.Y. 2007-08 to 2009-10 immediately to Range office.

5. In their reply dated 08.12.2010, M/s CIPL submitted that basically the working given in the said audit report is reconciliation between the audited balance sheet figures and the ST-3 returns figures filed by them.

5.1 They submitted that there were certain issues which were not considered while calculating the same. They submitted a detailed working showing why such differences arose. They further submitted that there is no short/non payment of service tax. In fact excess service tax has been paid by them than what was required to be paid. M/s CIPL has submitted their documents such as Copy of detailed working, Copy of balance sheet for the year 2006-07, Copy of Debtor Bifurcation, Copy of Bad Debts Ledger, Copy of Miscellaneous written off ledger and Copy of ST-3 returns for the year 2006-07.

6. On scrutiny of documents submitted by M/s CIPL it appears that they provided complete service from drawing, design, supply, erection and commissioning. However they bifurcated the composite contracts into supply portion and service portion and they were not paying service tax on supply portion. Therefore, the Superintendent of Service Tax, AR-VI, Div-II, Ahmedabad asked for further documents.

7. The Superintendent of Service Tax, AR-VI, Div-II, Ahmedabad further issued letters dated 01.04.2011, 24.05.2011, 21.06.2011, 11.07.2011 and 27.07.2011 to M/s CIPL requesting them to produce the following documents.

(1) Sales invoices of trading for the F.Y. 2007-08 to 2010-11.

(2) Purchase invoices of trading for the F.Y. 2007-08 to 2010-11.

(3) Income ledgers in respect of trading for the F.Y. 2006-07 to 2010-11.

(4) Copies of those contracts/ agreements with the customers wherein trading was involved.

(5) Details of inputs service credit availed along with input credit register and copies of invoices for the F.Y. 2006-07 to 2010-11.

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(6) Details of purchase of inputs alongwith copies of invoices on which no CENVAT credit availed for the F.Y. 2006-07 to 2010-11.

8. M/s CIPL provided the following documents:

(i) Copies of sales invoices of trading for the F.Y. 2006-07 to 2010-11.(ii) Copies of purchase invoices of trading for the F.Y. 2007-08 to 2010-11.(iii) Copies of purchase invoices on which inputs service credit availed for the F.Y.

2007-08 to 2010-11.(iv) Copies of purchase invoices of inputs on which no CENVAT credit availed.

9. A statement of Shri Pankaj Kanhaiyalal Maheshwari working as Accounts Manager of M/s Corrtech International Pvt. Ltd. was recorded on 03.10.2011.

9.1 The statement of Shri Pankaj Kanhaiyalal Maheshwari is reproduced herewith in question answer form. Q.1 Do you confirm that the aforesaid fact furnished by you regarding your name, age,

address and other details are correct and that the provisions of Section 14 of Central Excise Act, 1944 was properly explained to you before commencement of this statement proceedings?

A.1 Yes, I confirm.

Q.2. For which category of services you are registered with the department?A.2. We are registered for Works Contract Service, Construction Services in respect of

commercial and industrial buildings and civil structures, Maintenance or repair service, Erection, commissioning and installation, Consulting Engineer, Transport of Goods by road and Renting of immovable properties service. We are availing CENVAT credit facility and taking CENVAT credit on inputs, capital goods and input services received directly.

Q.3. What is the main business of your company. Please specify?A.3. We are engaged in pipeline construction business for oil and gas pipeline projects in

the range of 4”-48” diameter. The pipeline construction activity includes the supply of pipes/coating/route survey/site clearing & grading, stringing, welding, NDT testing, joint coating, excavation, lowering/laying, hydro testing, pre-commissioning and commissioning of pipeline system along with associated works such as execution of critical crossings by Augur boring and Horizontal Directional Drilling methods. We are also providing Temporary/permanent cathodic protection system for cross country pipelines, tank bottoms, petro chemical plants, refineries, power plants, fertilizer plants, jetties and other offshore structures. We have team of qualified and skilled engineers, supervisors and technicians to carry out installation/testing and commissioning of cathodic protection systems at project sites. We are also conducting pre/post commissioning surveys by testing soil/water and stray current.

Q.4. Please give the detail of activities involved in carrying out design, detail engineering, supply, installation, testing and commissioning of oil and gas pipeline.

A.4. First of all in a contract of pipeline laying work the principal provides us the right of use (ROU) of the land where the pipes are to be laid.

- Thereafter we do the grading of the said land whereby the overburden, shrubs are removed. Thereafter the pipe stringing work is done whereby the pipes to be laid are arranged in a line near the land. After that trenching work is done whereby a pit is dug for laying the pipes. As per requirement certain pipes are bended. The pipes are welded with welding rods and then NDT (Non destructive testing) is done on the welded joint and then the pipes are lowered in the pit where a coating of certain material is applied to the welded joining point of the pipes so that corrosion can be prevented. Along with pipeline HDPE ducts and OFC cables are installed.

- Wherever river crossing, road crossings or other obstacles are encountered, pipeline is laid by horizontal directional drilling method or cased crossing method or open cut method.

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- Thereafter warning mat is installed, backfilling and restoration work is done whereby the pits are refilled.

- Thereafter hydro-testing work takes place whereby the pipeline is tested for leakage and pressure loss.

- Thereafter pigging work is done whereby the pipeline is cleaned from inside using special material.

- Thereafter the commissioning work is done.- We have also to construct certain buildings for creating, receiving and terminating

stations for the pipeline so laid wherein the complete construction work is done by us including material.

- We also install certain mechanical valves and parts, instrumentation equipments, fire detection and safety equipments and electrical installation which enable the pipeline to transport the oil & gas.

- The main inputs used in carrying out the work are welding rods, coating material, warning mats, HDPE ducts, OFC cables, cased crossing pipes, dirax sleeves, insulators, hydro testing and pigging material, TMT steel, cement, sand, mechanical valves and fittings, instrumentation material fire detection and fighting material, electrical materials.

Q.5. Please give the detail of activities involved in design, supply, installation, testing and commissioning of temporary cathodic protection and permanent cathodic protection system for oil and gas pipeline.

A.5. Cathodic protection is done to save the underground pipeline from corrosion and rusting. There are two types of cathodic protection one is temporary cathodic protection and the second is permanent cathodic protection.

- Temporary cathodic protection is carried out at the time of laying of the pipeline. In temporary cathodic protection a cable is welded on underground buried pipeline which is then connected to a sacrificial Anode through a test station.

- However, in permanent cathodic protection first of all a cable is welded on the underground buried pipes which is then connected to test station. The test stations are metal boxes which with help of civil work are installed near the pipeline in which an instrument is installed for checking the flow of the current.

- Then the test stations are connected to TR/CPPU (Transformer Rectifier/Cathodic Protection Power Supply) units. Another cable comes out from TR/CPPU unit which is connected to Anode which is buried in the ground after preparing Anode bed/well. Anode bed is prepared with filling of coke breeze material in ground as well as by boring well technology. The TR/CPPU unit regulates the flow of current in pipes resulting in Anode getting corroded over a period of time but the pipes are safeguarded from corrosion. This results in huge benefit to the economy as life of pipeline increases manifold.

- The inputs used in carrying out the work are cables, test stations, Anodes, TR units, CPPU units, Coke breeze, reference cells, thermit welding material, HDPE pipes.

Q.6 It seems that you are mainly engaged in business of design, detail engineering, supply, installation, testing and commissioning of oil and gas pipeline and design, supply, installation, testing and commissioning of temporary cathodic protection and permanent cathodic protection system for oil and gas pipeline. Further you are paying service tax under the category of works contract service and construction of commercial or industrial buildings and structures. Please specify why you are classifying the same type of activities under two different categories.

A.6. In some projects we opt for work contract composition scheme as per the tender conditions of our principals. In some other projects we opted for works contract composition scheme looking to the supply of material as well as labour in the contract.

Q.7. Now you are being shown Revenue Para 01 of the audit report No. 109/2008-09. As per the Revenue Para 01, during the course of audit by the audit party it was noticed that the figures shown in the balance sheet / ledger and figures reported to department did not tally and as a result there was short payment of service tax of Rs 728258/-. Are you agree with the reconciliation prepared by the audit party and if not then specify the reason?

A.7. I am not agreed with the reconciliation prepared by the audit party as there were certain issues which were not considered while calculating the same. The audit party

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have considered Rs. 5099908/- in the opening debtors (service related) which is amount of trading debtors. Further the audit party did not consider Rs. 2793139/- which is retention amount. Similarly the audit party has considered Rs. 4661007/- in the closing debtors (service related) which is amount of trading debtors. Further the audit party did not consider amount of Rs. 7247930/- as closing debtors (retention). Further the audit party did not consider amount of Rs. 816749/- and 182155/-which was misc. balance written off and bad debts written off respectively.

Q.8. Now you are being shown ST-3 returns filed by you for the period F.Y. 2007-08 to 2010-11 wherein you have availed CENVAT credit of inputs and you have not shown income received against trading in any of your ST-3 returns. Please specify why you have not shown trading income in your ST-3 returns?

A.8. I state that the trading sales are neither taxable service nor exempted service hence the same are not required to be disclosed in the present ST-3 format.

Q.9. Now you have been shown detailed letter of acceptance Ref. No. BRP/EI/156 Dated 04.08.2008 issued by Bharat Oman Refineries Ltd where the contract value is Rs. 26486820/- which is composite contract. Please specify the work done by your company in the said project and whether your company has charged and paid service tax on the above mentioned value?

A.9. The above said contract was assigned to us by Bharat Oman Refineries Ltd. and it was for cathodic protection system for underground vessels for Bina Refinery Project at Bina. The scope of work involved the detailed engineering, supply, installation, testing and commissioning of impressed current cathodic protection system within the Bina Refinery Plant Complex for protection of underground vessels. The contract value was for an amount of Rs. 2,64,86,820/-. The work of cathodic protection of underground vessels is quite similar to that of pipeline. However, as the work is carried out in plant premises extra safety precaution were taken and facilities which were broken for carrying out the cathodic protection work were restored in original condition and shape. This is not a composite contract as the amount for supply of material and that of installation services has been bifurcated and the break up of the same is already submitted to you. We have paid service tax on the value of installation charges and we have not paid service tax on supply portion on which VAT/CST has been paid by us.

Q.10. Now you have been shown work order No. ECIL/VBPL/MAINLINE/CP/WO/004 dated 24.08.2007. The above work order was for Rs. 32,500,000/- which a composite work order. Please specify the work done by your company in the said project and whether your company has charged and paid service tax on the above mentioned value?

A.10. The above work order was assigned by M/s Essar Constructions (India) Limited and we carried out work of Soil resistivity survey, Design, Engineering, Supply of all materials, installation, Testing and Commissioning of Temporary and Permanent cathodic protection and entire completion of all system by using galvanic anodes for external surface of 24” outside diameter for 503.700 km long cross country underground pipeline including Post commissioning surveys such as Coating Conductance and Pearson for evaluating deficiencies in coating for the Vadinar-Bina-Pipeline Project. The cost of the project was Rs. 32,500,000/- for both Temporary Cathodic Protection and Permanent Cathodic protection. The value of Temporary Cathodic Protection was Rs. 15925000/- and the value of Permanent Cathodic Protection was Rs. 16575000/-. This is not a composite contract as the amount for supply of material and that of installation services has been bifurcated and the break up of the same is already submitted to you. We have paid service tax on the value of installation charges and we have not paid service tax on supply portion on which VAT/CST has been paid by us.

Q.11. Now you have been shown Work Order No. GIL/RBBPL/WO/16 dated 22.03.2010 by Gammon India Limited. The above work order was for Rs. 2,57,50,010/- which was a composite work order. Please specify the work done by your company in the said project and whether your company has charged and paid service tax on the above mentioned value?

A.12. The above work order was assigned to us by Gammon India Ltd. and we carried out work for Design, Supply, Installation, Testing & Commissioning of Temporary

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Cathodic Protection and Permanent Cathodic Protection System for laying of Pipeline from Ramanmandi to Bahadurgarh and from Ramanmandi to Bhatinda. The above work order was for Rs. 2,57,50,010/-. This was not a composite contract as the amount for supply of material and that of installation services has been bifurcated and the break up of the same is already submitted to you. We have paid service tax on the value of installation charges and we have not paid service tax on supply portion on which VAT/CST has been paid by us.

Q.13. Now you have been shown purchase order No. P21/100003488 dated 02.08.2007 by Gujarat State Petronet Limited for an amount of Rs. 21,01,44,064/-. Please specify the details of contract and agreement with Gujarat State Petronet Limited regarding this purchase order.

A.13. This order has been placed by Gujarat State Petronet Limited for supply of pipes and fittings for their Padamla Halol pipeline project. The laying of pipeline was also done by us for which a separate contract for installation was issued to us by Gujarat State Petronet Limited. I will produce the copy of the said contract within three days.

Q.14. Now you have been shown work order No. (i) XX8/3610364 dt 13.09.2006 for an amount of Rs. 16259826/-and (ii) XX8/3610303 dt 03.11.2008 for an amount of Rs. 38461271/- from M/s Reliance Engineering Associates Pvt. Ltd. which was composite work order. Please specify the work done by your company in the said project and whether your company has charged and paid service tax on the above mentioned value?

A.14. The above work order was assigned by M/s Reliance Engineering Associates Pvt. Ltd. and we carried out work of Soil resistivity survey, Design, Engineering, Supply of all materials, installation, Testing and Commissioning of Temporary and Permanent cathodic protection. This was not a composite contract as the amount for supply of material and that of installation services has been bifurcated and the break up of the same is already submitted to you. We have paid service tax on the value of installation charges and we have not paid service tax on supply portion on which VAT/CST has been paid by us.

Q. 15.Now you have been shown letter of intent PDPL/PIN12/PKB/5 dated 04.08.06 issued by M/s Punj Lloyd for an amount of Rs. 16200000/- which was a composite work order. Please specify the work done by your company in the said project and whether your company has charged and paid service tax on the above mentioned value?

A.15. The above work was assigned to us by M/s Punj Lloyd Ltd. for cathodic protection works for laying of cross country pipeline and associated facilities for Panvel Dabhol pipeline for Rs. 16200000/-. We carried out the work of engineering design and drawing of cathodic protection system supply of all the materials for temporary and permanent cathodic protection, installation and commissioning, land acquisition for Anode bed, Cable trench row, Chain linkage fencing installation. This was not a composite contract as the amount for supply of material and that of installation services has been bifurcated and the break up of the same is already submitted to you. We have paid service tax on the value of installation charges and we have not paid service tax on supply portion on which VAT/CST has been paid by us.

Q.16 Now you have been shown work order number Ecl/Arpl/Cp/Wo-08 dated 28/11/2008 of Essar Constructions Ltd Please specify the work done by your company in the said project and whether your company has charged and paid service tax on the above mentioned income?

A.16. Our company carried out the work of supply and installation of temporary and permanent cathodic protection system which involved conducting soil resistivity survey, design, engineering, supply of all material installation, testing and commissioning of temporary and permanent cathodic protection system for Rs. 11421633/-. This was not a composite contract as the amount for supply of material and that of installation services has been bifurcated and the break up of the same is already submitted to you. We have paid service tax on the value of installation charges and we have not paid service tax on supply portion on which VAT/CST has been paid by us.

Q.17 Please give the details of the pattern of supplying sales material for the projects.

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A.17. Certain bulk material is dispatched directly from manufacturers plant to our client’s project site go-down through transport. LR is issued by transport company for transporting the materials. The possession of the above material is handed over to the client store who give receipt on the LR. LR copy is handed over to our site in-charge. Other material is sent from our stores at Ahmedabad to the project site through transport as per the requirement of the project. The possession of the above material is handed over to the client store who give receipt on the LR. LR copy is handed over to our site in-charge. The material is issued to us by client as per the progress of project. The cables and transformer rectifiers units are generally dispatched to client’s godown directly from the manufacturer and test station, Anodes, thermit weld, pipes etc. are dispatched from our godown to client’s godown.

Q.18. Now you are being shown invoice no. RRO/70008 dated 17.04.2007 issued by M/s Raychem RPG Ltd. for 03 numbers of transformer rectifier units which was delivered to M/s Corrtech International Pvt. Ltd. Plot No. 150 Opp. Mehta Medical Nr. Imdapur Bus Depot Mangove, dist. Raigarh, Maharashtra. This invoice shows that the “transformer rectifiers generally dispatched to client’s godown directly from the manufacturer” is not appear to be true in the context of your answer given above. Please explain.

A.18. The goods purchased in the above invoice are delivered to our worksite address from where the same has been sold to our client. The answer given in the earlier question gives a general factual modus operandi but sometimes for commercial feasibility purchase of goods are invoiced directly to our work site address.

Q.19. Now you are being shown invoice no. 179 dated 10.10.2008 of M/s Netco Cable Industries Pvt. Ltd., invoice no. 02115 dt 04.11.2008 , invoice no. 02119 dt 05.11.2008 and invoice no. 00496 dt 26.03.2009 all issued by GEMSCAB industries. Ltd., invoice no. 104/08-09 issued by M/s Kriston Systems. These all invoices are in the name of M/s Corretch International Pvt. Ltd. as buyer and M/s Bharat Oman Refinery Ltd. as consignee. Please specify the status of CENVAT credit of inputs i.e Excise duty for all the aforementioned invoices.

A.19. We have not availed or utilized any CENVAT credit on material sold to our customers for payment of our service tax liability on installation services provided to them. We have passed on the Excise duty to the clients on sales transactions.

Q.20. Please specify the pattern of purchasing the inputs. Whether you purchase the inputs project wise. Please also mention that when you avail the CENVAT of these inputs.

A.20. Majority of the purchases for the contracts where the value of sale of material and services is bifurcated is done project wise and we do not avail any CENVAT credit on the same as prescribed in Notification No. 12/2003.

Q.21. Now you are being shown details of CENVAT credit register for the month of July, 2007 provided by you wherein following details are mentioned such as Sl no., Enter date, Group, Job No., Name of the supplier, Bill no. and date, Bill amount, CENVAT, education cess, higher education cess and total. Now you are being shown specifically the job no. 860. You have availed CENVAT credit against the sales for job no. 860 and you have not paid service tax on the sales portion for the said project. It appears that you have wrongly availed the benefit of the Notification No. 12/2003. Please explain.

A.21. I state that the Job No. 860 is for work order No. PDPL/PIN12/PKB/5 dated 04.08.06 for the project of M/s Punj Llyod Ltd. for an amount of Rs. 16200000/-. Apart from sales portion there is also installation portion in the above mentioned order in which various consumables are used the value of which is included in the value of installation services on which we are paying service tax at full applicable rate, hence we are eligible to take CENVAT credit on such consumable items.

Q.22. Now you are being shown invoice no. RRO/70008 dated 17.04.2007 issued by M/s Raychem RPG Ltd. for 03 numbers of transformer rectifier units which was delivered to M/s Corrtech International Pvt. Ltd. Plot No. 150 Opp. Mehta Medical Nr. Imdapur Bus Depot Mangove, dist. Raigarh, Maharashtra. On the face of this invoice you have written job no. 860 purchase order no. 1185 dated 08.02.2007. Further you have been shown invoice no. ACT/079/2007 dt 16.04.2007 issued by M/s Titanor Comonents Ltd.

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for 24 MMO Lida Strip Anode and 8 MMO Lida Tubular Anode, and Inovices no. 200 dt 04.05.07 issued by M/s Goa Carbon Ltd. for 16 Metric Ton of Calcined Petroleum Coke, invoice no. 14 dt 18.05.2007 issued by M/s Scientific Metal Engineers Pvt. Ltd. for 7 Bare Magnesium Anodes wherein you have taken CENVAT credit. Please explain whether these materials are consumable or inputs.

A.22. I state that Calcined Petroleum Coke is consumable while all others are inputs. However we shall check all the relevant documents and revert within three days.

Q.23. You are wrongly availing benefit of Notification No. 12/2003 as you are taking CENVAT credit on inputs and consumables on one hand and not paying service tax on the value of the same by showing these inputs as trading sales. Please explain.

A.23. I state that the above CENVAT credit on inputs has been availed by us wrongly and we undertake to pay the same alongwith interest. As said earlier value of consumable is included in the value of installation services and hence we are eligible to claim credit on the same.

Q.24. Now you are being shown details of CENVAT credit register for the month of December, 2007 provided by you wherein following details are mentioned such as Sl no., Enter date, Group, Job No., Name of the supplier, Bill no. and date, Bill amount, CENVAT, education cess, higher education cess and total. Now you are being shown specifically the job no. 916. Please explain about the job No. 916.

A.24. I state that this job no. 916 has been assigned to the work order No. ECIL/VBPL/MAINLINE/CP/WO/004 dated 24.08.2007. The above work order was for Rs. 32,500,000/- assigned to us by M/s Essar Constructions (India) Limited.

Q.25. Now you have been shown invoice no. IHA0004817 dt 17.10.07 issued by Elentas Beck India Ltd. for DOBEFIL of 400 kg wherein you have taken CENVAT credit. You are wrongly availing benefit of Notification No. 12/2003 as you are taking CENVAT credit on inputs on one hand and not paying service tax on the value of the same by showing these inputs as trading sales. Please explain.

A.25. I state that the above item is a consumable which is used for filling purpose around the place where cable is welded on the pipeline. Value of this consumable is included in the value of installation services hence we are eligible for availing the credit.

10. A further statement of Shri Pankaj Kanhaiyalal Maheshwari working as Accounts Manager of M/s Corrtech International Pvt. Ltd. was recorded on 10.10.2011.

10.1 Statement of Shri Pankaj Kanhaiyalal Maheshwari is reproduced herewith in question answer form.

Q.1. Now you have been shown purchase order no. P21/4200003942 dated 02.08.2007 by Gujarat State Petronet Limited for an amount of Rs. 144450016/- Please specify the details of contract and agreement with Gujarat State Petronet Limited regarding this purchase order and job no. assigned to this project.

A.1. I state that this purchase order has been given by M/s Gujarat State Petronet Limited for on shore services and installation and construction services for Padamla- Halol pipeline project against letter of acceptance vide letter no. GSPL/TS/PGPL/110/LOA/1333 dt 02.08.2007. The job no. assigned to this project was 918. I put my dated signature on it.

Q.2. Please specify the detail work carried out as per above purchase order.A.2. The contract awarded by M/s Gujarat State Petronet Ltd. was for laying of pipeline for

Padmla-Halol pipeline project. The detail work carried out was engineering and construction, erection and installation, ploughing back fill earth work, laying of OFC in OFC duct, erection and installation of temporary and permanent cathodic protection and testing and commissioning, HDD work, general/mechanical work, electric work, civil work and instrumentation work.

Q.3. What was the total value of Padmla-Halol pipeline project? Whether your company has charged and paid service tax on this value?

A.3. I state that the total value of Padmla-Halol pipeline project was Rs. 354594080/-. Out of which Rs. 210144064/- was for sales and Rs. 144450016/- was for installation and

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construction services. We have paid service tax only on Rs. 144450016/- at full rate of service tax which was for installation and construction services. We have not paid service tax on sales portion.

Q.4. Whether you have taken CENVAT credit on the inputs purchased and used in the above mentioned project?

A.4. I state that we have taken CENVAT credit on the inputs purchased and used in laying and construction of above pipeline which do not form part of sales order. We have availed benefit of Notification No. 12/2003. However on the sales portion we have passed on CENVAT credit to the customers.

Q.5. Now you are being shown purchase invoices of coated pipes received from M/s Welspun Gujarat Stahl Rohren Limited particularly invoice no. 10259 dt 13.12.2007. Please specify regarding purchase order, CENVAT credit passed on and payment made to M/s Welspun Gujarat Stahl Rohren Limited.

A.5. I state that we have made purchase order no. GSPL/PGPL/SN/011 dt 04.06.2007 for purchase of coated and bare pipes which were sold to M/s GSPL. On the above mentioned bill CENVAT credit of Excise duty @ 16% of Rs. 192679/- , Ed. Cess @ 2% of Rs. 3854/- S & H Ed. Cess @ 1% of Rs. 1927/- has been passed on to GSPL by mentioning GSPL as consignee. We have raised sales invoice i.e. RA 1, RA 2 and so on to GSPL who have made payment for the same to us. The payment of M/s Welspun Gujarat Stahl Rohren Limited invoice no. 10259 dt 13.12.2007 have been made by us.

Q.6. How GSPL have taken CENVAT credit when you have raised RA bills where no CENVAT credit details in the said bills?

A.6. As already mentioned above GSPL has taken CENVAT credit on the basis of transporter copy of invoice in which they have been mentioned as consignee.

Q.7. Are you a registered dealer under Excise and whether you are maintaining records prescribed for registered dealer?

A.7. No we are not a registered dealer under Excise and hence we do not maintain any such record. The credit has been passed on through the consigner-buyer-consignee mechanism.

Q.8. Now you are being shown an Annexure-A containing details such as invoice no. and date, name of supplier, detail of inputs purchased and CENVAT credit taken alongwith corresponding purchase invoices where you have taken CENVAT credit of Excise duties for the pipeline project of Padmla-Halol. Please give details of delivery site and how these inputs were used in the construction of the pipeline.

A.8. I state that the inputs were delivered at our site at Kesar Baug Farm, Opp. AK Industries Manjusar-Savli Road, Village- Tundav, Dist-Baroda. These items have been used for construction and installation services for laying of pipeline and the items UPS system and nickel cadmium battery were used in electrical work , M.S. Bars channels Angles, Plates etc. were used for civil work, valves were used in mechanical work and HDPE duct were used in OFC work, warning mats etc were used in back filling work . I put my dated signature on the Annexure-A.

Q.9. Now you have been shown invoice RA Bill No. CIPL/GSPL/PHPL/RA/01, LOA No. GSPL/TS/PGPL/110/LOA/1333 dt 02.08.2007. Please state whether you have paid service tax on the amount of Rs. 134710851/- as mentioned in the above invoice. Whether your principal has deducted TDS and if yes on what amount they have deducted the same?

A.9. I state that this bill is of sale. We have not paid service tax on the same. VAT has been charged on the sales. The principal have deducted TDS on this sale bill amount. I put my dated signature on it.

Q.10. Now you are being shown an Annexure-B containing details such as invoice no. and date, name of supplier, detail of inputs purchased and CENVAT credit taken alongwith corresponding purchase invoices where you have taken CENVAT credit of Excise duties for GSPC Gas company Ltd. Job no. 873. Please give details how these inputs

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were used in the project. Whether you have taken CENVAT credit on the inputs purchased and used in the above mentioned project?

A.10. This job no. 873 was for Rajkot- Chotila-Morbi pipeline. These items have been used for construction and installation services for laying of pipelines. The items valves, flanges, Tees, Reducers, Gaskets, Stud Nuts, Elbows etc were used in mechanical work while Rubber cups, foam pigs etc. were used in Hydro testing work. The credit that has been taken belongs to goods which are used in providing installation and commissioning services on which we are paying service tax at full rate. I put my dated signature on Annexure-B.

Q.11. Now you are being shown an Annexure-C containing details such as invoice no. and date, name of supplier, detail of inputs purchased and CENVAT credit taken alongwith corresponding purchase invoices where you have taken CENVAT credit of Excise duties for Reliance Industries Ltd, job no. 905.. Please give details how these inputs were used in the project. Whether you have taken CENVAT credit on the inputs purchased and used in the above mentioned project?

A.11. This job no. 905 was for Reliance Industries Ltd. These items have been used for construction and installation services for laying of pipelines at Naroda. The items valves were used in mechanical work. The credit that has been taken on valves which are used in providing installation and commissioning services on which we are paying service tax at full rate. I put my dated signature on Annexure-C.

Q.12. Now you have been shown Notification No. 12/2003 which is reproduced herewith“In exercise of the powers conferred by section 93 of the Finance Act, 1994 (32 of 1994), the Central Government, being satisfied that it is necessary in the public interest so to do, hereby exempts so much of the value of all the taxable services, as is equal to the value of goods and materials sold by the service provider to the recipient of service, from the service tax leviable thereon under section (66) of the said Act, subject to condition that there is documentary proof specifically indicating the value of the said goods and materials.”

Provided that the said exemption shall apply only in such cases where-(a) No credit of duty paid on such goods and materials sold, has been taken under

the provisions of CENVAT credit rules 2004 or (b) Where such credit has been taken by the service provider on such goods and

materials, such service providers has paid the amount equal to such credit availed before the sale of such goods and materials.As per the above notification it appears that the benefit of the exemption is

available only when no credit of duty paid on such goods and materials sold, has been taken under the provisions of CENVAT credit rules 2004. Please explain how you have availed the exemption under the above notification when you have taken CENVAT credit of Excise duties on the inputs as shown in invoices listed in above Annexures and you are also passing on CENVAT credit of excise duty to your customers.

A.12. We have not taken CENVAT credit of goods sold to our customers, the credit that has been taken belongs to goods which are used in providing installation and commissioning services on which we are paying service tax at full rate. The value of the installation and commissioning service in case of Gujarat State Petronet Limited is Rs. 144450016/- which includes value of goods used in providing these services. The said notification nowhere provides that the CENVAT credit cannot be passed on to the customers to whom the goods are sold.

Q.13. You are wrongly availing benefit of Notification No. 12/2003 as you are taking CENVAT credit on inputs on one hand and not paying service tax on the value of the same by showing these inputs as trading sales. Please explain.

A.13. I would again like to reiterate that we have not violated any conditions stated in notification no. 12/2003 as we have not taken credit of any input which has been sold to our customers. However we admit that certain credits of goods sold has been taken by us wrongly and we commit ourselves that we will pay the same along with interest. These credits were taken unintentionally.

11. On verification of the contracts, records and other relevant documents and details given by Shri Pankaj Maheshwari in his statements, it appears that the above

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contracts were composite and indivisible contracts which involved design, detail engineering, supply, installation, testing and commissioning of pipelines and cathodic protection system.

11.1 Two of the many projects are discussed herewith:-

11.1.1 Bharat Oman Refineries Ltd. – M/s CIPL were granted the contract for Cathodic Protection System for Under Ground Vessels for Bina Refinery Project, Bina vide letter of acceptance dated 04.8.2008 of Bharat Oman Refineries Limited. Perusal of the said letter of acceptance reveals that :

the contract value (Lumpsum price) is Rs. 2,64,86,820/- The schedule of lumpsum price (Form SP-1) is scanned herein below for reference:

11.1.1.1 As per the item of schedule of rates for Cathodic Protection it is clear that M/s Bharat Oman Refineries Limited had considered the contract for Cathodic Protection System for Under Ground Vessels for Bina Refinery Project, Bina as a composite contract only and there was no involvement of independent sale of goods. The contracts are indivisible in nature in as much as they involved:

- Detailed engineering, supply, installation, testing and commissioning of impressed cathodic protection system with the terminal of Bina Refinery complex including such mandatory spares for protection of underground vessels.

- Supply and laying of cables including excavation concrete pavement/soil which ever is existing, back filing, restoration of concrete pavement etc.

- Supply of installation of junction boxes excluding laying of cables by including connection, termination and glanding at junction box end for +ve header, drainage, anode lead cables etc.

The said document is scanned herein below for reference:

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11.1.2 Punj Lloyd Ltd. – M/s CIPL were granted the contract for Cathodic Protection works for laying of cross country pipe line and associated facilities for Panvel-Dabhol pipeline vide letter of intent dated 04.8.2006 by Punj Llyod Limited. Perusal of the said letter of intent reveals that :

(i) the contract value was Rs. 1,62,00,000/- for Temporary Cathodic Protection and Permananet Cathodic Protection.

(ii) the price was inclusive of following in addition to the contractual scope. Engineering Design And Drawing of Cathodic Protection System Supply of all the materials for temporary and permanent cathdoic protection works as

per specification and inspection plan. Land acquisition for anode bed, cable trench row etc. Third party inspection if required Chain linkage fencing installation as per specification for Anode Bed Project.

11.1.2.1 The relevant pages of the Letter of intent is scanned herein below for reference:PAGE:1

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PAGE:II

11.1.3. In view of the above discussion, it appears that the said assessee artificially bi-furcated the composite contract into supply and construction. It appears that goods were used by the said assessee in construction service. To evade service tax the said assessee raised separate invoices for supply and construction. The orders from the clients were for composite contracts and the clients didn’t give them any separate purchase orders for supply. The documents titled as supply and service are nothing but a colorful device to evade service tax as in reality there is only one contract for Detailed engineering, supply, installation, testing and commissioning of impressed cathodic protection system with the terminal of Bina Refinery for which they carried out difference activities which are inseparable. A breach of promises of first contract is a breach of second contract and vice-versa. It appears that the two contracts survive and die together. Therefore, M/s CIPL was liable to pay service tax on total value of contract received from the clients. Section 67 of the Finance Act, 1994 provides that where service tax is chargeable on any taxable service with reference to its value then such value shall “in a case where the provision of service is for consideration in money, be the gross amount charged by the service provider for such service provided or to be provided by him”

12. The fact is further confirmed by RA Bill No. CIPL/GSPL/PHPL/RA issued by M/s CIPL to M/s Gujarat State Petronet Limited for their project Padmala- Halol Pipeline Project. The said RA bill is scanned herein below for reference:

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12.1 Perusal of the said RA bill it reveals that Income Tax @2% has been charged on the total value of the contract including the value of goods. It is thus evident that the service recipients have deducted TDS on total value including value of goods. This deduction of TDS by the service recipient on total value of the contract including the value of goods further establish the fact that the division of the contract done by M/s CIPL is to evade the service tax only. It indicates that the contracts are composite in nature.

13. Thus, from the records of M/s CIPL and statements of Shri Pankaj Maheshwari it appears that all materials, inputs and capital goods required for the projects were supplied by M/s CIPL at their construction site and were used by M/s CIPL in execution of the contract awarded to them by their clients. The materials that were consumed at the time of providing the services were mainly pipes, cabels, anodes, warning mats, sleeves, valves and fittings, hydro testing and pigging materials, transformer rectifiers, coke breeze, thermit welding materials, HDPE pipes, HDPE ducts, paints for coating, insulation material for insulation of pipes, welding rods for welding, cement, steel bars, angles etc. These goods were never sold by M/s CIPL to their clients but were consumed by M/s CIPL during the execution of the contract.

13.1.1 The goods shown as traded to the recipients were never physically received by them, but were consumed during the process of execution of contract. Thus, these goods were never available to the service recipients to enable them to sell it to others or use the same in their activities.

13.1.2 As discussed in the foregoing paras M/s CIPL entered into an indivisible and turnkey contracts which included all the activities starting from design survey, supply, installation, testing, commissioning and construction of pipe lines and cathodic protection system. At no point of time the contracts were considered as one for supply and the other for installation. The entire activity was one which can not be vivisected.

13.1.3 The orders from the clients were for composite contracts. To evade service tax, M/s CIPL have artificially bifurcated the composite contract into supply and construction by way of raising separate invoices for supply and construction. The documents titled as supply

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and services are nothing but a colorful device to evade service tax as in reality there is only one contract for design, detail engineering, supply, installation, testing, commissioning and construction of pipelines and cathodic protection system which is inseparable.

13.1.4 The service recipients have deducted TDS on total value including value of goods. This deduction of TDS by the service recipient on total value of the contract including the value of goods further establish the fact that the division of the contract done by M/s CIPL is to evade the service tax only. It indicates that the contracts are of construction service and not of supply and service separately.

14. Further, scrutiny of the documents submitted by M/s CIPL reveal that M/s CIPL have also availed the benefit of exemption as provided under Notification No. 12/2003-ST dated 20.06.2003.

14.1 Notification No. 12/2003 dated 20.06.2003 is reproduced herewith:

“In exercise of the powers conferred by section 93 of the Finance Act, 1994 (32 of 1994), the Central Government, being satisfied that it is necessary in the public interest so to do, hereby exempts so much of the value of all the taxable services, as is equal to the value of goods and materials sold by the service provider to the recipient of service, from the service tax leviable thereon under section (66) of the said Act, subject to condition that there is documentary proof specifically indicating the value of the said goods and materials.”

Provided that the said exemption shall apply only in such cases where-(a) No credit of duty paid on such goods and materials sold, has been

taken under the provisions of CENVAT credit rules 2004 or (b) Where such credit has been taken by the service provider on such

goods and materials, such service providers have paid the amount equal to such credit availed before the sale of such goods and materials.

14.2 As per the above notification, the benefit of the exemption is available only when goods and materials are sold by the service provider to the recipient of service and no credit of duty paid on such goods and materials sold has been taken under the provisions of CENVAT Credit Rules 2004.

14.3 Scrutiny of the records of M/s CIPL and Statements of Shri Pankaj Maheshwari revealed the following:

14.3.1 Since the contract awarded to M/s CIPL was composite in nature, M/s CIPL procured items like pipes etc from various manufacturers on payment of applicable excise duty/sales tax.

14.3.2 M/s CIPL availed CENVAT credit on goods and materials sold by them to their recipients of the services. This is evident from the following tables which were prepared as a test check on the basis of the data appearing in the CENVAT credit register and the corresponding invoices:

i. Details of inputs used for construction of Padmla - Halol Pipeline project to which M/s CIPL has given the Job No. 918 and details of CENVAT credit of excise duty taken by M/s CIPL. Sr No.

Invoice No Date Name of Supplier Quantity & Description of input

CENVAT credit amount taken (in Rs.)

1 0000001 02.04.2008 M/s Emerson Network Power (India) Pvt. Ltd

3 System UPS 5 KVA

370480

2 IN810018 06.05.2008 M/s AMCO Saft India Limited

3 sets of nickel cadmium battery

329059

3 684 19.09.2008 M/s Manish 3495kgs M.S. 16368

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Marketing Bars flat4 972 11.03.2008 M/s Mekaster

Valves & Engineering Service Pvt. Ltd

2 Pressure Safety Valves

6456

5 55 18.04.2008 M/s Manish Marketing

2865kgs Channel/Coil

13833


760kgs Angel/Coil

3669


5185kgs HSM Plates

27443


1500kgs M Plate

8189

9 75 18.04.2008 M/s Altret Performance Chem. Guj Pvt. Ltd

700kgs Altret WTC (1302)

5292

10 124 16.04.2008 M/s K.Mukund & Co.

5.8930 MT 150mm M.S. Pipe (14%)

32175

11 413848 30.03.2008 M/s Virgo Engineers Limited

45-Ball Valve 338713

12 110175 30.04.2008 M/s Virgo Engineers Limited

3pcs Ball Valve 14638

13 S-IND 337 11.03.2008 M/s Parixit Industries Ltd

4940-HDPE PLB Duct 40mm/33mm

23152

14 07/1171 28.03.2008 M/s Flow Chem Industries

6- Nos. Globe Valve

26904

15 07/1184 29.03.2008 M/s Flow Chem Industries

4 Globe Valve 23395

16 7529 23.11.2007 M.J. Patel (India) Ltd

Seamless Pipes

138387

17 S-IND 208 13.01.2008 M/s Parixit Industries Ltd

HDPE PLB Duct 40mm/33mm

30652

18 T/S/2307 15.03.2008 M. KUMAR & CO.

6 TIN OF 20 LTR THINNER

37628

19 T/S/2282 13.03.2008 M. KUMAR & CO.

8 TIN OF ZINC ANODE & 9 TIN OF PRIMER

15448

20 302 07.11.2007 RAJAVI ENTERPRISE

12 – GEMINI COW R 41

6533

21 173 27.12.2007 PARIXIT INDUSTRIES LTD

7000 – HDPE PLB DUCT

35761

22 66 20.11.2007 SPARCO MULTIPLAST PVT LTD

15000 MT WARNING MAT

43260

23 S-IND 209 13.01.2008 PARIXIT INDUSTRIES LTD

6000 – HDPL PLB DUCT

30652

ii. Details of inputs used in steel pipeline laying and construction for natural gas supply to Rajkot, Morbi and Chotila for the project given by M/s GSPC Gas Company Ltd (Job No. 873) and details of CENVAT credit taken of excise duty.

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Sr No.



1 A 7477/07-08

28.01.2008 IGP ENGINEERS PVT LTD

3-SPIRAGE INSULATION KIT

198

2 07/0494 06.09.2007 FLOW CHEM INDUSTRIES

10-BALL VALVE

10420

3 07/0590 06.10.2007 FLOW CHEM INDUSTRIES

30-BALL VALVE

65110

4 972 21.09.2007 MADRAS INDUSTRIAL PRODUCTS

6-SPRIAL WOUND GASKET MATERIAL

300

5 534 12.09.2007 JALARAM STEEL STORE

1MT.135-ANGLE

4161

6 243 31.08.2007 PARIXIT INDUSTRIES LTD

280-PP COUPLER 40 MM

2075

7 19 14.04.2007 SAWAN ENGINEERS

BLRF FLANGE 11532


2-SWRF A & ELBOW A

89

9 002 03.04.2007 VEE KAY VIKRAM & CO

55-RUBBER CUP & FOAM PIG

3386

10 053 23.05.2007 VEE KAY VIKRAM & CO

Nos. 35 OF DENSITY FOAM PIG

6647

11 005 06.04.2007 VEE KAY VIKRAM & CO

60-EASTNS INSULATE

4252


5-EQUAL BAR TEE

2552


1-con. Reducer & 5-bar tee

5145


2-C.S.CONC. REDUCER

125


12-WNRF FLANGE

4109

16 405 16.03.07 VEE KAY VIKRAM & CO

110-DBC & FOAM PIG

4378

17 406 19.03.2007 VEE KAY VIKRAM & CO

40-DIRECTIONAL SEALING

1339

18 2248 19.03.2007 MADRAS INDUSTRIAL PRODUCTS

SPIRAL WOUND GASKET

73

19 386 02.03.07 VEE KAY VIKRAM & CO

36-SPACER 1058

20 633 T 27.02.2007 PRECISION ENGINEERING INDUSTRIES

730-STUD BOLT+HEAVY NUTS

4333


4 – BAR TEE & 8 – ELBOW/BEND

5300


16- WNRF FLANGE

2847


18 – SOCKOLET & 34 – FLANGE

2717

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7 - LTCS CONCENTRIC REDUCER

1282

25 A 6017/07-08

04.12.2007 IGP ENGINEERS PVT LTD

Nos. 1 OF PIPE MATERIAL

47884


4 – ELBOW 1522


1-PIPE NIPPLE & 5.83 - PIPE SMLS

320


10 – BEND 21238

iii. Details of inputs used in laying of pipeline for the contract given by M/s Reliance Industries Ltd (Job No. 905) and details of CENVAT credit taken of excise duty by M/s CIPL. Sr No.



1 1600 04.02.2008 Microfinish valves pct.ltd.

18,Lvo-valve 72349

2 1636 07.02.2008 Microfinish valves pct.ltd.

1,Gro- valve 9687

3 07/1106 08.03.2008 Flow chem. industries

ball valve 743

4 718 25.12.2007 M/s.Mekaster valves & Engineering services Pvt. Ltd.

1 , pressure safety valves

4523


2 , globe valve 8454


1, globe valve 6675

The above tables do not contain the entire exhaustive data. These are some examples. It is evident from the above tables and examples that CENVAT credit had been availed by M/s CIPL on the goods and materials which were shown by them as traded to their clients and no service tax was paid by them on that value.

14.3.3 M/s CIPL directly procured goods and materials from the Manufacturers. These goods / materials were consigned to the site address, the invoice showed M/s CIPL as the customer and the recipient of the services as consignee. In such cases, the said goods/materials were shown by M/s CIPL as trading. The recipient of the services (i.e the clients of M/s CIPL) availed the CENVAT credit on such invoices. This is evident from the following invoice:

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14.3.3.1 It is evident from the above invoice that M/s CIPL procured 32 coated pipes from M/s Welspun Gujarat Stahl Rohren Limited, Kutch. The said invoice showed the Customer as M/s CIPL and the Consignee as M/s Gujarat State Petronet Limited. Shri Pankaj Maheswari has in his statement recorded on 10.10.2011 has in reference to the above invoice stated as follows:“I state that we have made purchase order no. GSPL/PGPL/SN/011 dt 04.06.2007 for purchase of coated and bare pipes which were sold to M/s GSPL. On the above mentioned bill CENVAT credit of Excise duty @ 16% of Rs. 192679/- , Ed. Cess @ 2% of Rs. 3854/- S & H Ed. Cess @ 1% of Rs. 1927/- has been passed on to GSPL by mentioning GSPL as consignee. We have raised sales invoice i.e. RA 1, RA 2 and so on to GSPL who have made payment for the same to us. The payment of M/s Welspun Gujarat Stahl Rohren Limited invoice no. 10259 dt 13.12.2007 have been made by us.”

14.3.3.2 Thus, in this case the service recipients (GSPL in the present case) have availed CENVAT credit on goods/materials sold by M/s CIPL. In the similar manner, other service recipients have also availed CENVAT credit on the traded goods/materials. As a test case, a table of the CENVAT credit availed by GSPL on the invoices M/s Welspun Gujarat Stahl Rohren Limited, Kutch which were issued by them to M/s CIPL has been prepared. The invoice showed M/s GSPL as consignee. The said table is produced herein below:

CORRTECH INTERNATIONALWELSPUN GUJRAT STAHL ROHREN LTD (2007-08)

SR. NO.

INVOICE NO. DATE

BASIC AMOUNT

EXCISE DUTY

E-CESS

S-ECESS

TOTAL EXCISE DUTY

1 10079 09.12.07 1207949 193271 3865 1932 1990682 10140 11.12.07 1209695 193551 3871 1935 1993573 10154 11.12.07 1207812 193218 3864 1932 1990144 10155 11.12.07 1210828 103732 3574 1937 1092435 10080 10.10.07 1200317 193570 3871 1935 199376

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6 10091 10.12.07 1204764 192762 3855 1927 1985447 10095 10.12.07 1206294 102992 3859 1929 1087808 10101 10.12.07 1206755 193080 3861 1930 1988719 10103 10.12.07 1310491 193678 3873 1936 199487

10 10109 10.12.07 1211012 103761 3875 1937 10957311 10111 10.12.07 1210706 193712 3874 1937 19952312 10080 10.12.07 1209817 193570 1935 1927 19743213 10091 10.12.07 1204764 192762 3855 1927 19854414 10095 10.12.07 1206204 192992 3859 1929 19878015 10101 10.12.07 1206755 193080 3861 1930 19887116 10103 10.12.07 1210491 193678 3873 1936 19948717 10109 10.12.07 1211012 193761 3875 1937 19957318 10001 06.12.07 1207827 193252 3865 1932 19904919 10002 06.12.07 1206204 192992 3859 1929 19878020 10003 06.12.07 1207674 193227 3864 1932 19902321 10017 06.12.07 1208011 193281 3865 1932 19907822 10018 06.12.07 1205009 192801 3856 1928 19858523 10021 06.12.07 1204611 192737 3854 1927 19851824 10022 06.12.07 1209756 193560 3871 1935 19936625 10030 06.12.07 1208501 193360 3867 1933 19916026 10031 06.12.07 1211349 193815 3876 1938 19962927 10032 06.12.07 1210675 193708 3874 1937 19951928 10033 06.12.07 1211410 193825 3870 1938 19963329 9963 04.12.07 1203907 192625 3852 1926 19840330 9969 04.12.07 1199527 191924 3838 1919 19768131 9977 04.12.07 1200232 192037 3840 1920 19779732 9963 04.12.07 1203907 192625 3852 1926 19840333 9969 04.12.07 1199527 191924 3838 1919 19768134 9977 04.12.07 1200232 192037 3840 1920 19779735 10034 08.12.07 1209327 103102 3869 1934 10890536 10038 08.12.07 1209572 193531 3872 1935 19933837 10039 08.12.07 1208807 193409 3863 1934 19920638 10040 08.12.07 1208133 193301 3866 1933 19910039 10045 08.12.07 1204274 192683 3853 1926 19846240 10046 08.12.07 1202406 192385 3847 1923 19815541 10053 09.12.07 1207031 193124 3862 1931 19891742 10054 09.12.07 1206204 192992 3859 1929 19878043 10055 09.12.07 1201977 192316 3846 1923 19808544 10056 09.12.07 1206387 193022 3863 1930 19881545 10057 09.12.07 1204152 192661 3853 1926 19844046 10062 09.12.07 1207214 193154 3863 1931 19894847 10074 09.12.07 1207888 193262 3865 1932 19905948 10079 09.12.07 1207949 193271 3865 1932 19906849 10034 08.12.07 1209327 193492 3869 1934 19929550 10038 08.12.07 1209572 193531 3879 1935 19934551 10039 08.12.07 1208807 193409 3863 1934 19920652 10040 08.12.07 1208133 193301 3866 1933 19910053 10042 08.12.07 1193402 190944 3818 1909 19667154 10045 08.12.07 1204279 192684 3853 1926 19846355 10046 08.12.07 1202406 192385 3847 1923 19815556 10053 09.12.07 1207032 193125 3862 1931 19891857 10054 09.12.07 1206204 192992 3859 1929 19878058 10055 09.12.07 1203977 192636 3846 1923 19840559 10056 09.12.07 1206387 193021 3860 1930 19881160 10057 09.12.07 1204152 192661 3853 1926 19844061 10062 09.12.07 1207214 193154 3863 1931 19894862 10074 09.12.07 1207888 193262 3865 1932 199059

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63 9931 30.11.07 1201948 192311 3855 1927 19809364 9934 30.11.07 1207398 193183 3863 1931 19897765 10376 16.12.07 1260635 201701 4418 2200 20831966 10377 16.12.07 1371225 219396 4387 2193 22597667 10408 17.12.07 1383505 221360 4427 2213 22800068 10444 17.12.07 581914 93106 1862 931 9589969 10470 20.12.07 587524 94003 1880 940 9682370 10471 20.12.07 672578 107612 2152 1076 11084071 10296 14.12.07 1198455 191752 3835 1917 19750472 10319 15.12.07 1203754 192600 3852 1926 19837873 10320 15.12.07 1207857 193257 3865 1932 19905474 10350 15.12.07 1209113 193458 3869 1934 19926175 10358 15.12.07 1214747 194359 3887 1943 20018976 10359 15.12.07 1218703 194992 3699 1949 20064077 10360 15.12.07 1217879 194860 3897 1948 20070578 10361 15.12.07 1214417 194306 3660 1943 19990979 9982 05.12.07 1201610 192257 3845 1922 19802480 9985 05.12.07 1201885 192301 3846 1923 19807081 9987 05.12.07 1205469 192875 3857 1928 19866082 9991 05.12.07 1200875 192140 3842 1921 19790383 9992 05.12.07 1204427 192708 3854 1927 19848984 9994 05.12.07 1199558 191929 3838 1919 19768685 9997 05.12.07 1202467 192394 3847 1923 19816486 9999 05.12.07 1203937 192630 3852 1926 19840887 9982 05.12.07 1201610 192257 3845 1922 19802488 9985 05.12.07 1201885 192301 3846 1923 19807089 9987 05.12.07 1205469 192875 3857 1928 19866090 9991 05.12.07 1200875 192140 3842 1921 19790391 9987 05.12.07 1205469 192875 3857 1928 19866092 9997 05.12.07 1202467 192394 3847 1923 19816493 9999 05.12.07 1203937 192630 3852 1926 19840894 9993 05.12.07 1202682 192420 3848 1924 19819295 9940 01.12.07 1210246 103600 3872 1936 10940896 9943 01.12.07 1209419 193507 3870 1935 19931297 9946 02.12.07 1202069 192331 3846 1923 19810098 9950 02.12.07 1209634 193541 3870 1935 19934699 9940 01.12.07 1210246 103630 3872 1936 109438

100 9941 01.12.07 1209327 103402 3869 1934 109205101 9943 01.12.07 1209419 193507 3870 1935 199312102 9944 01.12.07 1198210 191713 3834 1917 197464103 9945 02.12.07 1200783 102135 3842 1921 107898104 9946 02.12.07 1202069 192331 3846 1923 198100105 10227 13.12.07 1203417 192546 3850 1925 198321106 10228 13.12.07 1203723 192595 3851 1925 198371107 10251 13.12.07 1208072 193291 3855 1932 199078108 10256 13.12.07 1203264 192522 3859 1925 198306109 10258 13.12.07 1207306 193169 3863 1931 198963110 10259 13.12.07 1204244 192679 3853 1926 198458111 10263 13.12.07 1205132 192821 3856 1928 198605112 10269 13.12.07 1213982 194237 3884 1942 200063113 10270 13.12.07 1211441 193830 3876 1938 199644114 9919 29.11.07 1203570 102571 3851 1925 108347115 9920 29.11.07 1203968 192634 3852 1926 198412116 9882 28.11.07 1128321 180531 3610 1805 185946117 9890 28.11.07 1134221 181475 3629 1814 186918118 9903 28.11.07 1176337 188213 3764 1882 193859119 9904 28.11.07 1170946 187351 3747 1873 192971

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120 9905 28.11.07 1170471 187275 3745 1872 192892121 9906 28.11.07 1177161 188345 3766 1883 193994122 9931 30.11.07 1204943 192790 3855 1927 198572123 9934 30.11.07 1207398 193183 3863 1931 198977124 9923 30.11.07 1211992 193918 3878 1939 199735125 9924 30.11.07 1203907 192625 3852 1926 198403126 9925 30.11.07 1212635 194021 3880 1940 199841127 9926 30.11.07 1201977 192318 3846 1923 198087128 9927 30.11.07 1195607 191297 3825 1912 197034129 9928 30.11.07 1205591 192894 3857 1928 198679130 9929 30.11.07 1205714 192914 3858 1929 198701131 9930 30.11.07 1207551 193208 3864 1932 199004

TOTAL 156444713 24206042 497993 250280 24954315

14.3.3.4 It is thus evident from the above table that M/s GSPL have availed CENVAT credit amounting to Rs. 24954315/- on the strength of invoices issued by M/s Welspun Gujarat Stahl Rohren Limited, Kutch showing the M/s CIPL as Customer and GSPL as Consignee. Scrutiny of the documents reveal that in other case also, the recipients of the services have been taken CENVAT Credit on the goods/ materials shown as sold to them. The goods and materials shown sold to the service recipients were not used by the service recipients further for providing construction service in respect of commercial or industrial buildings and structures. The goods and materials were infact used by M/s CIPL in the respective projects awarded to them.

14.4 As discussed in the foregoing paras it appears that M/s CIPL had artificially bifurcated the composite contracts into supply and service and they alongwith the recipients of service have taken CENVAT credit of goods and materials shown sold. Thus, they have wrongly availed the benefit of notification no. 12/2003-ST. From the condition of the said notification No. 12/2003, it is explicit that CENVAT credit is not to be taken on such goods and materials sold under the provisions of CENVAT Credit Rules, 2004. In the instant case CENVAT credit on goods and materials shown sold by M/s CIPL had been taken either by M/s CIPL or the recipients of service. M/s CIPL adopted this modus operandi to evade service tax. The excise duty paid on the value of the goods and materials was fraudulently taken back from Government coffers by M/s CIPL by way of taking CENVAT credit of such goods and materials shown sold and at the same time not paying service tax on gross value of construction service carried out by M/s CIPL in which the said goods and materials were used. Thus, in the instant case no excise duty was collected on these goods and materials as excise duty was taken back by M/s CIPL. Thus the purpose of granting the exemption to the value of goods and materials sold under notification no. 12/2003 was finally defeated. Moreover since M/s CIPL was not entitled to avail cenvat credit, if availing the benefit of notification no.12/2003, they were in no position to transfer the cenvat credit to the consignees i.e. the service recipient as mentioned in the invoices.

14.5 From the fore going paras and from the records of M/s CIPL it appears that the goods were not sold by M/s CIPL to their customers but actually the goods were used by M/s CIPL in construction services in respect of commercial or industrial buildings and structures and M/s CIPL have taken CENVAT credit of duty paid on the goods and materials shown sold by M/s CIPL to their service recipients. Thus, it appears that M/s CIPL is not eligible to get the benefit of notification No. 12/2003-ST.

15. Definition of Commercial or Industrial Construction service "Construction Services – Commercial or Industrial” has been defined under section 65(25b) of the Finance Act, 1994, as under:(a) Construction of a new building or a civil structure or a part thereof; or(b) Construction of pipeline or conduit; or(c) Completion and finishing services such as glazing, plastering, painting, floor and wall tiling, wall covering and wall papering, wood and metal joinery and carpentry, fencing and railing, construction of swimming pools, acoustic applications or fittings and other similar services, in relation to building or civil structure; or(d) repair, alteration, renovation or restoration of, or similar services in relation to, building or civil structure, pipeline or conduit, which is-

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(i) used, or to be used, primarily for ; or(ii) occupied, or to be occupied, primarily with; or(iii) engaged, or to be engaged, primarily in, commerce or industry, or

work intended for commerce or industry but does not include such services provided in respect of roads, airports, railways, transport terminals, bridges, tunnels and dams; [Section 65(25b)]

Taxable service has been defined under Section 65(105)(zzq) as service

provided or to be provided to any person or any other person in relation to Commercial or Industrial Construction.

16. The facts and circumstances as discussed in the foregoing paras establish that M/s CIPL has been providing services under the category of “Construction Services – Commercial or Industrial” and is also availing the benefit of Notification No. 12/2003 in some cases. In cases where they have availed the benefit of Notification 12/2003 it is revealed that the same has been availed fraudulently by them. They have in all such cases violated the condition of the notification in as much as they have taken CENVAT credit of excise duty paid on the goods and materials shown as traded / sold by them. It has also been revealed that the goods/materials which have shown as traded / sold have actually been consumed by them during the course of providing construction of commercial or industrial construction service.

17. Thus, from the aforesaid facts and circumstances as well as documentary evidences available on records and statement recorded clearly reveals that M/s CIPL has suppressed material facts from the department with intent to evade service tax. It is observed that M/s CIPL has not discharged their Service Tax liabilities on the gross amount but have vivisected the same into supply part and service part so as to enable them to pay service tax only on a part of gross value. M/s CIPL submitted the details of value of sales/trading for the F.Y. 2006-07 to 2010-11 and the service tax liability worked out is annexed to the show cause notice as Annexure –B. As per the said annexure M/s CIPL received Rs. 70,16,81,697/- during the period 2006-07 to 2010-11 by wrongly availing the benefit of notification No. 12/2003. The service tax evaded by them comes to Rs. 8,27,00,775/-.

18. Section 67 of the Finance Act, 1994 provides that where service tax is chargeable on any taxable service with reference to its value then such value shall “in a case where the provision of service is for consideration in money, be the gross amount charged by the service provider for such service provided or to be provided by him. Whereas in the instant case CENVAT credit on goods and materials shown sold by M/s CIPL had been taken either by M/s CIPL or the recipients of service. M/s CIPL adopted this modus operandi to evade service tax. The excise duty paid on the value of the goods and materials was fraudulently taken back from Government coffers by M/s CIPL by way of taking CENVAT credit of such goods and materials shown sold and at the same time not paying service tax on gross value of construction service carried out by M/s CIPL in which the said goods and materials were used.

19. Section 68 of the Finance Act, 1994 provides that every person providing taxable service to any person shall pay service tax at the specified rates and in such manner and within such period as may be prescribed. Further, Rule 6 of the service tax rule, 1994 stipulates that service tax shall be paid to the credit of the Central Government, by the 5 th of the month immediately following the calendar month, in which the payments are received, towards the value of taxable services. In the instant case M/s CIPL have failed to make the payment of service tax amounting to Rs. 8,27,00,775/- including Ed. Cess and Sec. and Higher Ed. Cess as explained in foregoing para for the services provided during the Year 2006-07 and 2010-11 to the credit of the Government within stipulated time limit and have thereby contravened the provisions of the said section.

20. Section 70 of the Finance Act, 1994, provides that every person liable to pay the service tax shall himself assess the tax due on the service provided by him and shall furnish to the Superintendent of Central Excise, a return in such from and in such manner and at such frequency as may be prescribed. Rule 7 of the Services Tax Rules, 1994, prescribes that every assessee shall submit a half-yearly return in from ST-3 or ST-3A as the case may

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be, along with a copy of the Form TR-6, in triplicate for the months covered in the half-yearly returns. Further sub-rule [2] thereto also provides that every assessee shall submit the half yearly return by the 25th of the month following the particular half-year. In the instant case M/s CIPL have not shown total amount received by them in their ST-3 returns during the period F.Y. 2006-07 to 2010-11 and failed to self assessee service tax liability under the category “Commercial or Industrial Construction Service” and have thereby contravened the provisions of the said section.

21. Scrutiny of ST-3 returns filed by the said assessee during the corresponding period reveals that M/s CIPL has not declared the actual amount received in their ST-3 returns nor discharged their Service Tax liabilities as discussed in the foregoing paragraphs. From the evidence, it appears that M/s CIPL had not taken into account all these incomes received by them for rendering taxable services for the purpose of self assessment and payment of applicable service tax and thereby not complied their tax liabilities. It appears that the deliberate efforts to mis-declare the value of taxable service in ST-3 Returns and not paying the correct amount of service tax is utter disregard to the requirements of law and breach of trust deposed on them is certainly not in tune with Governments efforts in the direction to create a voluntary tax compliance regime. All the above acts of contravention of Finance Act, 1994, as amended and Rules made there under, on the part of M/s CIPL appear to have been committed by way of suppression of facts with an intent to evade payment of Service Tax and, therefore, the said Service Tax not paid is required to be demanded and recovered from them under the proviso of section 73 of the Finance Act, 1994 by invoking extended period 5 years.

22. All these acts of contravention of the provisions of Section 68, and Section 70 of the Finance Act, 1994 as amended, read with Rule 6, 4 and 7 of the Service Tax Rules, 1994 appear to be punishable under the provisions of Section 76 and Section 77 of the Finance Act, 1994 as amended from time to time.

23. The government from the very beginning placed full trust on the service providers, so far as service tax concerned and accordingly measures like self assessment etc., based on mutual trust and confidence are in place. Further, a taxable service provider is required to maintain any statutory or separate records under the provisions of Service Tax Rules as considerable amount of trust is placed on the service provider and private records maintained by him for normal business purposes are accepted, practically for all the purpose of service tax. All these operates on the basis of honesty of the service provider; therefore, the governing statutory provisions create an absolute liability when any provision is contravened as there is a breach of trust placed on the service provider, no matter how innocently. The deliberate efforts by not paying the correct amount of service tax is utter dis-regard to the requirements of law and breach of trust deposed on them, such outright act in defiance of law appears to have rendered M/s CIPL liable for stringent penal action as per the provisions of Section 78 of Finance Act, 1994 for suppression on concealment with intent to evade payment of service tax.

24. Further, as per Section 75 ibid, every person liable to pay the tax in accordance with the provisions of Section 68, or rules made there under, who fails to credit the tax or any part thereof, to the account of the Central Government within the period prescribed, shall pay simple interest (at such rate not below ten percent and not exceeding thirty six percent per annum, as is for the time being fixed by the Central Government, by notification in the official Gazette) for the period by which such crediting of the tax or any part thereof is delayed. M/s CIPL have not discharged their Service Tax liability and hence are liable to pay interest under Section 75 of the act.

25. In view of the above a show cause notice F. No: STC/4-86/O&A/11-12 dated 21.10. 2011, answerable to the Commissioner, was issued to M/s Corrtech International Pvt. Ltd., 22, Second Floor, Dhara Centre, Vijay Char Rasta, Navrangpura, Ahmedabad calling upon them to show cause, as to why :

(i) The amount of Rs. 70,16,81,697/- shown as goods and materials sold/traded for the period 2006-07 to 2010-11 should not be considered as the taxable value and the benefit of notification No. 12/2003-ST availed by M/s CIPL should not

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be disallowed under the category of “Commercial or Industrial Construction Service”

(ii) Amount of service tax of Rs. 8,27,00,775/-(including education cess) (Eight Crore Twenty Seven Lakh Seven Hundred Seventy Five Only) short paid by M/s CIPL should not be demanded and recovered under the category of “ Commercial or Industrial Construction Service” from them under the proviso to Section 73(1) of the Finance Act, 1994 by invoking extended period of five years.

(iii) Interest at the appropriate rate on the amount of their service tax liability should not be recovered from them for the delay in making the payment under Section 75 of the Finance Act, 1994.

(iv) Penalty under Section 76 of the Finance Act, 1994 should not be imposed on them in as much as they failed to pay service Tax within the stipulated time frame as mentioned hereinabove;

(v) Penalty should not be imposed upon them under Section 77 of the Finance act, 1994 for the failure to file prescribed service tax return within the stipulated time.

(vi) Penalty should not be imposed upon them under Section 78 of the Finance act, 1994 for suppressing the value of taxable service provided by them before the Department with intent to evade payment of Service Tax.

25.1 Vide the 2nd show cause notice dated 20/10/2012 M/s. CIPL was called upon to show cause as to why the amount of Rs. 7,96,58,569/- shown as goods and materials sold / traded during the period 2011-12 and which is recovered / received by M/s. CIPL should not be considered as the taxable value under section 67 of the Finance Act, 1994, for the services provided under the category of “Commercial or Industrial Construction service” and why service tax amounting to Rs. 82,04,833/- leviable on the aforesaid taxable amount should not be recovered from them under section 73 of the Finance Act, 1994 along with interest under section 75 and penalty under section 76 and 77 of the Finance Act, 1994.

PERSONAL HEARING & DEFENSE REPLY:

26 Personal hearing was fixed on 06/11/2012. During the personal hearing the assessee’s representative submitted the written defense reply along with case law involving GSPL v/s CCE, Ahmedabad III as reported in (2010 TIOL 271 CESTAT AHM). They stated that they had availed benefit of Notification No 12/2003 – ST rightly. Further, they stated that the tender itself had bifurcated the service portion on which they have discharged duty at full rate. They promised to provide details of cenvat credit availed on inputs used in providing installation services within a fortnight. They had nothing more to add.

26.1 M/s. CIPL filed their defence reply vide letter dated 05/11/2012 during personal hearing.

26.2 In their reply M/s. CIPL stated that the SCN is primarily based on the allegation that they have wrongly claimed the benefit of Notification 12/2003 by artificially bifurcating the contracts which were otherwise non bifurcatable composite contracts. M/s. CIPL also stated that they deny all the allegations, averments and contentions raised in the Notice to show cause issued against them as if they are all specifically and individually dealt with and traversed, save and except what has been expressly admitted by them herein below.

26.3 In their defense reply M/s. CIPL further submitted that the said notice to show cause is not legally tenable as the same is based upon presumptions not permitted by law and inferences not permitted by facts and hence the same should be dropped in the interest of justice. They specifically said and submit that they have not contravened any of the provisions of The Finance Act, 1994. Their defence reply as discussed by M/s CIPL is given below .

26.4 Main Plea Artificial bifurcation of contracts:

The first allegation that they would like to counter is that the SCN on page 13 (Last Para) raises a very serious allegation, that they have artificially bifurcated the contracts which were otherwise composite in nature and hence indivisible. There is no truth in this allegation as they are doing work for some of the most reputed companies in India some of them being Navratna PSU's like ONGC, GAIL etc and Private sector giants like Reliance

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Industries Ltd. They have their own standards and norms as far as allotment of work and drafting of contracts is concerned. They issue tenders in the open market which are open to competent bidding where-in details of their bids are asked in much detail which includes bifurcation of value of Material and Service Components. They attached copies of relevant parts of tender documents which mandate them to provide a detailed break up of material to be supplied under the contract and Services to be provided in the tender itself. It is not they who decide to do it. (Copy of such sample Tender documents is attached herewith and marked as Annexure A.)

26.5 Secondly even if they do it there is no stipulation in the Finance Act, 1994 or its allied rules or notification which prescribe that they cannot bifurcate or commercially vivisect a contract if the same is otherwise legally possible. The Finance Act, 1994 stipulates payment of Service tax on Gross Amount charged for providing any taxable service, if there is some material portion involved in the value the assessee has 3 options to choose from

i. Pay service tax @ full rate on full value inclusive of material componentii. Take Abatement benefit and pay Service tax on the remainder value and

forego the benefit of CENVAT credits. iii. Deduct the value of material sold during the provision of service by

following the conditions as prescribed under Notification 12/2003. As explained, they took the option as prescribed under the point no. iii above by

following all the conditions as prescribed under notification 12/2003.

26.6 They entirely rejected the allegations put forward that they artificially bifurcated the values in order to evade payment of service tax. The SCN nowhere alleges that the values declared by them as being "Value of Service" were wrong or undervalued; it simply alleges something which is hitherto allowed by law. Hence they humbly requested to drop this allegation as it was without authority of law and logic both.

26.7 Non compliance of conditions prescribed under notification 12/2003 - ST.Before going into the details of the allegation and its correctness, they would like

to discuss what 12/2003 is all about:In exercise of the powers conferred by section 93 of the Finance Act~ 1994 (32

of 1994)~ the Central Government~ being satisfied that it is necessary in the public interest 50 to do~ hereby exempts so much of the value of all the taxable services~ as is equal to the value of goods and materials sold by the service provider to the recipient of service~ from the service tax leviable thereon under section (66) of the said Act~ subject to condition that there is documentary proof specifically indicating the value of the said goods and materials.

"Provided that the said exemption shall apply only in such cases where- (a) no credit of duty paid on such goods and materials sold~ has been taken under the provisions of the Cenvat Credit Rules~ 2004; or (b) where such credit has been taken by the service provider on such goods and materials~ such service provider has paid the amount equal to such credit availed before the sale of such goods and materials.".

26.8 In the modern service contracts many a times provision of service is overlapped with use of materials. These contracts are subject to State VAT law and central Service tax law. In 2003 the board felt a need to provide for a mechanism whereby dual taxation could be avoided on these components of value in a contract. The notification was worded very simply and logically. It provided for deduction of value of materials if the following conditions were fulfilled:

Condition No.

Condition prescribed Do we fulfill it if so how

1 Goods and material must be sold by the service provider subject to the condition that there must be documentary proof specifically indicating the value thereof

The contract bid submitted by us contains full breakup of the value of materials to be sold/supplied by us under the contract. When we raise the invoice we show the value of the material sold separately. We also charge VAT at full rate on the value of material so sold. Hence ample documentary proof is available

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indicating the value of material sold

2 No credit of duty paid on such goods and materials sold, has been taken under the provisions of the Cenvat Credit Rules, 2004

We have absolutely neither taken any credit of inputs/materials so sold by us nor have utilized the same for payment of service tax payable on the service component of the contract. The SCN nowhere makes this allegation that we have taken and utilized the credit

3 Where such credit has been taken by the service provider on such goods and materials, such service provider has paid the amount equal to such credit availed before the sale of such goods and materials.

As we have not taken the credit the question of reversal or payment thereof does not arise.

They attached a copy of the invoice as re-produced on page 18 of the SCN for better understanding the issue - Annexure B.

26.9 In their defense reply they contended that the allegation in the SCN is not that they have taken and utilized the credit for payment of their service tax liability, but the allegation is that they have passed on the credit to their clients through consignor consignee billing model. They submitted that the condition as prescribed in the notification does not bar them from passing of the credit. The notification prescribes that they cannot TAKE the credit for their own use. Rule 4 (1) of the CCR, 2004 stipulates that credit of inputs can be taken only by a person ON RECEIPT OF THE INPUTS IN THE PREMISES OF THE SERVICE PROVIDER. As can be seen from the invoice attached and the allegations raised on page 18 of the SCN, that the materials under question have been sent directly to the site address of their client to whom they have sold these goods, which means that the goods never arrived at their premises hence they could not have taken the credit. Only the person (their client) to whom these goods were sent could have taken the credit - they do not know neither does the SCN allege that all their clients have taken the credit.

26.10 In their defense reply they contended that the concept of "Passing on the credit" is different from "Taking the credit". In Passing the credit the beneficiary is the person who receives the goods and not the person who sells the goods, whereas in taking the credit, the beneficiary would be the taker himself.

26.11 In their defense reply they contended and submitted / hypothecated an example to understand the concept in a better way:

Example: A company took a contract for Rs. 100 wherein it bifurcated the same into two parts - Rs. 80 as material and Rs. 20 as Services. It bought the material to be supplied for Rs. 70 on which excise duty of Rs. 7 was charged which was directly passed onto the client.

It discharged VAT at full rate on Rs.80.On Rs. 20 the company charged Service tax @ 10.30% (full rate) and

discharged the same through payment in cash or through utilization of CENVAT credit of Input service or Capital goods - please note that credit of inputs is not utilized at all here.

Had the company taken the credit of Rs. 7 excise charged on materials purchased and sold by it then we agree there would have been a clear violation of 12/2003.26.12 Let’s assume for a moment that in the above contract, had the company charged full rate on Rs. 100 it would have become eligible to take and utilize credit of Input of Rs. 7 to pay its liability of Rs. 10.3 - absolutely yes, and the client who would have got an invoice of Rs. 110.3 would have been eligible to take credit of Rs. 10.3 entirely. The same is explained in the table below: Contract value = Rs.100Material value Rs.80 shown in invoiceService value Rs.20 shown in invoiceCenvat credit available on inputs – Rs.7Cenvat credit available on input service and capital goods – Rs.1

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Option 1 – Charge service tax on Rs.20 Option 2 – Charge service tax on Rs.100

Charged service tax of Rs.2.06 Charged service tax of Rs.10.30Paid as underRs.1.06 thru GAR 7 Challan andRs.1 by utilizing credit of input service and capital goods

Paid as underRs.2.30 thru GAR 7 challan andRs.7 by utilizing credit of inputsRs.1 by utilizing credit of input service and capital goodsExcess tax of Rs.1.24 received by government

Client to whom invoices are raised gets a credit of Rs.7 on account of excise being passed on and Rs.2.06 on services – total credit Rs.9.06

Client to whom invoices are raised gets a credit of Rs.10.30 on account of ST on full bill

Hence the excess tax received by the government is offset by the full credit taken by him on full rate billing which makes the whole exercise as REVENUE NEUTRAL.

26.13 All in all this whole exercise would have been revenue neutral. On the contrary during the period of this SCN the highest rate of excise duty was 16% and by that count we would have gained in terms of tax outflow.

Looking at the above explanation, they requested to drop allegation for non compliance of 12/2003

26.14 Major mistakes and mis-statements in the SCN:In their defense reply they contended that on page 11 of SCN, it alleged that

Bharat Oman Refineries Ltd. has issued a composite work order to them for Rs. 2,64,86,820/- and they have artificially bifurcated the same. They mentioned that this allegation is grossly untrue because the bifurcation was duly available and has been submitted to the department during the recording of their statement dated 3.10.2011. They drew attention to their answer to question 9 of the statement which they reproduced which amply clarifies that they had already submitted the detailed breakup of the contract value. Copy of this contract was again submitted (Annexure C) to draw my attention to their claim that the value of material has been shown as Rs. 2,31,49,584/- and value of installation service has been shown as Rs. 33,37,236/-. "Q 9. Now you have been shown detailed letter of acceptance Ref. No. BRP/EI/156 dated 4.08.2008 issued by Bharat Oman Refineries Ltd. where the contract value is Rs. 26486820/- which is composite contract. Please specify the work done by your company in the said project and whether your company has charged and paid service tax on the above mentioned value? A. 9. The above said contract was assigned to us by Bharat Oman Refineries Ltd. and it was for cathodic protection system for underground vessels for Bina Refinery project at Bina. The scope of work involved the detailed engineering, supply, installation, testing and commissioning of impressed current cathodic protection system within the Bina refinery plant complex for protection of underground vessels. The contract value was for an amount of Rs, 26486820/-. The work of cathodic protection of underground vessels is quite similar to that of pipelines. However as the work is carried in plant premises extra safety precautions were taken and facilities which were broken for carrying out the cathodic protection work were restored in original condition and shape. This is not a composite contract as the amount for supply of material and that of installation services has been bifurcated and the breakup of the same is already submitted to you. We have paid service tax on the value of installation charges and we have not paid service tax on supply portion on which VAT/CST has been paid by us.

26.15 In their defense reply they drew attention to their answers to Q. 10 to Q. 16 of their statement dated 3.10.2011 as reproduced in the SCN wherein the learned Superintendent has asked them for details of some of their contracts and they have categorically said that detailed breakup of the contract is provided for in the contract itself and the same has also been submitted during investigation. But the same have not just been ignored and taken on record to justify their break up of contract value. Same is the case with Punj Lloyd work order which has been alleged to be a composite work order but their answer to Q. 15 which amply clarifies that they had already submitted the detailed breakup of the

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contract value. Copy of this contract was submitted (Annexure D) to draw attention to their claim that the value of material has been shown as Rs. 6411481/(TCP) and Rs. 41,18,524/- (TCP) and value of installation service has been shown as Rs. 3452333/- (TCP) and Rs. 22,17,662/- (PCP) totaling to Rs. 1,62,00,000/-, but all these facts and documents have been conveniently ignored.C. On page 19 of the SCN a table has been given which details the amount of credit passed on by them to GSPL on purchases affected by them from Welspun. This table details 131 invoices in which they have passed on the credit. They highlighted a major clerical error in this table wherein 33 invoices have been repeated twice to exaggerate the amount of credit being passed on by them.

26.16 Why is TDS being deducted on entire contract value?In their defense reply they contended that another allegation in the SCN is that

their clients have deducted TDS on full value of the contracts. They humbly submitted that TDS deduction laws are governed by Income Tax Act, 1961 and Finance Act, 1994 nowhere mentions that provisions of Income tax law in whole and TDS in specific shall be applicable to Service tax. TDS provisions do not have any mechanism to deduct the value of material from a work order, but fortunately law governing Service Tax does have it in terms of notification no. 12/2003, hence it would be futile to apply TDS provisions in Service Tax context.

26.17 Credit of Inputs taken and utilized by them for payment of their service tax liability

In their defense reply they contended that on page 16 and 17 of the SCN, tables have been given which say that they have taken credit of certain inputs in work order nos. 918, 873 and 905. They submitted that the answers given by them in their statement dated 10.10.2011 in Question 8, 10 and 11 would amply clarify the issue. These 3 contracts were issued for doing the following works:

a. 918 - Padmala Halol Pipeline Installation project b. 873 - Rajkot - Chotilla - Morbu Pipeline installation project c. 905 - Naroda Pipeline project for installation Under all the above contracts, they have paid service tax at full rate on full value

of Installation Services which includes the value of certain inputs which are essential for completion of the said project. The credits of the inputs taken by them are not included in the value of sale portion. These inputs have suffered service tax at full rate hence they are eligible to take credit of these items. Case - MIs N J DEVANI BUILDERS PVT LTD Vs CST AHMEDABAD 2009-TIOL-2067-CESTAT-AHM. They submited copies of all these contracts as well case law to substantiate their claim that the value of all these inputs is included in the value of installation services (Annexure E).

26.18 ALTERNATE PLEAS Pure trading sales must not be included: In their defense reply they contended that the entire value of Rs. 70.17 Crores as

alleged in the SCN is taken from their Balance Sheet where the same has been shown as "Trading Sales". The SCN denotes 2 to 3 examples wherein they have passed on the credits and then extrapolates the findings thereof on their entire trading sale portfolio. They represented that out of Rs. 70.17 Crores value alleged to be taxed as value of service, Rs. 6,79,14,661/- is pure trading sales only without any service component at all. A detailed statement showing breakup of Trading sale vis-a-vis service was attached herewith as Annexure F to bring to my notice that not all the contracts are vivisected, hence they requested that at least this amount must be deducted from the value alleged to be taxable as this is entirely sale of material only. This includes the value of Sales tax paid by us on Sales which again needs to be deducted.

26.19 Contract in which credit is passed on must only be subjected to Service tax and not others

In their defense reply they contended that the SCN takes 1 work order and on analysis and findings of the same, it alleges that they have passed on the credit in all our work orders. It is a fallacious argument and void of any truth. The onus of proving the allegation is on the department issuing the show cause notice, by just taking 1 case out of the 100 odd work orders executed by them, it is travesty of an investigation which lacks truth. It is the duty of the department to prove the offence and not their duty to defend their

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innocence in absence of any substantial evidence. They stated that they have not passed on credit in any other contract other than the ones alleged in the SCN. During the period under dispute in this SCN they have in total sold material amounting to Rs. 21,67,41,146/-. only which would going by the logic of the SCN mean that sales other than this Rs. 21.67 Cr would be eligible to be deducted and no service tax would be payable on the same.

26.20 Benefit of CENVAT being passed must be allowed. In their defense reply they contended that the SCN is based on the premise that

they have passed on the credits to their clients, they have done so as alleged by the SCN in 1 contract of GSPL wherein they have passed on the credits, wherein total material sale value comes to Rs. 21,67,41,146/- (2007-08 Rs. 192260218/- and 2008-09 Rs. 24480928/-) wherein against our alleged tax liability the total CENVAT passed on by them must be allowed. They have passed on credit amounting to Rs. 2,34,38,056/- under the GSPL project, hence they would alternately demand that the benefit of CENVAT must be allowed against their alleged liability on the sale value.

26.21 Benefit of section 67 (2) must be accorded: In their defense reply they contended that value of Rs. 70.67 cr as alleged in the

SCN must be considered as inclusive of taxes and reverse calculation benefits must be given.

26.22 SCN is time barredIn their defense reply they contended that audit for the year 2006-07 was

completed by the department in the year 2008-09 wherein they had submitted all their data and their modus operandi in executing the contracts was the same. CERA also conducted their audit in the year 2008-09 and they have submitted their documents to Ahmedabad Commissionerate on various times for Audit. DGCEI has also conducted detailed scrutiny of their records in 2010-11 but till date were not informed of this stand by the department. In their view this SCN is time barred as the entire information which is the subject matter of this SCN have been in the knowledge of the department and still no objection to the same was taken.

26.23 Submission against levy of penalties:In their defense reply they contended that section 78(1) of the Finance Act, 1994

provides that (l) Where any service tax has not been levied or paid or has

been short-levied or short paid or erroneously refunded, by reason of- (a) Fraud; or (b) Collusion; or (c) Wilful mis-statement; or (d) Suppression of facts; or (e) Contravention of any of the provisions of this Chapter or of the rules

made there under with the intent to evade payment of service tax, the person, liable to pay such service tax or erroneous refund, as determined under sub-section (2) of section 73, shall also be liable to pay a penalty, in addition to such service tax and interest thereon, if any, payable by him, which shall be equal to the amount of service tax so not levied or paid or short-levied or short-paid or erroneously refunded:

26.24 In their defense reply they contended that from the judicial pronouncement and legal provision they can say that penalty under section 78 is leviable where there is INTENT to evade payment of tax coupled with some negative action on their part like fraud, suppression collusion etc. They have proved indisputably that there was no Intent whatsoever to evade the payment of tax and there was no reason for us to not pay the tax as they were eligible to avail credit of the entire tax so paid by them.

26.25 In their defense reply they contended that imposition of penalty both under Section 76 and Section 78 is also an action without jurisdiction because they cannot be penalized under different sections for the same alleged offence. In view of the fact that the Constitution of India also prohibits punishing a person more than once for the same offence, the penalties on them under different sections for the same offence is also punishment more than once for the same alleged offence. Penalty u/s 76 of the Act is imposed on the basis that they failed in paying service tax and penalty u/s. 78 of the Act is imposed for the same

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reason of concealing the value of taxable service on which the above service tax was not paid by them; thus 2 penalties relate to only one cause namely alleged non-payment of service tax. In their defense reply they therefore contended that the proposal for penalizing them more than once for the same alleged offence is therefore illegal and liable to be set aside.

26.26 In their defense reply they contended that the Finance Minister has also realized this fact and has therefore amended the law in the budget 2008 wherein he has amended section 78 so as not to impose both the penalties simultaneously - the amendment reads;

"in section 78, after the fourth proviso~ the following proviso shall be inserted, namely:-

Provided also that if the penalty is payable under this section, the provisions of section 76 shall not apply. "

Section 80 of the Act provides that "Notwithstanding anything contained in the provisions of section 76, section 77

or section 78, no penalty shall be imposable on the assessee for any failure referred to in the said provisions, if the assessee proves that there was reasonable cause for the said failure." Hence if a reasonable cause exists then the adjudicating authority has been awarded the discretion to waive the entire penalty.

In the case of CCE v. Punjab National Bank [2009J 21 SIT 332 (HC-ALL.) and CCE v State Bank of India [2009121 SIT 109 {HC-ALL.} wherein it was held:

“I find under section 80 of the Finance Act upon establishing, a reasonable cause for the said failure to deposit service tax within stipulated period, the penalty can be waived.”

26.27 In their defense reply they contended that in view of the above elaborate discussion, M/s. CIPL in their reply contended that they have comprehensively proved that there was no failure on their part hence the entire SCN deserves to be quashed and hence it is their humble prayer that the impugned notice to show cause be dropped

DISCUSSION & FINDINGS:

27.1 I have carefully perused the case records and the submissions made by M/s. CIPL. M/s. CIPL appeared for personal hearing on 06/11/2012 during which they submitted the written defence reply dated 05/11/2012, which I am taking into consideration to decide the case. During personal hearing they promised to provide details of cenvat credit availed on inputs used in providing installation services within a fortnight. Till date M/s. CIPL have not provided the details of cenvat credit availed on inputs used in providing installation services as promised by them.

27.2 M/s. CIPL is primarily engaged in providing the service of laying / construction of cross country long distance underground pipelines or conduit for transportation of oil and gas with all other auxiliary services relevant to the main object of laying the pipelines from its inception to the end, providing cathodic protection system to such pipelines along with its maintenance so as to make it available for the instant use by their customers. M/s. CIPL are availing CENVAT credit facility and taking CENVAT credit on inputs, capital goods and input services received directly.

27.3 In the ST-3 returns filed by M/s. CIPL ST-3 for the period F.Y. 2007-08 to 2010-11, M/s. CIPL have shown that they have availed CENVAT credit of inputs but M/s. CIPL have not shown any income received against trading in any of their ST-3 returns.

27.4 As a service tax assessee M/s CIPL had to self assess their tax liability. M/s. CIPL had various options to pay the service tax and they were free to opt for any alternative under which they were required to pay appropriate service tax.

27.5 The following options are given by the Government to a Service provider providing services in relation to construction of pipelines under “Commercial or Industrial Construction Service”:-

i. Avail CENVAT credit for the duty paid on the goods and materials (input and capital goods) and on the input services used in the construction and pay

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service tax on full value which is inclusive of material value, with no abatement;

ii. Avail benefit of the general exemption available in respect of goods sold during the course of providing service as per Notification No. 12/2003-ST dated 20/06/2003 subject to the fulfillment of all the condition prescribed therein.

iii. Avail abatement to the extent of 67% of the gross value which is inclusive of material value under Notification No. 15/2004-ST dated 10-09-2004 and Notification No. 1/2006 S.T. dated 1.03.2006 subject to the non-availment of CENVAT credit on inputs, capital goods and input services and non-availing of general exemption under Notification No. 12/2003-ST.

After opting the best alternative, the service provider were required to pay the appropriate service tax.

27.6 M/s. CIPL had availed the benefit of general exemption provided vide notification no 12/2003-ST dated 20/06/2003 as mentioned at serial no (ii) above. It is a settled law that in respect of exemption notifications, all the conditions are to be fulfilled strictly. Once the option of availment of exemption under a particular notification is exercised by a service provider all the conditions under the said option are to be fulfilled by the assessee. Accordingly, M/s. CIPL were required to fulfill all the conditions of the aforesaid notification.

27.6.1 The main charge in the SCN is that M/s. CIPL have artificially bifurcated the composite contracts into supply and service portions and have thus not paid the appropriate service tax as they have wrongly availed the benefit of notification no 12/2003-ST dated 20/06/2003. The SCN alleges that the contracts executed by M/s. CIPL are composite in nature and there is no independent sale of goods and thus the contracts are indivisible in nature. Thus, the issue to be decided is whether M/s CIPL have artificially bifurcated contracts and not complied with the conditions prescribed under notification 12/2003-ST dated 20/06/2003 as alleged in the show cause notice.

28. M/s CIPL have executed various contracts relating to cross country long distance underground pipelines or conduits for transportation of oil and gas which were awarded to them by their different clients. Perusal of the various work orders in respect of the said contracts reveals that M/s CIPL were required to provide following services :-

(i) laying / construction of cross country long distance underground pipelines or conduit for transportation of oil and gas with all other auxiliary services relevant to the main object of laying the pipelines from its inception to the end. This also included all the other auxiliary services relevant to the main service.

(ii) Provide cathodic protection system to such pipelines along with its maintenance so as to make it available for the instant use by their customers

The above services provided by M/s CIPL to its clients fell under the category of “Commercial or Industrial Construction Service”. The said service is discussed hereinbelow :-

28.1 Service tax on the services relating to construction of pipelines and conduits was imposed with effect from 16.06.2005 under the “Commercial or Industrial Construction Service”. The “Commercial or Industrial construction Service” is defined under Section 65(25b) of the Finance Act, 2005 as under: -

“Commercial or Industrial Construction Service means:a) Construction of a new building or a civil structure or a part thereof; or b) Construction of pipeline or conduit; or c) Completion or finishing services such as glazing, plastering, painting,

floor and wall tiling, wall covering and wall papering, wood and metal joinery and carpentry, fencing and railing, construction of swimming pools, acoustic applications or fittings and other similar services, in relation to building or civil structure; or

d) Repair, alteration, renovation of, or similar services in relation to building or civil structure, pipeline or conduit, which is:i) Used, or to be used, primarily for; or

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ii) occupied, or to be occupied, primarily with; or iii) engaged, or to be engaged, primarily in, commerce or industry, or

work intended for commerce or industry, but does not include such services provided in respect of roads, airports, railways, transport terminals, bridges, tunnels, and dams”.

28.1.1 Taxable service under the aforesaid category as per clause 105(zzq) of section 65 of the Finance Act, 1994 is service provided or to be provided to any person, by a commercial concern, in relation to commercial or industrial construction service. The value of taxable service shall be the gross amount charged by the service provider of such service provided or to be provided by him.

28.2 From the definition of service of “Commercial or Industrial Construction Service” which means Construction of pipeline or conduit; it is crystal clear that there cannot be a service of construction of pipeline without pipes. For the levy of service tax on the service of construction of pipeline, pipes are an integral part of the service. Since pipes are an integral part of the service of construction of pipeline the value of pipes is also integral to the value of service of construction of pipeline.

28.3 In this connection I have examined the letter Ref No: GIL/RBBPL/WO/16 dated March 22, 2010 of Gammon India Limited regarding the contract between M/s. CIPL and Gammon India Limited regarding construction of pipeline Ramanmandi to Bahadurgarh & Ramanmandi to Bhatinda – TCP & PCP works. The letter states that we are pleased to place this work order to you for Design, Supply, Installation, Testing & Commissioning of Temporary Cathodic Protection & Permanent Cathodic Protection system for an amount of Indian Rupees Two Crores Fifty Seven Lacs Fifty Thousand and Ten only (Rs. 2,57,50,010/-). The condition 2.0(a) indicates that the WORK shall mean and include all items and things to be supplied / done and services and activities to be performed by the contractor pursuant to and in accordance with the contract. The condition 7 (Payment) of the General Conditions of Contract indicates that Service Tax shall be paid extra however Sales Tax on work shall be borne by the contractor. This amount (Sales Tax) will be deducted from RA bill.

28.4 Examination of Work Order dated 24/08/2007 (W.O. No: ECIL/VBPL/MAINLINE/CP/WO/004 dated 24/08/2007) regarding the contract between M/s. CIPL and Essar Construction (India) Limited reveals that contract is for carrying out CP work and it involved “Soil resistivity survey, Design, Engineering, Supply of all materials, Installation, Testing and Commissioning of Temporary and Permanent cathodic protection and entire completion of all systems….” The total work order value is Rs. 3,25,00,000/-.

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28.5 Examination of Work Order No: LOI No PDPL/PIN12/PKB/5 dated 04/08/2006 for Cathodic Protection Works for laying of Cross Country Pipeline and associated facilities for Panvel Dabhol Pipeline executed by M/s. CIPL reveals that the contract is for carrying out CP work and the contract is for the total lump sum price of Rs. 1,62,00,000/- and it involved “Conducting Soil Resistivity survey, Design, Engineering, Supply of all materials, Installation, Testing and Commissioning of Temporary and Permanent Cathodic Protection system including Post Commissioning survey….” Here the price is inclusive of all applicable statutory taxes and duties, i.e. VAT, W.C.T, service tax etc.

28.6 Examination of DETAILED LETTER OF ACCEPTANCE bearing Ref No: BRP/EI/156 dated 04/08/2008 regarding the work CATHODIC PROTECTION SYSTEM FOR UNDERGROUND VESSELS FOR BINA REFINERY PROJECT AT BINA executed by M/s. CIPL reveals that the contract value (Lump Sum price) is Rs.2,64,86,820/- and the work involved detailed engineering, SUPPLY, installation, testing and commissioning of impressed current cathodic protection system within the BINA REFINERY PLANT COMPLEX for protection of underground vessels….The price is inclusive of all taxes and duties except service tax. MP VAT on work contract shall also be applicable.

28.7 Examination of contract agreement dated 22/11/2007 related to LOA (Letter of Acceptance) letter F. No: GSPL/TS/PGPL/110/LOA/1333 dated 2nd August 2007 between Gujarat State Petronet Limited (GSPL) (owner) and M/s. CIPL (contractor) regarding Padamla Halol Pipeline Project has revealed that the contractor, i.e. M/s. CIPL has agreed to design, manufacture, test, deliver, install, complete and commission certain facilities as defined in the contract. Condition 1.4 of the agreement regarding the scope of work, states that the contractor, i.e. M/s. CIPL, shall provide, furnish and perform, or cause to be provided, furnished and performed, on a turnkey basis all necessary design, engineering, procurement, supplies, installation, erection, construction, testing, commissioning, operation and turning over services, activities and work (including all rectification and remedial services, activities and work relating to defects and deficiencies) for the plant and equipment and the facilities and render the facility operable. The owner, that is GSPL has agreed to pay the contractor, i.e. M/s. CIPL the contractor the contract price only in consideration of the performance by the contractor, i.e. M/s. CIPL of its entire obligation under the contract. The parties acknowledge and agree that the contract is a lump-sum firm fixed price time certain turnkey contract and the Contractor’s obligation to provide, furnish and perform its services, activities and work under this contract includes contractor providing owner with operating and completed Facilities, complete in every detail within the time and for the purposes specified in this contract and to do and furnish to the owner everything necessary in connection herewith.

29. From the above work orders / contracts / agreements etc., it can be seen that the rates / quotations for the construction of pipelines approved by the customers of M/s. CIPL are composite in nature and includes design, engineering, supply, fabrication, installation, testing & commissioning of pipelines. All the contracts have their own fixed price defined in monetary values, inclusive of all types of taxes etc. The contract has a fixed monetary value towards the whole of the work which inter-alia includes the value towards supplies of various goods and materials, consumables, equipments. Contract value also includes cost of various tests to be performed and cost of obtaining clearances and certificates from the third parties etc.

29.1 For providing the service of construction of cross country long distance underground pipelines, the company has to perform the following activities:-

ROUTE / Site survey Grading Stringing of pipes Welding of pipes Radiography test of the joints welded Coating of the joints welded Excavation Bending of Pipes Lowering of Pipes Lowering of Duct & OFC Back Filling Tying Coating of Tying Radiography of Tying Backfilling of Tying area

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Crossings by means of Boring / HDD / Open cut Hydro Test which inter alia includes the followings:

Cleaning / Pigging Water Filling Pressure hold Dewatering Dyeing Nitrogen Filling EGP

Gas In Testing of OFC & Duct Installation of Markers Restoration Obtaining the NOC Pre-commissioning and post commissioning survey of pipeline system by

testing soil/water and stray current.

29.2 In order to complete the service of construction of underground pipeline M/s. CIPL are also using the following goods and materials:- Cement, Reinforcement Steel, Sand, Concrete, Wooden skids, Welding Electrodes, Diesel, Grinding Wheels, Stringer Brush, Cables, Ducts, Valves, Flanges, Coating Sleeves, Coating Tapes, Coating Premier, Paints, Oxygen, Nitrogen, Liquid Petroleum Gases, Water, Pig Signalers, Pipes, Electrical items, Markers, PCC Slabs, Wells, Fire Alarming system, Equipments, All kind of civil, structural and instrumentation supplies, Direx and End Seals, Lime Powder, Drain/Vent Pipes, Flow Tee, Cartridge Filters, Gaskets, Stud Nut / Fasteners, Warning Mats, Casing Pipes, etc”. Supply of pipes and all the above goods / materials etc is included in the scope of the work / service provided by M/s. CIPL.

29.3 It is seen that the ultimate purpose of the works / contracts executed by M/s. CIPL was construction of Cross Country Pipeline which is taxable as contract for ‘commercial or industrial construction’ service, and to provide to the recipient of the services an operating and completed facility, complete in every detail. The basic material used for completion of the construction of the pipeline are pipes of various sizes and grades. There is clear intention in the contract for providing services of construction of pipeline which involved designing, detailed engineering, supply, testing, route survey, site clearing and grading and other technical assistance, erection, installation, commissioning, for a consideration / specified amounts. Payments were for services, that is, construction of pipeline and for goods, that is, pipeline supplied and consumed / used in the creating completed facilities, complete in every detail. The supply of goods including pipes is inextricable and essentially linked to the construction / creation of the completed facilities – construction of pipeline, complete in every detail and thus it is integral part of the "Construction Services – Commercial or Industrial” as defined under section 65(25b) of the Finance Act, 1994, provided by M/s. CIPL. Thus as discussed above, I do not find that M/s. CIPL had received separate contracts embodied in a single document. From the documents as mentioned above it is clear that all the contracts are purely "Construction Services – Commercial or Industrial” contracts which involved providing of services of construction of pipeline which involved designing, detailed engineering, supply, testing, route survey, site clearing and grading and other technical assistance, erection, installation, commissioning, for a consideration / specified amounts and the intention of the recipients of the service is quite clear from the contract. Therefore M/s. CIPL was liable to pay service tax on total value of contract received from the clients as Section 67 of the Finance Act, 1994 which provides that where service tax is chargeable on any taxable service with reference to its value then such value shall “in a case where the provision of service is for consideration in money, be the gross amount charged by the service provider for such service provided or to be provided by him.

30. Since the supply of goods - pipes is inextricable and essentially linked to the construction / creation of the completed facilities – construction of pipeline, complete in every detail and thus it forms an integral part of the "Construction Services – Commercial or Industrial”, provided by M/s. CIPL and as the goods supplied were consumed / used in the creating completed facilities then as per CBEC circular no. 87/05/2006-ST dated 06/11/2006 issued from F. No. 137/128/2006-CX-4 exemption under this notification would not be available to such goods / consumables which have been consumed during the process of providing the service as the same are not available for sale. Therefore the exemption under notification no 12/2003-ST dated 20/06/2003 is not available to M/s. CIPL. The service recipients, say M/s. GSPL, have paid for the pipes used by M/s. CIPL who in turn has made payment for the pipes to the supplier of pipes, M/s. Welspun. Therefore the value of the pipes is required to be included in the gross amount charged by M/s. CIPL for provision of service.

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30.1 I take support from the decision of CESTAT in the case involving ALSTOM PROJECTS INDIA LTD. Versus COMMISSIONER OF SERVICE TAX, DELHI, as reported in 2011 (23) S.T.R. 489 (Tri. - Del.) wherein it was held that “On going through the Tribunal’s judgment in cases of M/s. Daelim Industrial Co. Ltd., M/s. Larsen & Toubro Ltd. and M/s. Petrotac International Ltd. we find that the basis of these judgments is the preposition that a “work contract cannot be vivisected and part of it subjected to tax”. This preposition itself is fallacious. A work contract is a contract for work and labour i.e. a service contract. If it is an indivisible service contract and the service is taxable under Section 65(105); service tax would be chargeable. If it is a divisible/composite contract involving sale as well as service, the service part, if taxable under Section 65(105) of the Finance Act, 1994 would be taxable. Thus for the purpose of charging service tax, the question of divisibility or indivisibility of the work contract, which is nothing but a service contract, is irrelevant. The moment a work contract is called indivisible, the question will arise as to work contract for what? The indivisible work contract would certainly be for some service and if that service is taxable service tax would be attracted. The question of vivisection of an indivisible work contract is relevant only in the context of charging sales tax on the transfer of property in goods involved in providing of service, for which by 46th Constitutional amendment Article 366(29A) containing extended definition of “Tax on sale or purchase of goods” was introduced. But there is no need to invoke the legal fiction of Article 366(29A) for charging service tax on a work contract”.

It was also held that “Ultimate purpose of contract was installation and commissioning of a train control, signaling and telecommunication system, which was taxable as contract for ‘installation and commissioning’ service - Contract was for sale of goods as well as services and not an indivisible works contract”.

30.2 I also take support from the decision of The CESTAT (Larger Bench) in the case involving AGGARWAL COLOUR ADVANCE PHOTO SYSTEM Versus COMMR. OF C. EX., BHOPAL as reported in 2011 (23) S.T.R. 608 (Tri. – LB) wherein it was held that as regards the Valuation (Service Tax) - Cost to make services reach consumer - All of them are includible in valuation of services, since Service tax is destination based consumption tax - Section 67 of Finance Act, 1994.

It was also held that “For the purpose of Section 67 of the Finance Act, 1994, the value of service in relation to photography would be the gross amount charged including cost of goods and material used and consumed in the course of rendering such service. The cost of unexposed film etc. would stand excluded in terms of Explanation to section 67 if sold to the client. The value of other goods and material, it sold separately would be excluded under exemption Notification No.12/2003 and the term 'sold' appearing there-under has to be interpreted using the definition of 'sale' in the Central Excise Act, 1944 and not as per the meaning of deemed sale under Article 366 (29A) (b) of the Constitution”.

30.3 One of the conditions for availing the benefit of Notification No. 12/2003 dated 20.06.2003 is reproduced herewith:

Provided that the said exemption shall apply only in such cases where-(c) No credit of duty paid on such goods and materials sold, has been

taken under the provisions of CENVAT credit rules 2004 or (d) Where such credit has been taken by the service provider on such

goods and materials, such service providers have paid the amount equal to such credit availed before the sale of such goods and materials.

30.4 So when M/s. CIPL say that they have sold / traded certain goods, which have been used in the construction of pipeline, then they cannot take cenvat credit of duty if any that is paid on the goods nor can they pass on any cenvat credit on the traded goods. But the facts are contrary to the above as discussed below. Even in their defense reply they have admitted that “they have passed on credit amounting to Rs. 2,34,38,056/- under the GSPL project, and alternatively demanded that the benefit of CENVAT be allowed against their alleged liability on the sale value”.

30.5 Shri Pankaj Kanhaiyalal Maheshwari, Accounts Manager M/s CIPL, has at the time of recording his statement on 03.10.2011, in reply to the questions asked by the officer stated as follows:

Q.3. What was the total value of Padmla-Halol pipeline project? Whether your company has charged and paid service tax on this value?

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A.3. I state that the total value of Padmla-Halol pipeline project was Rs. 354594080/-. Out of which Rs. 210144064/- was for sales and Rs. 144450016/- was for installation and construction services. We have paid service tax only on Rs. 144450016/- at full rate of service tax which was for installation and construction services. We have not paid service tax on sales portion.

Q.4. Whether you have taken CENVAT credit on the inputs purchased and used in the above mentioned project?

A.4. I state that we have taken CENVAT credit on the inputs purchased and used in laying and construction of above pipeline which do not form part of sales order. We have availed benefit of Notification No. 12/2003. However on the sales portion we have passed on CENVAT credit to the customers.

Q.5. Now you are being shown purchase invoices of coated pipes received from M/s Welspun Gujarat Stahl Rohren Limited particularly invoice no. 10259 dt 13.12.2007. Please specify regarding purchase order, CENVAT credit passed on and payment made to M/s Welspun Gujarat Stahl Rohren Limited.

A.5. I state that we have made purchase order no. GSPL/PGPL/SN/011 dt 04.06.2007 for purchase of coated and bare pipes which were sold to M/s GSPL. On the above mentioned bill CENVAT credit of Excise duty @ 16% of Rs. 192679/- , Ed. Cess @ 2% of Rs. 3854/- S & H Ed. Cess @ 1% of Rs. 1927/- has been passed on to GSPL by mentioning GSPL as consignee. We have raised sales invoice i.e. RA 1, RA 2 and so on to GSPL who have made payment for the same to us. The payment of M/s Welspun Gujarat Stahl Rohren Limited invoice no. 10259 dt 13.12.2007 have been made by us.

Q.6. How GSPL have taken CENVAT credit when you have raised RA bills where no CENVAT credit details in the said bills?

A.6. As already mentioned above GSPL has taken CENVAT credit on the basis of transporter copy of invoice in which they have been mentioned as consignee.

Q.7. Are you a registered dealer under Excise and whether you are maintaining records prescribed for registered dealer?

A.7. No we are not a registered dealer under Excise and hence we do not maintain any such record. The credit has been passed on through the consigner-buyer-consignee mechanism.

Q.13. You are wrongly availing benefit of Notification No. 12/2003 as you are taking CENVAT credit on inputs on one hand and not paying service tax on the value of the same by showing these inputs as trading sales. Please explain.

A.13. I would again like to reiterate that we have not violated any conditions stated in notification no. 12/2003 as we have not taken credit of any input which has been sold to our customers. However we admit that certain credits of goods sold has been taken by us wrongly and we commit ourselves that we will pay the same along with interest. These credits were taken unintentionally.

Q.23. You are wrongly availing benefit of Notification No. 12/2003 as you are taking CENVAT credit on inputs and consumables on one hand and not paying service tax on the value of the same by showing these inputs as trading sales. Please explain.

A.23. I state that the above CENVAT credit on inputs has been availed by us wrongly and we undertake to pay the same along with interest. As said earlier value of consumable is included in the value of installation services and hence we are eligible to claim credit on the same.

30.5.1 Thus, from the foregoing paragraphs it is seen that M/s CIPL have not fully complied with the conditions of notification no 12/2003-ST dated 20/06/2003 and have wrongly availed the benefit of notification no. 12/2003 as they have availed / utilized CENVAT credit of duty paid on inputs and also knowingly passed on CENVAT credit of duty paid on the inputs to their service recipients even after knowing that trading is an exempted service and there is no question of passing of cenvat credit on trading activities. They are also not even registered dealers.

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30.6 The Supreme Court of India in Civil appeal No. 4297 of 1999 in a case involving CCE, AHMEDABAD Vs RAMESH FOOD PRODUCTS as reported in 2004 (174) E.L.T. 310 (S.C.) has held that “Exemption envisaged for the specified goods accrues to them through instrumentality of the manufacturer. The notification clearly demarcated the two categories of manufacturers. A clear cut distinction is explicit between a manufacturer availing Modvat credit under Rule 57A and another not opting for the Modvat scheme. As is statutorily provided, input duty relief is given under the scheme to the manufacturers who opt to operate under the scheme by applying for it in the prescribed manner. Ultimately the manufacturers have the choice of choosing one of the two concessions, i.e. either The Modvat Scheme or Notification 175/86-C.E. Further, there is no one to one correlation between the inputs and final products under Modvat Scheme. It would therefore be not possible to allow the manufacturer to simultaneously avail Modvat for some products and avail full exemption for others under small-scale exemption scheme.

The aforesaid same rule / principle is still valid and applicable for cenvat credit availment by M/s. CIPL, the service provider.

30.7 An exemption notification has to be strictly construed. The conditions for taking benefit have to be strictly followed. It is a settled law that to avail the benefit of a notification, the party must strictly comply with the conditions of the notification. It is the cardinal rule of the interpretation of the exemption notification that where a notification provides that a particular thing should be done in a particular manner, it should be done in the manner prescribed and not in any other way. It is also a settled law that the notification has to be interpreted in terms of wordings. In the case of M/s. Sarabhai M Chemicals vs. CCE: 2005(179) ELT 3 (SC), it was observed by the Apex Court that it is well settled that an exemption notification has to be strictly interpreted. The conditions for taking the benefit of the exemption have to be strictly interpreted.

30.8 M/s. CIPL’s argument that the excess tax received by the government is offset by the full credit taken by them on full rate billing which makes the whole exercise as REVENUE NEUTRAL is not tenable and hence devoid of any merit. It seems that the assessee did not wish to take advantage of the Cenvat route, which was available to them and avail CENVAT credit for the duty paid on the goods and materials (input and capital goods) and on the input services used in the construction of pipeline and pay service tax on full value which is inclusive of material value, with no abatement and has opted to walk on a path which is a mixture of exemption under notification no 12/2003 – ST dated 20/06/2003 and also the Cenvat route which is in total contravention of the condition of the notification 12/2003-ST dated 20/06/2003. Had M/s. CIPL chosen to take the Cenvat route then they still would have to pay the service tax on the full value of the taxable service which would be including the value / cost of the goods & materials at their end (which includes the taxes – like ST & Octroi / duties paid on them) and the cost / value of the goods & material will include the input cenvat duty paid on them. Thus the cenvat duty paid on the input – goods & materials and the service tax paid on the input services would form part of their cost and thus would form part of the gross value of the taxable service provided by M/s. CIPL. So, the liability of M/s. CIPL would be more as they would be liable to pay to the pay back to the Central Government the service tax on the full value of the taxable service.

30.9 The CESTAT in the case involving JAY YUHSHIN LTD. Versus COMMISSIONER OF CENTRAL EXCISE, NEW DELHI as reported in 2000 (119) E.L.T. 718 (Tribunal - LB) has held that “Where the scheme opted for by the assessee is found to have been misused (in contradistinction to mere deviation or failure to observe all the conditions) the existence of an alternate scheme would not be an acceptable defence”.

31.1 M/s. CIPL have at the time of audit contended that the department while calculating the value of the net taxable income has not considered the effect of the closing and opening balances of retention money and security deposit, which is held back by the customers from their bill. The retention money and security deposit is the part of the value of the service contract which is generally retained by the customers according to the terms of payment and is very well defined in the contract itself. Retention money is the small amount from the gross amount that is retained by the service recipient as performance guarantee. The service recipient pays back the retention money to the service provider when he is satisfied with the performance of the services received and on satisfactory completion of the contract. The Honourable CESTAT, Bangalore in the case involving Ramky Infrastructure Ltd

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versus Commissioner of Service Tax, Hyderabad, on the issue of retention money has held that retention money was only a deferred payment and assessee was entitled to receive gross amount charged - In that view, it was not liable to be deducted from gross amount - Section 67 of Finance Act, 1994. In view of the above and in absence of documentary evidence the contention of M/s. CIPL is rejected. 31.2 Further M/s. CIPL have in the defense reply submitted that they had in some cases paid service tax at full rate on full value which was inclusive of material component also. They have however not provided any details or any documentary evidence towards their above contention. Thus in absence of such evidences, the mere contention made by them cannot be entertained. Also as the subject show cause notice demands service tax on the goods and material which were consumed during the provision of service but shown as traded, the above contention has no relevance.

31.3 M/s CIPL have in their defence reply drawn attention of the fact that there was a repetition of 33 invoices discussed in Para 14.3.3.2 of the show cause notice. In this regard, I find that the said invoices were discussed only to prove the fact that cenvat credit was availed by M/s GSPL on the basis of invoices issued by M/s Welspun Gujarat Stahl Rohren Ltd., Kutch. The said invoices were showing M/s GSPL as consignee and M/s CIPL as customer. These invoices are not figuring in the quantification of demand that has been raised in the subject show cause notice.

31.4 M/s. CIPL in their defense reply relied upon to various judgments. Since I find that the facts of these cases are distinguishable from the present case I do not rely upon their ratio in the present proceedings.

32. M/s. CIPL have admitted that they have passed on credit amounting to Rs. 2,34,38,056/- under the GSPL project, and their claim that pure trading sales must not be included to the taxable value. In this regard, I find that M/s CIPL have exercised their option for availing cenvat credit. However, they have simultaneously availed the benefit of exemption as provided under Notification No.12/2003-ST dated 20.06.2003 which is in contravention to the conditions as laid down in the said notification. Thus, I find that the contention made by M/s CIPL is not backed by any evidence and their claim lacks any merit and therefore liable to be rejected.

33. In view of the above discussion, I find that :a. the service for construction of Cross Country Pipeline fall under the category of “Commercial or Industrial Construction Service” and is taxable.b. benefit of Notification No.12/2003-ST dated 20.06.2003 is not available to M/s CIPL as they have simultaneously availed cenvat credit.c. the value of goods and materials i.e. Rs.78,13,40,266/- sold / traded during the period

2006-07 to 2011-12 should also form a part of the taxable service under Section 67 of the Finance Act, 1994 and accordingly service tax at appropriate rate is required to be recovered from M/s CIPL. (M/s CIPL have sold / traded goods and materials amounting to Rs. 70,16,81,697/- during the period 2006-07 to 2010-11and Rs. 7,96,58,569/- during the period 2011-12)

34. The contention of M/s CIPL that the benefit of section 67 (2) must be accorded is not acceptable. As discussed above I have already come to a conclusion that M/s. CIPL was liable to pay service tax on total value of contract received from the clients as Section 67 of the Finance Act, 1994 provides that where service tax is chargeable on any taxable service with reference to its value then such value shall “in a case where the provision of service is for consideration in money, be the gross amount charged by the service provider for such service provided or to be provided by him”. M/s CIPL had artificially bifurcated the purely service contracts into supply and service and thus by doing so have suppressed the correct value of the service provided and that they have not paid the appropriate service tax. Since M/s. CIPL have deliberately suppressed the taxable value in order to escape the proper assessment and payment of tax, the benefit of section 67 (2) is not available to M/s. CIPL and thus I deny the same to M/s. CIPL.

35 M/s. CIPL is working under self-assessment scheme. As per provisions of Section 70 of the Finance Act, 1994, the M/s. CIPL is required to make self-assessment of

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service tax due on the services provided by it and file ST 3 Returns with the jurisdictional Superintendent of Central Excise. Since the M/s. CIPL were liable to self assess the liability to pay service tax, they had an obligation to furnish the correct and complete information and the value of services whether taxable or otherwise which they failed. Examination of ST 3 returns shows that the assessee has incorrectly assessed the service tax payable and has suppressed the correct value of taxable services provided by it. Further, M/s. CIPL has also suppressed the value of the traded goods and the fact from the department that it has availed benefit of Notification No. 12/2003-S.T., dated 20-6-2003 although the contracts executed by them / services provided by them to their customers are purely service contracts falling under the category of "Construction Services – Commercial or Industrial” as defined under section 65(25b) of the Finance Act, 1994. I also do not find anything on record to suggest that M/s. CIPL had approached the Service Tax authorities to ascertain the details of their liability to pay service tax. There was intention to evade duty on part of M/s. CIPL and extended period for demanding service tax is correctly invoked and M/s. CIPL is not absolved from the consequences of the action and from the various penalties proposed in the show cause notice. As discussed in above, I hold that the noticee have suppressed the facts with intention to evade payment of service tax. Thus penalty under Section 78 is mandatorily imposable on them as has been held by the Apex court in the case of Dharmendra Textile Mills Ltd-2008 (231) ELT 3 (SC) and Rajasthan Spinning & Weaving Mills Ltd-2009 (238) ELT 3 (SC).

36 Having regard to the facts and circumstances of the case as discussed hereinbefore, I pass the order as follows:

ORDER:

(i) The amount of Rs. 78,13,40,266/- (Rs. 70,16,81,697/- shown as goods and materials sold / traded for the period 2006-07 to 2010-11 covered under the first show cause notice dated 21/10/2011 plus the amount of Rs. 7,96,58,569/- shown as goods and material sold / traded during the period 2011-12 covered under the second show cause notice dated 20/10/2012) which is recovered / received by M/s. CIPL from their customers is hereby ordered to be considered as the taxable value under section 67 of the Finance Act, 1994 for the service provided by M/s. CIPL under the category of “Commercial or Industrial Construction Service” and service tax is leviable on it and the benefit of notification No. 12/2003-ST availed by M/s CIPL is disallowed as it is not available to them.

(ii) Demand for service tax amounting to Rs. 9,09,05,608/- (Rupees Nine Crores nine lakhs five thousand six hundred and eight only) (Rs. 8,27,00,775/- covered by the 1st SCN dated 21/10/2011 plus Rs. 82,04,833/- covered by the 2nd SCN dated 20/10/2012 short paid by M/s CIPL on the taxable value of Rs. 78,13,40,266/- while providing services under the category of “Commercial or Industrial Construction Service” during the period 2006-07 to 2011-12 is confirmed and ordered to recovered from M/s. CIPL under the proviso to Section 73(1) of the Finance Act, 1994 by invoking extended period of five years.

(iii) Interest at the appropriate rate on the amount of their service tax liability as mentioned herein above is ordered to be recovered from M/s. CIPL under Section 75 of the Finance Act, 1994 for the delay in making the payment.

(iv) a.) I hereby impose Penalty under Section 76 of the Finance Act, 1994 of two hundred rupees, for every day during which such failure continued or at the rate of Two per cent of such tax, per month, whichever is higher, starting with the first day after the due date till the date of actual payment of the outstanding amount of service tax for the failure to make the

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payment of Service Tax payable by them within prescribed time limit; the total amount of the penalty payable in terms of this section shall not exceed the service tax payable for the period up to 09/05/2008.

b.) For the period starting from 08/04/2011 and covered by the 2nd SCN dated 20/10/2012, I hereby impose penalty under section 76 of the Finance Act, 1994, of Rs.100/-, for every day during which such failure continued or at the rate of 1% of such tax, per month, whichever is higher, starting with the first day after the due date till the date of actual payment of the outstanding amount of service tax for the failure to make the payment of Service Tax payable by them within prescribed time limit; the total amount of the penalty payable in terms of this section shall not exceed 50% of the service tax payable for the period.

(v) I hereby impose Penalty under Section 77 of the Finance Act, 1994 amounting to Five thousand Rupees or two hundred rupees for every day during which such failure continued, whichever is higher, starting with the first day after the due date, till the date of actual compliance; in as much as they failed to pay the appropriate service tax in accordance with the provisions of Chapter V of the Finance Act, 1994 or the rules made there under.

(vi) I hereby impose Penalty under Section 78 of the Finance Act, 1994 amounting to Rs. 8,27,00,775/- (Rupees Eight Crore Twenty Seven Lakh Seven Hundred Seventy Five Only). In the event of M/s. CIPL opts to pay the amount of service tax along with all other dues as confirmed and ordered to be recovered, within thirty days from the date of communication of this order, the amount of penalty liable to be paid by them under Section 78 of the Finance Act, 1994 shall be 25% of the said amount. However, the benefit of reduced penalty shall be available only if the amount of penalty is also paid within the period of thirty days from the communication of this order; otherwise full penalty shall be paid as imposed in the above order.

(Tejasvini P. Kumar)Commissioner

Service Tax, Ahmedabad.

By Regd. Post AD

F. No: STC / 4 – 86 / O & A / 11 – 12. Date: 03/04/2013.

To,M/s. Corrtech International Pvt. Ltd22, Second Floor, Dhara Centre, Vijay Char Rasta, Navrangpura,Ahmedabad.

Copy to:

1. The Chief Commissioner, Central Excise & Service Tax, Ahmedabad Zone, Ahmedabad.

2. The Assistant Commissioner, Division-II, Service Tax, Ahmedabad.3. The Assistant Commissioner Audit Service Tax, Ahmedabad.4. The Superintendent, Service Tax, Range-VI, Division-II, Ahmedabad.5. Guard File.

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