The Delhi Bench of Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has held that the demand of service tax on the sale of generators by treating them as “works contracts” merely because the generators were also installed and commissioned by the appellant cannot be sustained and is liable to be set aside.
The bench of Binu Tamta (Judicial Member) and P.V. Subba Rao (Technical Member) has observed that when a large equipment such as DG set is purchased, the customer naturally wants the seller to install and commission it so to necessary to ensure that the DG sets were in working order. Merely because the goods were installed and commissioned after sale, the contract would not become a works contract services. It is more or less like a refrigerator or air- conditioner bought by someone for home use. The seller sells the refrigerator and also delivers and installs which satisfies the buyer that it is in good working condition.
The appellant is registered with the service tax department for providing “erection, commissioning and installation services” as defined under section 65 (105) (zzd) of the Finance Act, 1994.
The appellant was investigated by the anti-evasion wing of the service tax commissionerate and it came to the conclusion that the appellant had also rendered the service of “supply of tangible goods” service chargeable to service tax under section 65 (105)(zzzzj).
It was found that the appellant had supplied 1000 KVA DG sets to Panipath-Jalandhar LPG pipeline which activity appeared to be chargeable to service tax under section 65 (105)(zzzzj). Accordingly, a show cause notice dated 05.07.2013 was issued.
Another SCN was issued as it was found that the appellant had sold DG sets to its customers and also erected, commissioned and installed them. It was felt that such contracts were composite contracts including the sale of the DG sets and rendering services of erection commissioning and installation which were, therefore, classifiable as a “works contract” on which service tax needs to be paid.
The statement of demand was issued on the aforesaid demand under the head of “works contract service” but computed considering an average growth of 25% of the appellant’s service tax liability. The appellant had not submitted any reply to the Show Cause Notices dated 05.07.2013 and 09.04.2016 but submitted a reply to the show cause notice dated 27.11.2015. Personal hearing was fixed on several dates but the appellant had not appeared. Thereafter the Additional Commissioner passed the order-in-original which, on appeal, was upheld in the impugned order by the Commissioner (Appeals).
The department contended that since the appellant had not only sold the DG sets but also installed and commissioned them, the nature of the contract is a works contract involving transfer of goods and provisions of service as well.
The assessee contended that DG sets had not rendered any service. It had, however, installed and commissioned them free of cost, therefore, there was no element of service.
The tribunal has held that the third statement of demand is also on works contract service on the same pattern as above but based on the presumption of 25% growth.
Since the tribunal found that in favour of the assessee and against the Revenue on the demand of service tax on the DG sets sold, this demand also needs to be set aside.
Case Details
Case Title: M/S Spain Electronotics Versus Commissioner (Appeals-I)
Case No.: Service Tax Appeal No. 50585 Of 2019
Date: 10/03/2025
Counsel For Petitioner: Advocates Vandana Singh
Counsel For Respondent: Anand Narayan
Read More: Service Tax, Fine, or Penalty Not Considered Pre-Deposit For Filing Appeal: CESTAT
