CESTAT holds that separate contracts for supply of equipment and for erection and commissioning services is one single composite contract and liable to Service tax as works contract service

This Tax Alert which gives an update on the recent decision of the Mumbai Tribunal in the case of Gupta Energy Pvt. Ltd. vs. Commissioner of Customs and Central Excise, Nagpur.

In this case, turnkey project for setting up a power plant in India was split into two contracts, one for supply of equipments and another for erection and commissioning services to be provided in India, to a Chinese entity and its Indian authorized representative respectively. The issue dealt with in this case by the Tribunal was whether Service tax is liable to be paid under reverse charge basis on payments made to the Chinese entity.

Tribunal held that both the contracts have to be read together and intention of the parties have to be looked at. Tribunal held that the two contracts should be considered as one single composite contract liable to service tax.

Further, Tribunal also held that composition scheme for payment of service tax on works contract services is optional in nature and cannot be thrust on the assessee.