Order date – 19 September 2022

Facts – 

• The Appellant, M/s. SEPCO Electric Power Construction Corporation, alleged that it had offered the bid for composite EPC works contract on a turnkey basis but four separate project contracts were executed only for the sake of operational convenience, and the Guarantee Agreement also states that for the sake of operational convenience four separate contracts (called the Project Contracts) had been executed. 
• As the Guarantee Agreement provides that the termination of any Project Contract shall be deemed to the termination of the other Project Contracts, the appellant believed that the project contract for Off-shore Engineering and Technical Services could not have been considered as an independent contract for levy of service tax.
• A show cause notice dated 26.05.2006 was, however, issued to the appellant proposing to levy service tax on Off-shore Engineering and Technical services by treating it as an independent contract.
• The authority confirmed the demand of service tax on the Off-shore Engineering and Technical Services contract with penalty.
• Aggrieved, the appellant filed an appeal.

Issue – 

• Whether the appellant had undertaken a composite engineering, procurement and construction contract on a turnkey basis, because if this is the case, then no part of the contract could have been separately subjected to levy of service tax by treating it to be a service rendered by a “consulting engineer”?

Order – 

• The Tribunal observed that clause E of the Guarantee Agreement specifically states that the four separate contracts called the Project Contract had been executed for the sake of operational convenience only.
• Also as stated the Scope of Works under the Project Contract in the aggregate shall be deemed to be the whole works and that the termination of any of the Project Contracts shall be deemed to be termination of each of other project contracts. 
• There was only a single performance Bank Guarantee for all the four project contracts and the terms of the contracts of all the contracts also show that the whole arrangement was an EPC contract for construction of a power plant on turnkey basis. 
• Therefore the aforesaid cross fall breach condition in the Guarantee Agreement makes it clear that separate project contracts are integral parts of a single works contract transaction, the same view was taken in Supreme Court in BSES.
• Relying on Daelim Industrial Co. Ltd. versus Commissioner of C. Ex., Vadodara, in which it was held that the contract was essentially for construction of a plant and the services formed integral part of the contract. The contract was executed on turnkey basis. 
• Therefore a composite works contract cannot be vivisected and part of it subjected to service tax under the category of consulting engineer service.
• Appeal allowed.