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Indian Service Tax

Commissioning of Installation Service

Effective date: 1/7/2003

Authority: Notification No. 7/2003-ST, dt. 20/6/2003 (For full text see under "Business Auxiliary Service").

Rate of Service Tax: 8% upto 9/9/2004. 10% from 10/9/2004 - Cess 2% of 10% = 0.2. Total ST = 10.2%."

Definitions

"Commissioning and Installation Agency"means any agency providing service in relation to commissioning or installation, [Section 65(29)]

"Erection, Commissioning or Installation" means any service provided by a commissioning and installation agency in relation to erection, commissioning or installation of plant, machinery or equipment, [Section 65 (39a)]

Taxable Service: Any service provided by commissioning or installation service agency.

Value of Taxable Service: Gross amount charged to a customer. Cost of parts or materials, if any, is excludable.

Exemptions

See Chapter on "General Exemptions"
Specific exemptions
Cost of parts or other materials sold to customers
Putting up a water tank, piping, electric wiring
Repairs & maintenance

Person liable to pay: Person/Agency providing services of commissioning or installation.

Head of A/C: Tax Collection 00440233, Other Receipts 00440234, Deduct Refunds 00440235

Question & Answer

Q. Whether commissioning or installation services provided by an individual would be taxable?

Ans. Exemption from payment of Service Tax has been provided for commissioning or installation services provided by a commissioning or installation agency other than a commercial concern. Accordingly, the commissioning or installation services provided by an individual will be exempt from Service Tax.

[Source: Directorate of Publicity and Public Relations, Customs & Central Excise, New Delhi,October, 2003.]

Changes from 10/9/2004

F.No. B2/8/2004-TRU, Date: 10/9/2004

14. Extension of service tax on installation and commissioning, to erection services:

Service tax was levied on commissioning and installation of plant, machinery and equipment w.e.f. 1/7/2003. The general practice is that 'erection, commissioning and installation' are contracted as a composite package. There have been a number of doubts and queries regarding the distinction between erection and commissioning/installation. Erection would refer to the civil works to installation/commissioning of a plant or machinery. In this year's budget, the scope of service tax under installation and commissioning is being extended to include erection also. Erection involves civil works, which would otherwise fall under the category of construction. services. However, in case of a composite contract for erection, commissioning and installation, the erection charges would be taxed as part of this category of service.

Main text of Department Circular/Trade Notice

To be issued [Para 2.6 of Cir.No. 59/8/2003-ST, dated 20/6/2003]

2.6 Commissioning and Installation Services:

Certain doubts have been raised in case of commercial coaching and training. In this regard, the following is clarified -

In case of commissioning and installation it has been pointed out that in case of turnkey project, the contract may be indivisible and no separate value could be assigned to commissioning or installation of goods. Doubts have also been raised as to what would be the value of taxable service. It is submitted that it has been provided in law that service tax is leviable on erection and commissioning charges only and not on the material and goods supplied. However, it is upto the service provider to show the break-up of commissioning or installation charges. In case service provider shows consolidated charges, service tax would be leviable on such consolidated amount.
A doubt has been raised as to whether charges for erection of plant are covered under the service tax or only commissioning and installation charges. It is clarified that the law specifically provides for taxation of commissioning and installation of plant, machinery or equipment. Thus all activities other than the commissioning and installation of the plant/machinery/equipmentper se will not be chargeable to service tax.
Exemption 1 - Clause 151 (c) of Finance Bill, 2003 seeks to amend Section 67 of the said Act so as to clarify that the cost of parts or other materials, if any, sold to the customer during the course of providing maintenance or repair service or the cost of parts or other materials, if any, sold to the customer during the course of providing commissioning or installation services shall not be included while computing the service tax payable.
Exemption 2 - (Para 2.9.1 of Cir.No. 59/812003-ST, dt. 20/6/2003): In case of authorized service stations, maintenance or repair services, commissioning and installation services and photography services it has been provided in the law that the cost of goods and material shall not form part of the value to be subjected to service tax, if evidence (like sale invoice/bill) shows that these goods were sold. Such dispensation has, however, not been provided for other services like commercial coaching and training centers, telecom services. In this regard, a general exemption under Notification No. 12/2003-service Tax, dated 20th June, 2003 has been issued exempting that part of the value of all taxable services from service tax, which represents the cost of goods or material sold by the service provider to the receiver of such services during the course of provision of the taxable services. This exemption would be available only in cases where the sale of such goods is evidenced and the sale value is quantified and shown separately in the invoice. It is also clarified that in case of commercial training and coaching institutes, the exclusion shall apply only to the sale value of standard textbooks, which are priced. Any study material or written text provided by such institute as a part of service which does not satisfy the above criteria will be subjected to service tax.

Erection, Installation & Commissioning

Cir.No. 79/9/2004-ST, Date: 13/5/2004

Sub: Application of service Tax on activities of Erection and Commissioning

I am directed to draw attention to the Circular No. 49/11/2002 –S.T., dated 18/12/2002, whereby it is clarified that the work of Erection and Commissioning is in the nature of services provided by a “Consulting Engineer” and hance taxable under Service Tax. Also in the year 2003 dated 20^thJune 2003, issued from File No. B-3/7/2003-tru, IT Was clarified that charges for erection of plant would not be covered under the Commissioning and Installation services.

In the light of above conflicting views, several representation have been received in the Board for clarification as to whether

the charges for erection would be covered under Services Tax or not?
the Commissioning or Installation services would be covered under Service Tax under Consulting Engineer service effective from 7/7/1997?
The issue has been examined by the Board in consultation with the Ministryn of Law and Justice and in this regard I am directed to say that charges for erection installation & commissioning are not covered under the category of Consulting Engineer Services. Commissioning or Installation service will be separately taxable under relevant entry and are not chargeable under Consulting Engineer Services. Accordingly, the clarification issued vide the Circular No. 49/11/2002-S.T. dated 18/12/2002 stands modified to this extent.

[Para No.1 of Cir.No. 62/11/2003-ST, dt. 21/8/2003]

Cir.No. 62/11/2003-ST, Date: 21/8/2003

Sub:- Miscellaneous issues relating to the services on which service tax has been imposed with effect from 1/7/2003.

1. Commissioning or installation: 1 Commissioning or installation of plant, ipment or machinery by a commissioning or installation agency, is chargeable to service tax. A doubt has been raised as to whether the services like a plumber putting up a water tank, fitting pipes and tubing, an electrician putting up electric wire and fittings, installation of booster motors, air conditioners, water filt~rs, hand-pumps, water heaters etc. will be chargeable to service tax.

1.2 As commonly understood, the activity of installation means the act of putting an equipment, machinery or plant into its place and making it ready for use. The activity of installation will start after erection which would refer to putting up civil structures. Commissioning of a plant would mean operationalising an installed plant/equipment/machinery. In this backdrop it is clarified that putting up a water tank, piping, electric wiring, in a residential premises etc. would notbe covered in the defination of taxable service and thus would not be taxable. However, installing a booster pump, air-conditioner, water filter, water heater etc. would be covered in the definition and be taxable, as all these things are machinery or equipment.

1.3 Notification No.18/2003-Service Tax dated 21/8/03 has been issued which exempts commission or installation services provided by a commissioning or installation agency other than a commercial concern. Accordingly the commissioning or installation services provided by an individual will be exempt from service tax.

1.4 Notification No. 19/2003-Service Tax dated 21/8/03 has been issued which provides that in case of a contract which involves the commissioning or services alongwith supply of plant, machinery or equpiment, service tax will be payable only on 33% of the gross amount charge for commissioning or installation and supply of plant, machinery or equipment. Service. It is optional for the assessee to avail of this notification. It is emphasized under this notification that the gross amount (33% of which is chargeable to service tax) shall include the value of the plant, machinery, equipment, parts and any other material sold by the service provider alongwith the commission or installation service. The benefit of this notification can be availed for a contract only if the exemption under notification 12/2003 – service Tax dated 20/6/2003 is not availed for that contract.

1.5 Corrigendum to Circular No. 59/8/2003: In Service Tax Circular No.59/8/2003, dated 20th June 2003, in paragraph 2.6

in the first sentence the words "Commercial Coaching and Training" may be read as "Commissioning or Installation"
in the first bullet the sentence "It is submitted that it has been provided in law that service tax is leviable on erection and commissioning charges only and not on the material and goods supplied." may be read as "It is clarified that it has been provided in law that service tax is leviable on commissioning or installation charges only and not on the material and goods supplied.