COMMISSIONING AND INSTALLATION SERVICE

Date of introduction: 01.07.2003 vide Notification No.7/2003 dated 20.06.2003.

Definitions:

(a) ‘commissioning or installation’ means any service provided by a commissioning and installation agency in relation to commissioning or installation of plant, machinery or equipment;

(b) “commissioning and installation agency” means any agency providing service in relation to commissioning or installation;

(c) “Taxable service” means any service provided to any person to a customer by a commissioning and installation agency in relation to Erection, commissioning or installation’ and the term “service provider” shall be construed accordingly.

In the Budget proposals for the year 2004-05, the various definitions of this category of service are proposed to be amended to specifically include services in relation to Erection also under tax net.

Value of taxable service:

Value of taxable service shall be the gross amount charged by the service provider of such service rendered by him. However, it does not include the cost of parts or other materials, if any, sold to the customer during the course of providing commissioning or installation service.

Scope of Service:

Services provided by Commissioning and Installation Agency, in relation to Commissioning or installation of plant, machinery or equipment are chargeable to service tax.

As per Board’s Circular No.49/11/2002 dated 18.12.2002, prior to 01.07.2003, this service was covered under the category of Consulting Engineer Services. However, Board vide Circular No.79/9/2004 dated 13.05.2004 has in consultation with law Ministry has again clarified that this service is not covered under the category of Consulting Engineer services and Circular No.49/11/2002 dated 18.12.2002 was modified to that extent.

Exemptions:

i) Taxable service provided to a customer in relation to commissioning and installation by a commissioning or installation agency, other than a commercial concern is exempted. (Notification No.18/2003-ST dated 21.08.2000)

ii) Service tax is to be paid on 33% of gross value if the Commissioning or Installation services are provided alongwith supply of Plant, Machinery or equipment, provided that gross value is inclusive of value of Plant, Machinery, equipment, parts or any other material sold and no exemption is claimed under Notification No.12/2003 S.T. dated 20.06.2003 (Notification No.19/2003-S.T. dated 21.08.2003).

Board’s Clarifications: Circular No.59/8/2003 dated 20.06.2003

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/equipment per se, will not be chargeable to service tax.
Circular No.62/11/2003 dated 21.08.2003

1.1 Commissioning or installation of plant, equipment 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 filters, 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 not be covered in the definition 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.
 

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