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Supreme Court Hears Revenue's Appeal Against CESTAT's Order Holding Turnkey ATM Contracts Not Liable to Service Tax. The Core Issue Was Whether Installation Component of Composite Contracts Could Be Taxed Under 'Commissioning or Installation' Service.

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2026-08-09 09:22:54
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Case Details

2026 LawText (SC) (08) 19

Civil Appeal Nos. 4708-4711 of 2008

2026-08-06

Prashant Kumar Mishra, J.

2026 INSC 808

Commissioner of Service Tax, Chennai

M/s Diebold Systems (P) Ltd.

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Nature of Litigation

Tax litigation concerning the levy of service tax on turnkey contracts for supply, installation and commissioning of ATMs

Remedy Sought

Revenue sought to set aside CESTAT order and confirm service tax demand; assessee sought to uphold CESTAT order

Filing Reason

Revenue challenged CESTAT order holding that indivisible turnkey contracts could not be vivisected for service tax on installation component

Previous Decisions

CESTAT allowed assessee's appeals, setting aside Commissioner's orders confirming service tax demands totaling over Rs. 11 crores; Revenue's appeal against non-imposition of penalties dismissed

Issues

Whether turnkey contracts for supply, installation and commissioning of ATMs constitute indivisible composite contracts incapable of vivisection for service tax under Section 65(105)(zzd) of Finance Act, 1994 Whether CESTAT was justified in holding that no part of the composite consideration received under such contracts could be subjected to service tax as 'commissioning or installation'

Submissions/Arguments

Revenue argued that installation and commissioning services were independently taxable despite turnkey structure; mere composite consideration did not efface independent character; 33% of consideration was attributable to services; CESTAT misapplied Daelim Industrial precedent. Assessee argued that contracts were indivisible turnkey contracts with dominant object of supply; installation incidental; no separate consideration; Finance Act lacked charging provision for vivisection; had discharged sales tax/VAT on entire value; CESTAT correctly relied on Daelim Industrial.

Judgment Excerpts

It is a settled principle of fiscal jurisprudence that the liability to tax must flow from the charging statute itself. A taxing statute admits of neither intendment nor equity. in the absence of an express charging mechanism under the Finance Act, 1994 authorising the vivisection of such indivisible contracts, no part of the composite consideration could be artificially segregated and brought to tax

Procedural History

Show Cause Notices dated 14.02.2005, 21.10.2005, and 17.10.2006 proposed recovery of service tax for periods July 2003 to April 2006. Orders-in-Original dated 23.12.2005 and 23.02.2007 confirmed demands with interest and penalties. Assessee appealed to CESTAT; Revenue appealed against non-imposition of penalties. CESTAT by common order dated 28.11.2007 allowed assessee's appeals and dismissed Revenue's appeal. Revenue filed Civil Appeal Nos. 4708-4711 of 2008 before Supreme Court.

Acts & Sections

  • Finance Act, 1994: Section 65(105)(zzd), Section 66, Section 75, Section 76
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Tags :
turnkey contracts service tax commissioning or installation indivisible contracts vivisection composite consideration charging provision Finance Act 1994 CESTAT ATM supply and installation

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