2007 (6) TMI 1 - AT - Service Tax

Consulting Engineer services Alleged that assessee were engaged in providing both on-shore and off-shore services for execution of project and accordingly demand made for service tax and also penalty on it - The demand and penalty in case of on-shore sustained but it is not applicable in case of off-shore services

Issues Involved:
1. Classification of services rendered by the appellant.
2. Taxability of onshore and offshore services.
3. Determination of service tax liability.
4. Imposition of penalties.

Detailed Analysis:

1. Classification of Services Rendered by the Appellant
The primary issue was whether the services provided by the appellant to PLL fell under the category of "consulting engineers." The appellant argued that their services were a combination of engineering, administration, and financial services, and not limited to engineering alone. They contended that the contract should not be vivisected for tax purposes and that they were providing project management consultancy, not merely engineering consultancy.

The Tribunal, after examining the agreement, concluded that the appellant was rendering services predominantly in the field of engineering. The agreement specified qualifications for personnel, including degrees in engineering and experience in major engineering projects. The services involved technical specifications, selection of materials, and assessment of technical skills, which were all engineering-related activities. Therefore, the Tribunal upheld the Commissioner's finding that the appellant was rendering "consulting engineer" services.

2. Taxability of Onshore and Offshore Services
The appellant contended that services rendered outside India (offshore services) were not subject to service tax as per Section 64 of the Finance Act, 1994, and CBEC Circular No. 36/4/2001. They cited the Supreme Court judgment in the case of Ishikawajma-Harima Heavy Industries Ltd., which held that services undertaken outside India could not be taxed by Indian authorities.

The Tribunal agreed that offshore services were not taxable for the period prior to the insertion of Section 66A in the Finance Act, 2006, which made services rendered outside India liable for service tax from 18-4-2006 onwards. Therefore, the demand for service tax on offshore services for the period in question was set aside.

3. Determination of Service Tax Liability
The appellant argued that the service tax on onshore services should be calculated based on the actual amount received, treating the total realization as the gross amount. They claimed that the Commissioner (Appeals) had incorrectly taken the entire amount realized as the taxable value and used an average exchange rate of Rs. 48.50 per US$, which was higher than the actual rates received.

The Tribunal accepted the appellant's submissions as they were not contested by the Departmental Representative. Consequently, the service tax liability was restricted to Rs. 88,18,761 for onshore services, instead of the originally demanded Rs. 1,03,73,013.

4. Imposition of Penalties
The appellant contended that they had no intention to evade service tax and were under the bona fide belief that service tax was not payable. However, the Tribunal noted that the appellant had shown service tax separately on invoices and collected the amount from PLL but failed to pay it to the government. This constituted suppression of facts with the intention to evade tax.

The Tribunal upheld the penalties imposed under Sections 75A, 76, and 77 of the Finance Act, 1994, but reduced the penalty under Section 78 to Rs. 22,04,690.

Conclusion:
The appeal was disposed of with the following key points:
1. The appellant was rendering consulting engineering services, taxable under the Finance Act, 1994.
2. Onshore services were taxable, while offshore services were not taxable for the period prior to 18-4-2006.
3. The service tax liability for onshore services was determined to be Rs. 88,18,761.
4. Penalties under Sections 75A, 76, and 77 were upheld, and the penalty under Section 78 was reduced to Rs. 22,04,690.

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