2010 (9) TMI 490 - AT - Service Tax

Waiver of pre-deposit - Scientific and Technical Consultancy service - The appellant had entered into agreement (Memorandum of Understanding) with the Government of Andhra Pradesh, whereunder the appellant was required to undertake certain projects for augmenting agricultural production in the State of Andhra Pradesh. The MoUs referred that each of the projects, prima facie, appears to be an indivisible works contract inasmuch as each project consisted not only of rendering of scientific/technical assistance but also of implementation of a whole project - Though, in the impugned order, there is a finding to the effect that these are divisible contracts, we have not come across any further discussion on this aspect as to how the works contracts are divisible,most of the amounts covered by Project are yet to be received by the appellant from the Government and this matter is under arbitration - There can be no levy of service tax on any amount which was payable by the Government to the appellant prior to 16-7-2001, the date on which the taxable service, which was pressed into service by the Revenue, was introduced in the Finance Act, 1994 - Hence, waiver of pre-deposit and stay of recovery .

Summary

Issues:
1. Waiver of pre-deposit and stay of recovery sought for service tax amounting to over Rs. 3.25 crores.
2. Tax demand under "Scientific and Technical Consultancy service" for projects undertaken with the Government of Andhra Pradesh.
3. Applicability of service tax on amounts received and yet to be received by the appellant.
4. Classification of projects as indivisible works contracts and the levy of service tax.

Analysis:
1. The appellant sought waiver of pre-deposit and stay of recovery for a substantial service tax amount. The tax demand pertained to services provided under the head of "Scientific and Technical Consultancy service" for projects executed with the Government of Andhra Pradesh between 2001 and 2005.

2. The appellant contended that the projects undertaken were indivisible works contracts, challenging the levy of service tax on amounts not yet received. The appellant highlighted that service tax cannot be imposed on any sum not collected from the service recipient.

3. The Tribunal examined the nature of the projects, namely K-II, K-III, and IADP, and noted that each project involved both scientific/technical assistance and project implementation. Despite initial findings of divisibility by the Commissioner, the Tribunal observed that the projects prima facie appeared to be indivisible works contracts.

4. Referring to Rule 6(2) of the Service Tax Rules 1994, the Tribunal emphasized that service tax is leviable on the taxable value received by the service provider. It was noted that most amounts under the K-III Project were pending receipt and subject to arbitration, supporting the appellant's argument against the levy of service tax on amounts due before the introduction of taxable services in 1994.

5. Ultimately, the Tribunal found merit in the appellant's arguments, concluding that the demand for service tax, interest, and penalties should be stayed. The Tribunal granted the waiver of pre-deposit and allowed the stay application, acknowledging the appellant's contentions regarding the inapplicability of service tax on certain project amounts and the indivisibility of the works contracts.

This detailed analysis of the judgment provides a comprehensive overview of the issues raised, arguments presented, and the Tribunal's decision regarding the waiver of pre-deposit and stay of recovery in the context of service tax demands for the projects undertaken by the appellant.