2011 (3) TMI 546 - AT - Service Tax

Demand - The allegation against the Appellant is that though they were providing taxable services of Consulting engineers even during the period prior to 1-8-2003, they neither took service tax registration nor paid any service tax on the same - Time barred - whether a contract is a composite contract for sale of goods as well as providing of service, depends upon whether there is such intention in the contract and such intention has to be ascertained from the terms of the contract - A contract would be an indivisible contract for a particular service if the intention of the contract is providing that particular service for some consideration and use of other service/services or goods or both is incidental - If the work contract is an indivisible work contract for a particular service and that service is taxable under section 65(105), Service Tax will be chargeable and the question whether the work contract is divisible or indivisible is irrelevant - In the present case, while some contracts are purely for design and engineering, in all other contracts, the contracts contain clauses for design and engineering for which separate charges are mentioned Since during the period for July 1997 to January 2004 neither service tax registration for consulting engineer s service was obtained, nor ST-3 returns were filed, penalty under section 77 has been rightly imposed on the Appellant for contravention of the provisions of sections 69 and 70 of the Finance Act, 1994 read with rules 4 and 7 of the Service Tax Rules, 1994 - Appellant s conduct during the period of dispute amounts to suppression of facts, as while they were providing the consulting Engineering service, taxable since 7-7-1997, they till mid January 2004, neither informed the Department about this activity, nor applied for service tax registration, nor paid the service tax - Appeal is dismissed

Issues Involved:
1. Classification of activities under "Consulting Engineer's Service."
2. Nature of contracts as indivisible or composite.
3. Applicability of service tax prior to 1-6-2007.
4. Availability of extended limitation period for demand.
5. Imposition of penalties under sections 76, 77, and 78 of the Finance Act, 1994.

Issue-wise Detailed Analysis:

1. Classification of Activities under "Consulting Engineer's Service":
The tribunal examined whether the activities of the appellant, such as preparation of drawings, designing, engineering, and training, fall under the definition of "Consulting Engineer's Service" as per section 65(105)(g) read with section 65(31) of the Finance Act, 1994. It was concluded that the appellant's activities, including preparation of basic and detailed engineering drawings and training of clients' personnel, constitute technical assistance and are covered under "Consulting Engineer's Service."

2. Nature of Contracts as Indivisible or Composite:
The appellant argued that their contracts were indivisible lump sum turnkey contracts and could not be vivisected for charging service tax on components such as drawing/designing and training. The tribunal, however, held that the contracts had distinct components of consulting engineering services and that service tax could be levied on these components. It was emphasized that the intention of the contract, as expressed in its terms, determines whether it is a composite contract for sale and service or an indivisible contract for a particular service.

3. Applicability of Service Tax Prior to 1-6-2007:
The appellant contended that service tax on such contracts could only be charged from 1-6-2007 under section 65(105)(zzzza) of the Finance Act, 1994. The tribunal rejected this argument, stating that even prior to 1-6-2007, service tax was chargeable on the taxable service components of contracts involving consulting engineering, erection, installation, and commissioning. The tribunal clarified that section 65(105)(zzzza) provided a new machinery provision for assessment but did not imply that such services were not taxable earlier.

4. Availability of Extended Limitation Period for Demand:
The tribunal addressed whether the extended limitation period of five years under proviso to section 73(1) of the Finance Act, 1994, was applicable. It was found that the appellant had suppressed relevant information by not informing the department about their consulting engineering activities and not obtaining service tax registration until January 2004. Therefore, the extended limitation period was rightly invoked by the department.

5. Imposition of Penalties under Sections 76, 77, and 78 of the Finance Act, 1994:
Penalties under sections 76, 77, and 78 were imposed on the appellant for failure to obtain service tax registration, file returns, and pay service tax. The tribunal upheld these penalties, noting that the appellant's conduct amounted to suppression of facts. The tribunal also held that no valid reason was provided by the appellant for their failure to comply with the service tax provisions, justifying the imposition of penalties.

Conclusion:
The tribunal dismissed the appeal, confirming the service tax demand and penalties imposed on the appellant. The activities of the appellant were classified under "Consulting Engineer's Service," and the contracts were found to have distinct taxable service components. The extended limitation period was applicable due to suppression of facts, and the penalties under sections 76, 77, and 78 were upheld.

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