2013 (12) TMI 861 - AT - Service Tax

Demand of service tax - Appellant entered into license agreement with GAIL - GAIL contends that liability to service tax if any lies with the appellants with whom license agreement dated 10.9.2001 was entered - Classification of appropriate category of Service Tax - Held that - As regard the classification of appropriate category of Service Tax for services provided by the Appellants in view of clauses of agreement, bill for first installment raised by the Appellants, definitions contained in Act and clarification issued by CBEC, New Delhi vide its Circular No. B/43/5/97-TRU dated 2.7.1997. I find that the learned adjudicating authority has appropriately classified the services under the category of Consulting Engineering Services in view of findings which have been discussed in detailed in impugned order. during the audit of the GAIL it was noticed that GAIL has incurred expenditure in foreign currency during the year 2000-2001 and 2001-2002. In the balance sheet the expenditure is shown under head Technical Consultancy and Engineering. We note that balance sheet is a document prepared under provisions of Companies Act. GAIL has received the service of Technical Consultancy and Engineering as per Balance Sheet, which means that appellants have provided the service of Technical Consultancy & Engineering. However as per definition of Consulting Engineer under Section 65(13) of the Act, these services when provided by an engineering firm or professional engineer only become taxable. We find that Commissioner (Appeals) has not given any finding on the fact that appellants are an engineering firm and he has just upheld the finding of original authority without analysing the definition under the Act. Period of dispute in the present appeal is 2000-2001 and 2001-2002 and IPR service was not in existence at that time. Moreover there is no provision in Finance Act, 1994 stating that when a new service is created, the same was not covered under other taxable service prior to creation of new entry. On the other hand we note that a service may fall under two taxable services and to classify it more appropriately Section 65A of the Finance Act is required to be invoked. In view of the fact that during the disputed period IPR service was not in existence - we remand the matter back to Commissioner (Appeals) - Decided in favour of assessee by way of remand.

Summary

Issues:
Classification of service under Consulting Engineer Service or Intellectual Property Right Service, qualification of the appellant as an engineering firm, applicability of time-bar for Show Cause Notices, imposition of penalty under Section 78.

Classification of Service:
The appeals involved a dispute over the classification of services provided by the appellant under Consulting Engineer Service or Intellectual Property Right Service. The appellant argued that the transfer of patented technology to GAIL fell under Intellectual Property Right Service rather than Consulting Engineer Service. The appellant contended that the agreement with GAIL involved the transfer of patented technology related to Sclairtech Linear Polythene Technology. The appellant cited various judgments supporting their position. However, the Revenue argued that the agreement focused on consultancy and technical assistance without the transfer of any Intellectual Property Rights (IPR) or patented processes. The Tribunal noted that the agreement did not involve IPR transfer or royalties linked to IPR, concluding that the consideration was solely for consultancy services. The Tribunal remanded the matter to the Commissioner (Appeals) for a fresh decision after considering the arguments presented.

Qualification as Engineering Firm:
Another issue raised was whether the appellant could be classified as a provider of Consulting Engineer's Service, requiring them to be a qualified engineer or engineering firm. The appellant argued that they were a manufacturing firm, not an engineering firm, and that the Revenue needed to prove that the services were provided by an engineering firm offering advice, consultancy, or technical assistance. The Tribunal observed that the definition of Consulting Engineer under Section 65(13) required services to be provided by an engineering firm or professional engineer to become taxable. The Tribunal found that the Commissioner (Appeals) did not analyze whether the appellant qualified as an engineering firm, remanding the matter for further consideration.

Time-Bar and Penalty:
Regarding the time-bar for the Show Cause Notices and the imposition of penalties under Section 78, the appellant contended that the extended period of 5 years could not be invoked, and thus, penalties should not be imposed. The Revenue argued that the case was detected after an audit of GAIL, and the Show Cause Notices were issued within the extended period. The Tribunal decided to remand the matter to the Commissioner (Appeals) to address these issues during the fresh decision-making process.

In conclusion, the Tribunal set aside the orders in appeal and remanded the case back to the Commissioner (Appeals) for a reevaluation, providing an opportunity for the appellant to present their arguments. The judgment highlighted the need for a detailed analysis of the classification of services, the qualification of the appellant as an engineering firm, and the application of time-bar provisions and penalties under Section 78.