2005 (5) TMI 3 - AT - Service Tax

Consulting Engineering versus Annual Maintenance Contract (AMC) both are separate one in intangible and other is tangible Period before 1-7-2003

Summary

Issues:
Appeal against demand of Service Tax for the period 1997-98 to 2001-2002; Whether repair and maintenance services provided under Annual Maintenance Contracts (AMCs) by the appellants are taxable under "Engineering Consultancy Service" as defined under clause 90(g) of Section 65 of the Finance Act, 1994; Applicability of penalties under Section 75A, 76, and 77.

Analysis:

1. The appeal was filed against a demand of Service Tax for the period 1997-98 to 2001-2002, concerning the provision of repair and maintenance services under AMCs by the appellants. The Department contended that the services rendered fell under "Engineering Consultancy Service" as per clause 90(g) of Section 65 of the Finance Act, 1994. A show cause notice was issued to the appellants demanding Service Tax, penalties, and interest. The original authority confirmed the demand and imposed penalties, which was upheld by the Commissioner (Appeals), leading to the present appeal.

2. The Counsel for the appellants argued that the repair and maintenance services provided under the AMCs did not involve rendering advice, consultancy, or technical assistance as defined in "Engineering Consultancy Service." The Counsel highlighted that prior to 1-7-2003, such services were not taxable under the Finance Act, 1994, and the demand for tax was not legally sustainable. The Tribunal's decision in a relevant case was cited to support the argument that tangible services like repair and maintenance should not be equated with intangible services like advice or consultancy.

3. After considering the submissions, it was acknowledged that "engineering consultancy service" primarily involves intangible services like advice and consultancy provided to clients in engineering disciplines. The repair and maintenance services provided by the appellants were deemed tangible, involving physical actions rather than intangible advice or consultancy. Therefore, it was concluded that the repair and maintenance services under the AMCs were not covered under "engineering consultancy service" and were only taxable from 1-7-2003 onwards. As a result, the demand for Service Tax and penalties were set aside, and the appeal was allowed.

4. The judgment emphasized the distinction between tangible services like repair and maintenance and intangible services like advice and consultancy in the context of "engineering consultancy service." It clarified that the repair and maintenance activities undertaken by the appellants did not fall within the ambit of taxable services under the relevant provisions of the Finance Act, 1994. Consequently, no penalties were deemed applicable, and the impugned order was overturned in favor of the appellants.