2017 (7) TMI 1233 - AT - Service Tax

Consulting Engineer Services - Reverse Charge Mechanism - demand of service tax - whether service tax of ₹ 1,31,98,941/- has been rightly demanded under Consulting Engineer Services from the appellant under reverse charge mechanism along with equal amount of penalty under Section 78 as well as penalty under Section 77 (1) (a) of the Finance Act? - extended period of limitation. Held that - The payment made by the appellant company is for transfer of technology under intergovernmental agreement and not for receipt of any services in India in relation to business or commerce - under Section 65 (105)(g) taxable service under consulting engineers service means provided or to be provided to a client by consulting engineer in relation to advise consultancy or technical assistance in any manner in one or more disciplines of engineering. In the present facts and circumstances, there is no relation of any Consulting Engineering Service with any client or appellant. Thus, Service Tax is not attracted under the head Consulting Engineer Services on reverse charge basis. Appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Whether service tax demanded under "Consulting Engineer Services" from the appellant is justified.
2. Whether penalty under Section 78 and Section 77 (1) (a) of the Finance Act is rightly imposed.
3. Whether the extended period of limitation for demand of service tax is valid.

Analysis:
1. The appellant, a PSU engaged in manufacturing electronic items, entered into an agreement for technology transfer with a Russian entity. The demand for service tax under "Consulting Engineer Services" was made, alleging willful suppression by the appellant. The Tribunal noted that the payments were for technology transfer under an intergovernmental agreement, not for services related to business or commerce. Citing Section 65(105)(g), it was held that no Consulting Engineering Service was provided to the appellant, leading to the appeal being allowed.

2. The appellant contested the imposition of penalties under Section 78 and Section 77 (1) (a) of the Finance Act. The Tribunal found that the conditions for invoking the extended period of limitation were not met, as there was no fraud, collusion, willful misstatement, or suppression of facts. The appellant being a PSU, and the transactions being duly recorded and audited, mala fide intent was not established. Consequently, the penalties were set aside.

3. The issue of the extended period of limitation was crucial in this case. The appellant argued that without strong allegations, mala fide could not be attributed to a PSU. The Tribunal agreed, emphasizing that the technology transfer payments were not taxable under Consulting Engineer Services. Relying on precedents and the definition of Consulting Engineer, the Tribunal concluded that service tax was not applicable, leading to the appeal being allowed with consequential benefits.

This detailed analysis of the judgment showcases the Tribunal's interpretation of the law, application of legal principles, and reasoning behind the decision to allow the appeal and set aside the impugned order.