2005 (11) TMI 2 - AT - Service Tax

Scope of sub contractors - Board s Circular Dated 2-7-1997 in the matter of Consulting Engineer

Summary

Issues:
Interpretation of the definition of "Consulting Engineer" under the Finance Act, 1994 and whether the appellant's services fall under this category. The applicability of service tax on the services provided by the appellant. The correctness of the penalty imposed on the appellant.

Analysis:
The appellant, a post-graduate in Engineering and a fellow of International Council of Consultants, provided consulting works related to HVAC systems to contractors who were awarded contracts for projects at various locations. The appellant's services included design, supervision of installation, and commissioning of the systems. A show cause notice was issued for recovery of service tax and penalty due to objections raised during an audit. The adjudicating authority confirmed the demand and imposed a penalty, which was upheld by the appellate authority, leading to the current appeal.

The appellant argued that they do not fall under the definition of a consulting engineer and should be considered a sub-contractor providing services to the main contractor, not directly to the client. The appellant contended that the penalty imposed was incorrect due to the interpretation of the provisions. On the other hand, the Departmental Representative asserted that the appellant's services qualified as those of a Consulting Engineer, emphasizing that the appellant was not a sub-contractor but provided consultancy services directly to the main contractor.

The Tribunal examined the definition of "Consulting Engineer" under the Finance Act, 1994, which includes professionally qualified engineers or firms providing advice, consultancy, or technical assistance to a client in engineering disciplines. The Tribunal noted that the appellant was appointed by firms to provide expert knowledge on air-conditioning systems to the main contractors, who were considered clients of the appellant. As per the statutory provisions, services provided by a Consulting Engineer to a client are subject to service tax, which applied to the appellant's case.

The appellant relied on a Board's circular to argue that their services should be considered those of a sub-contractor and not a Consulting Engineer. However, the Tribunal found that the services were directly provided to the main contractors, who were the clients, not to the original parties. The Tribunal emphasized that for the appellant's services to fall under the sub-consultant category, the main contractors would need to be Consulting Engineers themselves, which was not proven by the appellant.

In conclusion, the Tribunal held that the appellant's services fell under the category of "Consulting Engineer" and were liable for service tax. Considering the complex legal question regarding the appellant's classification as a sub-consultant, the penalty imposed was reduced to Rs. 15,000. The service tax amount was upheld, and the Order-in-Appeal was affirmed with the mentioned modifications, resulting in the dismissal of the appeal.