2008 (9) TMI 81 - AT - Service Tax

Agreement for providing supervisory and field engineering services demand of service tax on the supervision charges collected in the category of consulting engineer s service - provision of the agreement makes clear that fees and charges were to be paid with reference to the length of stay of supervisor/field engineer at site supervisors and engineers are qualified, is not disputed by appellant demand is sustainable but penalty is waived for bona fide belief on non liability

Summary

Issues:
1. Whether the supervision charges received by the appellants from M/s. Mitsubishi Heavy Industries Ltd. are liable to service tax under the category of 'consulting engineer's service'?
2. Whether the appellants can be considered as sub-consultants for TISCO, and the tax liability should be fixed on M/s. Mitsubishi Heavy Industries Ltd.?
3. Whether penalties under Sections 76, 77, and 78 of the Finance Act should be imposed on the appellants for non-payment of tax?

Analysis:

Issue 1:
The appellants argued that the supervision charges received were not subject to service tax as they were merely executing work for M/s. Mitsubishi Heavy Industries Ltd. without providing consultancy, advice, or assistance. However, the Department contended that the services provided by the appellants fell within the scope of consulting engineer's service as per the agreement terms. The Tribunal found that the services included technical/engineering services, advice for setting up, and inspection/testing services, meeting the criteria of consulting engineer's service. The agreement specified fees based on the length of stay of supervisors/field engineers at the site, indicating a service-based payment structure. Invoices detailed supervision charges for named individuals, supporting the nature of services rendered. The Tribunal upheld the demand for service tax, considering the services provided akin to consulting engineer's service.

Issue 2:
The appellants suggested being treated as sub-consultants for TISCO, shifting the tax liability to M/s. Mitsubishi Heavy Industries Ltd. However, this argument was not raised earlier and was not found relevant to the agreement's terms. The agreement focused on services provided by the appellants to M/s. Mitsubishi Heavy Industries Ltd., with TISCO not directly involved. Hence, the plea to transfer tax liability was dismissed.

Issue 3:
Regarding penalties, the appellants invoked Section 80 of the Finance Act, claiming a bona fide belief in non-liability for service tax. While this plea was not raised earlier, the Tribunal acknowledged the appellants' consistent resistance based on their interpretation of the agreement terms. As the appellants demonstrated a genuine belief in non-liability, penalties under Sections 76 to 78 were waived. However, penal liability under Section 75A remained unaffected, and the penalties under this provision were upheld.

In conclusion, the Tribunal allowed the appeal to the extent of setting aside penalties imposed under Sections 76 to 78 of the Finance Act, modifying the impugned order accordingly.