2008 (11) TMI 110 - AT - Service Tax

In view of the fact that Revenue has not detailed study of nature of service, qualification of service provider etc., it cannot concluded as to whether services provided amounted to Consulting Engineering services - Revenue not fulfilled basic requirement of explaining the nature of service - a blind statement that certain amount was collected as consultative fees, is not sufficient - in absence of grounds for invoking extended period, impugned order setting aside demand on imitation is correct

Summary

Issues:
Demand of service tax under the category of "Consulting engineering service" based on income shown under "Consultation fees" | Appeal against order confirming demand and penalties | Whether services provided by the respondents qualify as consulting engineering services | Invocation of Section 73 of the Finance Act, 1994 | Grounds for invoking extended period for demand

Analysis:
The case involved the respondents, manufacturers of electrical capacitors and switchgears, facing a show cause notice demanding service tax under the category of "Consulting engineering service" for the period from 7-7-1997 to 31-3-2001. The notice resulted in a demand of Rs. 13,32,477/- and penalties under various sections of the Finance Act, 1994. The Commissioner (Appeals) set aside the order confirming the demand and penalties on the grounds of limitation, leading to the Revenue appealing against this decision.

The Revenue contended that the respondents, engaged in manufacturing sophisticated electrical items, fell under the category of an engineering firm due to the technical complexity of their products, thus qualifying as a consulting engineering service provider. They argued that the consultative services provided by the respondents were covered under consulting engineering services, citing a Tribunal decision and emphasizing that professional qualifications were not a prerequisite for an engineering firm. The Revenue also highlighted the alleged suppression by the respondents in not submitting returns about the services provided.

On the other hand, the respondents argued that the service was provided by semi-skilled employees and did not meet the criteria for consulting engineering services. They relied on a case law and a Trade Notice to support their stance, emphasizing that the show cause notice lacked specifics on the type of service provided and why service tax was applicable. They pointed out the absence of invoking Section 73 of the Finance Act, 1994, and suppression in the notice, citing Tribunal decisions where the extended period was deemed inapplicable without invoking suppression.

The Tribunal considered both arguments and found that the Revenue failed to explain adequately the nature of services provided by the respondents and why service tax was applicable. The Tribunal noted the lack of detailed study on the service nature and provider qualifications, making it inappropriate to determine if the services qualified as consulting engineering services. Given the absence of invoking Section 73 and grounds for the extended period, the show cause notice issued in 2002 for the demand period from 1997 to March 2001 was deemed invalid on the grounds of limitation. Consequently, the Revenue's appeal was rejected, and cross-objections were disposed of accordingly.