2016 (9) TMI 690 - AT - Service Tax

Taxability of receipt of Supervision Charges on construction contract - demand under the category of Consulting Engineer as defined under section 65(31) of the Finance Act, 1994. - Held that - by no stretch of imagination can the supervision charges paid to the appellant be considered as consideration received for rendering consulting engineer service inasmuch as the appellant corporation is made up of officers on deputation from the police Department and hence are not professionally qualified engineers or an engineering firm and hence not covered by the definition of consultant engineer service. The nature of the supervision charges are-reimbursement of establishment charges by the MP government to them. - Demand set aside - Decided in favor of assessee.

Summary

Issues:
Interpretation of "Consulting Engineer Services" under Section 65(31) of the Finance Act, 1994.
Nature of supervision charges received by the appellant from the Madhya Pradesh government.
Levy of service tax on the supervision charges.
Existence of a consultancy agreement between the appellant and the government.
Applicability of service tax when the service is rendered to self.

Analysis:
The appeal was filed against an order passed by the Commissioner, Bhopal, confirming a demand of service tax against the appellant for receiving "Supervision Charges" on a construction contract. The revenue viewed these charges as consideration for services provided by the appellant to the Madhya Pradesh Government under the category of Consulting Engineer services defined in Section 65(31) of the Finance Act, 1994.

The appellant contended that the supervision charges were reimbursement for establishment charges and denied rendering any technical consultancy to the government. They argued that they were merely supervising construction on behalf of the government and not providing advice or consultancy. The appellant highlighted the absence of a formal consultancy agreement and relied on case laws to support their position.

The Tribunal examined the Memorandum and Articles of Association of the appellant company, which revealed that the appellant's objective was to undertake construction activities for the government without involving professionally qualified engineers or an engineering firm. The Tribunal noted that the corporation and its officers were not qualified engineers, thus falling outside the purview of Consulting Engineer services.

The Tribunal found that the supervision charges were not payments for consulting engineer services but were reimbursement for establishment charges incurred by the appellant. The revenue failed to investigate the nature of these charges before alleging them as service fees. The Tribunal clarified that supervision does not equate to technical consultancy as per the definition provided in the Act.

Moreover, the appellant argued that since the service was rendered to the government, which wholly owned the corporation, there should be no levy of service tax. The Tribunal agreed that the supervision charges were not for consulting engineer services, considering the appellant's composition and the nature of the charges. Consequently, the demand for service tax was set aside, and the appeal was allowed.

In conclusion, the Tribunal ruled in favor of the appellant, emphasizing that the supervision charges were not for consulting engineer services as defined in the Act. The absence of a formal consultancy agreement, the nature of the charges as reimbursement, and the composition of the appellant company supported the decision to set aside the demand for service tax.