2018 (2) TMI 20 - AT - Service Tax

Levy of service tax - Consulting Engineering Services - sub-contract - Held that - the Trade Notice / CBEC circular did clarify that the services when provided to a prime consultant would not attract service tax during the material time - identical situation was analyzed by the Tribunal in the case of OIKOS Versus COMMISSIONER OF C. EX., BANGALORE-III 2006 (10) TMI 379 - CESTAT BANGALORE wherein it was unequivocally held that appellant therein being a sub-contractor, levy of service tax was not justified - appeal allowed - decided in favor of appellant.

Issues:
1. Tax liability on Consulting Engineering Services provided to a main Consultant.
2. Interpretation of Export of Services Rules 2005.
3. Applicability of penalties under Section 76 & 78 of the Finance Act.
4. Impact of Trade Notice and TRU Circular on service tax liability.
5. Precedent set by the case of Union of India Vs Nitdip Textile Processors Pvt Ltd.
6. Analysis of the Tribunal's decision in Oikos Vs CCE Bangalore.

Issue 1: Tax liability on Consulting Engineering Services:
The appellants provided Consulting Engineering Services to a main Consultant, Technip India Ltd., who was exporting services without discharging service tax. The department demanded a tax liability of ?3,80,040 along with interest and penalties. The Commissioner (Appeals) set aside penalties under Section 76 & 78 but upheld the tax liability. The appellants relied on a Trade Notice clarifying that service tax does not apply when services are rendered to the prime consultant.

Issue 2: Interpretation of Export of Services Rules 2005:
The case involved a dispute regarding the satisfaction of the requirements of Export of Services Rules 2005 by the main Consultant, Technip India Ltd., who did not discharge service tax for the exported services. This non-compliance led to the demand for tax liability on the appellants providing Consulting Engineering Services.

Issue 3: Penalties under Section 76 & 78 of the Finance Act:
The Commissioner (Appeals) set aside penalties under Section 76 & 78 of the Finance Act but upheld the tax liability imposed by the original authority. The appellants appealed against the remaining portion of the lower authority's order, seeking relief from the tax liability.

Issue 4: Impact of Trade Notice and TRU Circular on service tax liability:
The appellants cited Trade Notice No.53/97 and TRU Circular No.B.43/5/97-TRU to support their contention that service tax does not fall on the sub-consultant when services are rendered to the prime consultant. The Tribunal acknowledged the validity of the Trade Notice and Circular, setting aside the impugned order and allowing the appeal in favor of the appellants.

Issue 5: Precedent set by Union of India Vs Nitdip Textile Processors Pvt Ltd:
The appellants relied on the ratio of the case law in Union of India Vs Nitdip Textile Processors Pvt Ltd. (2011) 273 ELT 321 (SC) to strengthen their argument regarding the non-applicability of service tax when services are provided to the prime consultant.

Issue 6: Analysis of Oikos Vs CCE Bangalore decision:
The Tribunal referred to the case of Oikos Vs CCE Bangalore (2007) 5 STR 229 (Tri.-Bang.) where it was held that as a sub-contractor, the levy of service tax was not justified. Drawing parallels with the Trade Notice and Circular, the Tribunal ruled in favor of the appellants, setting aside the impugned order and allowing the appeal with consequential benefits as per law.

This judgment highlights the importance of Trade Notices, Circulars, and legal precedents in determining service tax liability in cases of Consulting Engineering Services provided to main Consultants. The interpretation of relevant rules and the application of established case law play a significant role in resolving disputes related to tax obligations.

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