2018 (5) TMI 1467 - AT - Service Tax

Technical Testing and Analysis Services - respondent is a statutory body set up by Government of Tamil Nadu as per the Tamil Nadu Water Supply & Drainage Board Act, 1970 (TWAD Act) created to carryout works related to water and drainage schemes in Tamil Nadu - Board Circular 89/7/2006-ST dt.18/12/2006. Held that - the testing done by TWAD is a statutory duty and the fees collected is a statutory fees - there is no service provider service recipient relationship between TWAD and the contractors and as such there is no taxable event - Consideration presupposes a certain level of reciprocity. In the instant case it is TWAD who wants to ensure the quality of the pipes used in the Water Supply and Drainage Schemes floated by them. Therefore it cannot be said that the testing is done for the contractor and that a service is rendered to him. The testing fee therefore does not take the colour or character of consideration . There is no service rendered by TWAD to the contractor and the fees collected is not a consideration that can be subject to levy of service tax under the Finance Act, 1994 - Appeal allowed - decided in favor of appellant.

Summary

Issues:
Department aggrieved by Commissioner (Appeals) setting aside demand, interest, and penalties related to service tax on testing charges collected by statutory body under TWAD Act from contractors.

Analysis:

Issue 1:
The main issue was whether the testing charges collected by the statutory body under TWAD Act from contractors were liable for service tax for the period from 1/4/2004 to 30/6/2009. The department argued that the testing constituted 'Technical Testing and Analysis' services, while the Commissioner (Appeals) set aside the demand, interest, and penalties.

Analysis for Issue 1:
The respondent, a statutory body under the TWAD Act, contended that the testing activity was a self-service performed to ensure the quality of materials used in laying pipelines, which was a statutory obligation. The testing was necessary to fulfill the respondent's objectives under the TWAD Act, and the charges collected were not in return for a service provided to the contractors. The respondent highlighted that the testing charges were reimbursed to the contractors by the local authority as per statutory provisions.

Issue 2:
The second issue revolved around whether there was a service provider-service recipient relationship between the statutory body and the contractors, making the testing charges subject to service tax.

Analysis for Issue 2:
The Tribunal analyzed the contractual relationship between the statutory body and the contractors regarding the testing of pipes. It was observed that the testing was done to ensure the quality of pipes used in projects undertaken by the statutory body, and the contractors did not derive direct benefit from the testing. The Tribunal referred to precedents and clarified that for a service to be taxable, there must be a benefit accruing to the recipient, and consideration must be identified. Since the testing was done for the statutory body's own objectives and not for the contractors, the fees collected did not constitute consideration subject to service tax.

In conclusion, the Tribunal upheld the Commissioner (Appeals)' decision, stating that no service was rendered by the statutory body to the contractors, and the fees collected were not considered as taxable under the Finance Act, 1994. The appeal by the department was dismissed, and the cross objection filed by the respondent was disposed of accordingly.