2019 (4) TMI 328 - AT - Service Tax

Classification of services - appellant engaged in test substance of agrochemicals, Pharmaceuticals, industrial chemicals, drugs and cosmetic products - classifiable as Scientific or Technical Consultancy Service or Technical Testing and Analysis Service? - Held that - The appellant are only collecting the sample, modify the sample making Protocol, conduct the analysis preparing the report and submitting the result/report to the client. In this process it is no where coming out that the appellant is providing any service of Scientific and Technical/Consultancy Service to the client. It is only after the receipt of the report the client do consultation with the scientific or Technical expert to obtain there consultancy, therefore, the process carried out by the appellant is limited to conduct the analysis of the sample and giving report the appellant who has no authority to give any consultancy on the analysis and report conducted by them - In the present case the Testing and Analysis of sample of and preparation of its report is not carried out by Scientist or Technocratic or any Science or Technology Institution or Organization. For this reason also the service does not classify as Scientific or Technical Consultancy Services. Business Auxiliary services - service received from abroad - applicability of Section 66A of the Finance Act, 1994 - Held that - The service received from abroad is liable to service tax under section 66(A) of the Finance Act, 1944 w.e.f 18.04.2006. Penalty - Held that - The service tax was not paid in time under the bonafide belief. Accordingly, the appellant have made out a good case for waiver of penalty under Section 80. Accordingly, penalty imposed by the lower authority are set aside. Appeal allowed in part.

Summary

Issues:
1. Classification of services provided by the appellant as Scientific or Technical Consultancy Service or Technical Testing and Analysis Service.
2. Liability of service tax for services received from abroad under Business Auxiliary Service.
3. Imposition of penalty on the appellant.

Analysis:

Issue 1: Classification of services provided by the appellant
The appellant, a society engaged in testing substances, argued that their services fall under technical testing and analysis service, not scientific and technical consultancy services. The appellant highlighted their testing process, emphasizing that they do not provide consultancy or technical assistance to clients. The appellant contended that the service tax classification should be based on the actual nature of the service provided. They also claimed exemption under Notification No. 6/99-ST for services provided to clients outside India. The Tribunal analyzed the process undertaken by the appellant, which involved sample receipt, analysis, and report submission. The Tribunal noted that the appellant did not provide consultancy directly to clients but only conducted analysis and prepared reports. Referring to precedent judgments, the Tribunal concluded that the appellant's services were correctly classified as Technical Testing and Analysis Agency Service, not Scientific and Technical Consultancy Service. Consequently, the demand for service tax under the scientific or technical consultancy service category was set aside.

Issue 2: Liability of service tax for services received from abroad
Regarding the service received from abroad, the appellant had already paid the service tax with interest. The Tribunal determined that the service received from abroad was liable to service tax under Section 66(A) of the Finance Act, 1994 from 18.04.2006. However, considering the appellant's entitlement to Cenvat Credit and the absence of malicious intent in delayed payment, the Tribunal waived the penalty imposed by the lower authority. The Tribunal found that the issue involved interpretation of service classification and ruled in favor of the appellant, setting aside the penalties.

Issue 3: Imposition of penalty on the appellant
The Tribunal acknowledged that the appellant acted in good faith and was entitled to Cenvat Credit, resulting in a revenue-neutral situation. Considering the bonafide belief of the appellant and the absence of malafide intention, the Tribunal waived the penalties imposed by the lower authority. The Tribunal allowed the appeal in favor of the appellant, pronouncing the decision on 03.04.2019.