2020 (6) TMI 618 - AT - Service Tax

Demand of Service Tax - Photography services - Scientific and technical consultancy services - scope of SCN - Time Limitation - penalties - HELD THAT - Although the appellant obtained registration under three categories of services the demand in this SCN is only under the heads of Photography services and Scientific and technical consultancy services . Photography Services - the assessee s contention is that the nature of the services does not fall in the definition of Photography services at all - HELD THAT - The scope of this service has been enlarged to cover the service rendered by any person instead of services rendered only by a commercial concern only. The nature of the services rendered by the appellant are photo processing of aerial films, general photography, photography by low level flying aircrafts specially suited for the purpose etc. - all these services squarely fall under the definition of Photography service as per Chapter V of the Finance Act, 1994. Legal entity of NRSC - Nature of Organisation - Whether NRSC is a commercial concern or just another legal person? - HELD THAT - It is found from the narration of the nature of the organisation in the SCN, impugned order and in the submissions made by both the parties that it is an autonomous organisation of the department of Space, Government of India. It is not primarily a commercial concern like any public sector undertaking. It is registered as a Society under the Societies Registration Act. Therefore, it is a legal entity and is a juridical person but is definitely not a commercial concern - Having said that, the services rendered by them, for other organisations are in the nature of services in return for a payment. To that extent the nature of the activity is certainly commercial but the organisation itself is not. Therefore, prior to 01.07.2012 the assessee cannot be charged service tax on photography services rendered by them. After this date, the service tax can be charged from the assessee. Scientific and technical consultancy Services - HELD THAT - The supplier of such goods and the provider of such services is quite distinct from the person receiving the grants-in-aid. Such persons will not automatically get exempted from payment of service tax or excise duty unless there is a specific exemption notification in respect of such services. For instance, if a department receives grant-in-aid, say, to construct roads, the amount received is a grant-in-aid at the hands of the department. However, in order to build those roads, they will hire other contractors and pay them. At the hands of the contractors who provide necessary services, the amounts are commercial receipts for their services. Therefore, the same cannot be treated as grants-in-aid at the hands of the contractor - The nature of these services, as can be seen from the records available, clearly indicates that they are in the nature of scientific and technical consultancy provided by the expertise of the assessee. Extended period of Limitation - suppression of facts or not - HELD THAT - The assessee in this case is an autonomous organisation under the department of Space, Government of India. It is not a private business entity. They have, of course, undertaken several research projects for a price and that is part of their revenue model. They generate funds from these projects which are used for running the organisation. For these projects, they get paid by other Governmental and non-Governmental organisations under various heads. If the assessee was clearly aware that they had to pay service tax, they could have billed their clients for the Service Tax as well. By not paying the service tax, the assessee is not gaining anything. It is a Governmental organisation run by bureaucrats and scientists, none of whom have any personal interest in evading service tax. In fact, by evading service tax nothing would be gained either by anyone individually or by their organisation - by no stretch of imagination can we hold that the assessee has committed fraud or collusion or wilful misstatement or suppression of facts with an intent to evade payment of service tax. Under these circumstances, the extended period of limitation cannot be invoked in this case. The demand, if any, within the normal period of limitation can only survive. Penalties - HELD THAT - There is no evidence of wilful suppression of facts with intent to evade payment of service tax, no penalty is imposable under section 78 of the Finance Act, 1994. This a fit case to invoke section 80 of the Finance Act, 1994 and waive all the penalties imposed upon the appellant. Appeal allowed by way of remand.

Summary

Issues Involved:
1. Classification of services under "Photography services" and "Scientific and Technical Consultancy services".
2. Applicability of service tax on grants-in-aid projects.
3. Applicability of service tax on projects funded by the World Bank.
4. Applicability of service tax on services rendered by IIRS.
5. Applicability of service tax on research projects for ICAR.
6. Applicability of service tax on consultancy projects for the Ministry of Defence.
7. Applicability of service tax on consultancy projects for ISRO/RRSC.
8. Applicability of service tax on data dissemination and photo products projects.
9. Invocation of the extended period of limitation.
10. Imposition of penalties under sections 76, 77, and 78 of the Finance Act, 1994.

Detailed Analysis:

1. Classification of Services:
The tribunal examined whether the services rendered by NRSC fell under "Photography services" as defined under section 65(78) and "Scientific and Technical Consultancy services" under section 65(92) of the Finance Act, 1994. The tribunal found that the nature of services such as aerial photography and processing of aerial films fell under "Photography services". However, NRSC, being an autonomous organization and not a commercial concern, was not liable for service tax on these services prior to 01.07.2012. Post this date, service tax was applicable within the normal period of limitation.

2. Grants-in-Aid Projects:
The tribunal rejected the argument that services rendered under grants-in-aid should be exempt from service tax. It clarified that grants-in-aid are funds provided by the government for specific projects, and the services procured using these funds are commercial transactions subject to service tax.

3. World Bank Funded Projects:
The tribunal held that exemption under Notification No.16/2002 applies only to services rendered directly to international organizations. Projects funded by the World Bank but not directly rendered to it do not qualify for exemption.

4. Services Rendered by IIRS:
The tribunal confirmed that services rendered by IIRS, a division of NRSC, are liable for service tax as the income from these services is recorded in NRSC's books.

5. Research Projects for ICAR:
The tribunal held that services rendered to ICAR involved scientific and technical consultancy and were subject to service tax.

6. Consultancy Projects for Ministry of Defence:
The tribunal upheld the demand for service tax on consultancy projects for the Ministry of Defence, as these services were recorded as consultancy income in NRSC's books.

7. Consultancy Projects for ISRO/RRSC:
The tribunal disagreed with the adjudicating authority's decision to treat these as "in-house projects". It held that ISRO and RRSC are separate legal entities, and services rendered to them by NRSC are taxable.

8. Data Dissemination and Photo Products Projects:
The tribunal found that these services involved technical assistance and consultancy, falling under "Scientific and Technical Consultancy services".

9. Extended Period of Limitation:
The tribunal found no evidence of fraud, suppression, or wilful misstatement by NRSC. It held that the extended period of limitation could not be invoked, and only demands within the normal period of limitation were sustainable.

10. Imposition of Penalties:
The tribunal invoked section 80 of the Finance Act, 1994, to waive all penalties, finding no evidence of wilful suppression of facts with intent to evade service tax.

Conclusion:
1. Demands under "Photography services" prior to 01.07.2012 are set aside; post this date, demands are upheld within the normal period of limitation.
2. Demands under "Scientific and Technical Consultancy services" are upheld for all projects, including services to ISRO/RRSC, within the normal period of limitation.
3. Interest on such amounts is upheld.
4. Amounts of service tax and interest already paid by the assessee are to be adjusted.
5. Demands beyond the normal period of limitation are set aside.
6. All penalties are waived.
7. The case is remanded to the original authority for calculation of service tax payable.

Pronounced in open court on 24.06.2020.