2007 (7) TMI 190 - AT - Service Tax

Appellant has undertaken, at the customer s site, certain activities like construction, civil works including installation, erection & commissioning of machinery impugned activity is part of manufacturing activity - products are sold to some of their customers and no post clearance support is being given by them held that impugned contract for design, manufacture, supply, storing, erection, testing of machinery on turnkey basis can be held taxable as consulting engineering service

Summary

Issues Involved:
1. Classification of services rendered by the appellant company.
2. Applicability of service tax on post-clearance activities.
3. Validity of penalties imposed under various sections.

Detailed Analysis:

1. Classification of Services Rendered by the Appellant Company:
The primary issue was whether the services rendered by the appellant company, which included erection, installation, commissioning, testing, and calibration of machinery at the customer's site, could be classified as "consulting engineer" services. The original authority concluded that these activities were part of the manufacturing process and did not constitute consultancy services. However, the Commissioner, in review, opined that the broad definition of consulting engineers, which includes any advice, consultancy, or technical assistance, encompassed the appellant's activities since they employed their own engineers and did not hire external consultants. The Commissioner relied on CBEC Circular No. 43/5/97-TRU, which clarified the scope of consulting engineer services to include various engineering-related activities.

2. Applicability of Service Tax on Post-Clearance Activities:
The appellant argued that their activities were part of a turnkey contract and could not be divided to levy service tax on certain portions. They cited several precedents where similar contracts were not subjected to service tax by vivisecting the contract. The Tribunal, however, distinguished the present case from those precedents, noting that the appellant's activities were not part of an indivisible turnkey project but were additional services provided to certain customers. Consequently, these activities were considered separate services rather than part of the manufacturing process, making them liable for service tax.

3. Validity of Penalties Imposed Under Various Sections:
The Commissioner imposed a penalty of Rs. 3,69,51,498 under Section 78, along with other penalties under Sections 76 and 77, and additional penalties on the General Manager (Finance) and Company Secretary. The Tribunal found the penalty under Section 78 to be excessively harsh and reduced it. However, the penalties under other sections on the appellant company were upheld. The Tribunal also noted that no specific role of the General Manager (Finance) and Company Secretary in the evasion was established, leading to the conclusion that penalties on these individuals were not justified, and their appeals were allowed.

Conclusion:
- Demand of Duty and Interest: The Tribunal upheld the demand for duty and interest, rejecting the appellant company's claim that their activities were part of the manufacturing process.
- Penalty Reduction: The penalty under Section 78 was deemed harsh and reduced, while penalties under other sections were upheld.
- Individual Penalties: The penalties on the General Manager (Finance) and Company Secretary were set aside due to the lack of specific evidence of their involvement in the evasion.

Final Disposition:
- Demand of Duty and Interest: Upheld.
- Penalty on Appellant Company: Reduced under Section 78.
- Penalties on Individuals: Appeals allowed, penalties set aside.