2006 (7) TMI 22 - AT - Service Tax

Service Tax Consulting engineering services definition did not cover non-engineering firms rendering engineering consultancy prior to amendment in 2006 Not liable to service tax

Summary

Issues:
Appeals by Assessee and Revenue against the same order.

Analysis:
The case involved an appeal by both the Assessee and the Revenue against the same order regarding a service tax demand of about Rs. 4 lakhs raised on the Assessee for technical services rendered to another company. The dispute centered around whether the service provided by the Assessee qualified as "Engineering Consultancy Services" attracting service tax. The Deputy Commissioner and the Commissioner (Appeals) held in favor of the Revenue, stating that the service fell under consultancy services related to productivity improvement, thus attracting service tax. The Assessee contended that it did not qualify as an engineering firm and relied on the definition of "Consulting Engineer" in the relevant statute. The Assessee highlighted an amendment to the definition of consulting engineer in the Budget of 2006, which substituted "an engineering firm" with "any body corporate or any other firm," implying that prior to the amendment, the levy was limited to engineering firms only. The Assessee also cited a judgment of the Calcutta High Court to support the argument that tax liability arises only when the service provider is an engineering organization.

The Revenue argued that the Assessee met the requirements of being an engineering firm since it employed engineers and provided engineering consultancy services. The Revenue relied on a specific judgment of the Tribunal to support this claim. The crucial question in the case was whether the Assessee qualified as an engineering firm under the definition of "consulting engineer." The Tribunal noted that a broad definition of an engineering firm, encompassing any firm employing engineers, would be unjustified. It emphasized that merely employing engineers does not automatically make an organization an engineering firm. The Tribunal highlighted that engineering firms have a distinct identity based on specialized engineering knowledge and the nature of work undertaken. The Tribunal also referenced a previous judgment to clarify that not all engineering consultancy provided by firms would attract service tax under the category of consulting engineer.

The Tribunal referred to a judgment of the Calcutta High Court, which emphasized that engineering firms are distinct from general industrial organizations due to their specialized engineering knowledge and work undertaken. In this case, the Tribunal found that the Assessee's primary identity was as a sugar manufacturer, not an engineering firm, as the consultancy receipt was an isolated incident. The Tribunal concluded that the Assessee's appeal succeeded, granting consequential relief. On the other hand, the Revenue's appeal seeking a penalty enhancement was dismissed, considering that service tax itself was not applicable. Therefore, the Assessee's appeal was allowed, while the Revenue's appeal was rejected.