2024 (7) TMI 70 - AT - Service Tax

Classification of service - execution of various turnkey contracts - Consulting Engineering Services or Works Contract Services - whether the appellant has transferred any property in the project to the project authority? - HELD THAT - The role of the appellant was mere advisory to award contracts based on skill and technical knowledge it possesses as the project authority had no knowledge about such work. They appointed contractor specifically informing them that they are being appointed for the Project Authority and at the same time they entered into contracts in their name but whatever amount was paid to the contractor was only charged from the project authority and CA certified accounts of all payments were handed over to the project authority. They did not receive any separate consideration over and above the 5% charges for the consulting engineering service provided by them - Further, the Ld. Counsel has produced copy of Balance Sheets and Copy of VAT / CST Annual Returns filed in the State of Gujarat for the period under dispute showing that no sales in relation to such works contract have been accounted for in the books of accounts as per generally accepted accounting principles which were not disputed by the adjudicating authority. The department has failed to prove that anything in excess of 5% charges/fee was received by the appellant from the project authority. The appellant being a government body, the balance sheets, sales tax/ vat returns filed by them cannot be doubted upon unless specifically countered by the department and on the basis of those, it is seen that no transfer of property in goods has taken place from the appellant to the Project Authority. Though the appellant has been receiving payments from the Project Authority and paying to the contractors, the same can be considered to be merely a service provided by the appellant as an authorised agent of the Project Authority within the scope of their contractual obligations - The appellant being a government body is subject to various statutory checks by the vigilance/ audits authorities and it cannot be assumed that anything not reflected in the books of account was actually accrued to them. There was no transfer of property in goods or immovable property from the appellant to the Project Authority which was an essential ingredient to classify the contract as works contract and in the absence of which contract cannot be classified to be a Works Contract - the impugned contract to be duly classified and taxable as Consulting Engineering Service - the impugned order set aside. Appeal allowed.

Summary

Issues Involved:
1. Classification of services provided by NDDB: Whether they qualify as 'Consulting Engineering Services' or 'Works Contract Services'.
2. Validity of show cause notices issued in the form of statements.
3. Calculation of service tax demand under 'Works Contract Services'.
4. Applicability of abatement under Notification No. 1/2006-ST dated 01.03.2006.

Issue-wise Detailed Analysis:

1. Classification of Services Provided by NDDB:
The primary issue was whether the services provided by NDDB should be classified under 'Consulting Engineering Services' or 'Works Contract Services'. The department contended that NDDB was engaged in turnkey projects, which included engineering, procurement, construction, and commissioning (EPC) and hence should be classified under 'Works Contract Services'. The appellant argued that their role was limited to providing consultancy services and that they did not transfer any property in goods to the project authority. The tribunal found that the scope of 'Consulting Engineering Services' is broad and includes various activities like procurement, construction supervision, project management, and technical services. The tribunal concluded that NDDB's activities fell within the ambit of 'Consulting Engineering Services' and not 'Works Contract Services'. The tribunal also noted that NDDB did not receive any consideration beyond the 5% consultancy fee and that the payments made to contractors were on behalf of the project authority.

2. Validity of Show Cause Notices Issued in the Form of Statements:
The appellant challenged the validity of the show cause notices dated 19.05.2014 and 20.10.2015, which were issued in the form of statements. The tribunal held that the appellant had clear notice of the allegations made in the statements and that the definition of 'Works Contract' had not changed significantly after 01.07.2012 in a way that would affect the appellant's case. The tribunal ruled that the show cause notices issued in the form of statements were valid.

3. Calculation of Service Tax Demand under 'Works Contract Services':
The department had calculated the service tax demand based on the entire cost of the projects under 'Works Contract Services'. The appellant argued that the demand should be calculated only on the value of the service element, as certified by a Chartered Accountant. The tribunal found that the department had not provided any evidence of NDDB receiving any amount beyond the 5% consultancy fee. The tribunal also noted that NDDB's balance sheets and VAT returns did not show any transfer of property in goods. Therefore, the tribunal concluded that the service tax demand should not be based on the entire cost of the projects.

4. Applicability of Abatement under Notification No. 1/2006-ST dated 01.03.2006:
The department's appeal argued that the benefit of abatement under Notification No. 1/2006-ST was not available for 'Works Contract Services'. However, since the tribunal had already classified NDDB's services under 'Consulting Engineering Services', this issue became moot. The tribunal dismissed the department's appeal, holding that NDDB had correctly discharged its service tax liability under 'Consulting Engineering Services'.

Conclusion:
The tribunal allowed the appeals filed by NDDB, holding that their services were correctly classified under 'Consulting Engineering Services' and that the show cause notices issued in the form of statements were valid. The tribunal also dismissed the department's appeal, affirming that NDDB had correctly discharged its service tax liability. The tribunal set aside the impugned order and granted consequential relief to NDDB.