2024 (11) TMI 1046 - AT - Service Tax

Classification of services - demand service tax under the category of Scientific or Technical Consultancy Services on RCM basis on the expenditure in foreign currency declared under the head Professional fees and Sampling charges in the Profit Loss Account ( P L ) As submitted the demand confirmed in the instant case on the expenditure in foreign currency recorded under the head Professional fees and Sampling charges in the P L A/c for the relevant period does not tantamount to Scientific or Technical Consultancy service defined under Section 65(92) of the Finance Act, 1994 as applicable prior to 01.07.2012 inasmuch as the said category covers services provided by a scientist or a technocrat, or any science or technology institution or organization unlike the instant case - HELD THAT - A perusal of the definition of Scientific or Technical Consultancy reproduced above indicate that any service rendered by them is classifiable under the category of Scientific or Technical Consultancy only when such service is provided by a scientist or a technocrat, or any science or technology institution or organization. In the instant case, from the agreements entered into by the appellants with the foreign vendors reveals that the service providers cannot be called as a science or technology institution or organization. They are merely experts conducting site visits for assisting the Appellant in taking informed decision on the viability of acquisition of coal mining assets situated outside India. Accordingly, we hold that the service received by the appellant from the experts cannot be classified under the category of Scientific or Technical Consultancy . Appellant has placed their reliance on the TRU Circular dated 09.07.2001 bearing F.No.B.11/1/2001-TRU, wherein it has been clarified that the scientific or technical consultancy service envisages expert opinion/ advice in one or more disciplines of science or technology. We observe that the activities under taken by the experts involves review and validation of the data pursuant to site visits, meetings and discussions w.r.t. estimated resources and reserves of the mines; geological data; geotechnical and hydrological conditions effecting mining etc. These activities performed by the Foreign Service providers evidently do not fall within the ambit of scientific or technical consultancy services. Thus, the Circular issued by the Board cited above also supports the view that the service rendered by the appellant can be categorized as Scientific or Technical Consultancy only when such service is provided by a scientist or a technocrat, or any science or technology institution or organization. All services provided in relation to mining of minerals, including the then existing taxable service of survey and exploration of mineral services' were also brought under the taxable service of mining of mineral, oil or gas services . Thus, we observe that w.e.f. 01.06.2007, the service rendered by the appellant would fall under the taxable category mining of mineral, oil or gas as defined under Section 65(105)(zzzy) and 65(105(zzv) of the Act. We hold that the demand confirmed in the impugned order under the category of scientific or technical consultancy services is not sustainable. Demand of service tax confirmed in the impugned order on 'sampling charges' - We observe that the payment in foreign currency has been made to third party inspection agencies for carrying out inspection w.r.t. the quality of iron ore exported by the Appellant as per the requirements of the export orders. Hence, the same is classifiable as Technical Inspection and Certification Service as defined under Section 65(108) of the Act. The services are not provided by a science or technology institution or organization and are merely in the nature of technical inspection and certification service. However, we observe there is no demand made under the category of Technical Inspection and Certification Service as defined under Section 65(105)(zzi) of the Act. Accordingly, we hold that the impugned order confirming the demand under scientific or technical consultancy services is not sustainable. In respect of services covered under Section 65(105)(zzi) and 65(105)(zzv) of the Act, the taxability shall arise when the services are performed in India. In the instant case, we observe that the mines are immovable property, which are situated outside India. Thus, we observe that the mining as well as technical inspection services have been performed outside India. Service tax liability w.r.t. Professional Fees - demand of service tax confirmed for the Negative List period, in terms of Section 66B of the Act - As in terms of Guidance Note 5 POPOS Rules, 2012 of Service Tax Education Guide, services connected with oil/gas/mineral exploration or exploitation relating to specific sites of land or the sea bed are specified as land-related services. In the instant case, we observe that the place of provision of service is outside India, as the service is provided by team of experts deployed by the foreign services providers to identify mines (immovable property) situated outside India. Accordingly, we hold that the same shall not be chargeable to service tax at the hand of the appellant, on RCM basis. Service Tax liability w.r.t. Sampling Charges - Para 5.4.1 of the Service Tax Education Guide specifies technical testing/ inspection/ certification service to be performance-based service covered under Rule 4 of the POPOS Rules. Hence, the place of provision in the instant case is the place where the services are actually performed (outside India). Accordingly, we hold that the same shall not be chargeable to service tax at the hand of the appellant, on RCM basis. We hold that the taxability does not arise in India in respect of either of the services and set aside the demands of service tax confirmed in the impugned order. Since the demand of service tax itself is not sustainable, the question of demanding interest and imposing penalty does not arise. The impugned OIO has confirmed the demand post 01.07.2012 based on provisions of the Act that are not applicable post 01.07.2012. Since the order does not make reference to the provisions pertaining to the Negative List regime under the Section of Discussion and Findings , which were applicable for the period post 01.07.2012, therefore, in the absence of such reference, we hold that the service tax demand confirmed for the period post 01.07.2012 is not sustainable on this ground also.

Summary

Issues Involved:

1. Classification of services under 'Scientific or Technical Consultancy Services.'
2. Classification of 'Sampling Charges' under the appropriate service category.
3. Applicability of 'Mining Service' category post 01.06.2007.
4. Taxability of services provided from outside India.
5. Applicability of service tax post 01.07.2012 under the Negative List regime.

Issue-wise Detailed Analysis:

1. Classification under 'Scientific or Technical Consultancy Services':
The primary issue was whether the services rendered by foreign experts could be classified under 'Scientific or Technical Consultancy Services' as defined under Section 65(92) of the Finance Act, 1994. The appellant argued that the services were not provided by a scientist or technocrat, nor by a science or technology institution, which is a requirement for classification under this category. The Tribunal agreed, noting that the foreign service providers were merely experts conducting site visits to assist in decision-making regarding coal mining assets and did not fit the definition of a scientific or technical consultancy service provider.

2. Classification of 'Sampling Charges':
The appellant contended that the 'Sampling Charges' paid to third-party inspection agencies should be classified as 'Technical Inspection and Certification Service' under Section 65(108) of the Act, rather than 'Scientific or Technical Consultancy Services.' The Tribunal concurred, stating that the services were merely technical inspections and certifications of iron ore quality, and were not provided by a science or technology institution or organization. Thus, the demand under 'Scientific or Technical Consultancy Services' was deemed unsustainable.

3. Applicability of 'Mining Service' Category:
With the introduction of 'Mining Service' on 01.06.2007, services related to mining were brought under this category. The Tribunal observed that the services rendered by the appellant post this date should fall under 'Mining of Mineral, Oil or Gas Services' as defined under Sections 65(105)(zzzy) and 65(105)(zzv) of the Act. However, since no demand was raised under this category, the Tribunal found the demand under 'Scientific or Technical Consultancy Services' to be incorrect.

4. Taxability of Services Provided from Outside India:
According to Rule 3 of the 'Taxation of Services (Provided from Outside India and Received in India) Rules, 2006,' services provided in relation to immovable property situated outside India are not chargeable to tax in India. The Tribunal noted that the services in question were performed outside India, and the immovable property (mines) was also located outside India. Therefore, the services were not taxable in India.

5. Applicability of Service Tax Post 01.07.2012:
The Tribunal found that the impugned order confirmed demands based on provisions not applicable post 01.07.2012, as it did not reference the Negative List regime. Consequently, the service tax demand for the period post 01.07.2012 was deemed unsustainable.

Conclusion:
The Tribunal set aside the impugned order, ruling that the demands for service tax under 'Scientific or Technical Consultancy Services' were not sustainable. The appeal filed by the appellant was allowed, and since the demand itself was not sustainable, the question of interest and penalties did not arise.