IT IS NOT OPEN TO THE DEPARTMENT TO RECOVER SERVICE TAX FROM A PERSON IN PURSUANCE OF A SHOW CAUSE NOTICE ADDRESSED TO ANOTHER PERSON

[Mr. M. GOVINDARAJAN]

     The service tax provisions empowered the Central Excise Officers to issue show cause notice to the assessees to demand service tax.  The assessee is to react to the show cause notice and the result may be either in favor of the department of the assessee.  A new peculiar type of case came before the CESTAT Chennai bench in which the Department demanded the service tax from the assessee to whom the show cause notice is not issued but for another person in 'Southern Iron &Steel Co. Ltd., V. Commissioner of Central Excise, Salem' - 2008 -TMI - 31764 - CESTAT, CHENNAI.   The fact of the case is as follows:

     The Department issued a show cause notice to Mr. Luis Rogerio Colombo Martinis De Souza, a Brazilian Engineer, requiring him to pay service tax as 'consulting Engineer' to the Government of India on the amount of money collected by him from M/s Southern Iron & Steel Co. Ltd., the appellants in this case as consideration for technical assistance provided to the appellants during the period of dispute.

     Another show cause notice was issued to a Chinese company requiring them to pay service tax as 'consulting Engineers' to the Government of India on the amount collected from the appellants as consideration for technical assistance rendered during the period of dispute i.e., from 29.8.2002 to 28.3.2003.   The Chinese company had agreed to send their technical personnel to India to supervise installation of equipment, adjustment, test run and commissioning of an Oxygen Plant for the appellants.   This agreement provided for payment of Rs.350/- + US $ 85 per calendar day per head for the said service by the appellants to the Chinese company.

     Both the notices also proposed penalties under Secs. 75A, 76 and 77 of the Finance Act, 1994.   After the issue of these notices, a departmental officer informed the appellants that the noticees neither paid service tax nor replied to the show cause notices and therefore the appellants should either prevail upon the noticees to respond to the show cause notices or take up the responsibility of paying the service tax demanded in the show cause notice.  The appellants replied to the departmental officer disowning liability to pay service tax.   Subsequently orders were passed fastening the liability to pay service tax on the appellants.  The Commissioner (Appeals) dismissed the appeals of the appellants.

     The appellants submitted that the amount taken by the Department as value of taxable service was the consideration paid by the appellants to the Chinese company for the service of supervising, installation and commissioning of Oxygen plant in India.  It is further submitted by the appellants that this service was exigible to service tax prior to 01.07.2003, the date of which 'commissioning or  installation' was introduced as a new taxable service.

     The Department submitted that an element of technical assistance was involved in the service of supervision rendered by the foreign company and therefore such service had the trappings of 'consulting engineers' service.

     The tribunal examined the provisions of agreement executed by the appellants and the Chinese company and noted that what was rendered by the foreign company was the service of supervising installation and commissioning of equipments constituting what is called 'Oxygen Plant'.  The tribunal further noted that the nature of service is clearly discernible from Clause (4) in Chapter I of the text of the agreement as also from the provisions governing payments of consideration for the service.   In this technical service was involved in the supervision of installation and commissioning of the Oxygen plant but it would not bring the service within the purview of 'Consulting engineer's service'.   It must be shown, for the levy of service tax in the category of 'Consulting Engineer's Service' that the service provider was a qualified Engineer and that he provided directly or indirectly any advice, consultancy or technical assistance in any manner to the appellants in or more disciplines of Engineering.  The tribunal held that the Revenue is yet to establish the ingredients of this service in the present case.   There not even a mention of the discipline of Engineering in which the foreign company rendered consulting engineer's service to the appellants.  There is no claim by the Revenue that the foreign personnel who visited the appellant's factory site in India for supervising installation and commissioning of Oxygen Plant were professionally qualified engineers.

     The tribunal further held that it is settled law that a service covered by the definition of a particular taxable service cannot be exigible to service tax under a different category of taxable service.  The transactions in the present case attracted 'installation or commission' service defined under Sec. 65 (39) (a) of the Finance Act, 1994 which was introduced for the first time on 01.07.2003, but the transactions in question happened long before.   The demand of service tax under the pre-existing category of consulting engineer' service is unwarranted. 

     The tribunal allowed the appeal holding that it is not open to the Department to recover service tax from a person in pursuance of a show cause notice addressed to another person.