2014 (7) TMI 1019 - AT - Service Tax

Management, Maintenance and Repair Services - Consulting Engineer service - activity of supply of spares, refurbishing and upgradation of air craft and other defence equipments for defence purposes - Held that - In the case of Management, Maintenance and Repair Services, there are 5 agreements considered. Even in the reproduction of the findings of the Commissioner, it is mentioned that the agreement No. 4 is for upgradation of navigation and weapon system Maintenance Simulator and carrying out the related services according to suppliers Technical Proposal. Sl. No. 5 in paragraph 75 covers upgradation of Sea Harrier. We are unable to understand how upgradation of particular equipment or an air craft can amount to Management, Maintenance or Repair Service - in agreement No. 1 the details of which are not discussed by the Commissioner was for design, development of software, development of detailed engineering, procurement, fabrication of proto type of air craft, development of new aircrafts, training etc. Prima facie we do not find any basis for the conclusion reached by the Commissioner that this agreement is for Management, Maintenance or Repairs. Matter needs a more detailed consideration of the agreements, the activities undertaken by the appellants in terms of the agreement and the basis for conclusion to classify any of the services in the taxable category. At this juncture it will not the out of place to mention that when an offence case is registered, the burden to prove that a taxable service has been rendered is on the Revenue and it is not of the assessee and in our opinion this burden has not been discharged in respect of both the services in this case The scope of the service of consulting engineering service is to render any advice on consultancy or technical assistance in any manner. From the definition it appears that the service has to be related to consultancy or technical assistance whereas from the agreement and from the summary of the agreements as reproduced by the Commissioner himself, the appellants are engaged in design, development of software, development of detailed engineering, procurement, fabrication of proto type of air craft. Prima facie, the activities undertaken by the appellants did not appear to be covered by the Consulting Engineers Service - matter remanded back - Decided in favour of assessee.

Issues Involved:
1. Condonation of delay in filing the appeal.
2. Classification of services under "Management, Maintenance or Repair Service."
3. Classification of services under "Consulting Engineers Service."
4. Consideration of agreements and activities under the relevant service tax provisions.
5. Relevance of Supreme Court's direction on the classification of activities for tax purposes.

Detailed Analysis:

1. Condonation of Delay in Filing the Appeal:
The appellant sought condonation of a 137-day delay in filing the appeal, arguing that it was a supplementary appeal with the main appeal filed on time. The tribunal found this factually correct and condoned the delay.

2. Classification of Services under "Management, Maintenance or Repair Service":
The impugned order addressed demands under Management, Maintenance or Repair Service, totaling Rs. 56,41,17,360/-. The Commissioner examined several agreements, concluding that activities like reconditioning, refurbishing, and upgradation fell under this service category as per Section 65(64) of the Finance Act, 1994. However, the tribunal found the Commissioner's conclusions insufficiently substantiated, particularly questioning how upgradation of specific equipment or aircraft could be classified under this service.

3. Classification of Services under "Consulting Engineers Service":
The Commissioner's findings included demands under Consulting Engineers Service amounting to Rs. 88,94,81,409/- and Rs. 27,09,38,010/-. The definition under Section 65(105)(g) of the Finance Act was cited, covering advice, consultancy, or technical assistance in engineering. The Commissioner concluded that activities like design, development, and testing of aircraft fell under this service. The tribunal, however, found that the Commissioner did not adequately demonstrate how these activities met the service's definition, necessitating a more detailed examination.

4. Consideration of Agreements and Activities:
The tribunal noted that the Commissioner had not thoroughly analyzed the agreements and activities. For instance, agreements involving design, development, and testing were not convincingly shown to fall under the specified service categories. The tribunal emphasized the need for a detailed review of the agreements and activities to determine the correct classification and tax liability.

5. Relevance of Supreme Court's Direction:
The tribunal highlighted the Supreme Court's direction for the Union and Karnataka State Governments to classify certain activities as either sales or works contracts for tax purposes. While the Revenue argued this was irrelevant to service tax, the tribunal considered it significant for determining the correct tax treatment and instructed the Commissioner to consider these discussions in the remand.

Remand Directions:
The tribunal set aside the impugned order and remanded the matter to the original adjudicating authority for a fresh consideration. The Commissioner was instructed to provide a detailed order, ensuring the Revenue demonstrates the taxable services rendered and justifies any penalties. The tribunal also requested reasonable opportunities for the appellants to present their case.

Conclusion:
The tribunal's decision emphasized the need for a thorough and detailed examination of the agreements and activities to correctly classify the services and determine the applicable tax liabilities. The remand aims to ensure a fair and comprehensive reassessment of the issues involved.

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