2016 (4) TMI 598 - AT - Service Tax

Demand of Service tax - Scientific or technical consultancy service and business auxiliary service - providing material procurement assistance and technical knowhow as per agreement - Appellant contended that their activity is not covered by the definition of scientific or technical consultancy - Held that - the appellant has been procuring material for M/s. Doctors Organic Chemicals Ltd under an agreement and the period for which that activity was undertaken predates the incorporating within the structure of the appellant. Section 65(19) of Finance Act, 1994 incorporates procurement of goods or services, which are inputs for the client as business auxiliary service . The claim of appellant that this has reference to a third party is not acceptable as, in the present instance, the client is M/s Doctors Organic Chemicals Ltd. Hence, the taxability of amounts charged form the client is not in doubt. Therefore, the impugned order is upheld only to the extent of ₹ 9,19,094/- for rendering business auxiliary service with interest thereon. The demand of tax for rendering scientific or technical consultancy service does not survive. Penalties are set aside - Appeal disposed of

Issues:
1. Liability to pay service tax for 'scientific or technical consultancy service' and 'business auxiliary service'.
2. Interpretation of statutory provisions defining taxable services.
3. Tax liability for services rendered to merged entity.
4. Applicability of penalties under section 76 and 78 of Finance Act, 1994.

Analysis:

Issue 1: Liability for 'scientific or technical consultancy service' and 'business auxiliary service'
The appellant, M/s Wanbury Ltd, contested the tax liability for services provided under 'scientific or technical consultancy service' and 'business auxiliary service.' The tax demand was confirmed by the Commissioner of Central Excise, Service Tax, and Customs, Raigad. The appellant argued that their activities did not fall under the definition of 'scientific or technical consultancy' as per section 65(92) of the Finance Act, 1994. They also claimed that post-merger with M/s Doctors' Organic Chemicals Ltd, the tax liability could not arise as it would amount to taxing services rendered to themselves.

Issue 2: Interpretation of statutory provisions
The appellant relied on various tribunal decisions to support their claim of exclusion from tax liability, emphasizing that the consultancy services must be provided by a 'science or technology institution or organization.' The Tribunal's previous judgments highlighted that the transfer of technical know-how does not constitute 'scientific or technical consultancy' as defined in the Finance Act, 1994. The Tribunal underscored the importance of considering section 65(92) of the Act in determining tax liability.

Issue 3: Tax liability for services to merged entity
Regarding services provided to M/s Doctors' Organic Chemicals Ltd post-merger, the Tribunal noted that the taxability of amounts charged for 'business auxiliary service' was upheld under section 65(19) of the Finance Act, 1994. However, the demand for tax on 'scientific or technical consultancy service' was deemed unsustainable, leading to the setting aside of penalties.

Issue 4: Applicability of penalties
The Tribunal upheld the demand for 'business auxiliary service' but set aside penalties considering the circumstances of the case. The judgment emphasized the distinction between services falling under 'scientific or technical consultancy' and 'business auxiliary service' based on statutory definitions and previous tribunal decisions.

In conclusion, the Tribunal upheld the tax liability for 'business auxiliary service' while ruling out the tax demand for 'scientific or technical consultancy service' based on the interpretation of statutory provisions and relevant tribunal decisions. Penalties under sections 76 and 78 of the Finance Act, 1994 were set aside in light of the circumstances.

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