2018 (8) TMI 421 - AT - Service Tax

Reverse Charge Mechanism - Consulting Engineer s Service in the form of technical assistance from the foreign company/Establishment who has no office or establishment in India - Rule 2 (1)(iv) of the Service Tax Rule, 1994 - Held that - Demand of Service Tax before enactment of Section 66 (A) of Finance Act, 1994 is legally not sustainable and therefore, the demand of Service Tax before 18/04/2006 is not recoverable - reliance placed in the judgments of the Hon ble Bombay High Court in case of Indian National Shipowners Association 2008 (12) TMI 41 - BOMBAY HIGH COURT , where it was held that Before insertion of section 66A with effect from 18-4-2006, there was no authority to levy service tax on Import of service. Explanation below section 65(105) did not give any authority to levy service tax on import of services - demand of Service Tax prior to 18/04/2006 is not sustainable. Classification of the services - Consulting Engineer s Service or erection, commissioning or installation services? - Held that - On the plain reading of all the contracts the appellant has entered with the Foreign Companies/Establishments it can be seen that these contracts undertake to provide technical assistance in the form of handing over the technical specifications, suppliers installations diagrams and relevant data for processing of various process for installation of weapons and equipments in the warships which are being manufactured by the Appellant - the technical assistance contracts which the appellant has signed with foreign establishments, it is found that the terms of contract perfectly fits into the definition of consulting engineer service and therefore the Revenue has rightly classified the service under Consulting Engineering service. The demand of Service Tax prior to 18/04/2006 is not sustainable - the right classification for the type of services availed by the appellant is under the Consulting Engineer s Service - matter remanded back to original adjudicating authority for limited purpose of re-calculating the Service Tax for the period after 16/04/2008 - appeal allowed by way of remand.

Summary

Issues involved:
1. Service Tax demand on reverse charge basis for technical assistance received from foreign suppliers.
2. Classification of services received by the Appellant under Consulting Engineer's Service.

Analysis:
1. Service Tax demand on reverse charge basis:
The Appellant, a public sector undertaking engaged in manufacturing warships, received technical assistance from foreign suppliers. A Show Cause Notice was issued alleging receipt of 'Consulting Engineer's Service' and demanding Service Tax of ?131.56 lakhs for the period 2003-04 to 2007-08. The Commissioner confirmed a demand of ?47.74 lakhs and imposed a penalty under Section 78 of the Finance Act 1994. The Appellant contended that the demand on reverse charge basis was not sustainable, citing judgments of the Bombay High Court and the Supreme Court. The Tribunal held that the demand before 18/04/2006 was not legally sustainable, relying on the judgments which clarified that the recipient of the service cannot be made liable for service tax. The Tribunal remanded the case to re-calculate the Service Tax for the period after 16/04/2008, as the demand for the period prior to that was not sustainable.

2. Classification of services under Consulting Engineer's Service:
The Appellant argued that the services received should be classified under erection, commissioning, or installation services, not Consulting Engineer's Service. However, the Tribunal examined the contracts and the definition of Consulting Engineer Service under the Finance Act 1994. It found that the technical assistance provided by the foreign establishments to the Appellant aligned with the definition of Consulting Engineer Service. Therefore, the Tribunal upheld the Revenue's classification of the services under Consulting Engineer's Service. The Tribunal found no deficiency in the Order-in-Original regarding this classification.

The Tribunal's decision on the demand of Service Tax prior to 18/04/2006, the classification of services under Consulting Engineer's Service, and the dismissal of the Revenue's appeal regarding penalty under Section 76 of the Finance Act 1994 were pronounced on 29.06.2018.