2018 (10) TMI 405 - AT - Service Tax

Classification of services - Scientific or technical consultancy service or not? - services provided by them to the Government of Andhra Pradesh relating to technology transfer, supervision, implementation and marketing support - demand of service tax alongwith Interest and penalty. Held that - The agreement is not a composite works contract as it does not involve supply of any materials by the appellant. This is in the nature of providing technical expertise for implementation of the project as well as the management of the project itself. As the title to annexure 3 of the MOU indicates, it involves technology transfer, supervision, implementation and marketing support. The first appellate authority records in Para 15 that the MOU is not pure consulting agreement as it involves duties of an integrator of agricultural technologies and operations and to act as technical, implementing and supervising agency, etc. - the Order-in-Original does not discuss what portion of the services rendered by them are technical and consultancy services and how much tax is leviable thereon. Even in the grounds of appeal, the appellant does not disclose the details of how much of their work pertain to consultancy and how much of it pertain to supervision and management. Having held that the contract is divisible, it was necessary for the lower authorities to discuss what portion of the amount received for the services can be attributed for scientific and technical consultancy services and re-calculate the service tax payable accordingly - it is a fit case to be remanded to the original authority to examine as to how the contract can be divided and how much of that total contract amounts to scientific and technical consultancy work which can be charged to service tax. Matter remitted back to the original authority to reexamine the issue and pass a reasoned order giving the amount received by the appellant which can be attributed to scientific and technical consultancy services (as opposed to amounts for supervision, management, etc.) and the service tax, if any, payable - appeal allowed by way of remand

Summary

Issues:
1. Whether the appellant is liable to pay service tax on scientific or technical consultancy services provided to the Government of Andhra Pradesh.
2. Whether the Memorandum of Understanding (MOU) entered into between the appellant and the Government of Andhra Pradesh constitutes a taxable service under the Finance Act, 1994.

Analysis:
1. The appeal was filed against the Order-in-Original alleging non-payment of service tax on services provided to the Government of Andhra Pradesh. The appellant argued they are not liable for service tax as they are a registered company and the services provided involve technology transfer, not covered under scientific or technical consultancy. The departmental representative contended that the services rendered are indeed scientific and technical consultancy, thus attracting service tax, interest, and penalties. The Tribunal noted that the contract involved providing technical expertise for project implementation and management, not a composite works contract. The lower authorities failed to determine the portion of services attributable to scientific and technical consultancy for tax calculation. The Tribunal remanded the matter for a detailed examination to ascertain the taxable portion of the services.

2. The MOU detailed the scope of work, including technology transfer, supervision, implementation, and marketing support. The first appellate authority recognized the integrative nature of the agreement beyond mere consultancy. However, the Order-in-Original did not specify the taxable portion of services provided. The Tribunal emphasized the need to distinguish between scientific and technical consultancy services and other project-related activities for accurate tax assessment. The case was remanded to the original authority to determine the taxable amount for scientific and technical consultancy services, ensuring a fair and reasoned decision.

Overall, the Tribunal allowed the appeal by remanding the case for a thorough review and calculation of the taxable portion of services provided by the appellant. The judgment highlighted the importance of accurately identifying and taxing scientific and technical consultancy services separately from other project-related activities outlined in the MOU.