2006 (7) TMI 53 - AT - Service Tax

Service Tax Consulting Engineer Engineering firm rendered services of drawing design etc by qualified engineers, considered within the ambit of consulting engineering services For the calculation of service tax demand and penalty total realisation inclusive service tax has to be deducted

Summary

Issues:
1. Demand of service tax on income from providing drawing and design services.
2. Classification of the service under the category of "consulting engineer."
3. Imposition of penalty for non-disclosure and delay in payment of service tax.
4. Valuation of the service for the purpose of calculating service tax.

Analysis:

1. The appellant, an engineering company engaged in manufacturing conveyor systems, supplied drawing and design services to other manufacturers during the year 2001-02. The issue at hand pertains to the demand of service tax on the income generated from providing such services categorized under the heading of "consulting engineer." The Tribunal observed that the appellant falls within the definition of an "engineering firm" as per the statute. The service rendered by the appellant, involving the supply of drawings and designs prepared by its engineering division consisting of qualified engineers, qualifies as engineering consultancy. Consequently, the tax demand on this service is deemed lawful and is upheld.

2. Regarding the penalty imposed, the Order-in-Original levied penalties under multiple sections, whereas the Order-in-Appeal sustained only one penalty equivalent to the service tax amount. The Tribunal noted that the penalty cannot be deemed excessive due to the appellant's failure to disclose the service rendered to tax authorities and the considerable delay in paying the service tax. Therefore, the penalty upheld is considered justified in light of the circumstances.

3. The final contention raised by the appellant concerns the valuation of the service for calculating the service tax amount. The appellant argued that the entire realization should not be considered as the assessable value, advocating for the exclusion of the tax element from the total realization before determining the value. The Tribunal agreed with this contention, directing the jurisdictional Deputy Commissioner to calculate the service tax amount by treating the gross realization as inclusive of service tax. The appellant is instructed to pay the tax based on this revised calculation, with a corresponding reduction in the penalty to the extent that the service tax amount is decreased.

4. In conclusion, the Tribunal ordered the appeal in favor of the above terms, emphasizing the compliance with the statutory provisions and the correct valuation methodology for determining the service tax liability.