2011 (3) TMI 546 - AT - Service Tax

Tribunal upholds service tax demand for Consulting Engineer's Service, penalties imposed

Instrumentation Ltd. Versus Commissioner of Central Excise, Jaipur-I

Instrumentation Ltd. Versus Commissioner of Central Excise, Jaipur-I - [2011] 31 STT 384 (New Delhi - CESTAT), 2011 (23) S.T.R. 221 (Tri - Del.) Issues Involved:1. Classification of activities under 'Consulting Engineer's Service.'2. Nature of contracts as indivisible or composite.3. Applicability of service tax prior to 1-6-2007.4. Availability of extended limitation period for demand.5. Imposition of penalties under sections 76, 77, and 78 of the Finance Act, 1994.Issue-wise Detailed Analysis:1. Classification of Activities under 'Consulting Engineer's Service':The tribunal examined whether the activities of the appellant, such as preparation of drawings, designing, engineering, and training, fall under the definition of 'Consulting Engineer's Service' as per section 65(105)(g) read with section 65(31) of the Finance Act, 1994. It was concluded that the appellant's activities, including preparation of basic and detailed engineering drawings and training of clients' personnel, constitute technical assistance and are covered under 'Consulting Engineer's Service.'2. Nature of Contracts as Indivisible or Composite:The appellant argued that their contracts were indivisible lump sum turnkey contracts and could not be vivisected for charging service tax on components such as drawing/designing and training. The tribunal, however, held that the contracts had distinct components of consulting engineering services and that service tax could be levied on these components. It was emphasized that the intention of the contract, as expressed in its terms, determines whether it is a composite contract for sale and service or an indivisible contract for a particular service.3. Applicability of Service Tax Prior to 1-6-2007:The appellant contended that service tax on such contracts could only be charged from 1-6-2007 under section 65(105)(zzzza) of the Finance Act, 1994. The tribunal rejected this argument, stating that even prior to 1-6-2007, service tax was chargeable on the taxable service components of contracts involving consulting engineering, erection, installation, and commissioning. The tribunal clarified that section 65(105)(zzzza) provided a new machinery provision for assessment but did not imply that such services were not taxable earlier.4. Availability of Extended Limitation Period for Demand:The tribunal addressed whether the extended limitation period of five years under proviso to section 73(1) of the Finance Act, 1994, was applicable. It was found that the appellant had suppressed relevant information by not informing the department about their consulting engineering activities and not obtaining service tax registration until January 2004. Therefore, the extended limitation period was rightly invoked by the department.5. Imposition of Penalties under Sections 76, 77, and 78 of the Finance Act, 1994:Penalties under sections 76, 77, and 78 were imposed on the appellant for failure to obtain service tax registration, file returns, and pay service tax. The tribunal upheld these penalties, noting that the appellant's conduct amounted to suppression of facts. The tribunal also held that no valid reason was provided by the appellant for their failure to comply with the service tax provisions, justifying the imposition of penalties.Conclusion:The tribunal dismissed the appeal, confirming the service tax demand and penalties imposed on the appellant. The activities of the appellant were classified under 'Consulting Engineer's Service,' and the contracts were found to have distinct taxable service components. The extended limitation period was applicable due to suppression of facts, and the penalties under sections 76, 77, and 78 were upheld.