2011 (3) TMI 826 - AT - Service Tax

Appeal Dismissed: Service Tax Demand Upheld for Consulting Engineer Services

M/s INSTRUMENATATION LTD Versus CCE, JAIPUR – I

M/s INSTRUMENATATION LTD Versus CCE, JAIPUR – I - TMI Issues Involved:1. Whether the activities of the appellant are covered by the definition of Consulting Engineers' service.2. Whether the appellant's contracts with their customers are indivisible lump sum contracts and if the drawing/designing or training portion can be subjected to service tax.3. Whether the longer limitation period of five years under Section 73(1) of the Finance Act, 1994 is available to the Department.4. Whether penalties under Sections 76, 77, and 78 of the Finance Act, 1994 are imposable on the appellant.Issue-wise Detailed Analysis:1. Coverage under Consulting Engineers' Service:The appellant is engaged in the manufacture of telecommunication equipment and other systems, and also provides design, installation, commissioning, and training services. The Department alleged that the appellant provided taxable services as Consulting Engineers from December 1999 to April 2004 without paying service tax. The definition of 'Consulting Engineer' under Section 65(31) includes any professionally qualified engineer or engineering firm providing advice, consultancy, or technical assistance. The appellant's activities of preparing engineering drawings and training personnel were found to be covered under this definition. The contracts and invoices showed separate charges for these services, thus confirming the provision of consulting engineer services.2. Indivisibility and Taxability of Contracts:The appellant argued that their contracts were indivisible lump sum turnkey contracts and could not be vivisected for service tax purposes. However, the Tribunal held that such contracts could be divided into components for taxation. The Tribunal referred to judgments that supported the view that contracts for design, engineering, supply, erection, installation, and commissioning could be taxed on their service components. The Tribunal also noted that the introduction of Section 65(105)(ZZZZa) for works contract service from 1/6/07 did not imply that such services were not taxable prior to this date. The Tribunal concluded that the appellant's contracts had distinct components of consulting engineer services, which were taxable.3. Longer Limitation Period:The appellant contended that the demand was time-barred as the Department was aware of their activities since 1991. However, the Tribunal found that the appellant had not informed the Department about their consulting engineer services and had not obtained service tax registration until January 2004. Therefore, the longer limitation period of five years under Section 73(1) was applicable due to suppression of facts by the appellant.4. Imposition of Penalties:The Tribunal upheld the penalties under Sections 76, 77, and 78 of the Finance Act, 1994. Penalty under Section 77 was imposed for failure to obtain service tax registration and file returns. Penalty under Section 76 was imposed for failure to pay service tax by the due date. Penalty under Section 78 was imposed for suppression of facts, as the appellant did not inform the Department about their taxable activities. The Tribunal found no reasonable cause for the appellant's failure to comply with the service tax provisions and upheld the penalties.Conclusion:The Tribunal dismissed the appeal, upholding the service tax demand and penalties. The appellant's activities were found to be taxable under consulting engineer services, and the contracts were not considered indivisible for service tax purposes. The longer limitation period was applicable due to suppression of facts, and the penalties were justified.