Consulting engineer service classification upheld; penalties waived on reasonable cause for bona fide belief.

The activity was held to fall within the statutory definition of consulting engineer service, following binding precedent on the same facts, so the service tax demand and interest were sustained. On penalties under sections 76, 77 and 78, the assessee, a Government undertaking, established reasonable cause by showing bona fide belief that the activities were statutory functions, and the protection under section 80 was applied. The penalty component was therefore deleted.

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Issues: (i) whether the activity undertaken by the assessee was liable to service tax as consulting engineer service under clause 31 of section 65 of the Finance Act, 1994; (ii) whether penalties imposed under sections 76, 77 and 78 of the Finance Act, 1994 were liable to be set aside under section 80 of the Finance Act, 1994.

Issue (i): Whether the activity undertaken by the assessee was liable to service tax as consulting engineer service under clause 31 of section 65 of the Finance Act, 1994.

Analysis: The activity had already been examined in an earlier Tribunal decision, which had held that the assessee's activity fell within the scope of consulting engineer service. Following that binding view, the demand confirmed on the same footing was found to be without infirmity.

Conclusion: The levy of service tax on the activity as consulting engineer service was upheld.

Issue (ii): Whether penalties imposed under sections 76, 77 and 78 of the Finance Act, 1994 were liable to be set aside under section 80 of the Finance Act, 1994.

Analysis: The assessee was a Government undertaking and claimed bona fide belief that its activities were statutory functions under the electricity law. Section 80 provided that no penalty shall be imposable where reasonable cause for the failure is proved. In the circumstances, the assessee was held to have shown reasonable cause for the failure.

Conclusion: The penalties were set aside.

Final Conclusion: The demand of service tax with interest was sustained, but the penalty component was deleted by applying the statutory reasonable-cause protection.

Ratio Decidendi: Where the taxable activity is covered by the statutory definition accepted in binding precedent, the demand is sustainable, but penalties under sections 76, 77 and 78 may be waived if the assessee establishes reasonable cause under section 80.

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