Consulting engineer tax classification fails where a foreign supplier only provides design and technical specifications, not consultancy services.

A foreign supplier that merely provided design, engineering drawings, specifications and technical know-how was not rendering advice, consultancy or technical assistance as a professionally qualified engineer or engineering firm, so the activity did not fall within consulting engineer service for service tax purposes. The demand also could not be sustained against the non-resident supplier because it had no office in India, the notice was served after the amendment on which liability was sought to be shifted to the recipient, and the earlier provision had been deleted. On that basis, the service tax demand was set aside.

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Issues: (i) Whether a foreign company supplying design, engineering and technical specifications without rendering direct consultancy services could be treated as a consulting engineer for service tax purposes; (ii) Whether the demand could be sustained against a non-resident foreign supplier in view of the territorial reach of service tax law and the amended service tax rules.

Issue (i): Whether a foreign company supplying design, engineering and technical specifications without rendering direct consultancy services could be treated as a consulting engineer for service tax purposes.

Analysis: The supply under the contract was confined to technology, design, drawings, specifications and allied engineering details. The activity did not amount to the rendering of advice, consultancy or technical assistance in the capacity of a professionally qualified engineer or engineering firm. A recipient of technical know-how or engineering inputs, without more, cannot be fastened with liability under the consulting engineer category merely because the materials supplied are technical in nature.

Conclusion: The activity was not taxable as consulting engineer service.

Issue (ii): Whether the demand could be sustained against a non-resident foreign supplier in view of the territorial reach of service tax law and the amended service tax rules.

Analysis: The supplier was located outside India and had no office in India. The record showed that the show-cause notice was served after the amendment under which liability was sought to be shifted to the recipient in India, while the earlier provision relied upon had already been deleted. The circular relied upon also indicated that services provided beyond the territorial waters of India were not liable to service tax on the footing adopted by the department.

Conclusion: The demand and the notice were not sustainable against the non-resident supplier.

Final Conclusion: The service tax demand was set aside and the appeal was allowed.

Ratio Decidendi: Mere transfer of technical know-how, design or specifications by a foreign supplier does not by itself constitute consulting engineer service, and a demand cannot be sustained against a non-resident when the applicable statutory basis for fastening liability is absent or inapplicable on the facts.

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