2005 (7) TMI 7 - AT - Service Tax

Tribunal overturns service tax demand, rules in favor of appellant

The Tribunal ruled in favor of the appellant, overturning the demand for service tax and penalties amounting to approximately Rs. 12 lakhs. It was ... Consulting Engineer Service – Contract for construction of hangers for Air India – Contract is not obtaining assessee’s expertise as a consultant – not liable to service tax Issues:Appeal against demand of service tax and penalties in connection with construction project for Air India at Mumbai - Whether appellant's role was that of consulting engineer attracting service tax under 'consulting engineering service' - Whether appellant's role was project management and not consultancy service.Analysis:1. The appeal was filed against a demand for service tax and penalties amounting to approximately Rs. 12 lakhs related to the construction of a hanger for Air India at Mumbai. The lower authorities determined that the appellant's role in the project was that of a consulting engineer, thereby attracting service tax under the category of 'consulting engineering service.'2. The appellant contended that their role in the project was focused on executing the construction project rather than providing consultancy services. The appellant's counsel presented arguments based on the contract provisions to demonstrate that the project primarily involved construction activities, for which the appellant received 6% of the project cost.3. Upon reviewing the records and hearing the arguments, the Tribunal delved into the contract details. Clause 1.2 of the contract defined the project as the construction of the hanger and annexe building along with associated facilities. The contract also specified that the appellant was responsible for managing the project and completing it within the agreed cost and timeframe, utilizing necessary consultants and contractors.4. The scope of work outlined in the contract included various aspects such as cost estimation, design, engineering, erection, commissioning, and installation. Notably, the appellant was not tasked with carrying out design and engineering consultancy work. The contract required the appointment of foreign and Indian consultants for design work, while the appellant managed procurement, contractors, and construction activities, for which they were remunerated 6% of the project cost.5. The Tribunal referenced the decision in the case of Daelim Industrial Company Limited v. CCE, Vadodara, which established that construction contracts cannot be treated as engineering consultancy services for the purpose of service tax. The Tribunal affirmed that the appellant's role was that of project management, involving the coordination of various experts, procurement, and supervision of construction activities, rather than providing consulting engineering services.6. Consequently, the Tribunal concluded that the demand for service tax and penalties on the appellant was not justified. The impugned order was set aside, and the appeal was allowed in favor of the appellant, granting any consequential relief deemed appropriate.7. The judgment was pronounced on 28-7-2005, highlighting the distinction between project management and consulting engineering services in the context of construction contracts for tax assessment purposes.