IIT Madras exempt from service tax on sponsored research projects but liable for convention services

CESTAT Chennai held that IIT Madras was not liable for service tax on sponsored research projects as these constituted grants for educational purposes rather than taxable services under Scientific and Technical Consultancy Services. However, service tax demand on convention services was upheld as the institution provided commercial convention facilities to external parties for consideration. The tribunal allowed CENVAT credit on travel and postal expenses as legitimate input services for consultancy activities. Extended limitation period was rejected due to absence of suppression, and penalties were set aside. Appeal was partly allowed.

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Issues Involved:
1. Demand of Service Tax on grants/funds/consideration received for sponsored research under Scientific and Technical Consultancy Services.
2. Demand of Service Tax on activities/events at the Appellant's Convention center.
3. Eligibility of the Appellant to avail input service credit on Travel, Postage, and freight related to Scientific and Technical Consultancy services.
4. Invocation of the extended period under Section 73(1) of the Finance Act, 1994.

Summary:

Issue 1: Demand of Service Tax on Sponsored Research
The Tribunal examined whether the grants received by the Appellant for sponsored research projects fall under "Scientific and Technical Consultancy Services" as defined under Section 65(92) of the Finance Act, 1994. The Appellant argued that the sponsored research projects aimed at furthering knowledge and education, not providing consultancy services. The Tribunal concluded that the research activities did not involve providing advice or consultancy but were purely for educational purposes. It was noted that any commercially viable results from research led to separate agreements where service tax was duly paid. The Tribunal held that there was no provision of service in the sponsored research projects, thus setting aside the demand for service tax on these projects.

Issue 2: Demand of Service Tax on Convention Services
The Tribunal upheld the demand for service tax on activities/events at the Appellant's Convention center. It was found that the Appellant provided facilities for conferences, meetings, and seminars to private industries and other bodies, which fell under the definition of "Convention Service" as per Section 65(32) of the Finance Act, 1994. The Appellant's argument that some events were open to the public and thus not taxable was rejected, affirming the demand for service tax on convention services.

Issue 3: Eligibility for Input Service Credit
The Tribunal found that the Appellant, engaged in rendering consultancy services and paying service tax, was eligible for CENVAT credit on travel, postage, and freight expenses. The lower authority's disallowance of CENVAT credit was overturned, allowing the Appellant to avail of the credit as these services were considered input services under Rule 2(l) of the CENVAT Credit Rules, 2004.

Issue 4: Invocation of Extended Period
The Tribunal held that the invocation of the extended period under Section 73(1) of the Finance Act, 1994, was not justified. It was noted that the Appellant, being a reputed government institution, had no mala fide intention to evade tax. The Tribunal referenced similar cases where penalties were waived for government agencies. The demand for the normal period was sustained, but the penalty under Section 78 of the Finance Act, 1994, was set aside.

Conclusion:
The appeal was partly allowed. The demand for service tax on sponsored research projects was set aside, while the demand for convention services was upheld for the normal period. The Appellant was allowed to avail of CENVAT credit on travel and postage expenses, and penalties imposed were set aside.

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