2023 (12) TMI 853 - AT - Service Tax

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

M/s. Indian Institute of Technology Versus Commissioner of GST and Central Excise, Chennai

CESTAT Chennai held that IIT Madras was not liable for service tax on sponsored research projects as these constituted grants for educational purposes ... Levy of Service Tax - grants / funds / consideration received by the appellant in respect of projects under sponsored research under Scientific and Technical Consultancy Services - provision of service in respect of sponsored research classifiable under Scientific and Technical Consultancy Service or not - activity / events undertaken by the Appellant at its Convention center - eligibility to avail input service credit on Travel, Postage and freight relating to Scientific and Technical Consultancy services rendered - invocation of extended period in terms of Section 73(1) of the Finance act, 1994. Whether any service is rendered in respect of sponsored research projects and whether such a service can be classifiable under Scientific and Consultancy Services in terms of Section 65(92) of the Finance Act, 1994? - HELD THAT:- It is found that CBEC Circular B/11/1/2001––TRU dated 09.07.2001, relevant extracts of which have been reproduced below, clarified that Service Tax was liable to be paid when any scientific or technical consultancy service is rendered whether by Public Funded institutions or by private agencies. Further it was clarified that Service Tax is not payable when Public funded research institutions received grants in aid from the Government for conducting research/ project work and service tax is payable only if service is rendered on payment basis. In the instant case, the Appellant is entering into a MOU with their Clients as per which consideration is being paid towards Research & Development and conduct of workshops by IIT, Madras. The Appellant has received consideration in the form of grants for research activities from JK Tyres, Cadbury India Ltd., Tata Steel, etc. during the aforesaid period. Besides, the Appellant is also receiving amounts in Foreign Currency from overseas clients like World bank, Chevron Products Corporation, Hewlett Packard Company, Proctor and Gamble, etc. From the above it is clear that the Appellant is conducting research work for various clients and workshops are being conducted for dissemination of research findings to academic community and others involved. The Appellants are receiving consideration from various Sponsors towards grants for the above work. As per the terms and conditions of MOU entered into with Sponsors, the research leading to patentable invention is being used by the Sponsor after entering into a separate contract in its manufacturing facility and if not, the Appellant has the right to license it to third party to generate revenue and if the Sponsor licenses it to third party, then the revenue generated is shared between the Sponsor and Appellant. If any commercially viable results emerge on account of such a research, a separate agreement is entered into and any consideration received is charged to Service Tax. In respect of Government of India Sponsored projects the grants are received by an order from the Ministry of Science and Technology (MST), Government of India for which separate audited accounts are maintained for each project. As per the Order, we find that even if interest is earned by way of keeping the grant in bank accounts, the Ministry should be accordingly informed. Further the Appellants are required to furnish to the MST utilisation certificate and audited statement of accounts pertaining to the grant immediately after the end of each financial year - the Service Tax is not payable when Public funded research institutions like IIT receive grants or aid from the Government for conducting research / project work - thus, in respect of sponsored research, there is no provision of service. The services provided are in the nature of furtherance of education and promotion of sharing of knowledge. Many times, the projects include organising workshops, international conferences and conducting seminars. As such, the impugned Order-in-Original No. 11/2013 (RST) dated 31.05.2013 demanding Service Tax in respect of sponsored research projects cannot be sustained. Demand of Service Tax on Convention services - HELD THAT:- The CBEC Circular No. 86/04/2006-ST does not pertain to clarification on Convention services and hence not applicable to the facts of the case - it is found that the Centre for Industrial Consultancy and Sponsored research (IC & SR) building of the Appellant had facilities for conferences, meetings and video conferencing and facilities were available to respective departments of the Appellant, the cultural affairs secretary and private industries, industrial associations and other professional bodies, for organising seminars/ technical sessions and conferences and a tariff was fixed for them and collected by the Appellant - the contention of the appellant agreed upon that some of these conferences / meetings may be open to the public and students and some of the events may be related to cultural activities. But, taking an overall view that there is no convention service is not supported by evidence and facts. So, the demand in respect of convention services is required to be upheld. Availment of CENVAT Credit on ‘Travelling and Postal Expenses, etc. - HELD THAT:- The lower adjudicating authority has disallowed the CENVAT Credit concluding that these services are not input services under Rule 2(l) of CENVAT Credit Rules, 2004. However, it is found that the appellant is rendering ‘consultancy services’ and also discharging Service Tax. As such, there are no reason for disallowing the CENVAT Credit on these services. Invocation of Extended period of limitation - HELD THAT:- In the instant case, the Appellant is an Autonomous Organisation under the Ministry of Science and Technology and cannot be attributed with any malafide intention for non-payment of service tax in as much as they are already registered with Service Tax for various services and regularly paying Service Tax and filing periodical returns and being so, their records were always available for audit and scrutiny. The Appellant were under the reasonable belief that the Services rendered by them were not liable for Service Tax. Further taxability of sponsored research is interpretational in nature - the extended period of limitation is not invokable in this case and the penalty imposed under Section 78 of Finance Act, 1994 in the impugned order is set aside. Thus, the demand raised in respect of Scientific and Consultancy Services is set aside being not sustainable. The demand in respect of convention service is upheld for the normal period - the appellant is eligible for the CENVAT Credit availed on Travelling and Postal Services, etc., being a service provider of Consultancy Services. Penalties imposed are also ordered to be set aside. The Appeal is partly allowed. 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 ResearchThe 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 ServicesThe 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 CreditThe 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 PeriodThe 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.