By TIOL News Service

MUMBAI, OCT 01, 2014: THIS is a Revenue appeal against an order passed by the CCE(A) setting aside demand of Rs.28,12,221/- against the respondent.

The respondent M/s. Bechtel Overseas Corporation Ltd. San Francisco CA, provided overall management and administration for M/s. Sahara India Commercial Corporation Ltd. (Sahara)'s entire project at Aamby Valley under an Agreement for Program Management Services.

The Department alleged that the service provided by M/s. Bechtel falls under the category of Real Estate Agent Service and, therefore, a ST demand of Rs.28,12,221/- was raised for the period 25.01.2001 to 08.02.2002.

Whereas the adjudicating authority confirmed the demand under the category proposed, the Commissioner (Appeals) while agreeing with the classification set aside the demand holding that the services were mainly provided offshore and, therefore, service tax is not leviable.

As mentioned, Revenue is in appeal against this order.

After extracting the scope of services mentioned in Appendix ‘A' to the agreement between Sahara and Bechtel, definition of ‘Real Estate Services' & ‘Consulting Engineer's Service' the Bench observed -

++ At first sight, there seems to over lapping between the descriptions of the two services. Although, some components in the definition of Real Estate Consultant have been performed by Bechtel, the description of some components in the definition appear to be related to rendering service in relation to sale, purchase, leasing or renting of Real Estate. However, the activities of a Consulting Engineer are more comprehensive in scope as they cover all disciplines of consultancy and engineering be it feasibility study, detailed designing, construction, civil, mechanical, electrical engineering etc. Even Board's letter F.No. B43/5/97-TRU dt. 2.7.1997 provides the expansive scope of this service. This wide gamut of the detailed activities can only be provided by an engineering company which have expertise to deal with all disciplines of engineering.

++ The doubt which has arisen in the present case is because of the definition of Real Estate Consultant which means a person who renders in any manner advice, consultancy, technical assistance in relation to evaluation, conception, design, construction, supervision etc.

++ We note that the words “advice, consultancy or technical assistance” pre-qualify the components i.e. evaluation, conception, design, development construction, supervision, maintenance etc. To us it appears that the Real Estate Consultant may give over all assistance relating to these aspects. But it is the Consulting Engineer who provides the technical expertise involved in technical design engineering, procurement, supervision, manpower planning software systems, software development as mentioned in detail in Appendix A to the Agreement and as also stated in Board's letter dt.2.7.1997.

++ We agree with the contention of the appellant that the Consulting Engineer Service more specifically describes the service provided by them and is the correct classification in terms of Section 65A (2) (a) for determination of classification. And in any case, if doubt still remains as to the correct classification between the two services in question which equally merit consideration, then by virtue of Section 65A (2) (c), the Consulting Engineer Service is preferred because it appears first among the sub-clauses that is, at Section 65 (105) (g), as compared to the sub-clause of Real Estate Service that is Section 65 (105) (v).

++ In view of discussion above and Board's letter we hold that the service provided by M/s. Bechtel comes under the category of Consulting Engineer Service.

The CESTAT also made the following observations -

++ We observe that the Commissioner has considered the definition of Real Estate Agent and Real Estate Consultant and come to the conclusion that the service is in relation to Real Estate. We note that the Commissioner has not discussed the definition of Consulting Engineer Service at all; neither has he gone into the scope of this service as enumerated in Board's letter (supra). Arriving at a conclusion by considering and discussing the definition of only one service out of the two services under consideration does not meet judicial requirements. In any case we have held above that the service provided by M/s. Bechtel is classifiable under Consulting Engineer Service.

On the question of Service Tax liability, the Bench held -

++ No evidence has been provided by Revenue to establish that the services provided are not offshore services. In fact all papers addressed to Bechtel namely show cause notice, adjudication order have been sent to the appellants address overseas. This establishes that the appellants do not have a business establishment in India.

++ Even if Revenue's stand (although Revenue's stand is not very clear) is that service has been provided from offshore territory to India, we find it is a settled matter that Service Tax on services provided by a service provider located outside India to a recipient in India is leviable only from 18.4.2006 with the introduction of Section 66A. In fact Revenue's reliance on the amendment to Section 65 by insertion of an Explanation in 2005 is misplaced. The explanation expanded the scope of service tax to even include services provided from outside India to a recipient in India. The period in the present case is Jan. 2001 to Feb. 2002 and therefore Revenue has not built any case in their favour. As we have observed, the matter was put to rest w.e.f. 18.4.2006, from which date only, the service tax is leviable in such cases.

++ It is undisputed that appellants did not have a business establishment in India. However, the legal frame work as it existed during the material period has also not been appreciated by Revenue. The adjudicating authority held Bechtel liable to tax in view of proviso to Rule 6(1). As per second proviso to Rule 6(1) of Service Tax Rules 1994 - ‘In case of a person who is a non-resident or is from outside India does not have any office in India and is liable to pay Service Tax on taxable services provided in India -

i) the service tax thereon shall be paid by such person or in his behalf by any other person authorized by him, who shall submit to the Commissioner of Central Excise in whose jurisdiction the taxable services have been rendered, a return, containing the following details.......”

We note that in terms of Clause D of Article V of the Agreement, the contract says that any service tax liability will be on Sahara. Thus in terms of provisions of Rule 6 (1) read with the Agreement, the liability is cast upon the recipient i.e. Sahara as also held by Supreme Court in Kerala Electricity Board. We hold that the appellants are not liable to pay service tax.

In fine, the Revenue appeal was dismissed.

(See 2014-TIOL-1895-CESTAT-MUM)