Custom, Excise & Service Tax Tribunal
Hindustan Aeronautics Ltd vs Commissioner Of Service Tax Bangalore on 21 April, 2014
CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL SOUTH ZONAL BENCH BANGALORE Final Order Nos. 20843-20844 / 2014 Application(s) Involved: ST/COD/25408/2013, ST/Stay/25407/2013 in ST/25325/2013-DB ST/Stay/1839/2012 in ST/2518/2012-DB Appeal(s) Involved: ST/2518/2012, ST/25325/2013-DB [Arising out of Order-in-Original No. 77 & 78/2012 dated 31/05/2012 passed by the Commissioner of Central Excise and Service Tax, Bangalore] Hindustan Aeronautics Ltd. Aircraft Research And Design Centre, Marathalli Post, Bangalore - 560 037 Appellant(s) Versus Commissioner of Service Tax Bangalore 1st To 5th Floor, TTMC Building, Above BMTC Bus Stand, Domlur Bangalore - 560 071 Karnataka Respondent(s)
Appearance:
Mr. B.G. Chidananda URS #520, 7th Main, 13th Cross, RMV II Stage, Dollars Colony, Bangalore - 560 094 For the Appellant Mr. A.K. Nigam, AR For the Respondent CORAM:
HON'BLE SHRI B.S.V. MURTHY, TECHNICAL MEMBER HON'BLE SHRI S.K. MOHANTY, JUDICIAL MEMBER Date of Hearing: 21/04/2014 Date of Decision: 21/04/2014 Order Per: B.S.V. MURTHY In respect of Appeal No. ST/25325/2013 the appellant is seeking condonation of delay of 137 days in filing the appeal. The learned counsel submits that this is a supplementary appeal and the main appeal No. 2518/2012 had been filed in time and without delay. Finding this to be factually correct, the delay in filing this appeal is condoned.
2. Since both the appeals are against the common impugned order, both the appeals are taken together and a common order is being passed. The impugned order has been passed adjudicating the issues involved in Show-Cause Notice No. C. No. IV/1/612/2010 ST dated 21.04.2011 for the period from October 2005 to March 2010 and Show-Cause Notice No. C. No. IV/16/406/2011 ST dated 21.09.2011 covering the period from April 2010 to March 2011. Totally there are 3 demands against the appellant confirmed with interest. An amount of Rs. 56,41,17,360/- is demanded under Management, Maintenance or Repair Service on the ground that the activity of supply of spares, refurbishing and upgradation of air craft and other defence equipments for defence purposes would attract levy of service tax. The second demand in under the category of Consulting Engineers Service for Rs. 88,94,81,409/- and Rs. 27,09,38,010/- under Consulting Engineers Service under the second show-cause notice. Penalties under Section 76 and Section 78 have been imposed in the first show-cause notice and penalty under Section 76 and 77 have been imposed in respect of the second show-cause notice.
3. Even though a lot of arguments were presented on merits and several issues were raised, after hearing both the sides for quite some time, we found that the matter has to be remanded at this stage itself in view of the observations that would be made hereunder. Therefore the requirement of pre-deposit is waived and appeals are taken up for final decision.
4. As regards Management, Maintenance or Repair Service, the findings of the Commissioner contained in paragraphs 75 to 80 which in our opinion would be appropriate have to be reproduced.
75. The following agreements are entered into between the parties for the purpose services.
1. The Agreement dated 26.09.2003 between HAL (Supplier) and JS & AM (Air), Ministry of Defence, New Delhi (Purchaser).
2. The Agreement between Director DAMS at Air HQ (RKP) New Delhi dated 08.02.2002 contract number 91612/3/1/ACS (UPGRADE) 2002.
3. The Agreement between Defence Ministry GOI and AR & DC HAL Bangalore on 10.10.2006.
4. The Contract for reconditioning for NWS-MS-MIRAGE 2000: Agreement between Ministry of Defence and HAL Bangalore for the reconditioning/upgradation of navigation and weapon system Maintenance Simulator (NWS-MS) and for carrying out the related services according to suppliers Technical Proposal on HAL/ARDC/SIM-MTS(1)/001/TECH/2002, dated 26.12.2003.
5. Upgradation of Sea Harrier contract No. 97/DNAM/C/04-05/Shruhal Between Jt. Secretary and Acquisition Manager (M.S) Ministry of Defence, Govt. of India, New Delhi and Hindustan Aeronautics united Bangalore (seller) for upgradation of fleet of 14 sea Harrier Aircraft dated 30.03.2005.
76. I find that on perusal of write-up and profile and agreements, it can be seen that M/s. AR & DC had taken up different types of works like repair and maintenance, work of upgradation/reconditioning/refurbish, critical designed review of air crafts, design and development of LCA/HJT-36 aircrafts, fabrication of prototypes, flight trials, weapon integration, initial and final operation clearance, setting up of facilities etc.
77. The activities covered under this service are:- Annual maintenance contract, Authorized person providing service without contract manufacturer providing service without contract, bringing cylinders in original workable condition, dealer-services provided during the warranty period, free service during the warranty period, where the service charges are reimbursed by the manufacturer, Immovable property-maintenance and repair, maintenance or repair as part of any contract or agreement, property management-maintenance or repair, Reconditioning, Reconditioning or restoration, or servicing of any goods, repair services, restoration, Roads, airports, railways, buildings, parks, electrical installation repair, maintenance and management, servicing of any goods, software maintenance or repair.
78. In view of the above services like reconditioning, refurbishing and upgradation work undertaken by the unit falls under the category of Management, Maintenance or Repair Services under Section 65(64) of the Finance Act, 1994.
79. I find that even though the unit had taken registration for Management, Maintenance or Repair Services, it had not paid the service tax on reconditioning, refurbishing and upgradation work undertaken. The total amount collected as reconditioning, refurbishing and upgradation for a period from October 2005 to March 2010 is Rs. 491,71,90,034/- and the service tax liability works out to Rs. 56,41,17,360/-.
80. In view of my foregoing findings on the facts and circumstances of the case, the demand of service tax of Rs. 56,41,17,360/- under Management, Maintenance or Repair services merits confirmation.
5. As regards the Consulting Engineers Services, the Commissioners observations are contained in paragraphs 82 to 87 which are reproduced as under:
82. The definition of the service as defined under 65(105) (g) of the Finance Act is reproduced for brevity is as under
Consulting Engineers Service means any professionally qualified engineer or anybody corporate or any other firm who, either directly or indirectly, renders any advice, consultancy or technical assistance in any manner to any person in one or more disciplines of engineering.
82.2. Taxable service means any service provided or to be provided to any person, by a consulting engineer in relation to advice, consultancy or technical assistance in any manner in one or more disciplines of engineering including the discipline of computer hardware engineering.
Explanation - for purposes of this sub-clause, it is hereby declared that services provided by a consulting engineer in relation to advice, consultancy or technical assistance in the disciplines of both, computer hardware engineering and computer software engineering shall also be classifiable under this sub-clause Sec. 65(105)(g).
1) Consulting engineer means any professionally qualified engineer or engineering firm who, either directly or indirectly, renders any advice, consultancy or technical assistance in any manner to any person in one or more disciplines of engineering. The taxable service rendered by consulting engineer means any service provided to any person by a consulting engineer in relation to advice, consultancy or technical assistance in any manner in one or more disciplines of engineering. The value of taxable service in relation to service provided by consulting engineers to any person shall be the gross amount charged by such engineers from any person for advice on consultancy or technical assistance in any manner in one or more disciplines of engineering.
2)
3) The services which attract the levy include all the services which are rendered in a capacity of a professional person and specifically include the services pertaining to structural engineering works or civil/mechanical/electrical engineering works or relating to construction management. All services rendered within the above scope of term, engineering attract service tax provided, and they are rendered in the capacity of a consulting engineer. The scope of the services of a consultant may include anyone or more of the following categories.
83. The another type of agreement entered into between the parties was design, development of software, development of detailed engineering, procurement, fabrication of proto type of air craft, development of new aircrafts, training, etc. on the development of LCA/HJT-36 for Air force and navy. On perusal of agreements on the new products, the development consisted of design, development, development engineering, software development, fabrication, development of prototype, test trial, training, etc.
84. The activities covered under this service are advice, basic design engineering, body corporate providing engineering consultancy, construction supervision, consultancy, consultancy in engineering, consulting engineer, detail design engineering, establishing systems and procedures for an existing plan, feasibility study, firm providing engineering consultancy, incorporated companies, manpower planning and training, post operation and management, pre-design services, procurement, professionally qualified engineer, project management, project report, self-employed professionally qualified engineer, software support service including fault repair.
85. The activities for which the unit had entered into agreements with different agencies like ADA, Navy, Air force, etc, with various conditions and for a certain amount, and rendered the services of detailed design, development fabrication, flight clearance and testing of LCA/HJT-36. Further they had raised invoices at the end of every month, at a phased period and received the amounts.
86. In view of the above I find that the services like detailed design, development, fabrication, flight clearance and testing of LCA/HJT-36 undertaken by the unit fall under the category of Consulting Engineers Service.
87. I find that the total amount collected by the unit for the development for the period from October, 2005 to March, 2010 is Rs. 7,71,73,72,956/- and the service tax liability was amounting to Rs. 88,94,81,409/-.
6. A consideration of the Commissioners findings in respect of both the services shows that the Commissioner has reproduced the statutory provisions relating to definition of the service in the first paragraph; he has given a number of agreements in the second paragraph; in the third paragraph he has indicated his conclusions about the nature of work undertaken; in the fourth paragraph he has explained the activities covered by the definition and thereafter he has observed that the activities undertaken by the appellants are covered by the definition and confirmed the entire demand in respect of both the services. In the case of Management, Maintenance and Repair Services, we find that there are 5 agreements considered. Even in the reproduction of the findings of the Commissioner, it is mentioned that the agreement No. 4 is for upgradation of navigation and weapon system Maintenance Simulator and carrying out the related services according to suppliers Technical Proposal. Sl. No. 5 in paragraph 75 covers upgradation of Sea Harrier. We are unable to understand how upgradation of particular equipment or an air craft can amount to Management, Maintenance or Repair Service. On going through the show-cause notice, wherein the 5 agreements are covered in paragraph 4.1, it is seen that in agreement No. 1 the details of which are not discussed by the Commissioner was for design, development of software, development of detailed engineering, procurement, fabrication of proto type of air craft, development of new aircrafts, training etc. Prima facie we do not find any basis for the conclusion reached by the Commissioner that this agreement is for Management, Maintenance or Repairs. Similarly in the case of agreement covered by para 4.A.2 relating to LCA, the agreement related to design, development, upgradation and testing of LCA. The only one item which covers the service on a prima facie basis by merely looking at words is maintenance and utilization of the capital assets established under FSED Phase-1. There is no explanation forthcoming on this issue also either from the agreement or from the Commissioner. Further in paragraph 76, the Commissioner has summarized different types of work undertaken by the appellants which included design and development of LCA/HJT-36 aircrafts, fabrication of prototypes, flight trials, weapon integration, initial and final operation clearance, setting up of facilities etc. Commissioner has not explained how these activities are covered under the activities explained by him in para 77 before reaching the conclusion in para 78. Under these circumstances, we find that matter needs a more detailed consideration of the agreements, the activities undertaken by the appellants in terms of the agreement and the basis for conclusion to classify any of the services in the taxable category. At this juncture it will not the out of place to mention that when an offence case is registered, the burden to prove that a taxable service has been rendered is on the Revenue and it is not of the assessee and in our opinion this burden has not been discharged in respect of both the services in this case.
7. As regards consulting engineers service, the activities undertaken by the appellants according to the learned Commissioner as reproduced in para 83 is design, development of software, development of detailed engineering, procurement, fabrication of proto type of air craft, development of new aircrafts, training, etc. The scope of the service of consulting engineering service is to render any advice on consultancy or technical assistance in any manner. From the definition it appears that the service has to be related to consultancy or technical assistance whereas from the agreement and from the summary of the agreements as reproduced by the Commissioner himself, the appellants are engaged in design, development of software, development of detailed engineering, procurement, fabrication of proto type of air craft. Prima facie, the activities undertaken by the appellants did not appear to be covered by the Consulting Engineers Service. The matter definitely requires a more detailed consideration and moreover in paragraph 85 Commissioner himself observed that appellants had various agreements and the details of agreements are also not discussed.
8. The learned Commissioner also brought to our notice that the issue of levy of sales tax on the activities undertaken by the appellants which are the subject matter of dispute before us had travelled up to Supreme Court and Honble Supreme Court had directed both the Union Government and State Government of Karnataka to mutually come to an understanding and as a result there was a meeting between the officers of the Defence Ministry of Union Government and the Defence Minister and the Chief Minister and as a result of the same, it was decided that in respect of one of the activities, the transaction will be treated as sale and VAT will be payable and in respect of another activity the transaction will be treated as Works Contract Service and tax will be levied accordingly. We consider that these discussions between the Union Government and the State Government and conclusions arrived therein are also required to be considered by the Commissioner even though learned AR had argued that these discussions did not relate to service tax matters and the officers of Revenue were not party to this and therefore it has no relevance. In our opinion, the agreement between the State Government and the Union Government that one of the activities will be treated as Works Contract would have relevance for the purpose of levy of service tax and therefore this aspect will have to be considered by the Commissioner. We make it clear that we have not expressed any opinion on this issue but would like to keep the issue open and at the same time request the learned Commissioner to consider this issue also while considering the matter afresh as per the remand order which is being issued by us.
9. In view of the above observation, we set aside the impugned order and remand the matters to the original adjudicating authority with a request to consider the matter afresh. Needless to say a reasonable opportunity shall be given to the appellants to present their case before coming to a final conclusion. We also request the learned Commissioner to pass a detailed order keeping in mind that it is for the Revenue to show that taxable services have been rendered and liability has arisen for confirming the demand for duty and also justifications if any, for imposition of penalty invoking extended period.
(Operative portion of the order has been pronounced in open court on 21.04.2014) (S.K. MOHANTY) JUDICIAL MEMBER (B.S.V. MURTHY) TECHNICAL MEMBER iss