Customs, Excise and Gold Tribunal - Bangalore
Bbr (India) Limited vs Commissioner Of Central Excise on 12 September, 2006
Equivalent citations: [2007]8STT275, (2007)6VST677(CESTAT-BLORE)
ORDER T.K. Jayaraman, Member (T)
1. This appeal has been field against the O1A No. 92/2004, dated 27-8-2004 passed by the Commissioner of Central Excise (Appeals-II), Bangalore.
2. Revenue proceeded against the appellants on the ground that they were providing Consultancy services under the category of "Consulting Engineer" for Cable Stay Bridge across NH 4 at K.R. Puram, Bangalore, as per the contract awarded to them by M/s. Indian Railway Construction Company Ltd. (hereinafter referred to as M/s. IRCON), Bangalore. They were said to have provided these services as agent of M/s. Bureau BBR Ltd. of Switzerland. The Consultancy fee paid by M/s. IRCON to the appellant have been paid to M/s. Bureau BBR, Switzerland, by the appellant. The original authority, in his order dated 29-12-2003, confirmed a demand of Rs. 5,67,813/- under Section 73 of the Finance Act, 1994. He demanded interest on the delayed payment under Section 75. Penalties were imposed under Sections 75A, 76, 77 and 78 of the Act. The appellants approached the Commissioner (Appeals), who passed the impugned order upholding the OIO of the Assistant Commissioner.
3. Shri K.S. Ravi Shankar, the learned Advocate, appeared for the appellants and Shri K. Sambi Reddy, the learned JDR, for the Revenue.
4. The learned Advocate urged the following points:
(i) The learned Advocate questions the jurisdiction of the Original Authority to decide the case in view of the Service Tax Circular No. B2/8/2004-TRU, dated 10-9-2004, which can have only retrospective effect and not prospective effect. The correct Circular should have been the one dated 5-6-2000. This point was nor urged during the hearing.
(ii) The appellant directly did not provide any service to Indian Railways as they are only agents of the Swiss company BBR. Actually, there is only a contract between IRCON and Indian Railways in which IRCON is the service provider and the appellant is only a sub-contractor for IRCON. Therefore, there is no relationship of service provider nexus between the appellant and Indian Railways. If at all, it is held that the appellant renders any service it would be only scientific and technical consultancy service which was effective only w.e.f. 16-7-2001.
(iii) The appellants had. only transferred construction technology in the nature of consultancy (consisting of designs and drawings) to IRCON for construction of a Cable Stayed Bridge at Bangalore in the capacity of a sub-contractor. The services were provided by them as part of the services of IRCON (the main service provider) to the Railways (the client) with the help of BBR, Switzerland, who provided the hi-tech construction technology services through their R & D Division. As the appellant is only a sub-contractor to IRCON, as per Board's Circular, there cannot be Service Tax liability in the absence of service provider and client nexus.
(iv) The appellant had obtained technology in the form of designs, drawings and know-how from BBRS which are in the nature of intellectual property. As per Apex Court's ruling in the case of Associated Cement Companies Ltd. v. Commissioner , intellectual property are goods. It is submitted that goods cannot be intellectual incorporeal movable property under one act and a service under another.
(v) As per Para 4.4. of the Trade Notice No. 53-C.E. (Service Tax)/97, dated 4-7-1997, issued by the Commissioner of Central Excise, New Delhi, services should be rendered to a client directly and not in the capacity of a sub-consultant/associate consultant to the prime consultant. The lower authorities have conveniently omitted this contention. Therefore, the impugned order is bad in law.
(vi) The basis of quantification of the Service Tax demand was not made available to the appellant. As per Trade Notice No. 20/2002, dated 23-5-2002 issued by the Commissioner of Delhi, it is clarified that 'in the event of any such failure (to realise or charge service tax), the amount recovered from the clients in lieu of having rendered the services will be taken to constitute amounts inclusive of the Service Tax'. This principle recognized by the Board has been ignored by the lower authorities.
(vii) Penalty has been imposed on the appellants without establishing mens rea. The learned Advocate relied on a large number of case laws. The penalties imposed are illegal as the appellant was under bona fide belief that their activities do not attract the provisions of the Service Tax law.
(viii)The appellant submits that in any case and in any event penalty under Section 78 could not have been imposed since the prior approval of the Commissioner of Central Excise was not obtained. The appellant submits that as per proviso to Section 78, as it stood at the relevant point of time, when the value of taxable service exceeds Rs. 2 lakhs it was mandatory to obtain prior approval of the Commissioner of Central Excise. This condition has not been satisfied in the present case and the imposition of penalty is legally unsustainable.
(ix) The learned Advocate urged that permanent transfer of intellectual property right would not amount to service as per Board's Circular dated 10-9-2004 Para 9.2.
5. The learned JDR drew the attention of the Bench to the letter issued by IRCON to the appellant wherein it is clearly mentioned that the contract is a consultancy contract for design work. Therefore, he said that the appellants are liable to pay the Service Tax in the capacity of Consulting Engineers. Further, he reiterated the impugned order.
6. We have gone through the records of the case carefully. The main points for decision are:
(i) Whether the services rendered by the appellant amounts to 'Consulting Engineer' services as per Finance Act, 1994? and
(ii) Whether the appellants are liable to pay service tax?
From the records, it is very clear that the appellants are actually agents of a foreign company viz. M/s. Bureau BBR Limited, Switzerland. Chief Engineer/Constructions, Southern Railway, in his letter dated 13-3-1995 has awarded works design for Stage-II of the proposed Cable Stayed Bridge on NH-4 at Krishnarajapuram, which is to be constructed at a total cost of Rs. 2.2245 crores. The scope of the work design is as follows:
(a) Preparation of detailed designs, including making drawings for execution of the various items of work involved,
(b) Preparation of methodology of construction,
(c) Preparation of detailed designs and drawings for temporary structures and arrangements required for execution of the work,
(d) Preparation of quality control manual, maintenance manual and safety instructions, and
(e) Visits by foreign experts during finalisation of works design.
For the above work, a lump sum payment of Rs. 222.45 lakhs shall be paid to IR-CON in various instalments. On receipt of Chief Engineer/Construction's above mentioned letter for work design, IRCON, in its letter dated 19th April, 1995 addressed to the appellant M/s. B.B.R. (India) Ltd., offloaded the design work to the appellant in the form of consultancy contract. The scope of the consultancy services is as follows:
(i) Detailed design and preparation of working drawings for each and every component of the Cable Stayed Bridge viz. detailed geometry reinforcement details, details of BBRV post tensioning cables for the deck, pylon DIN A cable stays, counter weight abutments on Madras side and Bangalore side abutment, rock anchors, foundations, anchoring piers, construction methods and sequences in detail for site execution for the 180m long cable stayed bridge and 50m viaduct on Bangalore side.
(ii) Carry out detailed design and preparation of working drawings for temporary structures viz., cantilever construction carriers or any other suitable method of construction proposed for the deck slab, temporary works needed for stay cable erection viz. deviators on deck and on pylon head, temporary platform on pylon for cable erection, fixing of anchors at the fixed end and free end of stay cables and other safety precautions needed to be taken during the course of execution.
(iii) Preparation of methodology of construction.
(iv) Preparation of manual for quality control, maintenance schedule and procedure and safety instructions.
(v) Arranging the visits of Swiss experts to India during the design phase as and when required by IRCON/S.Rly.
(vi) Training of two Engineers of IRCON in Switzerland in similar works at the cost of BBR (India) Ltd. for a period of 2 weeks.
(vii) Design services for the cable stayed bridge shall be arranged by M/s. BBR (India) Ltd. as an agency of M/s. Bureau BBR Ltd. of Switzerland.
For the above work, IRCON shall pay a total lump sum fee of Rs. 208 lakhs in various instalments.
6.1 At this point, we would like to state that on going through the scope of the services, it is very clear that the services are in the nature of Consulting Engineer services and we do not think further discussion is needed on this point. Therefore, the first point is answered in the sense that the services rendered by the appellant are indeed in the nature of 'Consulting Engineer' services as per Finance Act, 1994.
6.2 It is seen that the appellant is an Agent of M/s. Bureau BBR Limited, Switzerland. There is an agreement between the appellant and M/s. Bureau BBR Ltd., Switzerland. This agreement is dated 29-5-1995. The object of the agreement is again consulting services for the Phase-2 detailed design of the Krishnarajapuram Cable Stayed Bridge in Bangalore. The scope of the work is the detailed design of Phase-2 covering all required statical computations and production of all working drawings for the structure and for the listed temporary works. We do not feel it necessary to reproduce the detailed scope of the agreement. According to the agreement, a maximum of four visits of 3 working days each, if required, to Bangalore or elsewhere in India have been considered for the design phase. Further, BBR, Switzerland, is prepared to receive two IRCON Engineers in Switzerland for training. For the above work, the remuneration would be Rs. 510,000 Swizz francs payable in instalments.
6.3 Service Tax on Consulting Engineering services was imposed w.e.f. 7th July, 1997. In respect of Consulting Engineer, taxable service means any service provided to a client by a consulting engineer. Therefore, there should be a nexus between the client and the service provider. In the present case, even if the service provider is taken as the appellant, the client is Southern Railways and there is no direct nexus between the appellant and the client. The client - service provider relation in the present case is actually between the IRCON and the Southern Railway.
6.4 In view of the above documents, it is very clear that the ultimate client who receives the services is the Southern Railway. The organization which actually provides the service is M/s. Bureau BBR Limited, Switzerland. Southern Railway awards the work to IRCON. IRCON in turn sub-contracts the work to the appellant. The appellant who is an agent of BBR, Switzerland gets the actual design/consultancy work, etc. from the foreign company. Therefore, there is force in the contention of the appellant that they are not providing services to the client (Southern Railway) directly. As an agent of the foreign company, service is provided only to the prime consultant who is, IRCON. In these circumstances, the liability to pay Service Tax to the Government is on the prime consultant, who is IRCON and not on the sub-consultant, who is the appellant. In view of this, the appellants are not liable to pay the Service Tax demanded. Hence, we allow the appeal with consequential relief, if any.