Custom, Excise & Service Tax Tribunal
Delhi Iii vs National Informatics Centre Services ... on 16 August, 2018
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Appeal No.ST/53521/2016-CU(DB)
CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL
New Delhi.
Date of hearing:26.07.2018
Date of Decision:16.08.2018
Appeal No.ST/53521/2016-CU(DB)
[Arising out of Order-in-Original No.16/ST/SVS/DL-III/2015 dated 16.06.2015
passed by the Principal Commissioner of Service Tax, Delhi-III]
CE, CGST, Delhi-III ...Appellant
(Rep by Shri Amresh Jain, DR)
VERSUS
National Informatics Centre Service Inc. ...Respondent
(Rep. by Shri Vibhav Narang, Advocate and Shri A.K. Batra, CA ) CORAM :
HON'BLE SHRI ANIL CHOUDHARY, MEMBER (JUDICIAL) HON'BLE SHRI C.L. MAHAR, MEMBER (TECHNICAL) Final Order No.52777/2018 Per Anil Choudhary:
This appeal by Revenue is against order-in-original dated 16th June, 2015 passed by the Principal Commissioner Service Tax, Delhi - III Commissionerate, wherein the ld. Commissioner confirmed the demand on outstanding advances along with interest and further proceeded to drop the proposed demand under the head "Erection, commissioning or installation services".
2. The ld. Commissioner has, for dropping the demand, observed as follows: -
"....The assessee is appointed by various ministries of Government of India & other autonomous bodies to co-
ordinate & gets the projects such as
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computerization/networking completed from various
vendors. The scheme is like this, that once some project is approved by the competent authority in the Government of India, its administrative approval is granted with a total estimate cost and the period within which it has to be implemented by National Informatics Centre (NIC)/National Informatics Centre Services Inc.(NICSI). The assessee identifies different vendors for execution of various items of work required to be done for complete execution of the project. Entire budget is put at the disposal of assessee by the Government Department or autonomous bodies which had approved the project. The assessee advertises and identifies the vendors and also negotiates the rate etc. by using their technical expertise. The vendor raise the invoice in the name of ministers of Government of India & other autonomous bodies (hereinafter referred as sponsors) whose project is being implemented by the assessee. The payment against these invoices is settled by the assessee from the funds allocated in terms of administrative approval of the Ministry. The assessee charges/retains a definite amount from the allocated funds as his administrative charges as settled between the concerned Ministry and them."
3. The brief facts are that the respondent, National Informatics Centre Services Inc. (NICSI) is a Government Company incorporated under Section 25 of the Companies Act 1956. They are registered with Service Tax Department under the taxable category of " Consulting Engineer Services".
4. NICSI was set up in August, 1995 by National Informatics Centre (NIC) and Department of Electronics & Information Technology (DEIT), Government of India; with the approval of Cabinet. NICSI is established to provide total IT solutions to the Government Organisation. The primary aim of NICSI is to 3 Appeal No.ST/53521/2016-CU(DB) strengthen Government Services those are accessible to the common man through the medium of common service delivery outlets. NICSI provides state-of-the-art technology and cost effective solutions to ensure cost-effectiveness, efficiency, transparency and reliability of such services. As a leading e-Governance software solution provider, NICSI has the following main objectives:-
"a. to provide economic, scientific, technological, social and cultural development in India;
b. to speed up e-Governance implementation across the various arms of the government at national, state and local levels;
c. to enable government organizations to become e- Governance ready so that they can provide better services to the citizen through common service delivery outlets ensuring efficiency, transparency, reliability of services at affordable costs;"
5. NICSI acts as an implementing /nodal agency or project management consultant for various projects. NICSI don‟t execute these projects on its own rather get them executed through empanelled vendors, who are empanelled based on Open Tender process, as prescribed in the General Financial Rules of the Government of India. NICSI further provides vairus services like website design & development services, IT support service, etc. Various clients primarily ministries (both state and central) (herein after referred to as „clients‟) approaches NICSI in order get their projects executed.
5.1. Work orders undertaken by NICSI can be categorized as under:-
a) Where NICSI is acting as implementing agency;
b) Where NICSI is acting as principal service provider;
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c) Where projects involves supply of goods exclusively;
Sample copies of agreements and invoices are enclosed, in appeal paper books. 5.2. Where NICS is acting as implementing agency: In order to understand the flow of transactions, the following chronology is noted--
(i) On receipt of award letter from the clients, assessee examines the kind of services to be provided and accordingly appoint the empanelled vendor.
(ii) On the basis of above examination, assessee raises proforma invoice /quotation (which includes the estimated value of goods, services and admin charges, etc.) to the clients and assessee receives advance(s) from its clients.
Further, as per the payment terms, any unspent portion of the advances has to be returned to the clients.
(iii) After completion of the projects, the empanelled vendors raise invoices directly in the name of the clients (not in the name of assessee). As a consideration to implement the project, assessee charges only administrative charges from the clients.
(iv) Presentation in the financial statement; It is pertinent to highlight there that neither gross amount received is shown as revenue nor payment made to vendor claimed as an expense. In other words, only the consideration charged by the assessee in respect of implementing the projects, is reflected in the Income side of the Profit and Loss Account, under the heading "Administrative charges". Advances are only routed through the balance sheet under "other long term liabilities‟/‟Current Liabilities."
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Appeal No.ST/53521/2016-CU(DB) 5.3. Where NICSI acts as Principal Service provider, the service tax liability under „Consultant Engineering Services‟ is duly discharged. Further, in case of projects involving supply of goods exclusively, there is trading of goods, hence, falls outside the purview of Finance Act, 1994, no service tax liability is attracted.
6. According to Revenue, as proposed in the show cause notice, invoking the extended period of limitation for the period 2008 - 09 to 2012 - 2013, there is wrong classification of services of the activities by the respondent under "Consulting Engineer Services". The turnkey services, which involves supply and installation of software /hardware with testing and commissioning and on site separate services, hence, are liable to be classified under ECIS. Accordingly as per the Revenue, there is short payment of service tax, as the taxable value, should have included the value of goods pertaining to all the projects undertaken by the respondent as implementing agency under the various contracts. Accordingly, demand for the period 2008 - 2009 to 2012-2013 of Rs. 389.02 crores was proposed. The taxable turnover calculated by adding the advance receipts pertaining to the project(s) involving exclusive services with advance receipt pertaining to the projects involving supply and service both. From such taxable turnover, the service tax was calculated at Rs.474.55 crores and after reducing the amount of service tax already paid Rs. 85.52 crores, the balance demand was proposed at Rs.389.02 crores.
7. Further, Revenue alleged that the respondent has not paid the tax on the advances at the time of receipts, thereby violating provisions under Rule 6 of Service Tax Rules, 1994 read with rule 3 of Point of Taxation Rules, 2011, as 6 Appeal No.ST/53521/2016-CU(DB) applicable during the period in dispute. Prior to issue of show cause notice, the respondent deposited the service tax calculated on advance outstanding being Rs.50.17 crore along with interest on delayed payment of tax Rs. 13.94 crores.
8. The ld. AR for Revenue, Mr. Amresh Jain, reiterating the grounds of appeal stated that the ld. Commissioner has erred in dropping the demand of Rs. 389.02 crores concluding that the activity /service of the respondent was in the nature of "Consulting, Engineering Services" and further, that the respondent was discharging service tax on the amount received as administrative charges from the government/sponsores on agreed rate, for their services. Further, the ld. Commissioner has observed that the respondent identified the vendors and also negotiated the rates etc. by using their technical expertise. The vendors raised their invoice directly in the name of Ministeries of Govt. of India and other autonomous bodies, whose project was being implemented by the respondent. The Adjudicating Authority also erred in observing that the respondent themselves has not executed any of the projects but has acted as an intermediary in between the sponsoring agency and the executing agency.
9. He has further drawn our attention to the reliance placed by the ld. Commissioner on the ruling of this Tribunal in the case of Foster Wheeler Energy Ltd versus CCE- 2007 (7) STR 443 (Tribunal-Ahmd.), which is not relevant to the present case. In the above said decision, PLL (Petronet LNG Ltd.) entered into an EPC contract with M/s. Ishikawajma-Harima Heavy Industries Ltd., to develop, design, engineer and procure equipment, materials and supplies to erect and construct storage tanks of 5 MMPTA capacity, with potential expansion to 10 MMTPA capacity at the specified temperatures. The EPC contract 7 Appeal No.ST/53521/2016-CU(DB) also envisaged providing marine facility (jetty and island brake water) for transmission and supply of LNG to purchasers. The project involved, inter alia, offshore supply, offshore services, onshore supply, onshore services and construction & erection. PLL entered into an agreement in January 2001 with Forster Wheeler Energy Ltd. for project management consultancy in relation to setting up and operating the above LNG terminal. The agreement detailed the various areas in which Forster Wheeler was required to advise and assist in relation to the execution of the project.
10. Whereas in the present case, there are no such agreements. The agreements herein, this case, are between the respondent and the Government Departments / Ministries or other organisations for implementing the entire project on turn-key basis and it was nowhere mentioned that the contract is for providing consultancy in relation to execution of the project by different vendors.
11. Further, from the copies of project/documents, agreements, pro forma invoice, etc., pertaining to some sample projects obtained from the respondent on examination appeared that the respondent was required to undertake the entire range of activities, which, inter alia, comprises of procurement, installation of equipments, installation of hardware, installation of software, testing of equipments, hardware and software, running of pilot projects, commissioning of equipments, systems and network, handing over the operation of the equipment to the respective clients and repair and maintenance of installed equipments and systems, supply of skilled manpower. In the projects executed by the respondent more than one or all of the above activities are involved during execution of the projects.
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12. The Department of Information Technology (MT), Government of India has awarded "National Knowledge Network" (NKN) project to the respondent/ NICSI, as per the administrative approval dated 30/03/2010. The objective of NKN is to interconnect all universities, libraries, laboratories hospitals and agricultural institutions to share data and resources across the country over the high-speed (of gigabit capabilities) information network. The activities entrusted to NICSI to achieve this objective involved planning and implementing the procurement, establishment, engineering commissioning etc. i.e. comprising of all aspects of execution of the project. After receipt of the advance money, the respondent alone is responsible for overall execution of the projects and there seems to be no other agency as an independent entity involved in the execution of the entire project. All agencies involved in execution of any project are only working in the capacity of vendors/subcontractors of NICSI, the respondent. As the project is given to the respondent on turn-key basis, therefore, the gross amount received by the respondent towards execution of the project constitutes the gross taxable value.
13. Further, although the Adjudicating Authority upheld the noticee‟s liability of payment of service tax at the time of receipt of advance/receipt of final payment, whichever is earlier, yet he has erred in dropping the complete demand of Rs.3,89,02,36,342/- , which also included the demand of Rs.50.17 crore on non- payment of service tax on the outstanding advance amount, without adequately discussing the nature of projects, whether these were on turnkey basis or otherwise. Further, there is no discussion in the order as to the appropriation of the amount deposited by the respondent of Rs.50.17 crores prior to the SCN along with interest of Rs.13 .94 crores.
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14. The ld. Counsel for the respondent/assessee further submits that the respondent is providing "Consulting Engineer Services" and is discharging service tax thereupon. They are engaged in advising and assisting the sponsoring agency in selecting various vendors for supplying and commissioning of various items of work, which are in the nature of computer technology. The personnel, working with the respondent, are also by and large professionally equipped computer engineers, one of the prime requirements of any services falling under the head "Consulting Engineering Services".
15. The respondent fulfilled the criteria of having the advisory role and has not executed the projects themselves and hence, undoubtedly, are providing "Consulting Engineering Services".
16. The respondent first provided advance from grant-in aid to undertake the activities assigned under the award/work orders. Such grant-in-aid was given to them by the Ministry of Communication and Information Technology, Department of Information Technology, Government of India, National Knowledge Network Division directing the Pay & Accounts Officer, Department of Information Technology to release the funds for the project "action establishment of national knowledge network" to the respondent, to be implemented by NIC, which was the implementing agency. The letter dated 30.03.2010 issued by the Ministry, wherein in para-2, it is stated that sanction of the President of India is hereby conveyed to release the amount of Rs. 240 crore towards grant-in-aid to the respondent, to incur expenditure towards the said project. Further, in para-3, it is stated the grant- in-aid given to respondent will be regulated in accordance with the provisions contained in the terms and conditions of the Department of Information 10 Appeal No.ST/53521/2016-CU(DB) Technology and are subject to Chapter 9 of General Financial Rules, 2005, as amended from time to time. It is further provided that the accounts of the respondent, NICSI and NIC shall be audited by C&AG or by any person authorized by him on its behalf in accordance with the statutory provisions. Further, the accounts of respondent shall be open for inspection by the Sanctioning Authority and Audit, both by the Comptroller and Auditor General of India under the provisions of C & AG (DPC) Act 1971 and Internal Audit party by the Principal Accounts Office of the Ministry or Department, whenever it is called upon to do so. Further, the Utilisation Certificate of sanctioned amount of Rs.240 crores disbursed will be forwarded to be PAO, DIT. Further, the respondent have to furnish the completion report within one month of the completion of the duration of the project. Further, provided that the respondent will spend the grant- in-aid exclusively in pursuance of the objectives envisaged in rules/memorandum of DIT and for the purpose, it is being sanctioned. Further, provided that grant-in- aid shall be utilised for the purposes for which it has been sanctioned and as per the guidelines are annexed to the Administrative Approval dated 28.01.2009 and respondent and NIC will be liable to refund the unspent balance, if any, to the comment of India. Further, provided that the respondent and NIC will maintain and will present their annual accounts in the standard format as required under GF Rules, 2009.
17. Thus, it is evident that the respondent has acted only as an implementing agency and the disbursed the payments to the vendor's on behalf of Department of Information and Technology, Government of India and others, acted as a pure agent. It is established law that the expenses incurred as a pure agent are not liable 11 Appeal No.ST/53521/2016-CU(DB) to be included in the gross value of services under section 67 of the Finance Act read with Rule 5 of STR 2006. Further, the respondent has rightly discharged the service tax liability on the administrative charges charged and received from the Government Department, as implementing agency, and has also paid service tax in respect of other services under the head "Consultancy Engineering Services". Further, the appellant paid service tax on the income recognized in their accounts and has shown in the profit and loss account. The Revenue has erred in demanding service tax on the gross amount received from Department of Government of India, out of grant-in-aid.
18. The ld. counsel further relied on the ruling of Coordinate Bench of this Tribunal in Foster Wheeler Energy Ltd versus CCE - 2007 seven STR 443 (Tribunal-Ahmd.), wherein under similar facts and circumstances, this Tribunal observed that from reading of the agreement between the parties, it indicates that Foster is not involved in actual execution of the project. The project management functions relating to the project continued to be with Petronet L& G Ltd., which was engaged in the business of setting and operating LNG terminal for receiving storage degasification etc. It was Petronet, which have entered into an EPC contract with the Japanese company to develop, design, engineer and procure equipment, materials and supplies to erect and construct storage tanks of 5 MMTPA capacity with potential to expand. The EPC contract also envisaged other works and involved offshore supply, offshore services, onshore supply, onshore services and construction and erection. Petronet had entered into an agreement with Foster for project management consultancy in relation to setting up and operating the LNG terminal and required to advise and assist in relation to the 12 Appeal No.ST/53521/2016-CU(DB) execution of the project. Foster was in the role of advisers/consultant to petronet so that the work of EPC contractors are as per the requirement and standards envisaged by Petronet. This Tribunal held that from a close reading of the agreement and the report submitted by Foster in the records, sought to maintain, are all of technical nature and, therefore, there is no doubt that the services rendered are essentially, predominantly in the field of engineering. Accordingly, it has been rightly held that Forster surrendered services of Consulting Engineer.
19. The learned Counsel also relied on the ruling of another Coordinate Bench of this Tribunal in the case of M/s. IRCON International Ltd. versus CCE, Patna- 2017 (4) TMI 903 CESTAT-KOLKATA. Accordingly, the ld. Counsel urges that the appeal of Revenue is without merits as the activities of the respondent/assessee are not liable to be classified under ECIS. It is further urged that under similar facts and circumstances, for the subsequent period, the Revenue has accepted the contentions of the respondent/ assessee and has not raised any demand. The ld. Counsel has also relied on the Trade Notice No.53 - CE- ST/97 of the New Delhi Commissionerate dated 4th of July 1997, wherein giving clarification, it is provided "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 a client in one or more disciplines of engineering. The taxable service rendered by a Consulting Engineer means any service provided to a client by a Consulting Engineer in relation to advise consultancy or technical assistance, in any manner, in one or more disciplines of engineering.
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20. The ld. Counsel also points out that from the copy of pro forma invoice dated 16.02.2002 raised on the Principle - NIC, a Government of India Enterprises, wherein they have given the quotations for various items required for computerization , and the said invoice have shown 7% administrative charges, on the invoice amount. Further, they have paid the service tax on such administrative charges.
21. The ld. Counsel further states that the show cause notice is bad and not maintainable for invoking the extended period of limitation. The appellant is a regular assessee registered with the Service Tax Department, for consulting engineer services, and filed their returns from time to time and have maintained proper books of accounts and have recorded all the transactions therein, which is an admitted fact. Thus, in the facts and circumstances, the conditions precedent for invocation of extended period, being not available like suppression, fraud, intention to evade the duty liability etc, the show cause notice is fit to be held not maintainable.
22. Having considered the rival contentions, we are satisfied that the respondent has provided only „Consulting Engineer Services‟, on which they have discharged the service tax liability. We further find that the work order issued by the Government Department is in the nature of cost plus contract, wherein the respondent has been appointed as the implementing agency on behalf of the Government Department and the money has been received as a trustee. Further, the respondent is liable to account for every single rupee spent for on behalf of the Government. They are not entitled to appropriate a single rupee more than the agreed 7% as agency charge or administrative charges. Further, the activity of the 14 Appeal No.ST/53521/2016-CU(DB) respondent is held to be in the nature of pure agent. As such, no service tax can be demanded on the amount of advance received and /or on the amount spent out of that advance for the purpose of the project. It is also an admitted fact that the respondent has themselves not done any erection, commissioning or installation. Such work has been done by the vendors and/or by agencies appointed by the respondent /assessee. We further find that the assessee/respondent herein has only done the work of advising and assisting the sponsoring agency in selecting various venders, who would supply and /commission various items of work. The personnel, working with the respondent, are also by and large professionally equipped computer engineers.
23. Further, we also find under the facts and circumstances that there is absence of the condition precedent for invocation of the extended period of limitation. Accordingly we also hold that the show cause notices is not maintainable for invocation of the extended period of limitation.
24. Accordingly, we dismiss this appeal by Revenue. The respondent/assessee shall be entitled to consequential benefits, in accordance with law.
[Order pronounced on 16.08.2018.] (Anil Choudhary) Member (Judicial) ( C.L. Mahar ) Member (Technical) Ckp 15 Appeal No.ST/53521/2016-CU(DB)