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R.K. Abichandani, J. (President) Page 0073 FACTS:

1. This appeal is directed against the order of the Commissioner of Central Excise (Appeals), Delhi, made on 29.10.2004 to the extent that it upholds the demand of service tax of Rs. 3, 40,63, 905/- with interest and the reduced penalty of the like amount and upholds the demand of interest under the provisions of the Finance Act, 1994.

2. On an information that the appellant Nokia India Ltd., New Delhi was providing taxable services as consulting engineers without getting registered with the Service Tax Department and were not paying the service tax, the officers of the Anti Evasion Branch of the Central Excise Commissionerate, Delhi, visited the premises of the appellant at Commercial Plaza, Radisson Complex, New Delhi on 7.2.2001 to ascertain the nature of services provided by the appellant to their customers. It transpired from the statement of Financial Controller of the appellant, who was conversant with the functioning of the company, that the appellant was a 100% subsidiary of Nokia Networks Oy Finland and that it was implementing and commissioning the GSM equipment purchased by various cellular operators in India; that the customers of Nokia India Ltd., i.e. the appellant were, BPL Cellular Ltd., Tata Cellular Ltd., Skycell, Spice Cell, Facel etc.; that there were contracts between the customers and the appellant for implementing and commissioning of the equipment; that these were service contracts; that the cellular equipment consisted of Mobile Switching Centre (MSC) installed at the operators premises and Base Station Controller (BSC) installed at different locations; that the equipment was implemented and commissioned by qualified engineers who were their employees and most of them were degree holders; that implementing one switch normally took 3 to 4 weeks; that as per the service contract, the main services being provided by them for installing and commissioning included system design, Page 0074 installation, supervision, training of operator's engineers, consultancy and technical assistance services; that the customers used to enter into another agreement known as technical support agreement for the maintenance of equipment purchased from Nokia Networks Oy; that whenever the customer was faced with any problem in the equipment, their help desk received a call which was directed to a qualified engineer; that the engineer would suggest a remedy and when it did not work, the engineer had to visit the premises of the customers to rectify the fault; that if the contract covered replacement of card modules and the fault was actually found in the cards, those were replaced by them out of the spares; that problems relating both to hardware as well software were covered under the technical support agreement and that the engineers sometimes had to find the exact problem and rectify it, and that most of the technical agreements were for one year or above. It was also stated by him that whenever the customers used to upgrade or expand the existing system, service contracts were entered into for the purpose of providing them implementation and commissioning services. A copy of service contract with Facel and technical support agreement with Facel was produced by him.

Page 0077 Arguments on behalf of the appellants:

4. It was contended on behalf of the appellant that the Commissioner, Delhi, had no jurisdiction regarding services which were rendered by the appellant outside Delhi. It was argued that Rule 4 of the Service Tax Rules gave an option only to the assessee to resort to centralized registration and it was not mandatory under that provision to apply for centralized registration. Merely because centralized billing was done from a particular place, proper officer having jurisdiction over that place could not assume jurisdiction of all places where services were rendered. Therefore, the demand raised in the instant case covering all the places from where the appellant rendered the service was ex facie incorrect. It was argued that the appellant company was not a qualified engineer or a firm and was, therefore, not within the ambit of the definition. It was then submitted that the activity done by the appellant was not of consulting engineer and that it fell under the category of maintenance and repair. It was contended that while the agreement was referred to as technical support agreement, its mere nomenclature was not determinative of its being consulting engineer's service being rendered under it. The technical support agreement in question was neither advice nor consultancy so as to come under the definition of "consulting engineer" under Section 65(19) of the said Act. The phrase "technical assistance" in the definition of "consulting engineer" was to be read so as to take colour from the words "advice" or "consultancy" with which it occurred in the definition clause. It was submitted that the word "consult" implied a conference of two or more persons or an impact of two or more minds in respect of a topic in order to enable them to evolve a correct, or at least a satisfactory solution. It was submitted that the consultancy job was cerebral in nature and involved guiding, advising the client or finding a workable response to an emergent problem. According to the learned Counsel, the nature of work of consulting engineer being cerebral and not executory and the activities of the appellant being executory, they did not come within the ambit of advice or consultancy which were contemplated under the definition of "consulting engineer", but came under category of maintenance or repair/operation and maintenance. It was then argued that in case of composite contracts involving several obligations, it is impermissible to vivisect the contract and treat it as pertaining to service of consulting engineer. It was then contended that softwares were covered under the Notification No. 4/99-ST dated 28.2.99 and software support service was exempt under that notification. Furthermore, training to the employees of the cellular operators cannot come under consulting engineer services, because there was no advice or consultancy involved, but only a general training of the employees at various levels. It was also submitted that hardware repair service pertained to supply of hardware and, therefore, no consultancy was involved. Similarly, no service tax could be recovered on standard help desk services which pertained to executory function beyond the stage of consultancy and advice. It was argued that implementation of contractual terms did not amount to giving of advice and consultation and that execution of work was distinct from giving of any advice or technical assistance. Therefore, rendering of emergency Page 0078 support or services in respect of operation and maintenance or for training of the staff, did not amount to rendering such taxable service.

12.7 Appendix 2 of the agreement provided for the scope of services. Under Clause 1 thereof, it was, inter alia, provided that the purchaser had contacted the supplier to obtain an answer to any reasonable non-urgent query, eight hours day, Monday through Friday, Public holidays of New Delhi excluded. These queries were to relate to the in-service support of systems in the purchaser's network covered by the agreement. The appellant was to provide alternative points of contact for the Help Desk service on weekends i.e. Saturdays and Sundays. At the request of the purchaser, the appellant would give service from customer Help Desk by Page 0093 using remote access facilities via dial-up modem or X.25 connected to the equipment. The purchaser was required to have the necessary equipment to provide a remote access diagnostic session from the supplier's support center, i.e., the appellant's support center. In Clause 1.3 of the standard help desk services, it was provided that there were two levels of expertise involving the problem solving process. The customer service level ensured that all needed data was gathered from the customer and checked-whether the problem was already known and could be found from the Nokia Resolution Database. If further expertise was needed, customer's support representative referred the request to first available system support engineer. The support engineer was then responsible to bring it to a satisfactory solution. For the most difficult product problems the appellant had to internally call upon effective backup support from the research and developments.

12.8 As provided by Clause 2 of Appendix 2 of the technical support agreement which related to emergency support services, the supplier i.e, the appellant undertook to provide, on a twenty four hour, year round basis, an emergency support service for the NSS and BSCs only in the network as indicated. In Clause 2.2, scope of emergency support service was set out as per which upon receipt of request by the purchaser, supplier was required to respond within sixty minutes, by telephoning the number as manually defined. The purchaser was to telefax all agreed relevant data to the supplier's service center and thereafter the supplier's expert was required to use reasonable efforts to provide the purchaser with recommendations, so that the fault/problem can be located and/or remedied. It was stipulated that the appellant shall use its reasonable efforts to give recommendation within three hours of the problem/fault notification by the purchaser. As regards on site service, it was stipulated in Clause 2.2.2 that at any time during a call-up the purchaser may request the supplier, i.e., the appellant to send a system expert to site, to provide on site services (call-out). The appellant was required to use its reasonable efforts to have the system expert on the site as soon as possible. On arrival at the site the system expert of the appellant was to assist the purchaser in the manner indicated in Clause 2.2.2.4 by analyzing the fault situation and advising the purchaser's staff accordingly. He was required to consult with the purchaser's staff concerning actions to be taken to rectify and/or improve the situation. A call out i.e. site service provided by the appellant by sending system expert was to be terminated only on successful rectification of the fault or completion of mutually agreed improvement of the situation or by mutual agreement that no further action could be taken as stipulated in Clause 2.2.2.4.5 12.9 Clause 3 of Appendix 2 described the software support service as provided by the appellant. The software support service concerned all equipment within the GSM system manufactured by or on behalf of the supplier and delivered to the purchaser by the supplier. The software produced by third parties was not covered by the software support service. The scope of software support service as per Clause 3.2 included separation Page 0094 of software corrections to rectify the faults received in the fault report form from the purchaser. A software report describing the faults found, the corrective actions to repair the faults, and content of next software update was to be published in three months' period. The appellant was required to collect a number of software corrections together and publish them as an update of the delivered software release. The software update was mainly to include improvements and corrections of faults of the existing software release.