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ST – Statute does not place any responsibility upon appellant registered under Societies Act – what appellant was doing is more or less akin to the job of a Chartered Accountant and is not a statutory function: CESTAT

2019-TIOL-2375-CESTAT-HYD

IN THE CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL
REGIONAL BENCH, HYDERABAD
DIVISION BENCH
COURT NO. I

Service Tax Appeal No 288 of 2007

Arising out of Order-in-Revision No. 1/2007, Dated: 21.03.2007
Passed by Commissioner of Customs, Central Excise & Service Tax, Hyderabad

Date of Hearing: 06.06.2019
Date of Decision: 06.06.2019

ENVIRONMENT PROTECTION TRAINING AND RESEARCH INSTITUTE
91/4, GACHIBOWLI, HYDERABAD, TELANGANA – 500032

Vs

COMMISSIONER OF CUSTOMS CENTRAL EXCISE AND SERVICE TAX 
HYDERABAD-IV, POSNETT BHAWAN, TILAK ROAD, RAMKOTI
HYDERABAD, TELANGANA – 500001

Appellant Rep by: Shri B Anjaneyulu, Adv.
Respondent Rep by: Shri A V L N Charyt, Superintendent

CORAM: P V Subba Rao, Member (T)
Rachna Gupta, Member (J)

ST – Scientific and Technical Consultancy Service – The Assistant Commissioner, vide O-i-O, vivisected the demand into two components and held that the service charges pertaining to pollution testing are exempted under the head “technical inspection and certification services” – he, however, confirmed the demand only on the report preparation part of the income amount of Rs.5.34 lakhs being the amount relatable to report preparation – the Commissioner, vide impugned order-in-revision, held that the services rendered by the appellant cannot be vivisected into components and confirmed the demand of Rs.18.86 lakhs for the services rendered from 16.7.2001 to 31.3.2004 – appeal to CESTAT.

HELD: Whether the appellant was performing a statutory function – the appellant is a society registered under Registration of Societies Act by the State Government supported by it but it is an autonomous organization – the statute does not place any responsibility upon the society – the society provides training and consultancy in the field of environment – what the appellant was doing is more or less akin to the job of a Chartered Accountant with respect to the Income Tax Act, Companies Act, etc. – definition of State under Part-III (Fundamental Rights) of the Constitution of India does not extend to several other parts of the Constitution or to other laws.

Whether the appellant is liable to pay ST under the head “scientific and technical consultancy service” – as can be seen from the definition of “scientific and technical consultancy service” in section 65(92) of the Finance Act, the appellant herein is definitely an organisation and they have been created for the purpose of providing training and scientific and technical consultancy in the field of environmental aspects and have been rendering these services – therefore, the appellant is liable for ST under this head – further, as per s ection 65A of the Finance Act, 1994, where a service rendered is a composite service consisting a combination of different services it shall be classified as if they consisted of a service which gives them their essential character – in this case, the essential character of the service rendered by the appellant is scientific and technical consultancy service and the same cannot be divided into different services for the purpose of calculation of Service Tax – this mistake of the Assistant Commissioner was corrected by the Commissioner in his impugned Order-in-Revision – therefore, no infirmity found in the said order – the impugned order is upheld and the appeal is rejected : CESTAT [para 6, 7, 8]

Appeal rejected

Case law cited:Ajay Hasia Vs Halid Mujeeb – (AIR) 1981 SC 487……………para 4, 6……………distinguished

FINAL ORDER NO. A/30614/2019

Per: P V Subba Rao:

1. This appeal is filed by the assessee against the Order-in-Revision No. 1/2007 dated 21.03.2007 passed by the Commissioner of Customs and Central Excise, Hyderabad. Heard both sides and perused the records.

2. The facts of the case in brief are that the appellant herein is engaged in providing consultancy, research, technical assistance and training in matters related to environmental issues to various organisations including Regulatory Bodies, Government Departments, NGOs etc. The main objective of the institute is to provide technical assistance and consultancy in applied research and training services in the area of environmental protection to various organisations in the fields related water and waste water treatment, air pollution control, Environmental Impact Assessment (EIA), etc. Although they were providing taxable services, they were not registered with the department for payment of service tax nor were they paying service tax on such services. Therefore, a show cause notice dated 17.09.2004 was issued by the Assistant Commissioner of Central Excise asking them as to why the services rendered by them should not be classified under “commercial training and coaching service” and “scientific and technical consultancy service”. It was also proposed to recover interest and impose penalties upon the appellant. After following due process, the Assistant Commissioner vide Order-in-Original No.4/2005 dated 28.03.2005 dropped the demand with respect to the training holding that the training was conducted as in service training and it was not in the nature of commercial training and coaching service. The department has not disputed this decision and therefore the issue as far as the service tax on training and coaching is concerned has attained finality. As far as the demand pertaining to scientific and technical consultancy service is concerned the Assistant Commissioner held that of the demand of Rs. 22,64,258/- some amount pertains to testing and rest pertains to report preparation as per the documents submitted by the appellant. Thus holding, he vivisected the demand into two components and held that the service charges pertaining to pollution testing are exempted under the head “technical inspection and certification services”. He confirmed the demand only on the report preparation part of the income amount to Rs. 5,34,633/- being the amount relatable to report preparation.

3. This order of Assistant Commissioner was revised by the Commissioner of Customs vide the impugned order and he held that the service rendered by the appellant cannot be vivisected into components. After perusing the work orders of the appellant, he found that the agreements were entered into by the appellant with their clients for a comprehensive service in the nature of consultancy services. Preparation of report, testing, inspection etc., are various activities which are integral part of the scientific and technical consultancy services. Therefore, the nature of services being that of consultancy should be considered as scientific and technical consultancy service. The technical inspection, testing etc., is an integral part of this activity and it cannot be treated as a separate service. Accordingly, regardless of how the appellant accounted for income in their own records, service tax has to be levied on them under technical consultancy service on the entire amount. He, therefore, confirmed a demand of Rs. 18,86,603/- under the head technical consultancy service for the services rendered from 16.07.2001 to 31.03.2004. As the appellant had already paid an amount of Rs. 5,34,633/- towards service tax the same has been appropriated towards this demand. He further confirmed the demand of interest on the aforesaid amount.

4. Learned Counsel for the appellant submits that they dispute the taxability of their services on the following grounds:

a) Theirs is an organisation registered as a society created by the Government of Andhra Pradesh and hence it should be considered as ‘State’ as held by the Hon’ble Apex Court in Ajay Hasia Vs Halid Mujeeb [(AIR) 1981 SC 487]. In this judgment, Hon’ble Apex Court held that Assistant Registrar under the Societies Registration Act also fall within the meaning of the term ‘State’ as per Article 12 of the Constitution of India.

b) Since they are created by the State they should be considered as a statutory organisation and their activities should be considered as statutory functions and should not be taxed.

c) Most of their activities pertain to preparation of reports such as environmental impact assessment reports and environmental management plans for various projects which is a pre-requisite to obtain clearance from the Ministry of Environment. Accordingly, their activity should be considered as a statutory function and should not be taxed.

5. Learned DR draws the attention of the Bench to the sample copy of report submitted by the Learned Counsel for the appellant titled “environmental impact assessment and environmental management plan for the proposed Sri Ram Sagar Project, Stage-II” and would assert that the report in question has been prepared by the appellant as a consultant to the project with respect to environmental impact. The management part of the report also gives specific recommendations as to how the environmental impact needs to be managed. He would submit that such a report is essential for anyone to obtain clearance from Ministry of Environment and the State and Central Pollution Control Boards for any new project. This is a requirement as per the Environmental Protection Act, 1986. Any organization which is certified can conduct the environmental impact assessment for a client and prepare a report. The appellant herein is one such certified agency. By analogy, he would say, it is like a Chartered Accountant certifying the accounts of a company in order to enable the company to file their income tax returns. Such audit by the Chartered Accountant is required under the Income Tax Act but this does not, by itself, make Chartered Accountant’s services a statutory function. On the question of whether the appellant should be considered as state as per the judgment of the Hon’ble Apex Court in the case of Ajay Hasia (supra), he would submit that this judgment was delivered in the context of Article 12 of the Constitution of India. For the purpose of Part-III (Fundamental Rights) of the Constitution the definition of State is wide and it includes not just the State but various other organisations. In that context, it has been held that the society in the question in that case would also form part of the ‘State’ and this definition would not mean that the appellant is rending any serving functions. They are but a consultancy firm. He would, therefore, submit that the appellant is liable to pay tax for the taxable services rendered by them. As far as the training component of the service is concerned the demand has already been dropped by the Assistant Commissioner and it is not appealed against by the department. As far as the consultancy part is concerned, as can be seen from the Order-in-Revision, the contracts entered into by the appellant were for a composite service which has many parts such as testing, report preparation, advice etc. All these put together fall in the category of scientific and technical consultancy service. Such a service has to be classified under one head and cannot be vivisected into various services as has been wrongly done by the Assistant Commissioner as ‘testing service’ and ‘report preparation service’. Therefore, the Assistant Commissioner was wrong in setting aside part of the demand and this mistake was corrected by the Commissioner in the impugned order in the Order-in-Revision.

6. We have considered the arguments on both sides and perused the records. On the first question of whether the appellant was performing a statutory function, we find that the appellant is a society registered under Registration of Societies Act by the State Government supported by it but it is an autonomous organisation. The statute does not place any responsibility upon the society. The society provides training and consultancy in the field of environment. The sample report submitted by the Learned Counsel shows that their consultancies are in nature of environmental impact assessment, environmental management plans, etc. Such plans and assessment reports are required under the Environment Protection Act before the project is submitted for approval. These assessments can be done by any of the authorised organisations including by the appellant. Therefore, what the appellant was doing is more or less akin to the job of a Chartered Accountant with respect to the Income Tax Act, Companies Act, etc. The Learned Counsel’s reliance on the judgment of the Hon’ble Apex Court in the case of Ajay Hasia (supra) is also misplaced. The judgment was in the context of Article 12 of the Constitution of India i.e., whether with respect to fundamental rights, such societies are also ‘State’. The definition of State under Part-III (Fundamental Rights) of the Constitution of India does not extend to several other parts of the Constitution or to other laws. In Para-III, the definition of State is meant to determine which are organisations have a responsibility to ensure “right to equality, equality in matters of public employment”, etc.

7. The next issue to be decided is whether the appellant is liable to pay service tax under the head “scientific and technical consultancy service”. The definition of scientific and technical consultancy service is in Section 65(92) is as follows:

“Scientific or technical consultancy means any advice, consultancy or scientific or technical assistance, rendered in any manner, either directly or indirectly by a scientists or technocrat or any science or technology institution or organisation, to any person, in one or more disciplines of science or technology”. As can be seen, the appellant herein is definitely an organisation and they have been created for the purpose of providing training and scientific and technical consultancy in the field of environmental aspects and have been rendering these services. We, therefore, find that the appellant is liable for service tax under the head Scientific and Technical Consultancy Service.

8. Having held that they are rendering scientific and technical consultancy service, the Assistant Commissioner has divided value of the services rendered by them under the scientific and technical consultancy service into testing charges and report preparation charges. He sought classify testing charges under ‘technical testing and inspection services’ and held that the same were exempted as the service was rendered with respect to environmental clearances. He sought to charge service tax only on the report preparation charges. As per Section 65A of the Finance Act, 1994, where a service is rendered is a composite service consisting a combination of different services it shall be classified as if they consisted of a service which gives them their essential character. In this case, the essential character of the service rendered by the appellant is scientific and technical consultancy service and the same cannot be divided into different services for the purpose of calculation of service tax. This mistake of the Assistant Commissioner was corrected by the Commissioner in his impugned Order-in- Revision. Therefore, we find no infirmity in said order. The impugned order is upheld and the appeal is rejected.

(Operative part of this order was pronounced in court on conclusion of the hearing)

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