TMI Blog2006 (1) TMI 1X X X X Extracts X X X X X X X X Extracts X X X X ..... vices 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, that main services being provided by them for installing and commissioning included system design, installation, supervision, training ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... show cause against the demand of service tax of Rs. 7,03,717/- along with interest and penalty. 2.3 By their letter dated 30-5-2002 and subsequent letter dated 22-7-2003, while denying the allegation made in the show cause notice, the appellant submitted that as per the contract with GSM Cellular Companies, the appellant performed integrated and comprehensive installation activities involving installation, commissioning and testing of telecommunication equipments, and that the appellant was not responsible for designing or drawing the technical specifications and was not engaged in providing any advisory services. It was submitted that under the agreement, the appellant has to perform specific repair services for its customers in cases of break-downs and malfunctions of equipment and to restore the functionality of equipment and the software. According to the appellant, the agreement can be termed as a contract for performance of maintenance and repair activities akin to a maintenance contract. It was placed that the appellant was rendering work as a contractor and not in capacity of consulting engineers. It was also contended that the expression "technical assistance" which was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of decentralized registration. It was further held that the show cause notice had been issued by the appropriate authority, and that the adjudicating authority was competent to decide the matter on the basis of the show cause notice and the proceedings held against the appellant. He then held that on the perusal of the service contract and the technical support agreement, it was evident that the nature of services provided by the appellant, namely, training, consultancy, technical assistance and other activity of work-services provided for consideration, fell under the category of technical assistance and that these were within the category of services of "consulting engineer". Taking into consideration the break-up of the demand given by the appellant, it was held that the appellant was entitled to a relief on the basis that service tax was payable on the amount actually realized towards the services provided in the particular period and not on the amount of consideration which was not realized for the service rendered. As regards the amount of consideration billed for goods sold, it was held that no service tax could be imposed on such transaction. It was further held that serv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d themeselves liable to penal action and that the extended period of five years, was rightly invoked. It was, however held that the imposition of penalty of Rs. 14,00,00,000/- and Rs. 3,00,000/- on the appellant was excessive. The demand of service tax was accordingly reduced to Rs. 3,40,63,905/- and the penalty to the like amount. 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 the 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 w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It was argued that implementation of contractual terms did not amount of giving of advice and consultation and that execution of work was distinct from giving of any advice or technical assistance. Therefore, rendering of emergency support or services in respect of operation and maintenance or for training of the staff, did not amount to rendering such taxable service. 4.1 The learned counsel for the appellant relied upon the following precedents in support of his submissions : - (a) The decision of the Supreme Court in The Bhopal Sugar Industries Ltd. v. Sales Tax Officer reported in 1977 (3) SCC 147, was cited for the proposition that while interpreting the terms of an agreement, the Court has to look to the substance rather than the form of it. (b) The decision of the Supreme Court reported in Rohit Pulp and Paper Mills Ltd. v . CCE, Mumbai reported in 1990 (47) E.L.T. 491 (S.C.), was cited for the proposition that in interpreting the scope of any notification the court had to first keep in mind the object and purposes of the notification and that all parts of it should be read harmoniously in aid of and not in derogation of that purpose. The Suprem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... otification No. 11/97-Cus, dated 1-3-97 and that the decision was affirmed by the Supreme Court by its order dismissing the appeal as in its opinion the decision of the Tribunal did not call for any interference. In that case, the Notification 11/97-Cus, exempted from duty computer software falling under Chapter 49 or Heading 85.24 of the tariff. (h) The decision of the Supreme Court in Tata Consultancy Services v. State of Andhra Pradesh reported in 2004 (178) E.L.T. 22 (S.C.) was cited for the proposition that since software was capable of abstraction, consumption, use, transmission, transfer, delivery, storage possession etc. it was included as 'material articles and commodities' in the definition of 'goods' in Section 2(h) of Andhra Pradesh General Sales Tax Act, 1957. It will be noticed from paragraph 24 of the judgment that the Supreme Court held that: "A software programme may consist of various commands which enable the computer to perform a designated task. The copyright in that programme may remain with the originator of the programme. But the moment copies are made and marked , it becomes goods, which are susceptible to sales tax." [Emphasis added] (i) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned that where two or more words, which are susceptible to analogous meaning, are coupled together they are understood to be used in their cognate sense. They take, as it were, their colour from each other, the meaning of the more general being restricted to a sense analogous to that of the less general. Arguments on behalf of the Respondent : 5. The learned authorized representative for the department submitted that the appellant did not get itself registered at all, as required by Rule 4 of the said rules, and since the billing was always centralized even before the registration which was done at Delhi, in view of the head office of the appellant being in Delhi, the Commissioner had jurisdictional to issue the show cause notice. It was also submitted that the services were supplied from Delhi and the contract was also executed in Delhi. It was pointed out that as per various clauses of the agreement, such as clauses 1.1, 5.1.1, 5.3.1, 5.3.5, the services were being supplied from Delhi. Payment was also to be made in Delhi. Reliance was placed on clauses 5.6 and 10.3 in this regard. It was further submitted that under Section 12E of the Act, higher authority can exercise t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... age a project in its entirety and will provide design services, procurement, construction management, commissioning and, if required, feasibility analysis, and assist in arranging finance. In the field of Performance Enhancement, their services include various types of technical audit, quality control, inventory control and safety. In the field of Advisory Services consulting engineers can be engaged to give professional engineering advice in addition to other services. They can be engaged for the engineering knowledge, experience and judgment to give a professional opinion on management, valuation, production, inspection, testing and quality control. He, therefore, submitted that the activity of the appellant was within the scope of the definition of "consulting engineer". As regards the software, he submitted that having regard to the nature of service given in the context of software and upgradation it was not a case of mere sale of goods. He referred to various clauses of the agreement including clauses 1.7, 1.13, 3.1, 5.13.7 read with Appendices I to VI showing break-up of various services, 2.1.1 and 5.1.1 Appendices in support of his submission that the services rendered by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appellant clearly fall within the ambit of "consultant engineer". Reasons : 6. Though in reply to the show cause notice the jurisdiction of the authority was not challenged, in the appeal before the Commissioner the appellants had challenged the order-in-original, inter alia , on the ground that it had been passed without jurisdiction. The Commissioner (Appeals) taking note of the provision of Rule 4, which provided that a service provider providing a taxable service from more than one premises or offices and having a centralized billing system, in respect of such service rendered to their clients from such premises or offices, at any one premises or office, may opt for registration of only the premises or office from where such centralized billing is done. It was noted that the appellants were having their office at Commercial Plaza, Radisson Complex, National Highway No. 8, New Delhi, which at the relevant time was under the jurisdiction of Delhi-I Commissionerate and the authority who had issued the show cause notice was working in that Commissionerate and the issuing authority of show cause notice was the proper officer since the area of the appellant's premises was w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esent case, admittedly, the centralized billing was being done from the premises or offices within the jurisdiction of the authorities that had issued the show cause notice and decided the proceedings by making the order in original. Furthermore, when no application is made for registration as per Section 69 of the Act read with Rule 4(2) of the rules framed thereunder, the jurisdiction of the authority to detect and issue show cause notice to an assessee whose centralized billing premises fall within his jurisdiction, will not be taken away. Admittedly, there was no application for registration made by the appellant in respect of any of the premises or offices from which services were allegedly rendered including the premises or offices from where centralized billing was done. The Commissioner (Appeals) has, therefore, rightly observed that the law gives facility for decentralized registration to those who come forward for registering themselves voluntarily, but the law does not give such facility to a person not coming forward for registration and when caught and show caused, and such person cannot be exercising the option of decentralized registration ask for show cause notices ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hall identify the problem, replace the faulty product with a spare unit and ship at purchaser's cost to the supplier's designated premises in New Delhi for repair". In clause 5.3.1 of Appendix II, it was stipulated this supplier shall effect repair/replacement of the faulty products and dispatch the same to the purchaser within a period not exceeding eight weeks from the date of receipt of each faulty product accompanied by fault report form appropriately filled out at its customers' services center in New Delhi . This clause shows that the customers service center of the appellant was in New Delhi and not at the places where the services were received. Clause 5.3.5 provided that repair warranty for the repaired product shall be for the period of six months and one week from the date of dispatch from New Delhi of the product to the purchaser. 6.3 It is thus clear that not only the registered office of the appellant was in New Delhi, the agreement was entered into in New Delhi, as also the centralized billing was done from the registered premises of the appellant at Delhi. Even the customer services were being provided under the agreement from Delhi. Therefore, there is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ance Act, 1994, they will attract the definition of "consulting engineer", whether it is an individual or a firm or a company. The decision of the High Court of Karnataka in Tata Consultancy Services and High Court of Calcutta in M.N. Dastur and Company Ltd. were followed by the Tribunal in Transweigh (India) Ltd . v. CCE, Mumbai (supra) and the Tribunal held that the Act did not make any distinction between different categories of service providers, be they individuals, partnership concerns or incorporated companies. It will also be noticed that while defining offences by companies under Section 81 of the Finance Act, 1994, as it existed at the relevant time in the explanation thereto, it was provided that for the purpose of that Section "company" means any body corporate and included a firm or other association of individuals. 7.1 There can be no doubt that professional qualifications can be acquired only by an individual as an engineer. An engineer can start his private and sole professional venture as a consulting engineer or there can be an engineering firm. The word "firm" does not appear to have been used in the definition clause of "consulting engineer" only in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he services provided by the consulting engineers indicate that consulting engineers offer a broad spectrum of services ranging from sector studies to evaluation of proposals and the design and monitoring of construction of projects. They offer expertise in over 25 major areas of specialization and provide 40 different kinds of services. The services of consulting engineers are divided in several broad categories, namely, pre-investment studies, design and supervision services for construction of works, design and development services, project management, commissioning assistance, project transition, performance enhancement, advisory services etc. The project implementation undertaken by consulting firms would include supervision of project execution, assistance in project operation for an initial period, execution of training programmes, and institution building or financial studies for the successful implementation of projects. The duties of consulting engineering firms would depend upon the circumstances in each case and they may include pre-investment studies, detailed engineering and design and project implementation. Computer software engineers apply the principles and techniq ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o application where software engineer's services are provided under a contract by the consulting engineer. 8.2 As regards "installation, erection and commissioning", the Commissioner (Appeals) relying upon the Government of India circular No. 79/9/2004-ST, dated 13-5-2004 has held that the services were rendered outside the purview of the category of consulting engineering services, and reduced the demand of service tax on the consideration billed, "for goods and sold and on the consideration for installation, erection and commissioning of the telecommunication equipment", from Rs. 7,03,10,717/- to Rs. 3,40,63,905/- and also reduced the penalty from Rs. 14 crores to Rs. 3,40,63,905/-. Therefore, there is no scope for the appellant to argue for reducing any amount under the head of "goods supplied" and "erection, installation and commissioning" of the telecommunication equipment. 9. In the break-up given by the appellant before the Commissioner (Appeals), there were two items described as "unexplained" of Rs. 8,16,46,525/- and "others", of Rs. 3,18,79,965/- billed by the appellant for its services. The Commissioner (Appeals) found that these amounts pertained to charges unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .4.1 of the opinion, that from an analysis of the specimen services contract, it appeared that a substantial portion of the services to be rendered by the querist, i.e., the appellant included installation, inspection, testing, commissioning and technical support. It was stated: "such service would, in our opinion, prima facie be covered within the definition of taxable services as described in the circular dated 2-7-97 (supra) issued by the Tax Research Unit.". It was, however, stated that these services would be taxable services if rendered by a consulting engineer, i.e. by a professionally qualified engineer or an engineering firm. As per that opinion consulting engineer in the ordinary course of the term refers to those engineers or engineering firms engaged in engineering consultancy and similar activities of advisory nature and does not include in its ambit engineers engaged by a company or firm in the process of manufacture and sale of goods. It was opined in answer to the query of the appellant that "the querist being a private limited company and not a firm, would not, in the opinion of the present consultant, be liable to collect and pay service tax, as a consulting eng ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax. In their reply to the show cause notice dated 8-5-2002, it was inter alia , stated that all activities provided under implementation services, were performed by personnel specially trained for installing, commissioning and testing the equipment supplied by Nokia Finland and having experience in relation to systems installed by Nokia equipment. It was also stated that Nokia India impart a training/information to BPL personnel on the features/specifications/working of the network equipment. Some of the training was imparted at sites while some of the training was performed in formal classrooms. As a part of the training, information was also provided on the layout of the site including routing of the cables and wires. On the technical support agreement, it was stated that the basic scope of the activities envisaged in that agreement was to perform such activities for the client as may be necessary to keep the equipment and software (supplied by Nokia Finland) up and running, at all the facilities/sites of the telecom operator. The agreement provided for various situations where appellant had to execute repair and maintenance activities for its customers, which situation would ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... talments in advance. The purchaser undertook to purchase the technical support services listed in paragraph 5.2 of Article 5 throughout the period ending December 31, 2005. Under Article 5.6, it was stipulated that the fees and charges indicated in Appendices 1A and 1B were valid for the configuration of the network built with the aggregate value of purchases of equipment and services amounting to US$ 40,000,000. Under Article 9.2 of the agreement it was stipulated that all prices were expressed therein exclusive of any withholding, value added or equivalent taxes and/or duties levied in India on account of sales, use and the supply of services and/or equipment thereunder. It was stated that the amount of such taxes shall be added to the prices expressed therein and shall be included in the invoice rendered by the supplier in respect of the services provided thereunder and shall be paid as part of the purchase price thereof as provided in Article 5. Under Appendix 1A, wherein the prices of services were described as stipulated in Article 5.2, it was stipulated in clause 1 that technical support fees payable for the services specified in clause 1.1 and 1.2, i.e., software suppor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 12.6 The system consultancy service was to be paid, as per clause 1.3 of Appendix 1B, at the rate of 1030 US$ for the first three years and 1240 for the subsequent three years and 1345 US$ for the balance period till December 31st, 2005 per day per person. 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 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 stan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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. 12.10 The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ware within the GSM system delivered by the appellant or its affiliates. As per the scope of temporary maintenance assistance service at the purchaser's request, the appellant was to assist and consult the purchaser's staff to operate and maintain the system(s) at the site(s) and if operational problem was not located by the maintenance team of the purchaser, despite best efforts, maintenance service was to be performed at the site(s) and the appellant had under clause 4.2.3 agreed to send to the site(s), upon the purchaser's request, an expert as per the lead-time matrix indicated to perform the services. Under clause 4.2.5, the appellant was required to provide technical support services until the predefined tasks had been performed or until the disappearance of the failure and/or the restart of the system of sub-system. 13. Clause 5 of the said Appendix 2 describes hardware repair service which concerned plug-in units and sub-units with the GSM equipment manufactured by or on behalf of the appellant and delivered to the purchaser by the appellant. The said clause 5 describes the hardware repair-service of plug-in units modules and products as provided by the appellant. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nferred by Section 93 of the Finance Act, 1994, the Central Government, being satisfied that it was necessary in the public interest so to do, exempted the taxable service provided to any person by a consulting engineer in relation to computer software from the whole of the service tax leviable thereon under Section 66 of the said Act. In the present case, the show cause notice dated 11-4-2002 was issued in respect of the value of taxable service for the period from 1-7-97 to December, 2000. Therefore, even on the basis of this notification the exemption was not attracted for the period prior to 28-2-99. The notification contemplated the said taxable service from being exempted from 28-2-99. Therefore, for the period from 28-2-99 up to December, 2000 the value of taxable service only to the extent that it related to software support service, was required to be computed and service tax thereon was required to be reduced in view of this notification while confirming the rest of the demand in respect of software service rendered by the consulting engineer. The clarificatory circular No. 70/19/2003-ST, dated 17-12-2003 on which reliance was sought to be placed for claiming exemption on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the service was held to be of a consulting engineer and hence taxable. It was in this context that clarification was issued on 13-5-2004 that charges for erection, installation and commissioning of such work were not covered under the category of consulting engineer service. However, the Commissioner (Appeals) observed in the impugned order that as regards the imposition of service tax on the services of installation, erection and commissioning, the circular No. 79/9/2004-ST, dated 13-5-2004 has rendered these services outside the purview of the category of consulting engineering services, and dropped the demand of service tax confirmed on account of installation, erection and commissioning. We are, therefore, not concerned in this appeal with installation, erection and commissioning services rendered by the appellant. 17. Maintenance or repair services rendered under contracts entered into prior to 1-7-2003 were exempted from service tax if the bills were raised and payment also made prior to 1-7-2003 by virtue of Notification No. 11/2003-ST, dated 20-6-2003. In this context a doubt was raised as to whether service tax would still be chargeable in cases where bills were raise ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rdware repair service under Section 5 of Appendix 2 to the agreement which narrated the scope of services. The Commissioner (Appeals) will, therefore, verify as to what amount of the value of hardware services is covered under Section 5 of Appendix 2 to the agreement and reduce only that much amount which was proved to have been paid towards the hardware repair service, as contemplated in Section 5 of Appendix 2. 17.1 In respect of the hardware repair service, Appendix 1A of the agreement provided that, there would be no annual fees, but only repair charges as mentioned in paragraph 1.3. The price for repair or replacement of the defective plug-in-unit/modules/products was 59% of the price of the new plug-in-unit/modules/products specified in Appendix 4 attached thereto. The said price applied after the expiry of the applicable warranty period. Therefore, for working out the amount of value of taxable service which was required to be reduced on account of its being hardware repair service, the Commissioner (Appeals) will have to work out, on the basis of the material that may be adduced, price for repair or replacement, as stipulated in clause 1.3 of Appendix 1A and reduce the t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the appellant in respect of the services provided under the agreement and were to be paid as part of purchase price under Article 5 of the agreement. Therefore, if the service tax was collected under Article 9.2 read with Article 5 of the technical support agreement by the appellant, that could have been proved by showing the invoices from which such service tax recovery could have been ascertained. If such tax is not added, and not collected by the appellant as per Article 9.2 of the technical support agreement, there can arise no question of reducing the service tax payable from the price realized by the appellant, because in such an event the tax will not be a part of such price. It appears from the impugned order that this aspect had not been urged before the Commissioner (Appeals) or examined by him. In the absence of establishing that service tax was collected separately over and above the price, as contemplated by Article 9.2, the claim of the appellant for reduction of that amount cannot be countenanced. Final Order : 20. For the foregoing reasons, we uphold the impugned decision of the Commissioner (Appeals) subject to the following directions. The Commissioner ..... X X X X Extracts X X X X X X X X Extracts X X X X
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