Consulting Engineer Service Vs Real Estate Agent service.

Case:-COMMISSIONER OF C. EX., PUNE-I VSBECHTEL OVERSEAS CORPORATION LTD.

Citation:-2015 (37) S.T.R. 369 (Tri. - Mumbai)

Brief Facts:-Revenue is in appeal against order of Commissioner (Appeals) PI/BBP/83/2007, dated 27-7-2007 setting aside demand of Rs. 28,12,221/- against M/s. Bechtel Overseas Corporation Ltd.
The facts are that M/s. Bechtel Overseas Corporation Ltd. San Franscisco CA, (Bechtel) provided overall management and administration for M/s. Sahara India Commercial Corporation Ltd. (Sahara)’s entire project at Amby Vally under an Agreement for Program Management Services. Department issued a show cause notice alleging that the above service provided by Bechtel falls under the category of Real Estate Agent Service and as Bechtel did not take registration under the said service, show cause notice demanding Service Tax of Rs. 28,12,221/- for the period 25-1-2001 to 8-2-2002 was issued. The adjudicating authority confirmed the demand under the service of Real Estate Agent holding that the service was provided in India and chargeable to Service Tax in terms of the provisions of Rule 6(1) of the Service Tax Rules, 1994. In appeal, Commissioner (Appeals) agreed with the classification under Real Estate Agent service but set aside the demand of tax holding that the services were mainly provided offshore and only some peripheral activities such as visit of personnel to the site were performed in India and other attendant expenses on communication and temporary structure facilities were incurred in India and therefore, Service Tax is not leviable. Revenue is in appeal against this order.

Appellant contentions:-Revenue’s contention is that Article-1 of the Agreement itself refers to development of India’s first planed hill city spread over 5000 acres to create a premium real estate environment at Amby Valley in India. According to ld. DR, the scope of the service provided by Bechtel is within the parameters of definition of Real Estate Consultant. Revenue’s contention in appeal papers is that there should be no distinction in law between peripheral and other services in relation to taxable services and as long as some services are performed in India, they will be liable to Service Tax. In the present case in accordance with Articles I & II of the Agreement, some services have been rendered in India by way of the visits of the engineers and officials to the project site in India for which direct costs are reimbursed to Bechtel and therefore taxable.

Respondent contentions:-Learned Counsel for the respondent i.e. M/s. Mekhla Anand draws our attention to the Agreement for program management services between M/s. Sahara and M/s. Bechtel stating that the Agreement provides for overall management and administration of the entire Sahara Amby Valley project by M/s. Bechtel as well as managing and coordinating design and construction services to be provided by others under separate contracts with Sahara (Article II B of Agreement). Further Appendix “A” of the agreement defining its scope states that offshore technical support shall be provided in areas such as organizing workshops, preparing project plan and master schedule, preparing project procedures manuals, preparing draft prequalification documents, construction agreements, etc. and making available and releasing employees to work on the project. Therefore, the services provided under this Agreement can by no means be called Real Estate Agent Service as they are an engineering firm rendering services in various spheres of engineering which can only be classified under category of Consulting Engineer’s service as they provide offshore technical support overseas and not in India. According to the appellant, the Agreement does not say that the technical support has been performed in India. To justify their stand on classification, they relied on C.B.E. & C. Circular No. 49/11/2002-S.T., dated 18-12-2002 which states :
“For any civil construction work to commence, a lot of preparatory work is required, e.g. soil testing, survey, planning, designing, drawing, etc. Once the design and drawings are completed by the construction company, it always seeks the approval of the client before proceeding with the construction. If the client suggests some changes they are incorporated in the design. This portion of the work is provided to its client and the service is definitely of a ‘consulting engineer’ and hence taxable.”
They also relied on CBEC Instruction issued under F. No. B43/5/97-TRU, dated July 2, 1997 which states that -
“4.3 The services which attracts the levy include all the services which are rendered in the capacity of a professional person and specifically include the services pertaining to structural engineering works civil/mechanical/ electrical engineering works or relating to construction management. All services rendered within the above scope of the term engineering attract Service Tax provided they are rendered in the capacity of a consulting engineer. The scope of the services of a consultant may include any on or more of the following categories :
(i)         Feasibility study.
(ii)        Pre-design services/project
(iii)       Basic design Engineering
(iv)       Detailed design Engineering
(v)        Procurement
(vi)       Construction supervision & project management
(vii)      Supervision of commissioning and initial operation
(viii)      Manpower planning and training
(ix)       Post-operation and management
(x)        Trouble shooting and technical services, including establishing systems and procedures for an existing plant
Though the above list is not exhaustive, it illustrates the wide scope and nature of the services rendered by a consulting engineer” to justify that the service is classifiable under Consulting Engineer Services.”
They also placed reliance on judgments in the case of Nokia (I) Private Ltd. v. Commissioner of Customs, Delhi - 2006 (1) S.T.R. 233 (Tri.-Delhi) and Commissioner of Central Excise, Shillong v. Rabindra Das, 2003 (158) E.L.T. 487 (Tri.-Kolkata) to support their contention that what they are providing is Consulting Engineer’s Service. According to them, the service they provided is not in relation to acquisition of Real Estate service as was held in a similar case of Orissa Industrial Infrastructure Development Corporation v. CCE & ST - 2010 (20) S.T.R. 231 (Tri.-Kolkata).
Lastly, the ld. Counsel stated that in terms of Section 65A(2), the Consulting Engineer Service is more specific and even if the service provided by them appears to be covered under both Real Estate and Consulting Engineer Service, the service has to be classified under Consulting Engineer Service as it occurs first among the sub-clauses which equally merit consideration as stipulated in Section 65A(2)(c).
On the issue of taxability, Learned Counsel stated that firstly, as they provided services offshore the same were not taxable as Service Tax Act extended to Indian territory alone. However, even it is considered that services were provided from overseas to a recipient in India, Section 66A introduced w.e.f. 18-4-2006 provided for the first time the legal validity to charge of Service Tax on services provided by a service provider located outside India to an Indian recipient. But the period in question in their case is 25-1-2001 to 8-2-2002. Therefore, during this period even service provided from offshore to a recipient in India was not taxable. In any case, during the material period, they had no business establishment in India for the rendition of services in India. It was contended that Revenue has not established factually that any service was rendered was not an offshore service. Further in terms of Rule 2(d)(iv) of the Service Tax Rules, in case of taxable service being provided by non-resident not having any office in India, the liability was on the person receiving the services. According to the appellant, even if it is admitted that the services were provided by them in India and taxable under proviso to Rule 6(1) of the Service Tax Rules, the liability was on the service recipient i.e. Sahara. They drew attention to clause D of Article V of the Agreement which states that - “The Contract Price is exclusive of Service Tax. Any such tax applicable on the Services rendered to the Owner by Bechtel, will be invoiced as a separate line item by Bechtel and shall be paid by the owner as required under Indian Service Tax Regulations”. In these circumstances, placing reliance on Kerala State Electricity Board v. CCE, Thiruvananthupuram, - 2008 (9) S.T.R. 3 (S.C.), according to them the liability if any, is on Sahara.

Reasoning of Judgment:-The learned Tribunal has carefully considered the submissions of both sides and examined the matter.
The first issue to be decided is whether Bechtel had provided service in relation to Real Estate Agent or under Consultant Engineer Service. The exact scope of service provided may be delineated from Appendix ‘A’ to the agreement between Sahara and Bechtel. Under the title, Scope of services, in Appendix ‘A’, it is stated -
“Bechtel shall, to the extent necessary to support the performance of services, provide offshore technical support outside India by making available the full facilities in the regularly established offices of Bechtel and its Affiliates (including but not limited to communication, reproduction and compute services), and making available and releasing employees to work on the project. Bechtel Shall, in addition, provide recruitment , training, long term career development support for staff working in India and elsewhere, together with procedures, research and development, technical standards, software systems and software development and updating etc., as required by the Project. Bechtel shall also provide a corporate overview and direction from time to time as required or requested. If such services are provided by Affiliates, Bechtel shall retain full and complete responsibility for the services so arranged.
Offshore technical support shall be provided in the following areas :
Organize Programming Workshop(s)
Analyze and document the results of Programming Workshop(s)
Review current design and construction documentation status
Prepare draft Project Implementation Plan
Prepare draft Project Automation Plan
Prepare draft Project Master Schedule
Prepare draft Contracting Strategy
Prepare draft Project Procedures Manual
Prepare draft Prequalification Documents
Prepare initial draft Consultant and Construction Agreements
Prepare draft Design Monitoring Procedures
Carry out technical reviews of certain design elements
Prepare draft Project Logistics Plan
Prepare draft Quality Assurance Plan
Provide Technical assistance on specific issues
Prepare draft procedures for Contract Close-out
Prepare draft Criteria for Operations and Maintenance
Review the forecast of costs and man hours of
Bechtel’s services on a quarterly basis, or as otherwise mutually agreed.”
Real Estate Services is defined under Section 65(105)(v) as “service provided or to be provided to any person, by a Real Estate Agent in relation to real estate”. Under Section 65(88) “Real estate agent” means a person who is engaged in rendering any service in relation to sale, purchase, leasing or renting, of real estate and includes a real estate consultant. Under sub-clause (89) Real Estate Consultant “means a person who renders in any manner either directly or indirectly, advice consultancy or technical assistance, in relation to evaluation, conception, design, development, construction, implementation, supervision, maintenance, marketing, acquisition or management of real estate”.
Section 65(105)(g) defines Consulting Engineer’s service as service “to any person, by a consulting engineer in relation to advice, consultancy or technical assistance in any manner in one or more disciplines of engineering including the discipline of computer hardware engineering. Explanation : For the purposes of this sub-clause, it is hereby declared that services provided by a consulting engineer in relation to advice, consultancy or technical assistance in the disciplines of both computer hardware engineering and computer software engineering shall also be classifiable under this sub-clause.” And under Section 65(31) “Consulting Engineer” means any professionally qualified engineer or [any body corporate or any other firm] who, either directly or indirectly, renders any advice, consultancy or technical assistance in any manner to any person in one or more disciplines of engineering;
At first sight, there seems to over lapping between the description of the two services. Although, some components in the definition of Real Estate Consultant have been performed by Bechtel, the description of some components in the definition appear to be related to rendering service in relation to sale, purchase, leasing or renting of Real Estate. However, the activities of a Consulting Engineer are more comprehensive in scope as they cover all disciplines of consultancy and engineering be it feasibility study, detailed designing, construction, civil, mechanical, electrical engineering, etc. Even Board’s letter F. No. B43/5/97-TRU, dated 2-7-1997 (supra) provides the expansive scope of this service to include activities related to feasibility study, pre-design services, basic design engineering, detailed design engineering, construction supervision and project management, manpower planning and training etc. to name some. This wide gamut of the detailed activities can only be provided by an engineering company which have expertise to deal with all disciplines of engineering. On the other hand, Real estate service is a service provided by a Real estate agent. Real estate agent in turn, means a person engaged in rendering any service in relation to sale, purchase, leasing or renting of Real Estate. The doubt which has arisen in the present case is because of the definition of Real Estate Consultant which means a person who renders in any manner advice, consultancy, technical assistance in relation to evaluation, conception, design, construction, supervision, etc. We note that the words “advice, consultancy or technical assistance” pre-qualify the components i.e. evaluation, conception, design, development construction, supervision, maintenance etc. To us it appears that the Real Estate Consultant may give over all assistance relating to these aspects. But it is the Consulting Engineer who provides the technical expertise involved in technical design engineering, procurement, supervision, manpower planning software systems, software development as mentioned in detail in Appendix A to the Agreement and as also stated in Board’s letter dated 2-7-1997 (supra).
It would be relevant to note the decision in the case of Nokia (I) Pvt. Ltd. (supra) which discusses activities such as design aspects of training of personnel operation and maintenance service under the scope of Consulting Engineer Service. We also agree with the contention of the appellant that the Consulting Engineer Service more specifically describes the service provided by them and is the correct classification in terms of Section 65A(2)(a) for determination of classification. And in any case, if doubt still remains as to the correct classification between the two services in question which equally merit consideration, then by virtue of Section 65A(2)(c), the Consulting Engineer Service is preferred because it appears first among the sub-clauses that is, at Section 65(105)(g), as compared to the sub-clause of Real Estate Service that is Section 65(105)(v).
In view of discussion above and Board’s letter dated 2-7-1997 (supra) we hold that the service provided by M/s. Bechtel comes under the category of Consulting Engineer Service.
We observe that the Commissioner has considered the definition of Real Estate Agent and Real Estate Consultant and come to the conclusion that the service is in relation to Real Estate. We note that the Commissioner has not discussed the definition of Consulting Engineer Service at all; neither has he gone into the scope of this service as enumerated in Board’s letter (supra). Arriving at a conclusion by considering and discussing the definition of only one service out of the two services under consideration does not meet judicial requirements. In any case we have held above that the service provided by M/s. Bechtel is classifiable under Consulting Engineer Service.
We now take up the second issue in this case, that of liability of Service Tax.
The appellant’s contention is that they have provided services offshore. We note that Revenue is not disputing this. No evidence has been provided by Revenue to establish that the services provided are not offshore services. In fact all papers addressed to Bechtel namely show cause notice, adjudication order have been sent to the appellants address overseas. This establishes that the appellants do not have a business establishment in India. The question arises, whether for the material period, i.e. Jan., 2001 - Feb., 2002, it is legally valid to demand Service Tax from Bechtel Overseas Corporation when the Service Tax Law was only applicable to the territory of India. Keeping aside the peripheral activities of deputing personnel to India, the demand of Service Tax from a foreign entity is not valid especially when Revenue has not put forth any evidence that the services provided under the Agreement were not provided offshore.
Even if Revenue’s stand (although Revenue’s stand is not very clear) is that service has been provided from offshore territory to India, we find it is a settled matter that Service Tax on services provided by a service provider located outside India to a recipient in India is leviable only from 18-4-2006 with the introduction of Section 66A. In fact Revenue’s reliance on the amendment to Section 65 by insertion of an Explanation in 2005 is misplaced. The explanation statedly, expanded the scope of Service Tax to even include services provided from outside India to a recipient in India. The period in the present case is Jan., 2001 to Feb., 2002 and therefore, Revenue has not built any case in their favour. As we have observed, the matter was put to rest w.e.f. 18-4-2006, from which date only, the Service Tax is leviable in such cases.
We note that Revenue has viewed the visits of personnel in India and their peripheral activities as resulting in service provided in India. It is undisputed that appellants did not have a business establishment in India. However, the legal frame work as it existed during the material period has also not been appreciated by Revenue. The adjudicating authority held Bechtel liable to tax in view of proviso to Rule 6(1). As per second proviso to Rule 6(1) of Service Tax Rules, 1994.
“In case of a person who is a non resident or is from outside India does not have any office in India and is liable to pay Service Tax on taxable services provided in India.
(i) the Service Tax thereon shall be paid by such person or in his behalf by any other person authorized by him, who shall submit to the Commissioner of Central Excise in whose jurisdiction the taxable services have been rendered, a return, containing the following details…..…”
We note that in terms of Clause D of Article V of the Agreement, the contract says that any Service Tax liability will be on Sahara. Thus in terms of provisions of Rule 6(1) read with the Agreement, the liability is cast upon the recipient i.e. Sahara as also held by Supreme Court in Kerala Electricity Board (supra). We hold that the appellants are not liable to pay Service Tax.
In view of the above Revenue’s appeal is dismissed.
Cross-objections are also disposed off.

Decision:- Appeal dismissed.

Comment:-The crux of the case is that certain activities performed by a Consulting Engineer and Real Estate Agent are overlapping and may be classified in either of the services. However, it is the scope of work ascertained from the agreement that will decide the classification of service. In the present case, as the scope of work is more of technical nature, the appropriate classification of service was consulting engineer service. Further, when an activity is capable of classification under two headings, the category that comes first should be adhered. Moreover, the appeal was allowed for two reasons. Firstly, the demand was raised under wrong category of service. Secondly, the services were provided from foreign and the liability to pay service tax rested on the service recipient because the foreign entity did not have any fixed establishment in India. Furthermore, the period under consideration was prior to 18.04.2006, wherein no service tax was payable under reverse charge mechanism on the import of services in light of the judgment given by the Apex Court in the case of Indian Shipowners Association.

Prepared By: Meet Jain

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