Whether scientific and technical consultancy services provided can be divided into different services for the purpose of the liability of services tax?

PJ/Case Law/2020-2021/3624

ENVIRONMENT PROTECTION TRAINING & RESEARCH INSTITUTE Versus C.C., C. EX. & S.T., HYDERABAD-IV 2020 (34) G.S.T.L. 429 (Tri. - Hyd.) Final Order No. A/30614/2019, dated 6-6-2019 in Appeal No. ST/288/2007

Brief Facts: - The Assesses is an engaged in providing consultancy, research, technical assistance and training in related to environmental issues to various organizations related to water and waste water treatment, air pollution control, Environmental Impact Assessment (EIA), etc.
Although assesses were not registered with the department of service tax nor paying service tax on such services. Assistant Commissioner of Central Excise has issued show cause to pay service tax on “commercial training and coaching service” and “scientific and technical consultancy service” along with interest and penalty.
However, Assistant Commissioner 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 vide Order-in-Original.
As far demand pertaining to scientific and technical consultancy service is concerned, the AC 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” and confirmed the demand only on the report preparation part of the income being the amount relatable to report preparation. However, the Commissioner of Customs revised the impugned order and held that the service rendered by the appellant cannot be vivisected into components. The nature of services being that of consultancy should be considered as scientific and technical consultancy service. He confirmed a demand under the head technical consultancy service for the services rendered. The appellant had already paid service tax towards this demand. He further confirmed the demand of interest on the aforesaid amount.

Issue: - Whether scientific and technical consultancy services provided can be divided into different services for the purpose of the liability of services tax?
Appellant’s Contention: -Assesses has submitted that they dispute the taxability of their services on the following grounds:

An organization registered as a society created by the Government hence it should be considered as ‘State’ as held by the Hon’ble Apex Court in Ajay Hasia v. 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.
They should be considered as a statutory organization and their activities should be considered as statutory functions and should not be taxed.
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.

Respondent’s Contention: -The Department officer asserted that the report in question has been prepared by the assesses as a consultant to the project with respect to environmental impact.
The appellant herein is certified agency who conducts the environmental impact assessment for a client and prepare a report. By analogy, 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 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.. In this context, 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 rendering any serving functions. They are just consultancy firm. Therefore, the appellant is liable to pay tax for the taxable services rendered by them. As far as the contracts entered into by the assesses were for a composite service which has many parts such as testing, report preparation, advice, etc. All these above put together fall in the category of scientific and technical consultancy service. The same 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.

Reasoning of Advance Ruling: - On the first question of whether the assesses was performing a statutory function, we find that the appellant is a society registered under by the State Government. The statute does not place any responsibility upon the society. The society provides training and consultancy in the field of environment.
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 organizations have a responsibility to ensure “right to equality, equality in matters of public employment”, etc.

The assesses is an organization 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, we find that the appellant is liable for service tax under the head 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 has to 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 assesses are 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.

Ruling: -Appeal rejected

Prepared By- CA Mahesh Parmar

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PJ/Case Law/2020-2021/3624

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