For any service, there has to be service provider, service receiver & payment - records show that no sum was paid for Exploration & what is received is only reimbursement - No service provided to Ministry of Mines: CESTAT
By TIOL News Service
MUMBAI, JAN 07, 2015: THE appellant is a PSU owned 100% by the Government of India. They undertake two kinds of activities. First, they provide exploration report based on survey and detailed expression of mineral deposit for which they get grant-in-aid from the Govt. of India. This is called preliminary exploration. The second activity is exploration work in respect of which they provide detailed survey and exploration reports on contractual basis to various clients. On the second activity, Service Tax is paid by them.
As regards the first activity, these reports are kept by them and may be sold to private users later, on payment of fees on which Service Tax is also being paid.
The demand of Service Tax of Rs.4,36,88,734/- has been confirmed only on the reports prepared by them on the basis of exploration work and the activity undertaken is classified by Revenue under Scientific and Technical Consultancy Services.
Before the CESTAT the appellant submitted that they carry out the exploration work in the national interest to know the location of mineral deposit so as to bridge the gap between the initial discovery and the detailed exploration of mineral deposits. On the basis of their work, they prepared detailed reports which are retained by them. The expenses involved in this activity are reimbursed by the Govt. of India in the form of Grant-in-Aid, which is reflected in their Annual Reports as well as outcome budget of the Ministry of Mines. It is further submitted that no service has been rendered by the appellant to the Government because they are merely undertaking work on basis of 100% reimbursement of expenses involved in the work. Moreover, the department has wrongly classified the activity under the Scientific or Technical Consultancy Services, whereas their activity is more akin to the service in relation to Survey and Exploration of minerals falling under Section 65(105)(zzv), which came into force on 10.9.2004; that initially, on the asking of the department, they had paid Service Tax upto 31.3.2002 however, later on the advice of the Ministry of Mines that the activity undertaken is not service, they discontinued the payment of Service Tax.
The AR while reiterating the findings of the adjudicating authority submitted that the Board vide Circular F.No. B-11/1/2001-TRU dated 9.7.2001 has clarified as below -
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Point raised for clarification
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Clarification
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Many public funded research institutions receive grants or aids from the Government for conducting research /project work. Whether such activities would be covered under the levy?
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In the facts of this case, no service is rendered to anyone. Hence the question of payment of service tax does not arise. However, if they render service to anyone on payment basis, service tax will be payable on such services.
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Whether the service tax will be leviable on consultancy provided to government departments, public sector undertakings?
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If scientific or technical consultancy is provided to a government department for which consultation fees are received, then service tax would be applicable.
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The Bench observed -
(i) Whether the service provided by the appellant is covered under Scientific and Technical Consultancy Services or under Survey and Exploration of Mineral Service.
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It is quite obvious that keeping in mind the activities undertaken by the appellant, the service is classifiable under the Survey and Exploration of Mineral Service. The question which arises is whether the activity before 10.9.2004 i.e. prior to introduction of the Survey and Exploration Service would be covered under the Scientific or Technical Consultancy Service. The definition of this taxable service is a service provided by a Scientist or a Technocrat or any Scientific or Technical Institution or Organization. It is clear that the appellants are not a Scientific & Technical Institution or Organization. If we were to accept otherwise, every company which undertakes technical consultancy as many companies do will fall under this definition, which is obviously not correct. Therefore, we hold that the activity undertaken by the appellant is covered under the Survey and Exploration of Mineral services for the entire period.
(ii) Whether the activity undertaken on the basis of 100% Grant-in-Aid received by the appellant from the Govt. constitutes a service provided to the Government.
(iii) Whether, if the service is considered to be provided, any consideration was received by the appellant from the Government of India for the service provided.
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We are convinced by the argument that when the activity is undertaken by them on the basis of 100% grant received from the Government and the grant is totally expended on the expenses involved under various activities as reflected in the balance sheet, it cannot be said that any service has been provided. For any service, there has to be a service provider, a service receiver and consideration. In the present case, the records show that no consideration has been paid by the Government to the appellant for undertaking the work of Survey and Exploration of Mineral and preparation of the detailed reports thereof. What has been received from the Government is only the reimbursement of the actual expenses involved. Board's Circular (supra) also clarifies that if Scientific or Technical Consultancy Service is provided to the Government Department for which consultation fees are received, then Service Tax would be applicable. In the present case it has not been shown by the Revenue that any consultation fee has been received by the appellant. It is also not a matter of dispute that the reports prepared by the appellant on the basis of Grant-in-Aid received are kept with them. As and when the situation or opportunities arise, these reports may be sold to clients or customers on payment of charges and Service Tax is paid on such charges. Clearly there cannot be duplication of Service Tax payment. If the Revenue's contention is accepted that the Service Tax should be paid by the appellant for preparation of Consultancy Report and again when the reports are sold to parties for consideration. Therefore, we hold that there has been no service provided by the appellant to the Ministry of Mines.
In fine, the adjudication orders were set aside and the appeals allowed with consequential relief.
(See 2015-TIOL-54-CESTAT-MUM)
