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Commissioner of Customs and Central Excise, Vadodara-I vs M/s Jyoti Limited and Ors.

Civil Appeal · 2022 INSC 857Decided 24 Aug 2022
Civil Appeal Nos. 4721-4723 of 2008

Background

The respondent company manufactured mechanical, engineering and electrical goods and, for some customers, also carried out on-site construction, erection, installation, and commissioning of machinery, billing separately for these activities. The Revenue issued a show-cause notice for the period July 1997 to December 2000 demanding service tax of about Rs. 1.85 crore, alleging the company was providing taxable "consulting engineer" services. A Commissioner's revisional order confirmed this demand, but a split Customs, Excise and Service Tax Appellate Tribunal (with a third member breaking the tie) ultimately held the company was not acting as a "consulting engineer" and set aside the demand. The Revenue appealed to the Supreme Court.

Decision Breakdown

The Supreme Court examined the nature of the services rendered (erection, installation, and commissioning of machinery at customer sites, sometimes incidentally including drawing or design work) and held that these constituted a "works contract" rather than the rendering of "consulting engineer" services. Since the assessee was not functioning as a consulting engineer, it could not be held liable to pay service tax under that head for the relevant period. The Court agreed with the Tribunal's majority view and found no error in restoring the original order that had dropped the demand and penalty.

Lesson Learnt

Whether a business is liable for "consulting engineer" service tax depends on the actual substance of the work performed (e.g., a composite works contract involving installation and commissioning) rather than merely on incidental technical or advisory elements of the job: labels used by tax authorities must match the real nature of the service.

Official source (sci.gov.in)View Judgment (PDF)

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