Case Law Details
Society for Innovation and Development Vs Commissioner of Service Tax (CESTAT Bangalore)
The appeal before the Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Bangalore, was filed by the Society for Innovation and Development (SID) against an Order-in-Original dated 13.09.2010 passed by the Commissioner of Service Tax, Bangalore.
The appellant provided Scientific or Technical Consultancy Services by using the intellectual and infrastructural resources of the Indian Institute of Science (IISC), Bangalore. It also collected licence fees relating to immovable property and participated in activities such as organising symposiums and scholarship management. During audit, the department observed that the appellant had delayed payment of service tax, resulting in an interest liability of Rs.21,014 under Section 75 of the Finance Act, 1994. This demand was not disputed by the appellant.
The department further alleged that the appellant had entered into tripartite Memoranda of Understanding (MoUs) with companies such as BIGTEC and Micro Labs along with IISC for collaborative research and development programmes. Under these arrangements, the appellant facilitated use of infrastructure and buildings belonging to IISC and collected licence fees. Revenue treated these activities as “Renting of Immovable Property Services” under Sections 65(90a) and 65(105)(zzzz) of the Finance Act, 1994 and demanded service tax of Rs.19,86,335 for the period June 2007 to March 2008.
The department also alleged that the appellant provided logistic support, infrastructure, and administrative facilities to Dorabji Tata Trust for conducting symposiums on tropical diseases. This activity was classified as “Event Management Services,” leading to a demand of Rs.16,31,669 for the period April 2004 to March 2008.
Additionally, the Revenue alleged that the appellant had provided “Scientific or Technical Consultancy Services” from April 2003 but paid service tax only from October 2004. Consequently, service tax of Rs.35,16,095 was demanded for the period from 01.04.2004 to 31.03.2008.
The appellant argued that the immovable property belonged to IISC and that SID merely acted as a facilitator under the collaborative research arrangements. It submitted that the agreements were long-term R&D collaborations and not arrangements for renting property. Regarding Event Management Services, the appellant contended that the symposiums and workshops related to prevention and eradication of tropical diseases and emerging health disorders, and therefore could not fall within the statutory definition of Event Management Services. The appellant also argued that Scientific or Technical Consultancy activities were collaborative research initiatives undertaken for mutual benefit.
The Revenue contended that ownership of immovable property was irrelevant for levy of service tax and that any renting for consideration attracted tax liability. It further argued that the appellant had received consideration for organising symposiums and logistical support and therefore was liable under Event Management Services. Revenue also supported invocation of the extended period of limitation on the ground that the facts came to light only during audit.
The Tribunal upheld the undisputed interest liability of Rs.21,014.
On the issue of Renting of Immovable Property Services, the Tribunal examined the tripartite MoU between BIGTEC, IISC, and SID. It observed that the agreement related to collaborative research and development programmes for developing commercially relevant technologies using cross-disciplinary expertise. Though BIGTEC paid an annual sum of Rs.20,79,000 to SID for use of infrastructure and building space, the Tribunal noted that the payments were connected with sponsored research projects. It further observed that the licence fees varied depending on the extent of research projects undertaken, unlike fixed rental payments normally associated with renting arrangements. The Tribunal therefore held that the tripartite agreement could not be treated as renting of immovable property by the appellant, and the demand under this category was set aside.
With regard to Event Management Services, the Tribunal found that the appellant was providing logistic support for symposiums and discussions relating to management and eradication of tropical diseases. Referring to the statutory definition of Event Management Services, the Tribunal held that the activities undertaken by the appellant related to health services and prevention of diseases and therefore did not fall within the scope of Event Management Services. Accordingly, the demand raised under this category was also set aside.
On Scientific or Technical Consultancy Services, the Tribunal observed that the appellant had entered into agreements with various organisations including Texas Instruments, Cadila Pharmaceuticals, Honeywell India Software Operations, Tata Motors, HP Labs, and the Indian Council of Medical Research for conducting research-oriented projects. Since the appellant received project fees for scientific and technical research activities, the Tribunal held that these services were correctly classifiable as Scientific or Technical Consultancy Services. Therefore, the demand of Rs.35,16,095 under this category was upheld.
The Tribunal also held that invocation of the extended period of limitation was justified because the department became aware of these activities only after examination of records during audit.
Accordingly, the impugned order was modified to confirm only the service tax demand of Rs.35,16,095 along with applicable interest under Scientific or Technical Consultancy Services. The matter was remanded solely for quantification of interest. The appeal was partially allowed.
FULL TEXT OF THE CESTAT BANGALORE ORDER
This appeal is filed by the appellant M/s. Society for Innovation and Development (SID) against Order-in-Original No. 57/2010 dated 13.09.2010 passed by the Commissioner of Service Tax, Bangalore.
2. The appellant M/s. Society for Innovation and Development (SID) provides Scientific or Technical Consultancy Services by drawing and providing access to the intellectual and infrastructural resources of Indian Institute of Science, Bangalore. They also collect licence fees for renting of immovable properties and collaborate in performing and organising symposium, scholarship management etc. At the time of audit, the officers noticed that the appellant had not paid the service tax before the due dates and hence, interest of Rs.21,014/- in terms of Section 75 of the Finance Act, 1994 was to be paid. Secondly, it was also observed that the appellant had entered into a tripartite Memorandum of Understanding (MoU) with companies like BIGTEC and M/s. Micro Labs along with Indian Institute of Science for collaborating R&D programmes, implementing technologies using cross disciplinary expertise and to undertake these activities, the appellant rented out their buildings with the infrastructure to the participating companies and collected licence fees for the same. Alleging that this service amounted to ‘Renting of Immovable Property Services’ in terms of Section 65(90a) and 65(105) (zzzz) of the Finance Act, 1994, Revenue demanded service tax of Rs.19,86,335/- for the period from June 2007 to March 2008. Thirdly, the officers also alleged that the appellant provided logistic support like space, infrastructure and administrative facilities to the M/s. Dorabji Tata Trust for conducting symposiums on tropical diseases and it was alleged to be ‘Event Management Services’ and accordingly, Rs. 16,31,669/- was demanded under this category for the period from April 2004 to March 2008. In addition, it was observed that the appellant was providing ‘Scientific or Technical Consultancy Services’ from April 2003 but paid service tax only from October 2004 and accordingly, for the period from 01.04.2004 to 31.03.2008, the Revenue demanded service tax of Rs.35,16,095/- under this category. Aggrieved by these demands, the appellant is in appeal before us.
3. The Learned Counsel submitted that the first issue with regard to interest payment is not being contested. Coming to all other issues the following submissions are placed on record:
3.1 With regard to ‘Renting of Immovable Property Services’, it is stated that the immovable property does not belong to the society but belongs to the Indian Institute of Science and they had entered into a tripartite agreement between Indian institute of science, the companies and the appellant themselves. It is stated that as per the Agreement, it is a long-term collaborative R&D programme for implementing technologies to discover and develop products of commercial relevance using cross disciplinary expertise and competences. The appellant only acts as a mediator facilitating the companies to conduct their research at the premises of the Indian Institute of Science and hence, any amount collected against this cannot be considered renting of immovable property.
3.2 With regard to demand on ‘Event Management Services’, it is submitted that the appellant entered into a MoU for research and tropical diseases and other emerging health disorders with a view to develop methods of diagnosis, new drugs and vaccines. Referring to the definition of ‘Event Management Service’ under Section 65(40) of the Finance Act, 1994, it is submitted that the workshops conducted for tropical diseases and emerging health disorders will not fall under the ‘Event Management Services’ & also referring to the Board Circular No. 80/10/2004-ST dated 17.09.2004, it is submitted that the services rendered by them do not fall under the ‘Event Management Services’.
3.3 Coming to Scientific or Technical Consultancy Services, it is submitted that they are jointly developing technology for the mutual benefit and hence, not liable to service tax. Finally, it is submitted that the notice which is purely based on the audit objections is bad in law and also extended period of limitation cannot be sustained since the appellant is a non-profit organisation working under Indian Institute of Science in the field of scientific research and they cannot be alleged with suppression or mis-statement of facts, hence, interest and penalties also to be set aside.
4. The learned Authorised Representative (AR) on behalf the Revenue submitted that Audit is a statutorily recognised mechanism for examination and verification of records and any detection for non-payment or short-payment of tax through audit does not by itself invalidate the proceedings. On examination of records and documents maintained by the appellant, it was noticed that the appellant had not discharged service tax on the services discussed and confirmed by the Commissioner in the impugned order, hence, the same needs to be sustained. With regard to the issues on merits, it is submitted that ownership of immovable property is not a condition precedent for levy of service tax and service tax is to be discharged as long as immovable property is being rented out for a consideration. Since the appellant had entered into a MoU and received a consideration for renting of the immovable property for whatever purpose it may be, service tax needs to be discharged. Regarding ‘Event Management Services’, it is submitted that it is immaterial whether the appellant is a Trust or not, what is relevant is whether a service was rendered for a consideration. It is an undisputed fact that for conducting various symposiums and logistics, the appellant had collected a consideration for the services; hence, they are liable to service tax. With regard to ‘Scientific or Technical Consultancy Services’, it is submitted that specialised scientific and technical services to wide range of Industrial and Research Organisations was undertaken for which considerations were received; hence, liable to service tax. The appellant’s contention that it was a joint ownership does not help since there is no evidence to show that these were undertaken under a joint ownership. Since all the facts came to light only at the time of audit and none of these activities were disclosed at any point of time to the department, the Commissioner was right in invoking extended period of limitation. Hence, all the demands along with interest and penalties need to be sustained.
5. Heard both sides. At the outset, since the first issue with regard to payment of interest of Rs.21,014/- is not disputed, the same is upheld.
6. Secondly, with regard to demand on ‘Renting of Immovable Property’, we find that the Commissioner in the impugned order at paragraphs 13 and 14 observed as:
“13. Further, I have gone through one of the MOU for research and development dated 23 11 2007 between IISC, ISD and BIGTEC. As per Tri party agreement M/s. IIsc has a status of deemed university ISD Society registered under Karnataka Society’s Registration Act and Big Tech is an organization engaged in developing market ready prototypes of various products. As per the Mou it is clear that IIsc is bound to provide big tech with necessary infrastructure including Office lab space and other facilities. By virtue of the said MoU, M/s. ISD has not only been authorized to collect the money but also to act as interface between IISc and Bigtech to facilitate mutual interaction and to provide administrative support for the research work. Further, para 2.1 of the said agreement clearly specifies that for the first three years of this MoU, Bigtech shall pay to SID an annual sum (“fees”) of Rs.20,79,000/- in four equal quarterly installments paid at the beginning of each quarter, to cover the use of building space and infrastructure and para 4.2 states that SID shall act as the recipient for all monies payable by including those for the conduct of the collaborative research.
14. From the nature of the organization of M/s. IISC and M/s. SID, the nature of activities undertaken by SID on behalf of IISC, from the tripartite agreement referred to above and from the records of the case in front of me, I find that SID is a body formed under the parenthood of IISC so as to carry out certain specified activities and so as to create funds for carrying out designated activities of SID, SID themselves had been designated as recipients of the rental income arising out of the said tripartite agreement. By virtue of the said agreement, the question as to who is the service recipient gets answered as BIGTEC. Further, the question as to who is the service provider also gets answered as SID. Thus, it is clear that BIGTEC is a service receiver and the amount of money, for the services, which is to be construed as gross amount in terms of Section 67 of the Finance Act 1994, is also available as specified in the MOU. The question as to what is the value to be adopted for levying tax also gets answered as the rental receipts. Thus, there is no ambiguity about the levy and liability of service tax. Now the point to be decided is as to who is to be held as the service provider for the purpose of Section 68 ibid. By virtue of the MOU SID is bound to provide necessary facilities to Bigtec to facilitate the research, to act as an interface between IISC and Bigtec and also to receive all monies payable by Bigtec. Moreover, from the books of accounts of the assessee, it is evident that they are collecting the money towards license fee from Big Tech which is utilized by them for the conduct of research or procurement of equipments goods and services in relation to the said research this being the case by virtue of the tripartite agreement I conclude that SID are the providers of the service and therefore are liable to pay service tax on the amounts received by them for providing the services in this regard assessing the reply as contented that if at all there is a liability it can only be at the hands of IAC and that they cannot be held responsible for paying tax This contention appears to be very cleverly put forth with an intensive to evade payment of tax with a preconceived notion that if owner of the building is 1 and the party receiving rent is another constitutional service tax payment can be avoided whereas the tripartite agreement alone fixes the responsibility on the Assisi to discharge the service tax liability since the agreement establishes their identity very clearly as the service provider.”
6.1 Based on the above observation, the Commissioner confirmed the demand of service tax under the category of ‘Renting of Immovable Property’. Let’s examine the definition of ‘Renting of Immovable Property’ as per section 65(105)(ZZZZ) of the Finance Act,1994.
“Renting of Immovable Property Service” means any service provided or to be provided to any person by any other person, in relation to renting of immovable property for use in the course of furtherance of business or commerce and that “renting of Immovable Property” includes renting, letting, leasing licensing or other similar arrangements of immovable property for use in the course or furtherance of business or commerce but does not include- (i)renting of immovable property by a religious body or to a religious body or (ii)renting of immovable property to an educational body imparting skill or knowledge or lessons on any subject or field other than a commercial training or coaching centre.
Explanation: For the purpose of this clause for use in the course of furtherance of business or commerce includes use of immovable property as factories, office buildings, warehouses, theatres, exhibition halls and multiple use buildings.
6.2 Looking into the Commissioner’s observations in the impugned order and reading the MOU, we find that the MOU for research and development dated 23.11.2007 between BIGTEC Pvt. Ltd. and Indian Institute of Science (IISC) and Society for Innovation and Development (the appellant), it is seen that BIGTEC had knowledge and expertise for research and the infrastructure belongs to Indian Institute of Science and the MoU is for long term collaborative R&D program called as BIGTEC-IISC Research Programme, for implementing technologies to discover and develop products of commercial relevance using cross-disciplinary expertise and competencies. It is also an admitted fact that as per Clause 2.1 of this MoU for the first three years BIGTEC shall pay the appellant an annual sum of Rs.20,79,000/- to cover the use of the building space and infrastructure. As per Annexure-2 of the MOU ‘In addition the amounts and schedules of any other payments by BIGTEC towards the joint R&D activities envisaged under this MOU will be mutually agreed and executed. It is agreed that BIGTEC shall sponsor projects worth 2-3 times the licence fee every year for the collaborative R&D Projects’. At Clause 9.2 it says ‘the MOU may be terminated either by BIGTEC or IISC by giving 180 days prior written notice of its intention to terminate, provided however that termination by BIGTEC shall not relieve it of its obligation to pay to the appellant (SID) any sum due or accrued prior to such termination’.
6.3 From the definition and the terms of the Agreement, we find that the licence fee is towards the project sponsored by BIGTEC which is paid to IISC through the appellant (SID) and only payment of Rs.20,79,000/- goes to the appellant. Thus, the tripartite agreement cannot be considered as renting of immovable property against the appellant. From the Annexure-B placed below, we find that what is collected is licence fees and the amounts vary for each month depending upon the extent of research projects undertaken by them unlike in a case of renting where a fixed amount is paid for renting of immovable property. Therefore, these amounts cannot be considered as payments towards renting of the infrastructure that belongs to IISC.
7. Thirdly, with regard to ‘Event Management Services’, there is no dispute that the appellant is providing logistic support for conducting symposium and assistance discussions for the management for eradication of tropical diseases which clearly falls under the category of Health Services. The definition of ‘Event Management Service’ means any service provided or to be provided to a client by an event manager in relation to planning, promotion, organising or presentation of any arts, entertainment, business, sports or any other event and includes any consultation provided in this regard. As rightly pointed out by the appellant, since the services are for preventing certain tropical diseases; hence, they do not fall under the above definition of ‘Event Management Services’. Accordingly, the demand against this is set aside.
8. With regard to ‘Scientific or Technical Consultancy Services’, we find that the appellant is receiving these amounts from various clients for conducting certain research on scientific and technical aspects. From one of the Agreements placed on record, we find that the Agreement was between Indian Institute of Science and NMDC for sponsoring research projects in the areas of development needed by NMDC, accordingly, it is seen that various clients as detailed in ‘Annexure D’ make payments for conducting research on various subjects through the tripartite agreements between IISC, SID the appellant and various other organisations. Some of the organisations that are listed in Annexure-D is M/s. Texas Instruments Ltd., M/s. Cardila Pharmaceuticals Ltd., M/s. Honeywell India Software Operations, M/s. Tata Motors, M/s. HP Labs, M/s. India Counsel of Medical Research, etc. For conducting various research-oriented projects for the above organisations, the appellant received project fees towards the same. Since these amounts are towards such research-oriented programmes, they are rightly classifiable ‘Scientific or Technical Consultancy Services’ and hence, the demand on this account is upheld. The audit was conducted from September 2008 and the show-cause notice was issued on 19.10.2009 invoking extended period of limitation demanding service tax for the period from 2004 tom 2008. The fact that the appellant was into rendering Scientific or Technical Consultancy Services came to the knowledge of the department only after perusal of various documents, therefore, they are justified in invoking the extended period of limitation. We also find that the appellant has paid the amount of Rs. Rs.35,16,095/- and the 25% penalty towards the above demand but no interest payment has been brough to our notice.
9. In view of the above observations, the impugned order is modified to the extent of confirming only the duty amount of Rs.35,16,095/- along with interest for the services rendered by the appellant under the category of Scientific or Technical Consultancy Services and the matter is remanded for quantification of interest.
Appeal is partially allowed and remanded only for the purpose of calculation of interest for the amount confirmed and paid.
(Order pronounced in Open Court on 24.04.2026.)
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